Slides Course 6

8/9/2019 Slides Course 6

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From Internationalizationto Globalization of

Services

6thCourse


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downsizing mergers

acquisitio

ns

uncertainty

improving thebottom line

increasingcompetitiveness

Valuecentric business environment


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From internationalization to

globalization!"C in services #road de$nition of !"C % $rm which has the power

to coordinate and control operations in more thanone country& even if it does not own them'

#asic characteristics( Coordination and control of various stages of individual

production chains within and between di)erent countries* +otential ability to ta,e advantage of geographical

di)erences in the distribution of factors of production andin state policies*

+otential geographical -e.ibility / ability to switch andreswitch its resources and operations between locations'


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0otivations(

Strategic motives drive the decision to investabroad and become a !"C(

market seeking

resource seeking - raw material seeking efciency seeking

strategic asset seeking - knowledgeseeking

political safety seeking

client following

!hese categories are not mutually e.clusive


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1evelopment of !"C( sustainable competitive advantage that enables the

company to compete e)ectively in the home mar,et $rmspeci$c& transferable& and powerful enough to

compensate for the $rm disadvantages of operatingabroad 2foreign e.change ris,& political ris, and increasedagency cost3

competitive advantages en4oyed by !"Cs( economies of scale and scope

managerial and mar,eting e.pertise advanced technology $nancial strength di)erentiated products competitiveness of the home market / source of competitive

advantage / +orter5s diamond


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Firmstrategy&

structureand rivalry

1emandconditions

Factorconditions

elated andsupportingindustries

Government

+orter5s diamond model forthe competitive advantage of

nations

More demanding thecustomers, greaterthe pressure oncompanies

Direct competitionimpels forms toincrease productivityand innovation

Spatial proximity ofupstream anddownstream industriesfacilitates the exchangeof information

Key factors ofproduction arecreated!

Catalystandchallenger


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Internationalization theories ( 7ymer(

assumptions(

1omestic $rms have an intrinsic advantage over foreign $rms&a better understanding of the local business environment /nature of the mar,et& business customs& legislation etc'

Foreign $rms wishing to produce in that mar,et would have toposses a $rmspeci$c advantage that would o)set the

advantages of indigenous $rms / rm sie, economies of scale,market power, marketing skills, technological expertise F1I / became foreign production" instead of foreign

exchange" F1I / determined by the e.istence of intangible assets

that can be better e.ploited on the international mar,et*

!he ratio foreign a8liate production 9 local production ishigher for( Informationintensive activities :ctivities for which reputation ; the product itself


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Internationalization theories ( 7ymer(

!he possession of advantages as a cause ofinternational operations'

Firms are by no means equal in their ability to operate in anindustry' Certain $rms have considerable advantages inparticular activities' !he possession of these advantagesmay cause them to have e.tensive international operations

of one ,ind or another' 27ymer 6& ?


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Internationalization theories ( Vernon / evolution of international production(

A.planation of the locational evolution of !"Cand initial overseas investment by BS $rms' +roducers possibility of introducing new products

in their home mar,et 9 producers located elsewhere*

"ew products would re-ect the speci$ccharacteristics of the domestic mar,et Increased competition& e.port barriers / displaces

e.ports and redirects them to other areas in whichproduction has not begun

!he production cost advantages of the newer

overseas plants would lead the $rm to e.port toother thirdcountry mar,ets :s the product becomes standardized / production

will be shifted to lowcost locations in developingcountries'


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Internationalization theories (

Vernon /evolution of international production

(ligopolistic behavior of !"C( Innovation phase / country of origin( not only BS& but

also Auropean and Dapanese 0ature oligopoly / follow the leader strategy / leads

to a clustering of investment decisions Senescent oligopoly production locations are

determined by geographical di)erences in cost / lowcost locations at a global scale

"owadays( Eorld international investment / reciprocal 2cross

investment3 Initial source of innovation / from any point in the $rm5s

global networ,'


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1rivers of the e.pansion of

!"C activity in services !he rise in the share of services in economic activity !he growing service intensity of the production of goods !he e.ternalization of services to independent providers !he deregulation of service mar,ets !he liberalization of F1I policies

have created opportunities for increased services F1I'

greater competitive pressures in service mar,ets pushed $rmsto see, mar,ets abroad and strengthen their competitiveness'

!he ownershipspeci$c advantages of $rms& location

speci$c advantages of countries and internalizationadvantages to $rms from investing directly abroad

combine to determine the e.tent and pattern ofe.pansion by $rms from service industries


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Internationalization theories(

