PPT for an International Strategy course with case

1. Strategic Choices … International Strategy Case 2010 - Edition Bruno M. WATTENBERGH www.bwatt.be

2. 1st Part : Preliminary What ? Who ? How ? The book … The website … The cases … 8-2

3. The world HAS changed slightly !

4. 8-4

5. 5 4 3 2 1 0 1 2 3 4 5 ≠ Internationalization Globalization - + A Process Boundaryless Orientation Happens Throughout Org. Rewarded for Success of Others Interdependent Decision Making Groups and Networks Power Lies in Knowledge Collaborative Feeling & Emotional Emergent Strategy Inquires for Buy-in A Position Functional Happens at the Top Rewarded for Being a Star Independent Decision Making Ind. Leadership Competencies Power Lies in the Position Competitive Logical & Rational Stay the Course Strategy Sells Their Opinion

6. Objectives ? Understand the different dynamics of internationalization Discuss the source of competitive advantages and the internationalization Study more in depth the different strategy of internationalization 8-6

8. President of the Brussels Guarantee Scheme www.garanties.be

9. Judge at the Labor Court of Brussels

10. 5 years of Teaching strategy & entrepreneurship in Brussels (HEEF, Ichec, SBS, …).

11. 3 years of coaching at MIT-Sloan in Entrepreneurship (Boston)

12. 19 years of practice as a consultant for enterprises and public institutions offering services to small and medium enterprises (1990 - 2000) and specialization in reengineering of public institution targeting enterprises (2000 2007).

13. 10 years of practice in General Management position.8-7

14. Bruno M.WATTENBERGH Education : Massachusetts Institute of Technology - Sloan School of Management Executive Certificate, Strategy & Innovation, 2006 - 2007 Massachusetts Institute of Technology - Sloan School of Management Entrepreneurship Development Program, Entrepreneurship, 2006 - 2006 Université libre de Bruxelles Degree, Labor sciences, 2003 - 2005 ICHEC - DSMA Post Graduate, Advanced Management, 2001 - 2002 EUB - European University Brussels Bachelor in Business Administration, General Management, 1985 - 1990. 8-8

15. 8-9 Learning Outcomes (1) Assess the internationalization potential of different markets, sensitive to variations over time Identify sources of competitive advantage in international strategy, both through global sourcing and exploitation of local factors embodied in Porter’s Diamond Distinguish between four main types of international strategy

16. 8-10 Learning Outcomes (2) Rank markets for entry or expansion, taking into account attractiveness, cultural, and other forms of distance and competitor retaliation threats Assess the relative merits of different market entry modes, including joint ventures, licensing, and foreign direct investment Illustrate by various Study Cases …

17. Case studies … Many cases studies to illustrate the theoretical part of the course … easy … we talk about it Cases studies … prepared home … analyzed in class … debated … YOU are working ! I’m just asking questions …  Case study resolution as an open question at the final exam … … together (depending of the class-size)  8-11

19. 33% Case content (written)

20. 33% Case Defense & explanationsPossibility to be exempted from the final exam … if not a final case prepared during the year to defend … probably together … and some articles to defend or explain. 8-12

21. Case study ? The case method is a teaching approach that consists in presenting the students with a case, putting them in the role of a decision maker facing a problem (Hammond 1976). Case studies recount real life business or management situations that present business executives with a dilemma or uncertain outcome. The case describes the scenario in the context of the events, people and factors that influence it and enables students to identify closely with those involved Harvard method since its foundation … 8-13

22. What is a strategy case ? A strategic – management case describe an organization’s external and internal conditions and raises issues concerning the firm’s vision/mission, strategies, objectives and policies. Most of information in a case study are established facts, but some information's may be opinions, judgments, and beliefs. One reaction frequently heard is “I don’t have enough information”. In reality, strategists never have enough information because some information is not available, and some is too costly – William GLUECK 8-14

23. Strategy case and Socratic method Inquiry & debate between individuals Asking & answering questions  Stimulate rational thinking  Illuminate ideas Dialectical method  oppositional discussion defense <-> defense  inference Contradiction is the rule 8-15

