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slides for class on June 24
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Douglas Reid
dreid@business.queensu.ca@douglasreidTwitter hashtag: #MBUS902
Distances, Strategies and Internationalization
Source: World Wealth Report, 2011; Globe and Mail, June 24, 2011
You are here.
Where do you want to go next?
Administrivia
Breaks at 345, 515 PM (Kingston time)
Slides at slideshare.com (search for MBUS902)and on portal – after class
Twitter hashtag #mbus902
Distances
Strategy responses
Why MNEs exist
Summary
---------------------
Virtual office hours
Assignment Q’s
Repetition
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Customer willingness to pay
Cost of delivering
what the customer buys
Strategy
Increases willingness
to pay?
Meets hurdle rate for capital?
YesDo it!
Yes
Decreases cost?
No No
Meets hurdle rate for capital?
Yes Yes
No
Teach
No
Implementation happen primarily by changing the allocation of resourcesconsistent with objectives
Any non-human assetof an organization thata manager can deploy
Brands, equipment, IP, licenses, machinery, information, etc.
Money
People Skills
Time Duration, sequence and project choices to which you apply the money and people that you have
The Value Chain
Using the value chain
1. Understand what each category means
2. Decompose activities done by companies into categories
3. Do they raise WTP relative to cost?
4. If so, how to increase WTP?
5. If not, why? Can these activities be eliminated, or done by someone else,or done somewhere else?
In paired teams…
What are all the distances between you?
Do they matter?
Why?
What units of analysis?-Teams-Individuals
Fixed or changeable things?
Visible things or concepts?
Sensitive differences or socially easy ones?
Facts or beliefs?
Differences within or between?
Four types of distance matter in IB
Cultural distance
Administrative distance
Geographic distance
Economic distance
Different languages
Different ethnicities
Lack of connective social networks
Different religions
Different social norms
Absence of colonial ties
Absence of shared monetary or political association
Political hostility
Government policies
Institutional weakness
Physical remoteness
Lack of common border
Landlocked
Size of country
Weak transport’n or communication links
Climatic differences
Difference in consumer incomes
Differences in costs and quality of resources: Natural Financial Human Infrastructure Intermediate input markets Information or knowledge
Attrib
utes
Cre
ating
Dis
tanc
e
Source: Ghemawat, 2001
Distance Difference Cost Risk
Liability of foreignness
Globalization is about producing where it is most cost effective, sourcing capital from where it’s cheapest, and selling it where it is most profitable.
N.R. Narayana Murthy, Infosys, August 2003
Arbitrage focus: Value chain fragmentation
Cultural distance
Administrative distance
Geographic distance
Economic distance
Different languages
Different ethnicities
Lack of connective social networks
Different religions
Different social norms
Absence of colonial ties
Absence of shared monetary or political association
Political hostility
Government policies
Institutional weakness
Physical remoteness
Lack of common border
Landlocked
Size of country
Weak transport’n or communication links
Climatic differences
Difference in consumer incomes
Differences in costs and quality of resources: Natural Financial Human Infrastructure Intermediate input markets Information or knowledge
Attrib
utes
Cre
ating
Dist
ance
Source: Ghemawat, 2001
Arbitrage focus: CAGE
Taking on the costs of adjusting to differences arising from CAGE distances…
Then compete and win against host country firms
Adaptation
Local fit offsets liability of foreignness
Global advantages in increasing WTPKnowledge / skill creationBrand creation
Global advantages in cost reductionProcurement (volume)Scale production
Source: Khanna and Palepu
Adaptation: Use corporate strategy to fill institutional voids
Aggregation
Standardization
Adaptation
Similarity
Aggregate on Non-Country Bases
Channels
Client industries
Customer types
Culture
Administrative
Economic
Complex AAA Strategies
Why do multinational corporations exist?
Multinationals overcome
Differences
Cost
Risk
and compete with hostcountry firms.
But how?
Firm-specific advantage
Why Internationalize?
Resources (inputs)
Markets
Efficiency
Strategic assets
Others?
ADDING Helps Answer “Why?”
• Adding volume (growth)• Decreasing costs
• Differentiating (increasing WTP)
• Improving industry attractiveness (bargaining power)
• Normalizing (optimizing) risk
• Generating knowledge (or other capabilities)
Source: Ghemawat
] Scale advantages
Internationalization Process
Why
How
WhereWhat Locational attractiveness
Sum up… Twitter hashtag #mbus902
Virtual office hours
http://queensbusiness.adobeconnect.com/douglasreid/
Saturday, June 252:30 – 4:30 PM
Tuesday, June 297:00 – 9:00 PM
Backup will be Skype: dreid150
Questions about hand-ins, VOH, anything….?
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