Lecture 2 Strategic Complexities In Global Environment. HND Global Business Environment

Transcription

1 Lecture 2 Strategic Complexities In Global Environment HND Global Business Environment

2 Lecture Overview International Economic Integration Reasons For Going International Strategic Complexities Establishing Mission & Objectives Assess External Environment Analyze Internal Factors Evaluate Strategic Approach International Supply Chain Management

3 Lecture Overview International Economic Integration Reasons For Going International Strategic Complexities Establishing Mission & Objectives Assess External Environment Analyze Internal Factors Evaluate Strategic Approach International Supply Chain Management

4 1 International Economic Integration An Evolving Competitive Landscape

5 International Economic Integration Following Great Depression, World War II, global economy was in tatters For economic growth and stability, nations realized they need to assist and get assistance from nearby countries; as opposed to protectionist measures For this they needed to promote trade

6 International Economic Integration Trade was restricted by tariffs-taxes applied to imported or exported goods Following World War II, tariffs averaged 45 percent worldwide severely limiting international trade

7 International Economic Integration 8 rounds of negotiations between nations reduced average worldwide tariffs on manufactured goods from 45 percent to less than 7 percent Negotiations were known as the General Agreement on Tariffs and Trade (GATT) During this time, world trade grew dramatically

8 International Economic Integration GATT s Fundamental Principle Each member nation must open its markets equally to every other member nation Trade without discrimination Once a country and its trading partners had agreed to reduce a tariff, that cut was automatically extended to every other member country

9 International Economic Integration GATT s effectiveness declined over time, reforms were necessary GATT s focus was on merchandize trade, neither trade in services or IP-both increasingly important Governments devised craftier methods of trade protection-non tariff barriers

10 International Economic Integration To restore an effective means for trade liberalization, officials created the World Trade Organization (WTO) in 1995 WTO is a full fledged organization which adopted principles of GATT; in addition expanded scope and continued negotiations and resolved trade disputes

11 International Economic Integration WTO has 159 members, accounts for 97% of the worlds trade Since GATT, worlds trade has grown significantly Critics argue WTO favors developed nations as it is difficult for poorer nations to compete in non regulated world

12 International Economic Integration

13 International Economic Integration Many countries began to shift to bilateral rather than multilateral free trade agreements. In 2012, U.S. signed free trade agreements with Colombia and South Korea Sri Lanka has a free trade agreement with Pakistan from 2005, India from 2003

14 International Economic Integration Regional trade agreements (RTAs) -agreements among groups of nations To reduce tariffs and develop similar technical and economic standards Such agreements have usually led to more trade among the member nations

15 International Economic Integration Geographic proximity is an important reason for economic integration Short distances for goods/services Consumer tastes are similar, distribution channels can be easily established

16 International Economic Integration-Benefits Politically, regional economic integration promotes peace by fostering closer economic ties Trade disputes handled constructively, discrimination impossible for participating countries Free trade and investment raise incomes and stimulate economic growth

17 International Economic Integration-Types Of RTA Free Trade Area (FTA)- group of countries that remove trade barriers among themselves Each still maintains different external policies regarding non-members NAFTA, SAFTA

18 International Economic Integration-Types Of RTA

19 Lecture Overview International Economic Integration Reasons For Going International Strategic Complexities Establishing Mission & Objectives Assess External Environment Analyze Internal Factors Evaluate Strategic Approach International Supply Chain Management

20 2 Reasons For Going International The Basis For Strategy

21 Reasons For Going International-Reactive Reasons Globalization of Competitors Competitors going abroad, entrenched in foreign market; difficult for others to enter at later time Competitors operating globally may have greater market power, lower costs; may give them advantage domestically

22 Reasons For Going International-Reactive Reasons Globalization of Competitors Foreign competitors entering a market reduces market share for a company No other choice other than expanding to foreign market

23 Trade Barriers Reasons For Going International-Reactive Reasons Some countries still utilize restrictive trade barriers; tariff, quota, buy local policies which makes foreign products too expensive, impractical Companies switch from export to overseas manufacturing

