The Strategy of Int Business

8/4/2019 The Strategy of Int Business

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Competitive strategies:

Global vs. local

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Global competitive strategies

The G5

Platform strategy

Network Strategy Intermediary strategy

Entrepreneur strategy

Investment strategy



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• Home, supplier, partner, and customercountries of competitors – differences assources of competitive advantage

• Differences in global value connection• Differences in products, brand, technology

• Differences in impacts of political, legal

and regulatory climate – tradeagreements, home country policies

Design global competitive strategiesfor competitive advantage




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Competitive advantage must berelative to both global and localcompetitors:

Unilever in US: Breyers,Ben and Jerry’s, Good

Humor, Klondike, Popsicle

Nestlé in US: Dreyers

The great ice cream battle

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• Gujarat Cooperative Milk MarketingFederation (GCMMF): India's largest food productsmarketing organization.

• Two million farmers in the cooperative

• Slogan: “A taste of India”• PRICE: 10 rupees (20 cents): 100 milliliter Amul ice

cream versus

80 milliliter Hindustan Lever Kwality Wall vanilla ice

cream• ADVERTI IN T : Amul: 1 o sales versus

UNILEVER in India – Kwality Wall

Hindustan Lever faces successful local competitor



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Umbrellabrands:

Nestlé

products in

the super-market.

Some

products

carry both

globalbrand and

local

brand.



Global platform strategy

The global challenge

Global market size:standardization

Local differentiation:customization

Strategy: Determine best combination of global and localactivities for competitive advantage



Forces calling for global products (standardization):

• Convergence in customer preferences and income

across target countries with economic development and

trade• Competition from successful global products

• International brand awareness

• Cost benefits from standardization• Falling costs of trade with greater globalization




Forces calling for local products (customization):

• Differences in customer preferences and income acrosstarget countries

• Build local brand recognition

• Competition from successful domestic products

• Regulatory requirements (quality, safety, technical

specifications, domestic content) -- EU productstandards

• High costs of trade create separate markets





Reduces development and productioncosts

Used in automobiles, mobile phones,computers, aircraft

Example: Cost per product (developmentand mfg): $80

Cost of basic platform development: $100

Cost of each variation (development andproduction): $50

Use platform when serving four or more

customer country markets: Compare costs



Business sells 10 units each in Country Aand in Country F

• Unit costs – economies of scale Two local products at 10 units each $

30/unitGlobal product at 20 units $

20/unit

• Price company can charge per unit:

Global product: $80/unit in each countryTwo local products: $95/unit in each

country

Global versus regional product:

Tailoring brings $ 5 more earnings per unit


Product variety versus economies of scale




International business managers make decisions aboutwhat should be global versus local:

• Products

• Technology and inputs

• Manufacturing

• Brands

• Marketing

• DistributionExample: Wal-Mart must compete with both international

players such as Carrefour and local retailers




Local brand positioning of a

global brand and global product• Corona sells the same beer,

produced in 8 plants in Mexico, allover the world

• Advertising adapts to targetcountries: begins as a workingclass beer in Mexico, becomes a

high quality import in most othercountries.

• Marketing adapts to local markets

• Corona coordinates internationallythrough its subsidiaries




• Most products are local and not branded. Forexample: in food sector Nestle estimates thatonly 1 % of all goods in food markets are branded

• Increasing number of international brands,Corona, Nestlé, Sony

• Increasing brand variations: BMW 3-series(1990s):

More than 1 million varieties can be ordered

• Local distribution and marketing

Example: McDonald’s, Coca-Cola: Global brand,some local product tailoring, reliance on localdistribution

• Local technology, production, customer service

Acer computer company



Global network strategy

• Create network of customers, suppliers, partners

• Use network to achieve global size and reach

• Use network to provide local customization

• Network relationships generate competitive

advantage



The international business contributes

value by creating an international

network: Recall Li & Fung

Networks can consist of informal

business relationships or more formal

contractual relationships

Networks facilitate coordination of

sourcing and serving

Network replaces n ∙ m links with

m + n links (hub and spoke network)

