External triggers External triggers to the internationalization process External triggers to the internationalization process Meta-level development in

External triggersExternal triggersExternal triggers to External triggers to

the internationalization the internationalization processprocess

Meta-level development in Meta-level development in the world economythe world economy

PEST analysisPEST analysisInternationalization of Internationalization of

industries: globalisation vs. industries: globalisation vs. localisationlocalisation (4C) (4C)Bi-polarisationBi-polarisation

3-Externel triggers-a 34 /3-Externel triggers-a 34 / 22

External triggers to the External triggers to the internationalization internationalization

processprocessDriving forces toward globalization - opposite forces => tensions

Current phase => Triggers may create conditions => Discontinuity => Next phase

Movement: bidirectional

increasing int’l exposure

decreasing


External triggersExternal triggers

INTERNATIONALISATIONINTERNATIONALISATIONMarket

penetration

Geographical expansion

Product development

Organizational dynamics

Vision mindset

Meta trendsIndustry

competition

RETRENCHMENT*RETRENCHMENT*

Internal triggersInternal triggers

Product extension

Restricted national

market scope

Figure 2.1. Developing an international business strategy

Intern’l business

development


External triggers

Current phase

DiscontinuityDiscontinuity

New international strategic thrust

Next phase

Internal triggers

Figure 3.1. External and internal triggers to a stage change


Three levels:Three levels:– meta levelmeta level– industry levelindustry level– FirmFirm--specific levelspecific level

InterrelatednessInterrelatedness!!!!!!

Meta level:Meta level: broad trends, collectively help to broad trends, collectively help to

shape competitive environmentshape competitive environment Question: Question: how they relate to how they relate to

individual industries and individual industries and competititorscompetititors


External triggers

Meta levelMeta level

World trade

PEST analysis

Industry level

Globalisation v

localisation

Firm level

Bi-

polarisation

Figure 3.2. External triggers at the meta, industry and firm-specific levels

TRINITYTRINITY

External triggersExternal triggersExternal triggers to the External triggers to the

internationalization processinternationalization process

Meta-level Meta-level development in the development in the

world economyworld economyPEST analysisPEST analysis

Internationalization of Internationalization of industries: globalisation vs. industries: globalisation vs.

localisationlocalisationBi-polarisationBi-polarisation


Meta-level development Meta-level development in the world economyin the world economy

the “Triad”the “Triad” interblock tradeinterblock tradedirect investmentdirect investmentdynamic adjustmentdynamic adjustment



TriadTriad 1/5 of global population, 4/5 of world 1/5 of global population, 4/5 of world

output (GNP)output (GNP) more manufacturing/service divisions more manufacturing/service divisions nationality of companies: outdatednationality of companies: outdated national government can not obstruct national government can not obstruct

or impedeor impede rraising import penetration: aising import penetration:

interlinked natureinterlinked nature

USA import:USA import:– 1970: 4.1% GNP1970: 4.1% GNP– 1980: 9.1 % GNP1980: 9.1 % GNP– 1990: over 18%1990: over 18%

Main competitors for indigenous Main competitors for indigenous firms are increasingly to be firms are increasingly to be

foreign!foreign!


Global marktes

Regionals markets

Regionals markets

Regionals markets

National markets

Capitol marketCapitol market

Conflicts of national Conflicts of national policiespolicies

Goods, servicesGoods, services

Integration, Integration, harmonization and harmonization and

protectionist regional protectionist regional policiespolicies

Labor marketsLabor markets

National employment, National employment,

training and fiscal policiestraining and fiscal policies


35% 740 m

Western Europe 28% 350 m

NAFTA 30% 370 m

Japan, Australia &‘Tigers’ 20% 400m

Africa, Middle East, Indian subcontinent

6% 1700m

34% 760m 25% 2300mThe

‘Triad’

Central & Eastern Europe7%; 390m

South & Central America4%; 390m

China, other Asian-Pacificdeveloping 5%; 1900 m

Figure 3.3. The ‘Triad’ and the world economy, 1991: percentage of world GNP; population in millions


NAFTA

South & Central America

Western Europe

Central & Eastern Europe

Japan and ‘Tiger’ economies

China & Asia Pacific

Africa, Middle East &India

28%

40%

34%

22%

68%

26%

47%

2001 1991

0 2000 4000 6000 8000 10,000Figure 3.4. Forecast growth of world ‘Triad’ markets, 1991-2001: levels of GNP (billion

USD) and estimated percentage changes over the period {World Bank]


1995: 1995: Uruguay Round of the GATTUruguay Round of the GATT: significant : significant reduction in the trade barriersreduction in the trade barriers cuts in tarifscuts in tarifs bringing in farm products, textiles, servicesbringing in farm products, textiles, services intellectual property rightsintellectual property rights conditions: when a state allowed imposing trade barriersconditions: when a state allowed imposing trade barriers

World trade growth > world outcome=>World trade growth > world outcome=>

XXI. CenturyXXI. Century: interlinked economy is likely grow faster : interlinked economy is likely grow faster => international competition is increasing more => international competition is increasing more quickly than output growsquickly than output grows

EU, NAFTA: large unified regional trading areaEU, NAFTA: large unified regional trading area

Liberalization promoted Liberalization promoted

inter- inter- and and

intra-block trade!intra-block trade!