24 Trade Barriers Reasons For Going International-Reactive Reasons Toyota-manufacturing plants in the United States to circumvent import quotas. ZTE Chinese telecom equipment maker moved to Brazil; to avoid that country s high import tariffs, though cheaper to manufacture in China

25 Reasons For Going International-Reactive Reasons Regulations & Restrictions Regulations and restrictions by firm s home government becomes expensive Companies will seek out less restrictive foreign operating environments

26 Reasons For Going International-Reactive Reasons Customer Demands Operations in foreign countries frequently start as a response to customer demands As a solution to logistical, supply chain problems; McDonalds meat supplier ventures abroad along with the company

27 Reasons For Going International-Proactive Reasons Economies of Scale Achieve large scale volume to make the fullest use of modern capital-intensive manufacturing equipment; reduce cost through volume Amortize staggering research and development costs

28 Reasons For Going International-Proactive Reasons Economies of Scale High costs of research and development, costs of keeping up with new technologies Can often be recouped only though global sales Pharmaceutical industry (Eg Merck and Pfizer)

29 Reasons For Going International-Proactive Reasons Growth Opportunities As domestic growth declines markets saturate, opportunities abroad look more attractive Internet now greatly facilitates the ability to quickly link to contacts in other countries, promote products and services

30 Reasons For Going International-Proactive Reasons Resource Access & Cost Savings Resource access, cost savings entices companies to operate from overseas bases. Availability of raw materials and other resources; greater control over inputs and lower transportation cost

31 Reasons For Going International-Proactive Reasons Resource Access & Cost Savings Lower labor costs (for production, service, and technical personnel) major consideration Leads to lower unit costs; provide a vital ingredient to competitiveness for companies

32 Incentives Reasons For Going International-Proactive Reasons Governments seeking new infusions of capital, technology, and knowhow provide incentives Tax exemptions, tax holidays, subsidies, loans, and the use of property

33 Incentives Reasons For Going International-Proactive Reasons This decreases risk and increase profits Thus are attractive to foreign companies EPZ s, Government promoting investment in specific industry

34 Lecture Overview International Economic Integration Reasons For Going International Strategic Complexities Establishing Mission & Objectives Assess External Environment Analyze Internal Factors Evaluate Strategic Approach International Supply Chain Management

35 3 Strategic Complexities Challenges Faced By Organizations In Global Business Environment

36 Strategic Complexities Foreign firms need to overcome a liability of foreignness Inherent disadvantage that foreign firms experience in host countries because of their non-native status

37 Strategic Complexities Differences in formal and informal institutions governing the rules of the game in different countries Local firms are already well versed in these rules Foreign firms need to invest resources to learn such rules; some are in favor of local firms

38 Strategic Complexities In this age of globalization customers supposedly no longer discriminate against foreign firms Reality is foreign firms are often still discriminated against, sometimes formally, other times informally Essential for organizations to plan strategically before eyeing international opportunities

39 Strategic Complexities Global strategic formulation process, parallels process followed in domestic companies Process far more complex-diversity of geographic locations; differences in political, legal, cultural, market, and financial processes These factors introduce a greater level of risk in strategic decisions

40 Strategic Complexities 1. Establish Mission & Objective 2. Assess External Environment 3. Analyze Internal Factors 4. Evaluate Strategic Approach

41 Lecture Overview International Economic Integration Reasons For Going International Strategic Complexities Establishing Mission & Objectives Assess External Environment Analyze Internal Factors Evaluate Strategic Approach International Supply Chain Management

42 4 Establishing Mission & Objective Identifying Foreign Market

43 Establishing Mission & Objective Decide objective of company in international operation or expansion; identify strategic goals Firm s global objectives usually fall into the areas of Marketing, profitability, finance, production, and research and development

44 Establishing Mission & Objective Match strategic goals to location specific advantages

45 Establishing Mission & Objective Certain countries have other location specific advantages Geographic Advantage Target Sri Lanka as a base to target South Indian market, or Hong Kong to target Chinese market Miami the gateway of America; North American firms can target to expand South Dubai being in central location between Asia and Europe, Asia & Africa