BuyersSellers

12 links

7 links





Physical networks:• Communications: Wired and mobile telephone systems

• Internet

• Transportation: Railroads, Airlines, Shipping,

Intermodal systems

• Energy: Oil and natural gas pipelines, Electric power

transmission and distribution

• Logistics: Postal systems, Wholesale and retail

distribution

Business networks:

Manufacturing, services, distribution, technology, social

networks (trust and information sharing)



Global network strategy:

The global factory

• Hong Kong manufacturers own or

contract with more than 40,000

factories in South China employing

four million workers

• To take advantage of specialized

sources in different countries - best

quality

• To take advantage of cost variations

across countries - least cost sources

• To take advantage of location -

minimize transport-costs, transaction

costs, and tariffs



• Examples: Dairy Farm, Shell,Zara

• Growth: access to additionalcustomers

• Develop global brands• Coordination economies from

centralized regionalwarehouses and production

facilities• Provide access to sourcingnetwork – Enhances value of supplier contacts by expansionof distribution

• Lower transaction costs for

Global network strategy:

The global store




• Network effects: Number of members can affect the valueof most of existing links

• Architecture: Structure of the network affects costs and

performance (hub-and-spoke versus point-to-point)

• Companies should capture the value created by their network organizing activities

• Networks are mechanisms for delivering all kinds of

services, such as entertainment and information, rather than

physical products.“Access is becoming a potent conceptual tool for rethinking

our world view as well as our economic view, making it the

single most powerful metaphor of the coming age.” Jeremy

Rivkin The Age of Access




Partner networks

• Achieve global scale

• Members focus on their region

• Reduce competition by avoiding duplication of facilities and operations

• Avoid government restrictions on ownershipand market dominance

• Technology standard setting• Complements in production

• Complements in demand (game players and games)




Partner networks: Global reachBritish Airways / American Airlines

• Provide 60% of all transatlantic services

• "Alliance that Revolves Around You"

• ONEWORLD members: Iberia, Cathay Pacific,

Quantas, Finnair, Aer Lingus, Lan Airlines (Chile)• The airlines cooperate on scheduling and

ticketing, frequent flyer programs, airport clubs,baggage handling, customer service

• Competitive response to the STAR ALLIANCEfrom United, Lufthansa, SAS, Air Canada and

Thai Airways (210,000 Employees, flights to578 cities in 106 countries)

• 600 destinations in 135 countries around theworld, operating over 8000 flights daily, 230



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Partner networks: Technology standards

Mobile phone operating system: Owners



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Mobile phone operating system: Licensees



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• Software licensing company

•Open- standard operating system

• First open Symbian OS phone (in 2001):

Nokia 9210 Communicator

• About 85% market share• Standard-setting network



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Franchise networksAdvantages

• Rapid international growth

• Local ownership

• Local management

• Lower capital outlaysDisadvantages

• Search cost of finding franchise

owners overseas

• Costs of monitoring performanceacross borders

• Transaction costs of forming franchise

contracts in other country remains



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Matchmaker

Brings buyers and sellers together across international

borders

Market maker

Creates and operates markets that cross international

borders

Agent

Provide representation in other countries

Global intermediary strategy



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Matchmaker

• Bridge international differences in goods and services, business practices, law and regulations, currencies,

languages, time zones

• Provide value-added activities

• Representative agents in sales, distribution, purchasing,financing, contracting, and supply chain managers

• Match offers to buyer and seller needs: product features,

location, time.

• Avoids costs of search for buyers and sellers

• Reduces buyer and seller risks from dealing with few

trading partners,



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Matchmaker

• Language: Seller speaksChinese, buyer speaksSpanish, intermediaryspeaks both

• Currency: Seller wantspesos, buyer has dollars,intermediary changesdollars to pesos

• Distance: Seller is in Thailand, buyer is inBrazil, intermediaryarranges transportation

• Trust: Buyer and seller

both trust theintermediar without

• Time: Seller is in Japan,buyer is in Mexico,intermediary operates inboth time zones

• Knowledge: Seller inGermany knows productiontechnology, buyer in USknows preferences of UScustomers, intermediarycombines knowledge of

supply and demand acrossborders

• Culture: Seller and buyerare in different countries,intermediary adaptsproducts, services, contract



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Mitsui

“Our first corecompetence isfacilitatinginternationaltrade withinnovativeservicestailored to

client needs”



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Mitsui

“Our secondcorecompetence is

working with ourglobal clienteleto create newtrade flows and

new business”



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Mitsui

“Distributor of goodsand services;

Transfer agent fortechnology;

Financier, Investor;Project organizer;

Market developer;

Resource developer;

Well-informedconsultant andbusiness partner.”

