IBUS2101 INTERNATIONAL BUSINESS STRATEGY

IBUS2101 INTERNATIONAL BUSINESS STRATEGY

WEEK 1 WHAT IS INTERNATIONAL BUSINESS? International business: business activities that involve the transfer of resources, goods, services, knowledge, skills or information across national boundaries o Uses raw materials, capital and people to accomplish these goals WEEK 2: GLOBALISATION, INTERNATIONAL BUSINESS AND MNC S AN AGE OF GLOBALISATION Globalisation: the close integration of countries and peoples of the world Value of world exports in 2000 tripled between 1980 and 2000 + foreign investment grew more than 20x Firms without international goals may find their domestic markets under threat from foreign competition 51 of top 100 economic entities (countries/companies) are MNCs o i.e. some MNCs are more powerful than GDP of some small countries THE IMPLICATIONS OF GLOBALISATION Greater economic growth (EG) + improved standards of living Increased technology and resource sharing Cultural integration Greater choice for consumers o Global competition = more products available o E.g. Chinese student study + work in Aus, consume products made in other countries etc. Lower prices o Break up manufacturing chain from input to output = disintegration E.g. Holden moved all manufacturing facilities in Aus to Indonesia in 2017 = cheap labour E.g. iphone à R&D and design in US, components from India, Japan, Korea etc., assembly in China, global marketing w/ services provided in India o Competition for lowest price Blurred national identity for G+S o G+S have elements from many countries à Country of origin is not important anymore Career choices and progression o Global labour mobility DRIVERS OF GLOBALISATION Economic: o Emerging economies à China 2009: GDP per capita from US$500 to US$8000 in 2017 Grow faster than developed countries o Firms seek lower costs in countries abroad for parts of production process Technological: o Internet = easy and quick global communication, e-commerce o Transportation à aircraft and container ships Political: o Most governments support globalisation à free trade agreements, lowering tariffs etc. o International organisations + agreements à WTO, World Bank, GATT etc. Cultural: o Global customers à McDonalds, iphone, Hollywood movies etc. o Cultures are converging = cultural globalisation

GLOBALISATION FOR AND AGAINST FOR - Increased global competition + growth - Firms can assist the environment b/c globalisation - Exposes economies to more suppliers and customers for business - Transfer of technology, knowledge + resources - Provision of FDI - Lifting people out of poverty e.g. China - Quick transport + communication - Labour mobility increases AGAINST - Rich get richer, poor get poorer - Damages the environment à lack of regulation in many developing nations - Emerging + developing economies vulnerable to volatilities à contagion effect - Loss of jobs + undermining of wages in developed nations à transfer of production to developing countries - Exploitation of workers in poor countries - Risk of cultural homogeneity - Gives MNCs too much power GLOBALISATION AND INTERNATIONAL BUSINESS Globalisation does not mean the advance of a homogenous civilisation and uniform business system o No ONE strategy that should be used o E.g. McDonalds à have different, modified models in each country Hong Kong: fried noodles India: curry chicken o Think global, act local Growing interaction makes people more aware of the differences among them Semi-globalisation à world is not totally isolated, world is not totally integrated INTERNATIONAL VS. DOMESTIC BUSINESS IB is the outgrowth of domestic businesses o Most major corporations started operations in the domestic market International entrepreneurs: individuals or companies that invest and operate in another country without a home base IB v. DB à significantly different due to differences in: o Environmental Dynamics: currency, inflation, interest rates, accounting practices, cultures, social customs, laws, political stability o Operational Nature: communication, coordination, motivation, differences in organisational principles and management philosophies E.g. Procter and Gamble à 200 subsidiaries + 200,000 employees WHY DO FIRMS EXPAND INTERNATIONALLY? Market motives o Offensive motive: seize market opportunities in foreign countries through trade or investment o Defensive motive: to protect and hold a firm s market power or position in the face of threats from domestic rivalry or changes in government policy Economic motives o Increased return through higher revenues and/or lower costs o Benefit from differences in: Costs of labour Natural resources Capital Differences in regulatory treatment