46 Establishing Mission & Objective Advantages Arising From Economic Integration Firms outside EU, looking to target EU market can setup operations in a low cost EU country Firms interested in exporting to Indian or Pakistani markets can setup operation in Sri Lanka to avail preferential trading terms under the Free Trade Agreement When Sri Lanka lost GSP+ scheme, many apparel companies looked to expand to Bangladesh to avail the latter's facilities

47 Culture & Location Establishing Mission & Objective Cultural distance-difference between two cultures along some identifiable dimensions MNE s by default first enter culturally similar countries; Belgian firms targeting France to take advantage of language, history, common culture

48 Culture & Location Establishing Mission & Objective In cases of efficiency seeking and resource seeking strategic goals-cultural and institutional factors are less important Indian firms acquiring mines in Africa, Sri Lankan apparel factories entering Vietnam, Cambodia

49 Lecture Overview International Economic Integration Reasons For Going International Strategic Complexities Establishing Mission & Objectives Assess External Environment Analyze Internal Factors Evaluate Strategic Approach International Supply Chain Management

50 5 Assess External Environment Variables In The Macro Environment

51 Assess External Environment Variables in the macro environment or external environment around the world Have the potential to shape a businesses future by posing new opportunities or threats Firms must adapt to their environment to survive

52 Environmental Scanning Assess External Environment Process of gathering information, forecasting relevant trends, competitive actions, and circumstances That will affect operations in geographic areas of potential interest

53 Assess External Environment Activity conducted on three levels global, regional, and national Focus on the future interests of firm and cover major variables such as Political and economic risk; technological, legal, and physical constraints

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56 Assess External Environment When Firm Internationalizing For Market Expansion Economic & Demographic Variables Demographics: Population, Growth Rate, Age Distribution Income, Purchasing Power, Consumer Behavior, Purchasing Habits, Income Elasticity Prices Of Products, Availability of Substitutes Cultural Factors

57 Assess External Environment When Firm Internationalizing For Resource Acquisition Resource Consideration Labor, Quality Of Talent/Skill, Tertiary Education Availability Of Raw Material, Suppliers, Import Facilities Electricity & Utilities Land, Real Estate Transportation, Infrastructure & Logistics Access To Finance

58 Assess External Environment When Firm Internationalizing For Resource Acquisition Cost Consideration Cost of Labor Cost of Real Estate, Land, Facilities Cost of Raw Material & Transportation Cost of Utilities & Other Miscellaneous Specific Benefits Offered By Government Tax system

59 Assess External Environment When Firm Internationalizing Political Environment Government control and restrictions on foreign investment Volatility of political climate Wage and price regulations, restrictions on repatriation of profit Foreign exchange risk Labor regulations Export or Import quotas, local job creation quotas

60 Lecture Overview International Economic Integration Reasons For Going International Strategic Complexities Establishing Mission & Objectives Assess External Environment Analyze Internal Factors Evaluate Strategic Approach International Supply Chain Management

61 6 Analyze Internal Factors Assessing Firms Strengths & Weaknesses

62 Analyze Internal Factors Internal analysis Determine which areas of the firm s operations represent strengths or weaknesses compared to competitors Firm s financial and managerial expertise, functional capabilities- key success factors (KSFs)

63 Analyze Internal Factors Internal analysis Apple & Huawei- Technological capability Walmart & Carrefour- Effective distribution channels Nike & Disney-Superior promotion capabilities

64 Analyze Internal Factors

65 Analyze Internal Factors Internal analysis Companies develop their strategies around key strengths, or distinctive competencies Core competencies are usually difficult for competitors to imitate; Apple core competency in design and marketing

66 Analyze Internal Factors Internal analysis Specifically assess their current competitors global and local for the proposed market What are our competitors positions, their goals and strategies, their resources, and their strengths and weaknesses, relative to those of our firm? What are the likely competitor reactions to our strategic moves?