Mitsui



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Mitsui is in top 15 of Fortune Global 500

http://www.mitsui.co.jp/tkabz/english/corp/index.htm



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Global intermediary strategyBeating bypass competition

Trade

Country H

Transaction cost T

Serve

Country ASource

Country BBypass competition

Transaction cost T*

Transaction strategy

offers innovative

transactions

Your costs of trade T

must be less than

competitor costs of trade

T*

Example:

Li & Fung



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Market maker

• Cemex

• Mittal

• Cargill

• BP Amoco

• eBay

The global market

maker aggregates

demand across

countries andaggregates supply

across countries



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Ingram Micro: the leading international

wholesaler of technology products and services

• Wholesales 280,000 computer hardware and software products –

think of number of prices!

• Sources in US and many other countries from 1,700

manufacturers

• Serves 175,000 resellers in more than 100 countries

• Serves through operations and affiliates in 35 countries

• Establishes prices, coordinates sales and purchases, clears themarket, allocates products


Market maker



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Global intermediary strategyMarket maker

• Creates and operates international markets

• Chooses prices, conveys information

• Adjusts sourcing and serving to clear markets – avoids efficiency

losses from market imbalances

• Provides immediacy: ready to buy and sell

• Allocates goods and services across countries

• Gathers and aggregates information about customers and

suppliers on an international level, inventories, orders, and production

• Applies IT to international coordination

• Earns returns from international risk pooling



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Global intermediary strategy Agents

• Export Marketing Company (EMC) represents sellers,

can be broker or dealer, bears risks, arranges resale,

transportation, credit

• Export Trading Company (ETC) represents buyers,

handles imports, usually takes title to goods

• Act as international agent: provide expertise in negotiation,

market knowledge

• Provide trust to buyers and sellers

• Allows principal to delegate authority for distant

transactions

• Provides market expertise, often to smaller firms



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Global intermediary strategyMore agents

• Piggyback arrangements: e.g. Sony distributes in Japan for Whirlpool; GE Trading Co. distributes forother US manufacturers in Africa and LatinAmerica

• General Trading Companies: In Japan, there areSogo Shosha (large scale) and Senmon Shosha(smaller scale) trading companies. Similarcompanies exist in Europe, South Korea, Taiwan,Singapore and Hong Kong

• Government Procurement Agencies, e.g. ChinaCentral Trade Offices

• Distributor/Importer (jobbers, dealers,wholesalers)

• Direct sales (representatives that work on



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Global entrepreneur

strategy

• Bring buyers and sellers together in new combinations

• Provide new products to new customer countries• Arrange new production and procurement in supplier

countries

• Introduce innovative transaction methods across borders

– Citigroup financial services, Google, eBay

• Apply innovative technologies and business methods

• Create new business firms in other countries

• New inter-country connections!



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Global entrepreneur strategyMicro credit

In 1974, Yunus, a Bangladeshi economistfrom Chittagong University, led hisstudents on a field trip to a poor village.

They interviewed a woman who made

bamboo stools, and learnt that she hadto borrow the equivalent of 15p to buyraw bamboo for each stool made. Afterrepaying the middleman, sometimes at

rates as high as 10% a week, she wasleft with a penny profit margin.

1983: Yunus founds Grameen Bank

In Bangladesh today, Grameen Bank has

1,084 branches, with 12,500 staff

Muhammad

Yunus of Bangladesh

and the

Grameen Bank

jointly awarded

the 2006 NobelPeace Prize.

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Summary and take-away points

• Coordination of competitive actions across borders

key to gaining global competitive advantage

• Achieve standardization and customization

• Advantage over global and local competitors

• Many more strategies possible…

Investment strategy next time

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The Strategy of Int Business