Europe

Intra-Europe 1214.0 $bn (35,4%)

America Asia

Intra-Americas 270.4 $bn (7.7%)

Intra-Asia 413.5 $bn (11.8%)236.4 $bn (6.7%)

174,7 $bn (4.9%)

152.7 $bn(4.4%)

153.6 $bn (4.4%)

129.3 $bn (3.7%)

Key: = Exports to

Figure 3.5. Projected merchandise trade in US$ billion and as a percentage of world trade for the year 2005 [GATT Report]

184.8 $bn (5.3%)

Others: 14.9%


$ bi

llio

n100

80

60

40

20

0

-20

-40

-60

-22

-7

54

1987

-25-33

-5

63

-24

1988

-34

-8

63

-21

-51

-18

87

-18

1989 1995

Europe USA Japan Rest of world

Figure 3.6. Trade balance of world electronics industry: surplus/deficit in US$ billion


Direct investmentsDirect investments raising exchange rates (Japan, Germany)raising exchange rates (Japan, Germany) hard to raise productivityhard to raise productivity

Foreign assets: Japan $514 bl, Germany $300bl Foreign assets: Japan $514 bl, Germany $300bl (1992)(1992)

World trade flows increasingly reflect the World trade flows increasingly reflect the locational decisionslocational decisions of international of international

competitors and not just the competitive competitors and not just the competitive position of indigenous nationally owned position of indigenous nationally owned

companies!companies!…never has an economy passed so quickly as Japan from non-

industrialised backwater, through industrial giant, and now towards threatened industrial dinosaur - all in one generation.*


Dynamic adjustmentDynamic adjustment success eventually brings attendant success eventually brings attendant

difficulties (Japan, Germany)difficulties (Japan, Germany) facing structural challenges: raising affluence facing structural challenges: raising affluence

- erroding cost bases- erroding cost bases home manufacturing base: less and less home manufacturing base: less and less

competitivecompetitive loss of export sales and employment - loss of export sales and employment -

adjustments (time leg)adjustments (time leg)

Undermines the success of the Undermines the success of the previously rapidly growing previously rapidly growing economies =>economies =>

Enables new countries to become Enables new countries to become preferred production base!preferred production base! Trade protection: only a temporary solutionTrade protection: only a temporary solution Protection removes the competitive pressureProtection removes the competitive pressure Protection removed: adjustment more Protection removed: adjustment more

dramatic!!*dramatic!!*


The dynamics of the TRIAD world economy create The dynamics of the TRIAD world economy create instability and change, but there can be no such thing instability and change, but there can be no such thing as absolute winners or losers.as absolute winners or losers.

•Winning becomes increasingly expensive as wages and currencies are adjusted upwards.

•Loser economies, by contrast, are able to rejuvenate in the long term since an unemployed workforce is available at reasonable cost and backed by a week currency.

Time legs to this process ensure that the adjustment Time legs to this process ensure that the adjustment process is slow, with changes in political, technological process is slow, with changes in political, technological and social factors and social factors •either reinforcing the economic adjustment process either reinforcing the economic adjustment process •or retarding it.*or retarding it.*

External triggersExternal triggersExternal triggers to the External triggers to the

internationalization internationalization processprocess

Meta-level development Meta-level development in the world economyin the world economyPEST analysisPEST analysis

Internationalization of Internationalization of industries: globalisation industries: globalisation

vs. localisationvs. localisationBi-polarisationBi-polarisation


PEST analysisPEST analysis

– PPolitical-olitical-EEconomic driversconomic drivers– SSocial (lifestyle) changesocial (lifestyle) changes– TTechnological developmentechnological development

– Linking Linking PESTPEST and meta-level and meta-level changeschanges


PPolitical-olitical-EEconomic driversconomic drivers--11 Indian car component industryIndian car component industry

Indian companies: equipment suppliersMain advantages: low cost,

lax environment controlslong engineering tradition

Cost effective country for hothot and dirty dirty operations:

forging of heavy componentsmanual assembly


PPolitical-olitical-EEconomic driversconomic drivers--22

Disadvantage: adequate infrastructure adequate infrastructure reputation for poor qualityreputation for poor quality

Rejected as original equipment manufacturers => Rejected as original equipment manufacturers => only spare parts => only spare parts => low cost, low quality spares (half price) => low cost, low quality spares (half price) => undermines to supply original equipmentundermines to supply original equipment

LOW COST IS AN INSUFFICIENT LOW COST IS AN INSUFFICIENT COMPETITIVE BASE!COMPETITIVE BASE!


political forces: brought political forces: brought liberalizationliberalization

economic forces: responsible for economic forces: responsible for many of underlying dynamicsmany of underlying dynamics– cost differencialscost differencials– exchange ratesexchange rates– must recognise all inputsmust recognise all inputs– customers: not looking for low cost customers: not looking for low cost

at the expense of qualityat the expense of quality worldwide shift in economic worldwide shift in economic location: attributed to labor cost location: attributed to labor cost competitiveness; but:competitiveness; but:– productivityproductivity– qualityquality


