Introduction to Strategic Management Session 6 International strategy Jens Schmidt
I. Globalization and global competition
Markets and supply chains are increasingly global
Outsourcing production to low-cost countries
Outsourcing service providers conquer the world
Location matters: Locational advantages
If you want to build a unicorn, go to Silicon Valley
What s the secret (or part of it)? But there are other factors: for example, a large home market helps scale faster http://www.ft.com/intl/cms/s/0/39001312-4836-11e5-af2f-4d6e0e5eda22.html
Competitive cluster: The German car industry 250km
Is the Silicon Valley a good place to start a car company? Not if you re betting on the combustion engine. But
II. Expanding business across borders
Internationalization Internationalization is a multidimensional process of increased incorporation of inward and outward company activities outside the borders of the home country Supply & operations Firm Sales & distribution
Market opportunities abroad: GDP growth
The Chinese car market
Drivers of firm internationalization
The internationalization process 1. Decision whether to internationalize 2. Decision which markets to enter 3. Decision on mode of entry 4. Decision on governance mode Adding more markets may affect mode of entry and governance mode
What business is Ikea in? Has Ikea been successful?
http://www.ikea.com/ms/en_us/pdf/yearly_summary/ikea-group-yearly-summary-fy14.pdf
Ikea stores by country
How does Ikea enter new markets?
Modes of market entry Export Directly selling to customers and/or distributors (no local presence) Licensing Local firm produces and sells products Strategic alliance / joint venture / partnership Production / sales&distribution together with (local) player Acquisition Buying firm that is established in the market (existing production and/or customer relationships) Greenfield operation Starting business in a foreign country from scratch
Ikea market entry dates until 1991 Sweden 1958 Switzerland 1973 Germany 1974 Austria 1977 Netherlands 1978 Spain 1980 France Iceland 1981 United Kingdom 1987 Belgium 1984 Italy 1989 Hungary 1990 Poland Czech Rep. 1991 1960 1970 1980 Norway 1963 Denmark 1969 Canada Australia Hong Kong 1975 Singapore 1978 Saudi Arabia 1983 Kuwait 1984 United States 1985 1990
How did Ikea sequence its market entries?
Organic vs. born global pathways to international markets External environment Favorable/unfavorable domestic/international market conditions Industry/sector trends Managers characteristics and mindset Internal environment Firm s human and financial resources Global management competences Global knowledge base and learning Organic pathway Decision to internationalize Born global pathway Home market Foreign market A Foreign market B Foreign market C Close markets Distant markets Home market A Home market B Home market D Home market C Focus on learning and minimizing risks Focus on exploiting opportunities
Challenges in internationalization: The CAGE framework Cultural distance Differences in language, values and social norms; customer/consumer expectations Differences in ways of work practices and co-operation (e.g. need to adapt sales & distribution models), management culture (e.g. hierarchies) Administrative and political distance Political risk, corruption, preference for local firms Trade bloc membership, currency risks Geographic distance Proximity, time zones; climate differences Logistics, transportation Economic distance Wealth and income distribution Availability of resources (human, financial, )
Fake Ikea store in China
How did Ikea adapt its business model in China?
The business model Products, services and customers Range of products and customer needs addressed Revenue logic and customer relationships Synergies between products and services Operations Set of activities and capabilities Location of operations Scope (in-house vs. outsourced) Sales, marketing & distribution Type of customer Channels Brands New product development Role and importance of product development and R&D Technologies mastered and needed
Responding to local market conditions: Lidl sells local products
Responding to local market conditions: Small packages in India
III. Managing an international business portfolio
International strategies: Managing the global-local dilemma Global strategy Transnational strategy Export strategy Multi-domestic strategy weaker stronger Pressures for local responsiveness
Which international strategy does Ikea pursue?
Standard template and local adaptation: Some examples Store format / design Product selection HR management Global integration (standard template for all countries) Blue & yellow, 5 showrooms, bags Most products the same, centrally sourced Same core values Local responsiveness (variation in template to adapt to local conditions) Adapt which products are on display, some local variation Some local variation, e.g. local products, larger beds Allows for local practices, like job rotation But some markets (like China) require more changes than others Source: Jonsson & Foss (2011)
What international strategy is best for car companies?
Organizing the multinational firm Global product divisions Transnational corporation International division Local subsidiaries low high Local independence and responsiveness Note: this is the multinational/ transnational structure matrix from chapter 13 (with axes changed)
Transnational organization: Product vs. markets matrix (e.g., Procter & Gamble) Combines local responsiveness with global coordination Benefits Built on the idea of knowledge sharing across units Take advantage of specialization Requires systems and processes for integration and managing as a network Challenges Diffuse responsibilities: two-boss problem typical in matrix organizations Difficult to set up
Managing internationalization and international strategy Globalization and global competition Internationalizing Opportunities Entry modes and strategies Overcoming challenges and adapting business model International strategy Resolving the global-local dilemma Managing and organizing an international portfolio
Outlook on period II: Strategy dynamics and processes No lecture next week In period II, we will have lectures on Mondays and Thursdays, but not during every week (check the website) One lecture about strategy dynamics and processes (Thursdays, starting 3.11.) One guest lecture (Mondays, starting 7.11.) Guest lecturers 7.11. Pekka Vanne, Boston Consulting Group 14.11. Juuso Jääskeläinen, McKinsey 21.11. Wilhelm Wolff, director corporate strategy, UPM 28.11. Marja-Leena Tuomola, head of Sanoma Digital Finland
Preview to upcoming lectures: Some questions we will discuss Why does Microsoft have over 90% market share in PC operating systems, but failed in mobile phone operating systems? Does Tesla pose a threat to the established car manufacturers, and is Tesla able to implement its aggressive growth strategy?