Week 6 The Internationalisation Process

Transcription

1 MGX5181 International Business Strategy Week 6 The Internationalisation Process

2 Objectives At the end of this session students should be able to: Recognise the push and pull factors that influence an organisations internationalisation process Identify the role and influence of internal and external triggers to internationalisation Assess how internal and external triggers influence whether an organisation goes global, regional or stays local

3 The Internationalisation Process Cross-border market entry decisions Pull factors a rapidly expanding market offering attractive sales lower production or supply costs eg cheaper raw materials, labour government incentives, low regulations potential distributor/agent enquiries Push factors local market saturation high local production costs eg labour, raw materials escape local government regulations deteriorating levels of profitability Management vision

4 External triggers Internationalisation Market penetration Product extension Meta trends Industry Competition Geographic expansion Restricted national market scope Product development Organisational dynamics International business development Vision/ mindset Retrenchment Internal triggers

5 Internationalisation process Cont Some companies never expand beyond national market (particularly SMEs) The international business development loop requires consideration of informing role played by: external factors: meta trends (broad environmental factors) and industry competition and internal factors: vision/mindsets and organisational dynamics

6 Internationalisation process Cont If initial and subsequent development of the firm s international business strategy is judged successful further entry into overseas markets may be anticipated. If international business strategy is judged a failure or local demands require it, a firm may be required to retrench back to being a local firm either temporarily or permanently

7 External and internal triggers for change External triggers Political/legal Economic Ecological Social Technological Industry / competitive forces Takeover/ merger Shareholder pressure Restricted national market scope Internationalisation Retrenchment International business development Internal triggers Organisational crisis Corporate succession Financial/ business performance Internal dissent

8 The phase model of international business development Worldwide Internationalisation International Regional International market entry & development Restricted national market scope Retrenchment Phase 1 Phase 2 Phase 3 Phase 4 Restricted national market scope International market entry & development International regional Worldwide competitor

9 Key Issues to internationalisation Four key issues: Firms that move from one phase to another of international development may well at some stage backwards as strategy changes Firms may miss one or more phases as they develop their international focus The pace of change between phases is something specific to the organisation The reasons for firms moving from one phase to another are multi-dimensional and cannot be explained by a single factor

10 Triggers to the internationalisation process Internationalisation is the outcome of both external and internal change triggers. External triggers come from different levels: Meta (highest level) broad trends that shape the competitive environment of the world economy eg world trade, PEST analysis Industry level globalisation versus localisation Firm level Bi-polarisation - broad versus niche players within an industry

11 External Triggers 1. Meta level influences Impact of regional trading EU versus Asia versus America s Trade liberalisation New competitors Mergers and acquisitions Inter - Intra bloc trade surplus/deficit in trade excess production capacity to pay PEST Political, Economic, Social, Technical

12 External Triggers: 2.Globalisation versus localisation of industry Yip and Coundouriotis (1991) Identified four sets of industry drivers: Customers Cost Country Competition Environmental changes (Meta level) Customers Cost Globalisation Localisation Country Competition

13 Globalisation versus localisation of Customer Drivers Customer requirements Standardise versus customise Distribution Push versus pull Uniform marketing Generic versus brand Cost Drivers New product development industry cont R&D costs increasing and replacement time reducing Scale economies flexible manufacturing systems a counter argument. Transportation costs low value high cost bulk products usually produced locally but transport costs declining

14 Globalisation versus localisation of industry Country Drivers Trade policies WTO versus nationalism, trade within blocs & between blocs Technical standards differences make standardisation difficult - power, food product law Cultural and regulatory barriers barriers to advertising Competitive Drivers Competitive interdependence level of industry maturity, impact of mergers, new markets opening New entry competition Foreign company arrival, benefits of cost/technology differences

15 3. Bi-polarisation This suggests a company will either become a worldwide competitor with a large critical mass or seek to refocus on a product segment where the nature of the market demand and competitive independence enable the company to find a defendable niche. The product / geographic matrix This allows four competitive positions: Restricted national market scope International Narrow Product scope Local or national regional or national niche strategy International niche strategy Broad Local or national regional or national broad-based strategy International broad-based strategy