24. What is a case ? How to present it ? 6 “needs” when preparing a case … Need for practicality – Be practical ! Need for justification – Not a science … explain Need for realism – Be realistic ! Need for specificity – What, why, when, how, where & who ? Need for originality – Be original ! Need to contribute – Group & team work … 8-16

25. What is a case ? How to present it ? Presenting a case for Class discussion : You need to read the case before class (you’d better !) Makes notes regarding the organization’s external opportunities/threats and internal strengths/weaknesses Perform requested analysis … together if possible Come to class to defend your recommendations … speak !!!!! Students do most of the talking … Professor facilitates discussions by asking questions & encouraging students interaction regarding ideas, analyses and recommendations : What would you do, why should you do it, how would you do it ? USE ALSO THE THEORY !!!!! 8-17

26. The book … ? « EXPLORING CORPORATE STRATEGY » Text & Cases … 8th Edition Gerry JOHNSON – Kevan SCHOLES – Richard WHITTINGTON FT – Prentice Hall … Buy the book to have the cases … 8-18

27. The Book Exploring Corporate Strategy:Text & Cases Gerry Johnson - Kevan Scholes - Richard WhittingtonISBN-10: 140588732XISBN-13: 9781405887328 Publisher: Prentice Hall - Copyright: 2008Format: Kit/Package/ShrinkWrap; 0 ppPublished: 01/15/2008 129$ ++++ 8-19

28. 8-20 Over 750,000 students worldwide have used this best-selling book to understand and explore strategic management through their academic and professional careers. Available in two versions (Text and Text & Cases), Exploring Corporate Strategy has established a reputation as a pre-eminent textbook in its field, based upon the expertise of authorship, range of cases, depth of commentary and wealth of supporting resources. The 8th edition builds on these strengths, including coverage of key topic areas in this fast-moving discipline such as internationalization, innovation and entrepreneurship. It is written for students of Strategic Management at all levels. Companion Website with Gradetracker Student Access Card: Exploring Corporate Strategy, 8/e

29. 8-21 Chapter 8 of the book : 8.1. Introduction 8.2. Internationalization drivers 8.3. National & International sources of advantage (porter’s Diamond) + International value network 8.4. International strategies 8.5. Market selection & entry - Market characteristics - Competitive characteristics - Entry modes 8.6. Internationalization & performance

30. 8-22

31. 2nd Part : Internationalization drivers SME’s internationalization 8-23 2 READ

32. 2nd Part : Internationalization drivers Global context Market Costs Government Competitiveness 8-24

33. 8-25 Exhibit 8.1 International Strategy Framework Internationalization drivers Sources of competitive advantage International strategy Market selection Mode of entry

34. Internationalization ? Greater pressure to internationalize … Success of new economies as the BRICs … Not valid for any companies, not one way Markets vary widely … Economic integration exaggerated … Complicated international drivers … Need for diagnosis … in depth … 8-26

35. 8-27 Exhibit 8.2 Drivers of Internationalisation Market drivers International strategies Government drivers Cost drivers Competitive drivers

36. Drivers for Internationalization George YIP framework : the internationalization of industries is variable… Many factors can support or inhibit internationalization … Methodology for a good diagnosis / assessment of the true scope … Suitable to select and validate a global strategy AND some local strategies … Good to understand the drivers of the internationalization … 8-28

37. Market driver n°1. Standardization of markets … : Similar customers needs & tastes Presence of global customers Transferable marketing 8-29

38. Market driver n°2. Cost drivers : Scale economies Country-specific differences Favorable logistic 8-30

39. Market driver n°3. Government drivers : Trade policies Technical standards Host Government policies 8-31

40. Market driver n°4. Competitive drivers : Interdependence between countries Competitors global strategies 8-32

41. Chinese retail : Global or local ? Internationalization is not a simple process, as supermarket chains Carrefour and Wal-Mart have found in China Page 296 + Case given in Class 1 Case in the retail sector to illustrate the course … 8-33