Strategic motives o Capitalise on distinctive resources or capabilities developed at home E.g. Silicon Valley for IT o First mover in a target foreign market E.g. Starbucks à very successful in US, not so successful in Europe or Australia o o Believes it will be very successful in Asia even though not profit in at the moment Future orientation strategy à wants to change the coffee culture in Asia Benefit from vertical integration involving different countries Vertical integration: company controls more than one part of a supply chain, each has separate function in different stage of production E.g. Target à owns manufacturing, controls distribution, is the retailer Different activities occur in different parts of the world + reintegrated at a later stage Follow the company s major customers abroad THE SUCCESS TRIANGLE How you can succeed in the context of globalisation and international business Elements: o IQ: language, logic, mathematics o EQ: emotional intelligence à inter-personal skills, self-awareness, understanding others, creativity, adapt to environments o GL: global leadership à cultural intelligence (CQ), strategic thinking, global perspective o Skills

WHEN TO ENTER INTERNATIONAL ENTRY TIMING Relates to timing of market entry in comparison to other enterprises Timing determines the risks and potential returns from the investment Early mover advantages: market power, pre-emptive opportunities, strategic advantages over late movers o However, environmental and operational risks can come from: Host governments Underdeveloped investment laws and regulations Protectionism Difficulty in overcoming early growth stages Shortage of workers Lack of financing Uncertain foreign exchange Poor infrastructure systems Unstable market structures Case study: Automobile industry in China o First mover success: Volkswagen o Late mover success: GM o First mover failure: Peugeot o Late mover failure: Ford o Conclusions: Being a first mover holds potential for competitive advantage in some cases but not others Being a fast follower can sometimes yield as good a result as being a first mover Being a late mover may or may not be fatal Economic effects of being an early mover: Highest Possible Returns (Advantage) 1. Market Power - Barriers to followers - Technical leadership - Customer loyalty - Product positioning 2. Pre-emptive Opportunities - Pre-emption of marketing - Pre-emption of resources - Brand recognition 3. Strategic Options - Industry / location selection - Access to infrastructure - Low competition Higher Uncertainty / Costs (Disadvantages) 1. Environmental Uncertainty - Underdeveloped regulations - Lack of government experience - Embryonic industry 2. Operational Risks - Lack of supply and inputs - Lack of supporting services - Poor infrastructure - Unstable market structure 3. Extra Operational Costs - Learning / adaptation costs - Local training costs - Anti-limitation costs WHAT TO INTERNATIONALISE VALUE CHAIN

EXPORTING AND IMPORTING Often the only available choice for small + new firms wanting to go international Avenue for larger firms that want to begin international expansion with minimum investment Easy access to overseas markets Strategy usually is transitional in nature ENTRY MODES ADVANTAGES DISADVANTAGES Direct Exports - Economies of scale in production concentrated in home country - High transportation costs for bulky products - Better control over distribution - Marketing distance from customers (relative to indirect export) - Trade barriers Indirect Exports - Concentration of resources on production - No need to directly handle export processes - Less control over distribution (relative to direct export) - Inability to learn how to operate overseas LICENSING Agreement that allows one party to use an industrial property right in exchange for payment to the other By licensing to a firm already there, the licensee may avoid entry costs o Licensor usually may be a small firm that lacks financial + managerial resources Companies that spend a relatively large share of revenues on research and development (R+D) are likely to be licensors Companies that spend very little on R+D are more likely to be licensees FRANCHISING Business arrangement under which one party (franchisor) allows another (franchisee) to operate an enterprise using its trademark, logo, product line and methods of operation in return for a fee Widely used in fast-food and hotel / motel industries With minor adjustments for the local market, can result in a highly profitable international business ENTRY MODES ADVANTAGES DISADVANTAGES Licensing / - Low development costs - Little control over technology and Franchising - Low risk in overseas expansion marketing - May create competitors (partners turn competitors) Turnkey Projects - Ability to earn returns from process technology in countries where FDI is restricted R&D Contracts - Ability to tap into the best locations for certain innovations at low costs - Inability to engage in global coordination - May create efficient competitors - Lack of long-term presence - Difficult to negotiate and enforce contracts - May nurture innovative competitors - May lose core innovation capabilities Comarketing - Ability to reach more customers - Limited coordination