16 Strategies Local or national regional or national niche strategy competitive strategy is based on offering a narrow product range and operating with a restricted geographical focus Local or national regional or national broad-based strategy the organisation offers a broad product range but focuses on supplying these to a restricted geographical market International niche strategy business strategy is based on a narrow product range, but one that is sold internationally International broad-based strategy operating in international markets, offering a broad product range

17 Internal triggers to the internationalisation process 1. Shaping an international vision and mindset 2. Organisational dynamics 3. Managing organisational change 4. Assessing and changing corporate culture 5. Resource capability and competitive advantage 6. Managing organisational change to improve business performance

18 1. Shaping an international vision and mindset There is no correct mindset. A domestic bias will be reinforced where the Board of Directors are chosen from the home country Aim is to promote a creative and innovative perspective. Need balance between left-brain thinking (facts) and right-brain thinking (opinions based on feelings) - cultural differences exist. Vision must be articulated clearly and widely disseminated.

19 2. Organisational Dynamics Formed from three interrelated areas: Core Competence aspects of the organisation in which it is uniquely advantaged over its competitive rivals. Hamel (1994) defines core competences as a bundle of constituent skills and technologies eg Honda small engine manufacturing Three sets of core competence: market access (close to customer) integrity related (quick, flexible, reliable) functionally related (unique product/service functions)

20 Organisational Dynamics Organisational learning ability to continuously update itself and learn from past experiences single loop first order learning means reviewing performance against targets and taking corrective action second loop second order learning questions the existing framework in which decisions take place, questions mindset, routines, norms. Administrative heritage company history and willingness to adapt. Includes tangible and non-tangible assets.

21 3. Managing organisational change Fundamental change requires major discontinuity with the past. Involves change to corporate culture creating a shared mindset building competences/capabilities 4. Assessing and changing corporate culture must identify current culture Johnson (1992) developed concept of cultural web. Corporate mindset: stories and myths symbols power structures organisational structure control systems rituals and routines

22 5. Resource capability and competitive advantage Ability to craft a sustainable competitive advantage reflects on how the organisation seeks to shape the five competitive dimensions (Ellis and Williams, 1995): Scope narrow (niche) or broad-based competitor Differentiation Cost uniqueness eg brand, technology low cost or value for money quality Time-based competition ability to develop new products quickly from concept to market launch Competitive linkages network of business relationships

23 6. Managing organisational change to improve business performance Dynamics between business performance and the management of change: Identify mismatch between performance and aspirations Initial change strategies Business performance Revised change strategies Continual process: re-examine match of performance & aspirations

24 Going international versus staying at home You need to assess the value of your organisation going abroad. The three simple strategies are: Restricted national market scope Stay home Regional strategies Export, fragmented, coordinated Global strategies Worldwide centralised, decentralised or transnational strategies

25 Restricted National Market Scope To provide sustainable national market only operations you would need to ensure: international players cannot achieve any greater resource leverage than local players international players operate autonomous national subsidiaries with little/no attempt to exploit competences/ capabilities across markets To assess restrictive strategic scope you need to consider internal and external drivers. The following conditions need to exist: product-market demand products highly reflect national tastes and preferences competitive interdependence ability to supply market competitively not dependent on need to supply other cross - border markets at the same time

26 Sustainability of national strategies Sustainability depends on industry drivers: product-market demand - is the variety of customer demands across markets increasing or decreasing? Homogeneous - move to global competitive interdependence - are there significant cost benefits supplying more than one market? If yes - globalisation attractive if local alliances / flexible manufacturing provide similar or better results - localisation Internal drivers also influence: long term objectives vision/quality of the senior team

27 Other issues The following questions must be answered: In what market does the competitive advantage exist? Need to define customers/markets clearly Over whom does the company have a competitive advantage? Local, state, national, international How accurate is the data? Problems arise in data collection across boundaries - how collected, presented Problems in financial reporting across cultures What trends exist? Is there a change in markets/products? Is innovation high? Is entry easy? Is your market defendable? How good is your benchmarking? Have you identified best practice by function, process and task?