42. Wal-Mart – Carrefour in China Wal-Mart Carrefour Taiwan 2006 Centralized purchasing Taiwan 1995  2006 2007 Decentralized strategy 8-34 Questions ? Compare the difference between the 2 strategies of internationalization Identify clearly the difference between the 2 Chinese strategies Explain the pros and cons of the 2 Chinese strategies Explain the role of the Taiwan experience for the 2 companies What might be the danger for a large Western retailer in staying out of the Chinese market ? Find & explain their respective results today …

43. 1st case to Read & Discuss CARREFOUR & the Chinese Retail : Global or local ? Internationalization is a complex process Examples of Carrefour & Wall-Mart in China What are the strategies of the 2 groups ? What are the pros & cons of the different China strategies of C. & WM ? What are the danger of a large Western retailer to stay out of the Chinese market ? Use the YIP’s framework … 8-35

44. 1st case to Read & Discuss What appended next ? What is the situation of the 2 companies today in China ? 8-36

45. World Class postal company Page 299 + Sources given in Class 1 Case in the postal sector to illustrate the course … 8-37

46. 8-38 2nd Case to Read & DiscussDeutsche Post’s International Diversity Describe the DPWN’s strategies of internationalization What were the internationalization drivers associated with DPWN’s strategy? Evaluate the pros and cons of both a multidomestic strategy and a global strategy for DPWN. Use the YIP’s framework

47. Conclusions … Internationalization potential of industries is variable …. Location of activities can be a crucial source of competitive advantage … It is an important alternative to diversification strategies … An organization can improve the configuration of its value chain and network by taking advantage of national advantages 8-39

48. 3rd Part : Competitive Advantage National & International sources of advantages Porter’s diamond International value network Theory Boeing's global R&D network How is GE disrupting itself 8-40

49. 8-41 What is Porter’s Diamond? Porter’s Diamondsuggests that there are inherent reasons why some nations are more competitive than others, and why some industries within nations are more competitive than others.

50. Porter’s Diamond Entering a new market means considerable disadvantages (WM in Germany vs China) Internationalization strategy must be based on strong, substantial & sustainable competitive advantage. Local source of advantages may not be imitated easily. Countries / regions have developed some specific & enduring competitive advantage. Porter’s Diamond helps explain why some nations tend to produce firms with sustained competitive advantages in some industries more than others. 4 interacting determinants of home advantages. 8-42

51. 8-43 Exhibit 8.3 Porter’s Diamond Firm strategy, structure and rivalry Demand conditions Factor conditions Related and supporting industries

52. Porter’s diamond Used by Gov. to increase their local competitiveness Rivalry CAN be positive -> policies to encourage competition rather than protecting home-based industries. Gives room to Gov for stimulating policies : Can foster local industries with norms creating more sophisticated demands … Encouraging cooperation between suppliers and buyers on a domestic level. … Cluster policy at regional & E.C. level. 8-44

53. Porter’s diamond What for individual companies ? To identify the extent to which it can build on home-based advantage to create competitive advantage on a global front. To distinguish among the general national advantages, their company’s individual sources of advantage. Ex. : Dutch brewing companies, Benetton, … http://www.12manage.com/methods_porter_diamond_model.html 8-45

54. 8-46 What is Global Sourcing? Global sourcingrefers to purchasing services and components from the most appropriate suppliers around the world regardless of their location.

55. Global sourcing ? International companies can find advantages with specific configurations of their value network ... Advantages : SKILLS – RESSOURCES – COSTS 2 ways of exploiting this efficiency : FDI - FOREIGN DIRECT INVESTMENT GLOBAL SOURCING : purchasing services and components from the most appropriate suppliers around the world, regardless of their location. 8-47

56. 8-48 Locational Advantages of Global Sourcing Cost advantages Unique capabilities National characteristics

57. Locational advantages Cost advantages : labor, transportation, communication cost or tax incentive, … Unique capabilities : local market, know-how, … Not only for local capabilities, but also for local strategies … National Characteristics : can enable organizations to develop differentiated products for different segments 8-49

58. Locational advantage Can lead to complex organizational structure … Example of BOEING … : Global web of R&D activities Subsidiaries + partnership 8-50

59. 8-51 Illustration 8.3 Boeing’s - Global R&D Network

60. Sourcing case How GE Is Disrupting Itself ? - by Jeffrey R. Immelt, Vijay Govindarajan, and Chris Trimble Buy & Read the HBR Article Comment & debate Read a summary 8-52