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68 Analyze Internal Factors

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70 Lecture Overview International Economic Integration Reasons For Going International Strategic Complexities Establishing Mission & Objectives Assess External Environment Analyze Internal Factors Evaluate Strategic Approach International Supply Chain Management

71 7 Evaluate Strategic Approach Weighing Strategic Alternatives In Light Of Macro & Micro Environmental Analysis

72 Evaluate Strategic Approach After external environment evaluation, internal factors assessment, competitive analysis done, and GO decision established 1. Determine what overall strategic approach to the global marketplace firm wishes to take 2. Determine specific entry strategy

73 Evaluate Strategic Approach Fundamental decision in international strategic management Whether to pursue global or regional (or local) strategies Globalization vs. national responsiveness conflict

74 Evaluate Strategic Approach Global integration-production and distribution of products and services of a homogeneous type and quality on a worldwide basis Compete by establishing worldwide economies of scale, offshore manufacturing

75 Evaluate Strategic Approach Global integration-is possible due to declining tariff s and formation of trading blocks Globalization, internet, social media is contributing to commonality of consumer tastes Sony, Apple

76 Evaluate Strategic Approach Global strategy treats all countries similarly, regardless of differences in cultures and systems Problems result, such as a lack of local flexibility and responsiveness and a neglect of the need for differentiated products Opportunity for competitors to capitalize

77 Evaluate Strategic Approach

78 Evaluate Strategic Approach National responsiveness need to understand the different consumer tastes in segmented regional and national markets Managers within each region decide on own investment locations, product mixes, competitive positioning; run subsidiaries as independent organizations

79 Evaluate Strategic Approach There is need for economies of scale to compete on cost there are opposing pressures to regionalize Newly developed economies (NDEs) and developing, or emerging, economies Localization pressures include unique consumer preferences-cultural or national differences

80 Evaluate Strategic Approach Toyota T100 Toyota Tundra

81 Evaluate Strategic Approach

82 Evaluate Strategic Approach

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85 International Strategy Evaluate Strategic Approach Replicating home-country-based competencies, production expertise, design skills, or brand power, in foreign markets Activities set, directed by home office, no need to adapt activities in international markets

86 International Strategy Evaluate Strategic Approach

87 Evaluate Strategic Approach Global Strategy Standardized products that vary little from country to country Managers face high pressures for global integration yet low pressures for local responsiveness-volume, cost minimization, efficiency

88 Evaluate Strategic Approach Global Strategy Companies create products for a world market, manufacturing them on a global scale in a few highly efficient plants, and Marketing them through a few focused distribution channels

89 Global Strategy Evaluate Strategic Approach

90 Multidomestic Strategy Evaluate Strategic Approach Company s subsidiaries in their respective local markets design, make, and market products that respond to local preferences Ignore economies of scale because integration is not very important

91 Multidomestic Strategy Evaluate Strategic Approach

92 Transnational Strategy Evaluate Strategic Approach A firm using a transnational strategy seeks a middle ground between a multidomestic strategy and a global strategy. Tries to balance desire for efficiency with need to adjust to local preferences in various countries

93 Transnational Strategy Evaluate Strategic Approach

94 Lecture Overview International Economic Integration Reasons For Going International Strategic Complexities Establishing Mission & Objectives Assess External Environment Analyze Internal Factors Evaluate Strategic Approach International Supply Chain Management

95 8 International Supply Chain Management Complexities Of International Supply Chain

96 International Supply Chain Management Supply Chain-All tasks and services that connect everything that happens to a product from raw material to consumer All linkages-origination of raw materials, to various processing points of raw materials, to production facilities to the distribution channels

97 International Supply Chain Management Supply chains involve transporting goods and materials, inventory management and flows, order processing, materials handling, and warehousing Many parts, subcomponents, raw materials used in products, are sourced from other countries; Most supply chains are global supply chains

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100 International Supply Chain Management Vertical Integration-strategy when a company controls more than one stage of the supply chain Typical phases of supply chain: research & development, manufacturing, distribution, and retail