28 International Market Entry Proactive versus reactive triggers Proactive Reactive Internal Visionary leadership exploitation of core competences opportunity to realise competitive interdependencies Current levels of business performance internal pressure from disaffected managers excess capacity External Cross-border market opportunities - growth and profits Saturation/decline of local/national market intensity of competition movement of key customers abroad entry by cross - border rivals to local / national market

29 International Regional Strategies The distinguishing characteristic of an international regional business strategy is the recognition of the need to develop a network of closely interlinked international markets. To decide if an organisation has entered the international regional phase of business development 3 conditions must be examined: extent it operates in a region, applying and leveraging its accumulated knowledge & resources whether it operates international production facilities &/or has key value-added activities outside home whether individual business functions are predominately organised & operated on the basis of regional needs

30 Types of international regional strategy International regional strategy Characteristics Exporter Fragmented Coordinated 1. Regional scope, application & leverage of shared knowledge etc 2. International production facilities/key value-adding facilities 3. Co-ordination of business functions on a regional basis Yes No No Yes Yes No Yes Yes Yes Overall Strategy Supplies the region from its national production base, and has all key value added facilities located in its home country Operates a series of country strategies. Little or no coordination between national markets served Treats the region as a unified market & co-ordinates its business functions accordingly

31 Options in above table: Regional Strategies if only condition one then strategy is one of a regional exporter. If conditions 1 and 2 exist then organisation is operating a fragmented international regional strategy. If all 3 conditions met then organisation operating a coordinated international regional strategy.

32 Regional exporter usually home focused depend on domestic managers local corporate culture Regional Strategies Fragmented international regional strategy cross-border production and/or other value adding facilities each country considered separately - no competitive leveraging advantage of shared knowledge Co-ordinated international regional strategy strategy designed to meet regional rather than national requirements eg regional functions

33 External Regional Triggers External triggers include: increasing opportunity for regional product/ service standardisation the emergence of cross-border customers and distributors increasing competition emphasising the need to exploit competitive interdependencies reducing product life-cycles and the consequent need for faster decision making and implementation. Note: external triggers in themselves are unlikely to cause the organisation to move to an international regional strategy unless the internal context is at least compliant.

34 Internal Regional Triggers Internal triggers required to legitimise or initiate change towards regionalisation: Vision/mindset a clear vision that Co s future lies in the development of the region (may be caused by a crisis giving Co no choice) Organisational dynamics Core competences are developed that provide the basis for the organisation to develop a regional strategy.

35 Influences of Regional Strategies The extent to which the competitive environment requires the organisation to operate with an international regional strategy will reflect the extent to which: there is a convergence of national preferences important cross-border customers and distributors exist who require common products and services across a region competitive interdependencies are increasing, and organisations need to respond to shorter product life cycles. To prosper niche players must have: markets sufficiently separable to enable differentiation to provide some protection from direct competition from broad-based competitors the prospect of economic supply enabling the niche player to make acceptable returns. Exercise: Describe how the following functions can be regionalised: Marketing, Human Resources, Operations, Logistics, Finance.

36 Worldwide Competitors Characteristics Need to balance between a responsive and flexible local approach and effective global coordination ie think global, act local.

37 Worldwide Competitors Developing a global strategy The following factors encourage global competition: Emergence of more open trading environments and multilateral trading agreements Falling transport costs due to containerisation and bulk carriers Emergence of new technologies which demand global scale to recover R&D expense Increasing international trade and communication assisting convergence of customer preferences Opportunity for producers both to customise core products to meet local preferences and benefit from global scale efficiencies by flexible manufacturing systems, and The growth of global customers demanding common product sourcing and quality standards for all plant.

38 Developing Global Competitors Internal requirements Vision/mindset Widely shared Vision articulated clearly and cohesively Business anywhere Organisational communications and logistics network sufficiently efficient and effective to permit business anywhere Insiderisation International mindset resists any attempt to replicate domestic organisational systems in new cross-border territories Adopt organisational systems that respond to local customer needs Leverage Fundamental organisational innovation where the whole shared belief is greater than the sum of the parts. Time Building shared value takes time!

39 Worldwide Competitors Organisational Dynamics These hold the existing mindset in place. To change must go through organisational renewal For emerging worldwide competitors this means ensuring it can develop to meet the global challenge For established worldwide competitors the focus will need to be on continuous improvement in order to sustain and improve themselves in the context of a dynamic environment.

40 Growth Future developments require assessment of following questions: To what extent is it important both now or for the future to operate with global market coverage and scale? Are there competitive niches into which companies which are unlikely to develop as worldwide competitors able to locate in order to survive? To what extent are the competitive strategies of individual companies realistic and sustainable?