Business Strategy & Policy PSU MGMT #562

1. Business Strategy & Policy PSU MGMT #562 International Strategy Dave Garten daveoutside@alum.mit.edu

2. DeBeers Case • Objective: look at how monopoly power affects organizations & global industry -- how govt. policy & competitive forces seek to change it. • Learnings: • Antitrust policy is ultimately tied to consumers • Even the most powerful organizations have to react to a changing environment • It takes many years to bring down or build a powerful position. • Changing business models is frightening and risky – it is generally accompanied by resistance. X Dave Garten – Business Strategy

3. Session Objectives To Gain an Initial Understanding of: • Economic Value of International Strategies (Why?) • Options, Barriers and Approaches (What?) • Execution Considerations (How?) • Organizational Responsibilities (Who?) Dave Garten – Business Strategy

4. Int’l Growth Drivers (Why?) • Lowering of Intl Barriers • Improving logistics infrastructure • Improving communications infrastructure • Increasing standards • Heightened competition Dave Garten – Business Strategy

5. Why go International? Intel Revenue P&G: Steady int’l growth Source: Intel Annual Report, 2004 Dave Garten – Business Strategy

6. Int’l Strategy Drivers (Why?) Gain access to new customers Gain access to low-cost factors of production International Economies of Scope Develop newcore competencies Leverage currentcore competencies in a new way Manage corporate risk Derived from: Gaining and Sustaining Competitive Advantage, Second Edition, Jay B. Barney, 2002 p. 518 Dave Garten – Business Strategy

7. Access to New Customers Market Growth Customer that are willing to buy Segmentation Customer that are able to buy Targeting Target Market Product Price Place Promotion $ Dave Garten – Business Strategy

8. Access to New Customers - Barriers Dave Garten – Business Strategy

9. Access to Supply Chain • Raw Materials • Labor • Manual Labor • Knowledge Workers • R&D • Technology Dave Garten – Business Strategy

10. Options, Barriers, and Approaches (What?) What key issues must be addressed with your strategy?

11. Challenges & Opportunities • Heterogeneity across markets • Scale and Complexity of Global Operations • Unpredictability of economic conditions between countries (volatility) Dave Garten – Business Strategy

12. International Risk Factors • Financial – Complexity, Variability • Currency • Credit • Inflation • Political Risks • Macro scale • Micro scale • Relationship Risks • Communication/Culture • Objectives Dave Garten – Business Strategy

13. Execution Considerations (How?) VRIO?

14. Imitators • Direct Duplication of International Strategy • Will competing firms try? • Profits/market share motivate • Are they able? • Substitutes • Strategic alliances, diversification, M&A Dave Garten – Business Strategy

15. Growth Strategies Moderate Risk New Markets High Risk Access new customers with new competencies Access new customers Moderate Risk Current Markets High or Low Risk Develop new competencies or leverage current competencies in new way Do nothing New Business or Competency Current Business or Competency Dave Garten – Business Strategy

16. Market entry options Source: Berkowitz Dave Garten – Business Strategy

17. Organizational Considerations

18. Multinational Global Int’l Strategy: Organization Local Responsiveness Cost Efficiency X Dave Garten – Business Strategy

19. Appropriate Organizational Structure High Transnational federation Decentralized federation Importance of local responsiveness Coordinated federation Centralized hub Low Low Importance of global integration High Source: Gaining and Sustaining Competitive Advantage, Second Edition, Jay B. Barney, 2002 p. 546 Dave Garten – Business Strategy

20. Decentralized federation Coordinated federation Transnational Centralized Hub • Full P&L • Autonomy • Some Centralized Strategy • Regional specialization • Global leverage of competencies • Full P&L • High Autonomy • Duplication • Full P&L • High Autonomy • Some Centralized Strategy • Less Duplication • P&L • Low Autonomy • Execution Focus • Centralized Strategy • Less Duplication Organizational Structures Dave Garten – Business Strategy

21. Strategies for Emerging Markets • Then vs. Now • Then: low cost production, opportunistic export/marketing. • Now: revenue opportunities. Disposable income, reach of media/internet • High risks: political, economic & infrastructure • Distribution, market data, communications, instability/lack of regulatory discipline, product diversion, counterfeiting, complex networks. • Yet…opportunities…each situation is unique • General classification mask the complexities (ex: China GDP) • Political and social systems, openness , product markets, labor markets, capital markets • Corporate control very problematic • basis of business/competition so different (Local norms vs. MNC) Dave Garten – Business Strategy

22. Strategies for Emerging Markets Platform Investments Russia Leading Markets China, India, Brazil High Long Term Market Potential Aggressive Investments Chile, Czech, South Africa Trailing Markets Sub-Saharan Africa Low Low High Convertibility of profit Source: New Strategies in Emerging Markets by David J Arnold and John A Quelch, SMR, 1998. Dave Garten – Business Strategy

23. Implications for International Strategy • Global expectations change the game • Standards set at the global level -> launch globally • Global sourcing • Clusters of competitive advantage are dispersed • Suppliers, consumers, R&D, marketing, production • Productivity a key criteria for placement • Managed tension of global vs. local • Commonality (efficiency) w/ local requirements • Overseas assignments, frequent communication “A desk is a very dangerous place from which to view the world…” Dave Garten – Business Strategy