61. 4th Part : International Strategies Global – Local dilemma ? The extent to which products and services may be standardized across national boundaries or need to be adapted to meet the requirements of specific national markets. Flat screen TV ? TV shows and programs ? Several answers to this dilemma … 8-53

62. 4 international strategies 8-54 High Coordination of activities Low Adapted from ME PORTER Changing pattern of international competition Dispersed Concentrated Configuration of activities

63. 4 international strategies – N° 1 SIMPLE EXPORT ? Concentration of activities in one country (origin) Coordination of marketing for exported products (independent sales agents) ? Pricing, packaging, distribution & branding policies ? Strategy chosen by organization with a strong locational advantage (Porter’s Diamond) : Managerial capabilities to coordinate ? Little value to coordinate ? 8-55

64. 4 international strategies – N° 2 MULTIDOMESTIC ? Loosely coordinated internationally Some activities overseas (manufacturing, R&D, …) Goods & services, markets “treated” independently with eventually local adaptations (diversification of portfolio). Appropriate strategy when few economy of scale and benefit to adapt to local needs. Professional services where local relationships are critical. 8-56

65. 4 international strategies – N°3 COMPLEX EXPORT ? Most activities located in one single country Economy of scale (manufacturing & R&D) Coordinated marketing but local branding and pricing Common stage for companies from emerging economies : locational advantages from home country / build a stronger brand & network overseas with a growing organizational maturity 8-57

66. 4 international strategies – N° 4 GLOBAL STRATEGY ? Most mature international strategy : Highly coordinated activities dispersed geographically around the world Extensive use of value network : Geographical location chosen / locational advantage for each activity Product development, manufacturing, marketing and headquarters functions may be located in different countries in the world … Example : GENERAL MOTORS Need to invest in COORDINATION Need to develop SKILLS in COORDINATION 8-58

67. International strategies Conclusions : Not necessarily 4 distinct strategies … Companies will mostly oscillate between those 4 strategies … Strategies will be influenced by changes in the internationalization drivers … Standardized tastes … -> more complex export or global strategies Less economies of scale … -> multidomestic 8-59

68. Market selection & Entry Strong international drivers  Significant source of competitive advantage  International strategy selected  Which country ? Which Market ? 8-60

69. Market selection & Entry Not all countries are equally attractive Use of standard methodologies of PORTER to analyze a market : PESTEL http://www.12manage.com/methods_PEST_analysis_fr.html 5 Forces http://www.12manage.com/methods_porter_five_forces_fr.html But specific determinants of market attractiveness to be considered to determine an internationalization strategy 8-61

70. 8-62 Market Characteristics and the PESTEL Framework Economic Political Legal Social

71. 8-63 The CAGE Framework Because distance matters … Cultural distance Administrative and political distance Geographic distance Economic/ wealth distance

72. Case to illustrate Tatitos(only if rights confirmed) For a variety of reasons, including size or maturity of their home market, entrepreneurial firms in emerging markets must go abroad for growth opportunities. While economically sensible, such incursions entail significant challenges, quite distinct from those faced by traditional multinational corporations. How should start-ups internationalize? What are the risks and opportunities? 8-64

73. 8-65 Modes of Entry Exporting Joint ventures and alliances Licensing Foreign direct investment

74. 8-66 Exporting Advantages No need for operational facilities in host country Economies of scale Internet facilitates exporting opportunities Disadvantages Lost location advantages Dependence on export intermediaries Exposure to trade barriers Transportation costs

75. 8-67 Joint Ventures and Alliances Advantages Shared investment risk Complementary resources May be required for market entry Disadvantages Difficult to find good partner Relationship management Loss of competitive advantage Difficult to integrate and coordinate

76. 8-68 Licensing Advantages Contractual source of income Limited economic and financial exposure Disadvantages Difficult to identify good partner Loss of competitive advantage Limited benefits from host nation