Germany

Japan

USA

Italy

France

UK

Spain

Mexico

0.00 10.00 20.00 30.00

25.10

24.89

16.98

16.32

15.30

13.74

12.66

2.10

Labour costs per hour/US$

Figure 3.7. World component supplies, labour costs per hour (US$)

seats

exhausts

brakes


Germany

UK

Italy

USA

Japan

France

Spain

Mexico

0 20 40 60 80 100

100

60

51

50

47

40

27

12

Figure 3.8. Index labour cost per unit of output (US$)

Germany: 100%


Home based productionHome based production => => ccontinuing appreciation in ontinuing appreciation in the country’s exchange ratethe country’s exchange rate–drive down costsdrive down costs– locate production cross-border locate production cross-border – increase cross-border increase cross-border productionproduction

Otherwise: squeezed out of Otherwise: squeezed out of international marketsinternational markets

The location of low cost The location of low cost economic facilities is economic facilities is constantly changing!constantly changing!


SANRITSU ELECTRICSANRITSU ELECTRIC

(Tokushima plant, Shikoku island – currently: idle)

Sanyo Electric’ supplier for 26 years (CD, radio, casette player)

1993 August: no longer ordering

New source: Singapur!

October: Tokushima run out of orders!

Reason: yen’s sharp appreciation

Plus:- product prices fell- intensified competition

Japanese firms with higher cost => increasingly Japanese firms with higher cost => increasingly source products oversees!source products oversees!


Entry of KIA Motors into the US car marketEntry of KIA Motors into the US car market1994: replicate Japanese entry strategy in a high competitive market

- under-price products- similar quality- superior levels of standard equipments

Japanese producers: increase price (response to $/yen rate) => gap appeared at the bottom end

Toyota Corolla, Honda Civic: from $12.000Kia Sephia: $8.495

KIA strategy: replace Japanese models in the low KIA strategy: replace Japanese models in the low price segmentsprice segments

Japanese manufacturers: •unable to match the lower cost base of new entrants•unable to give premium price at luxory cars•increasingly caught in the middle


SSocial (lifestyle) changesocial (lifestyle) changesPowerful influence on customer choicePowerful influence on customer choice World is becoming a smaller placeWorld is becoming a smaller place

– reduced costs of int’l travelreduced costs of int’l travel– enhanced communication: information on enhanced communication: information on

productsproducts– worldwide homogeneity of consumers worldwide homogeneity of consumers

preferencepreference– convergence of customer requirements convergence of customer requirements

(cameras, jeans, soft drinks)(cameras, jeans, soft drinks) Continuing diversity: opposite directionsContinuing diversity: opposite directions

– cultural and language identitiescultural and language identities– national states, separate groups: national states, separate groups:

differences be recognizeddifferences be recognized

Lifestyle trends: critical external triggermay operate either •to accelerate the convergenceconvergence of the global economyor•continue to promote diversitydiversity


NISSANNISSAN

Manufacturing: Japan,Europe, North America

Strategy: need to penetrate successfully Triad markets

•customers in each Triad markets: vastly different needs

•sub-markets: also

Nissan’s believe: no universal world car!

•Basic models: meet some of the needs of each => to halve

•3/4 of sales: designed for specific markets

No averaging across markets to reach a compromise design!

- looks at Triad region by region- identifies each market’s dominant

requirements

‘lead countrylead country’ model => tailored to distinct needs of the dominant national markets


TTechnological developmentechnological developmentinformation technologyinformation technology

data collation, analysis, data collation, analysis, transfertransfer

coordinate activities from coordinate activities from diffuse locationdiffuse location

e-trade, e-financee-trade, e-financecommunicationcommunication

=> linking stock markets=> linking stock markets=> linking financial => linking financial systemssystems

=> finance company => finance company operationsoperations

travel and transporttravel and transport

Promotes changes, adoption to changesPromotes changes, adoption to changessatellite technology more quickly, cheaply pan-country media, pan-continent media


Developing technologiesDeveloping technologies

Gene splicingGene splicingbiotechnology (USA 70’s), pharmaceutical industry

Magnetic resonance imaging (MRI)Magnetic resonance imaging (MRI)body scanners showing images + biochemical reactions, medical equipment industry

High-temperature superconductivityHigh-temperature superconductivity80’s, new ceramic materials lose electrical resistance at workable temperature

Personal computersPersonal computers continuing advances: portable PCs rapid growth (Atari => Psion)


Neutral networksNeutral networks military applications (military applications (InternetInternet), ),

industrial and financial sector: industrial and financial sector: recognition, forecastingrecognition, forecasting

Communication satellitesCommunication satellites continuing growth and advancement continuing growth and advancement

((Berlin Olimpic Games => Telstar => Berlin Olimpic Games => Telstar => moon “landing’ => Sidney Olmoon “landing’ => Sidney Olyympic mpic GamesGames))

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External triggers External triggers to the internationalization process External triggers to the internationalization process Meta-level development in