1unning / the eclectic paradigm(

: $rm will engage in international production when all thefollowing conditions are present( !he $rm possesses certain ownership#specic

advantagesnot possessed by competing $rms of

other nationalities*

Such advantages are more suitably e.ploited by the$rm itself rather than by selling or leasing them toother $rms / the $rm internaliesthe use of itsownershipspeci$c advantages*

!here must be location#specic factorswhich ma,e itmore pro$table for the $rm to e.ploit its assetsoverseas rather than in domestic locations'


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wnershipspeci$c advantages 2assetsinternal to a $rm3(

Own unique competitive advantages: producer services ban,ing& $nance& business& professional

services $rms are building global advantages based on theirpossession of, or privileged access to& proprietary information&tacit ,nowledge& s,ills& brand names and learning'

consumer services hotels& fast food& car rentals& retailing $rms are e.ploiting their homebased and9or local capa$ilitiesto organie activities& acquire ,nowledge about theircustomers& networ, with other agents and create strongbrand names'

services such as stoc, bro,ing& foreign e.change or securitiesdealing& business consultancy& commoditybro,ing& data

processing& data provision& data transmission and informationgathering and processing ownership advantages are oftenbased on thepossession of software and hardware skills andtechnologies%

some service $rms5 outward e.pansion insurance& trade&ban,ing& professional business services and retailing based

on their need for economies of scale and scope, as well asaccess to glo$al markets and supply capa$ilities'


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ocationspeci$c factors(

:dvantages available& on the same terms& to all$rms whatever the size and nationality& but arespeci$c to particular locations and have to be usedthere'

Services with low degree of tradability liberalization andmar,et growth remain ,ey to attracting F1I'

1irectly tradable services main location advantages( access to a good information and communication

infrastructure welldeveloped institutions trained human resources available for employment at

competitive cost'

ther types of location#specic factors( 0ar,et( dimension& potential esources( transport +roduction costs +olitical conditions Cultural9linguistic a8nities'


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Internalization advantages

easons( to safeguard proprietary ,nowledge ban,ing and $nancial

services& most informationintensive and professional services to ensure product quality advertising& mar,et research& some

consumer services to minimize transaction costs associated with opportunism to protect property rights to avoid search and negotiation costs to tap synergies from geographical diversi$cation $nancial

services to obtain inputs or develop new mar,ets trading companies

In other services& nonequity lin,s or minority 4oint ventures arepreferred hotels& restaurants& car rentals

Cooperative ventures a way of sharing $nancial ris, in suchindustries as investment ban,ing or insurance'


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OLI Advantages (ownership, localization, intern

Localization advantage

Internalization advantage

Ownership advantage

he compan! ownsspeci"c assets that

guarantee competitiveadvantage

#ould maintaining thecontrol over these assets

$e pro"ta$le %&

AS "

F1I

Internalizing assets

'elling,licensing andrenting assets

What type of

internationalization methodis more profitable FDI or

export?!

AS " A.port

Sursa( adaptare dupH 1unning& D' 2


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International e.pansion /o)shoring of corporate services

functions:ccording to B"C!:1 and #CG Consulting / o)shoring(

captive oshoring/ producing the service inhouse& by setting up ana8liate in the chosen location appro. >JKJL of the o)shoring activity ta,es place li,e this' captive o)shoring allows the company to ta,e advantage of the scale

and cost advantages& while maintaining operational control of theo)shored activities

ufthansa and +hilips established such centres in +oland& fortransactions processing and accounting operations'

outsourcing/ companies that choose this model aim at e.ploiting cost andspecialization advantages of some locations or suppliers& while agreeing togive up operational control'

:ny o)shoring decision requires a $rm to choose to remove a servicefunction previously underta,en inhouse at home and entrust it to a provider/ either its own foreign a8liate or a third party / located outside the homecountry'

!he potential for o)shoring of services may partly be gauged by theprogress in outsourcing of services at the national level


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International e.pansion / o)shoringof corporate services functions


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Locationselection

)shoring

Country of origin

Internalization A.ternalizationusinessOrganization

Integrated model for services

companies international

expansion

Captive)shoring

)shoring to anindependentsupplier

1omesticInternalization

1omestice.ternalization

*odel Impact +ontrol

)shoring to anindependent supplier

Captive o)shoring

1omestice.ternalization

1omesticInternalization

Source( #oston Consulting Group 2@JJM3&(chieving Success in )usiness *rocess +utsourcing and +shoring


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"oi modele de delocalizare


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Documents

Slides Course 6