77. 8-69 Foreign Direct Investment Advantages Full control Integration and coordination possible Rapid market entry through acquisitions Greenfield investments Disadvantages Substantial investment and commitment Acquisitions may create integration/ coordination issues Greenfield investments are time consuming and unpredictable

78. 8-70 Internationalization and Performance Inverted U-curve Service sector disadvantages Internationalisation and product diversity

79. Internationalization and Performance Benefit of internationalization is substantial … But at certain level of complexity, the cost of this complexity can exceed the benefit of the internationalization … Theory and evidence suggest that the process can be considered as an inverted U-curve … Moderate level of internationalization … ? Experience & commitment may be able to deliver strong performances for highly internationalized firms 8-71

80. Internationalization and Services Some studies have suggested that internationalization may not lead to improved performance for services … 3 possible reasons for this : Some service sectors still restricted locally Intangible -> More sensitive to cultural differences -> greater adaptation -> greater cost Local presence in services is more important -> less benefit from economies of scale in production 8-72

81. Internationalization and product diversity Internationalization and product diversity … is an important question … Product-diversified firms are doing better on internationalization because they have already developed the skills and structures for managing internal diversity … Firms with highly diversified and highly internationalized activities face excessive costs … Many firms so opt for reducing their product diversity while internationalizing ... Example of UNILEVER … 8-73

82. Role in an international portfolio International strategies imply different relationship between subsidiary operations and the head-quarters … Subsidiaries may play different roles : According to the local level of resources and capabilities … The strategic importance of the local environment … 8-74

83. Subsidiary role in multinational firms 8-75 High Strategic importance Low Managing across borders – HBSP Barlett – Ghoshdal 1989 Low High Level of local ressources & capabilities

84. STRATEGIC LEADERS Hold valuable resources & capabilities Locate in strategic country : Size of local market ? Accessibility to key technologies ? Example : Japanese & European subs in the US 8-76

85. Contributors With valuable internal resources Located in countries lesser strategic Can play role in competitive success Example : Australian subs of Ericsson played a role of development of specialized system 8-77

86. Implementers Simply execute strategies developed elsewhere May generate surplus financial resources Contribute to finance other activities of the group. 8-78

87. Black holes Subs located in very strategic countries but difficult countries Low level of resources & capabilities Alliances or development ? Example : American & European firms in Japan Similar to “question marks” in BCG Matrix 8-79

88. 5th Part : Debate Global, Local or Regional ? Read the “Key debate” Illustration 8.6. page 317 … D² Arthur D LITTLE : Global dominance through the emerging middle segment HBR : Why you shouldn’t go global . 8-80

89. 5th Part : Debate Global, Local or Regional ? Read the “Key debate” Illustration 8.6. page 317 Answer question : Make a list of products & services which are getting more “global” over time; then make a list of products & services which are getting less “global” ? Debate … 8-81

90. 8-82 Chapter Summary (1) Internationalisation potential in any particular market is determined by four drivers: market, cost, government, and competitors’ strategies. Sources of advantage can come from global sourcing through the international value network and national sources of advantage The main types of international strategy vary according to extent of coordination and geographical configuration: simple export, complex export, multidomestic, and global

91. 8-83 Chapter Summary (2) Market selection for international entry should be based on attractiveness, multidimensional measures of distance and expectations of competitor retaliation Modes of entry into new markets include export, licensing, joint ventures, and foreign direct investment Internationalisation has an uncertain relationship to financial performance

92. 8-84 Key Debate: Global, Local, or Regional? Make a list of products and services which are getting more ‘global’ over time. Now make a list of products and services which are getting less global. How many countries in the world have you visited in your lifetime? How many countries had your parents visited by the same age?