101 Vertical Integration International Supply Chain Management Advantages Does not need to rely on suppliers; less chance of disruption Limits bargaining power of suppliers Can ensure quality of products; as company in control over major processes Can pass on cost savings to customers

102 Vertical Integration International Supply Chain Management Disadvantages Must invest significant expense in setting up facilities Loss of focus; why Apple has refocused its activities in the value chain Lack of competition may lead to poor quality products

103 International Supply Chain Management

104 International Supply Chain Management Global Supply Chain Management 1. Global Sourcing 2. Offshore Manufacturing 3. Outsourcing 4. Contract Manufacturing

105 International Supply Chain Management Global Sourcing- process of obtaining a supply of inputs (raw materials and parts) for production from around the world Logistics, improved communications enables companies to source raw material at cheapest price from distant countries

106 Global Sourcing International Supply Chain Management A third of ingredients need to come from abroad Ingredients sourced from India, Netherlands, China, Vietnam, Brazil etc Must manage supply chain carefully to ensure timeliness, safety, quality Purchasers monitor weather patterns, commodity trends, energy prices Must coordinate closely with suppliers

107 International Supply Chain Management Offshore manufacturing-company decides to manufacture outside its home market, invests in facility

108 International Supply Chain Management Offshore Manufacturing Advantages Flexibility Low labor costs, availability of cheap materials, components Government incentives, facilities, favorable tax structures Proximity to markets Economies of scale can be achieved if facility is used to manufacture for multiple markets

109 International Supply Chain Management Offshore Manufacturing Disadvantages High investment required Country may lose cost advantage in future Loss of focus Political and other macro environmental risks

110 International Supply Chain Management Outsourcing- company externalizes a process or function to another business; IT, customer service, accounting, research Can be domestic or offshore

111 International Supply Chain Management Contract Manufacturing- when one company arranges for another company to manufacture its products Company provides manufacturer with all the specifications, materials required for production process

112 International Supply Chain Management Global Sourcing, Outsourcing, Manufacturing Advantages Reduce costs through cheaper labor, laxer work rules, and lower land and facilities costs Improve quality of products Improve delivery of supply process; gain access to products only available abroad No need for company to invest; flexible can change

113 International Supply Chain Management Global Sourcing, Outsourcing, Manufacturing Disadvantages Loss of technology, loss of knowledge, competitive advantage Companies may also be producing for competitors

114 International Supply Chain Management Global Sourcing, Outsourcing, Manufacturing Disadvantages Greater uncertainty in global sourcing of raw materials/components; higher lead times even for products Supply delays, interruptions, stoppages can create havoc in a company s production Uncertainties outside control of companies; eg Government intervention, natural disasters

115 International Supply Chain Management Global Sourcing, Outsourcing, Manufacturing Disadvantages Ethical concerns of production in developing, poorer countries Health, safety, security issues- Eg. Rana Plaza, Bangladesh Poor treatment of workers- Eg. Foxconn Child Labor

116 International Supply Chain Management The Make Or Buy Decision Which should be performed internally and which could be subcontracted to independent companies?

117 International Supply Chain Management The Make Or Buy Decision MNEs must focus on parts of production critical to the product; they are particularly good at making Outsource parts where suppliers have distinct comparative advantage, such as greater scale, lower cost structure

118 International Supply Chain Management How Companies Manage International SC Develop supply chain as core competency Emphasize on supplier relationship; establish close relationship that of a partner, internalize Diversify supplier network to mitigate risk

119 International Supply Chain Management How Companies Manage International SC Use Information Technology-ERP, MRP, E- Commerce; access provided to suppliers

120 International Supply Chain Management Distribution Process of making product or service available for the consumer or business user that needs it Distribution channel can be as short- direct transaction from business to consumer; interconnected intermediaries along the way such as wholesalers, distributers, agents and retailers

121 India International Supply Chain Management-Distribution

122 India International Supply Chain Management-Distribution

123 International Supply Chain Management Global Distribution Challenges Margins demanded in international market may be higher; power of distributors Multiple channels increase price of products Conflict of interest

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