93. 2 articles to read – analyze - comment HBR – When you shouldn’t go global ? ADL – Global dominance through the emerging middle segment 8-85

94. When you should not go global ? Harvard Business Review – Vol.86 – 12.09 Even as companies are being told that the future lies in globalization, some are severely punished for their international moves. A simple test can help you decide what makes strategic sense for your organization. 8-86

95. When you should not go global ? A lot of companies rush to become more global. Many have stumbled in their globalization strategies. Missteps that in some cases have resulted in dismantling the firm’s network or kicking out the management team that built it. 8-87

96. When you should not go global ? Before launching a global move, senior managers need to conduct a simple but rigorous self-assessment to gauge the likelihood of success. By taking the time to do this, they can ensure that their international efforts make strategic sense and avoid potentially disastrous consequences. 8-88

97. When you should not go global ? Read the article … Make the comparison between the course and the article … Read the Royal Ahold’s case … What do you think about this article … Be prepared to answer questions about this article … 8-89

98. Global dominance through theemerging middle segment Growth forecasts for the emerging markets in general and the BRIC countries in particular continue to be dazzling. Traditionally, multinational companies (MNCs) from North America, Europe and Japan have exploited emerging market growth by targeting their premium segments. That strategy is reaching its limits now, forcing MNCs to turn their sights from the premium to the middle segment: consumer and business products with a good basic functionality but without the full range of differentiating features, yet at a highly competitive price. 8-90

99. Global dominance through theemerging middle segment First of all, the premium segment is rather small and becoming a very crowded place. Secondly, the middle segment in emerging markets has massive growth potential, typically accounting for between 60 and 90 % of the addressable local market. Combined with the sheer size of the economies of emerging markets, this means that an MNC that aims to be a global leader cannot afford to miss out. Thirdly, if local champions in emerging markets are allowed to grow through their dominance of the middle segment there, they will use the skills and resources gained to fund international expansion into the MNCs’ profitable home markets. 8-91

100. Global dominance through theemerging middle segment In order to succeed in the middle segment in emerging markets, MNCs have to beat local champions at their own game through a fight-focus-simplify strategy. “Fight” means linking their international brand power with the go-to-market approaches of the local champions. “Focus” means investing selectively in geographies (city clusters or regions) with a potential for market dominance. “Simplify” means going for fully localized products that address local buying criteria instead of “de-engineering” international products. 8-92

101. Global dominance through theemerging middle segment In order to succeed in the middle segment in emerging markets, MNCs have to beat local champions at their own game through a fight-focus-simplify strategy. “Fight” means linking their international brand power with the go-to-market approaches of the local champions. “Focus” means investing selectively in geographies (city clusters or regions) with a potential for market dominance. “Simplify” means going for fully localized products that address local buying criteria instead of “de-engineering” international products. 8-93

102. Global dominance through theemerging middle segment Read the article … Make the comparison between the course and the article … Read the Haier & Li-Ning cases … What do you think about this article … Be prepared to answer questions about this article … 8-94

103. 6th Part : Startup & internationalization The story of an Startup … The barriers to market … Choosing a vertical & a DMU The barriers to internationalization … Going global … 8-95

104. SPOTFIRE : Entrepreneur going global Spotfire started as an idea in a project in an university lab. They had no business plan, no business people, … and no customer. Spotfire approached every company he could think of and asked them to buy his prototype. What kind of potential customers would buy from an engineer like Chris? Does such early market testing work in any market? 8-96

105. SPOTFIRE : Entrepreneur going global Read the Spotfire case. Analyze their commercial strategy when they started. Analyze the change in their strategy. What do you think of this strategy ? 8-97

106. List of cases CARREFOUR WALL MART DHL 8-98

107. Companies cases & examples usedwhich could be used for Exams CARREFOUR WALL-MART Deutsche Post – DHL BOEING LENOVO TATITOS SPOTFIRE PEARL RIVER SPOTFIRE 8-99

108. Internet ressources http://www.ebm.ups.com/europe/ebm/index.html http://www.pmekmo.be/upload/Rapportquevit.pdf http://www.12manage.com/methods_PEST_analysis_fr.html http://www.12manage.com/methods_porter_five_forces.html http://www.12manage.com/methods_centralization_decentralization.html http://www.12manage.com/methods_outsourcing.html http://www.oecd.org/dataoecd/16/26/43357832.pdf http://ec.europa.eu/enterprise/newsroom/cf/itemshortdetail.cfm?item_id=3328 http://web.hec.ca/airepme/images/File/2008/C22.pdf 8-100

109. Good luck … Hope you will enjoy the class and the exchange … We can stay in touch : bwa@abe.irisnet.net wattbru@hotmail.com 8-101