BU 491 Business Policy 2 International Strategy
Multi-national Entreprise (MNE)
For this course,
- substantial direct investment
- not just a trading relationship
- active coordinated management
- active input into the company, not just shareholder
- strategic and organizational integration
- operations in different countries
- Market seeking: fill capacity (grow sales revenue)
- Resource seeking
- secure key suppliers
- exploit factor cost differences
- Industry internationalization forces: scale economies, ballooning R&D investments, shortening product life cycles
- scale: volume
- scope: multiple products
- Global scanning and learning: access emerging trends, new technologies, and best skills worldwide
- Competitive positioning: e.g. use global operations to pre-empty others, cross-subsidize markets
Barriers to Internationalization
- different cultures have different beliefs
Culture distance, Administrative / Political distance, Geographic distance, economic distance.
Packaging regulation may seem small, but still comes up.
Taking Home Depot as an example, Chinese have a Do it For me, bargaining, city centre has richer people not the suburbs, homes were smaller and required immense effort not some DIY shelf.
Means of Internationalization
- giving a company the right to use a trademark
- Joint Ventures
Internationalization Process Theory
Foreign direct investment (FDI):
- incremental process of learning and increasing commitment to foreign market
- perceived uncertainty and knowledge
- gradually increasing internationalization after a long period of doing business exclusively in the home market
Global Integration vs National Responsiveness
- Transnational is both
- Global is integration
- world is one unit
- Multinational is responsiveness
- portfolio of local opportunities, local adaptions
- International is an in between
- domestic then international, domestic first view
What Three Global Giants Teach Us About International Expansion
Understanding the international context
What could happen going forward. Conclusions: want to take the probability into account to determine whether to make a decision. Identity current and future trends, summarize on supply, demand, and competition to link to Porter’s 5 forces.
- Global integration and coordination
- Factor costs
- Economies of scale and scope
- Liberalized environment for trade
- Local differentiation and responsiveness
- Cultural differences
- Countries current situation plus government demands
World of opportunities: https://www.hofstede-insights.com/country-comparison-tool
Multinational Company vs. Host Government
Increased need for rapid and coordinated
- Shortening product life-cycles
- Increased cost of R&D
- Emergence of global technology standards
- Competitors’ ability to develop and diffuse innovation globally
Are Businesses Ready for Deglobalization?
Such a technological fragmentation [(censorships of web platforms by different countries)] would disrupt global supply chains [(in which manner?)] — which enable global corporations to gain a competitive edge by selecting the most cost-effective solution at each stage of the production process. And the move away from such centralized procurement [(what is the procurement and what makes it centralized?)] raises the costs of and reduces the efficiency gains from shared global services [(like what?)].
- War for talent
- Corporate Finances and Regulatory Regimes
- corruption indexes
- risk appetite
- shared understanding
- reduce blind spots
- how to get good information
- ensure rigorous analysis
- reduce exposure
- system and team for timely warning and action
- limiting damage when something bad happens
- Capitalizing on near misses???
- Effective reaction
- Continuous learning mechanisms
Sher-Wood Hockey Sticks
No context that GM literally failed
Chevrolet S-10 was the first car made in 1982
Union Auto Workers Union
You can’t smell Fuyao without F-U
Is Fuyao an example of “How to take on the World”?
- Fuyao is a company for automobile glass, 70% of the market.
- Melding US and Chinese culture
- No union
- Used to be a GM motors plant, leaving 2,000 families unemployed and now 1,000 employees employed
What were the major issues that impacted the company performance?
- Americans had fat fingers LOL and were slow
- Water spots
- Draining the washer
- Americans afraid of heat
What do you think the company did well?
- Chinese national pride
What could the company have done better?
- Again safety
- Thinking and planning operations efficiency before opening the plant
Was there anything that surprised you?
- GM was paying $29.4/hr in 2008…
- Fuyao was paying $12.84
- People lost their homes when they lost their jobs at GM
- This guy was eating two twinkies for lunch
- The Washington Post picking out the pro union worker out of 2,000 workers
- The U.S senator was bold to trash talk the company at their event
- The exact time there is an audit and video recording, the glass breaks
- Attendance counting at the Chinese plant
- Tens of millions of dollars were given by Dayton
What is your most important learning from this film?
- The rat race is not attractive
- Need to get into politics because that’s where the good life is at it seems
The anti-union consulting should be banned. It’s classic union busting. Let unions fail naturally. Employers should not be able to pay consultants to avoid unions.
Unionization failed 40% to 60%.
Worldwide Competitive Advantage
- value of outputs / value of inputs
Building Multinational Flexibility
The ability to manage risks and exploit opportunities arising from the diversity and volatility of the global environment.
Diversity and Volatility
- Macroeconomic (FX, price changes)
- Political risks
- Competitive risks (competitor’s actions)
- Scannning and responding to discontinuities
- Selecitng mos attractive markets
Building Worldwide Learning
- Capture external diversity
- Leverage internal variety
- Worldwide human resources
- Opportunity to leverage central and local innovations
- Create true global innovation by linking sensing
- National differences
- Scale economies
- Scope economies
How to use these to our advantages?
- Need to pick position and find niche in marketplace
Traditional Strategic Postures
- International strategy
- Home country
- Differentiation (revenue at site)
- Global efficiency
Adaption: customization increases market share
Aggregation: deliver economies of scale through regional or global operations
Arbitrage: exploitation of differences between national and regional markets
Competitive advantage: why globalize at all
Configuration: location of overseas operations
Coordination: how to connect international operations
Triple A Strategy
- focus on one or two As
- New elements need to fit well
Why do transformation efforts fails?
- Lora Brill: United Cereal’s European vice president
- March 2010
- Healthy Berry Crunch, a new breakfast cereal that the French subsidiary wanted to launch
- Started by Jed Thomson in 1910 at his grocery store in Kalamazoo, Michigan
- main competitor is Kellogs
- Local markets resulted in 25% higher SG&A expenses than in the US
- National subsidiaries each lead by a Country Manager (CM) because of major differences
- lead to contradictions in marketing
- most CMs now favored product extensions over new product introductions, and many increasingly relied on cost reductions in their existing portfolios to maintain profits
- Arne Olsen, a Norwegian appointed as UC’s European VP in 2002 - 2006
- PodCafé debacle
- First launched in Germany, but three years later copycat products showed up in other countries
- Jorge Sanchez Division VP - Southern Europe
- Jean-Luc Michel, Country Manager France
If you were Lora Brill, would you authorize the launch of Healthy Berry Crunch in France?
Yes, because competitors are also doing it and the repurchase percentage consideration is more than 60%
Is United Cereal a centralized or decentralized organization?
- Centralized in terms of decision making and organization structure.
- Decentralized because of product adaptions in every nation
Should Healthy Berry Crunch become a Eurobrand? Why or why not?
No because the organization structure is not simple to covey and results in each VP taking on more responsibilities. Then there’s the issue that each country would have to be on board and be capable of also launching products. Spain and Italy are not going to be able to keep up. The test cases were’t done in every country either. If the overall goal is to prove that a Euro brand strategy is viable, then the first case product should be crystal clear.
What would you recommend if you were Lora?
Launch Healthy Berry Crunch and create a reorganization plan so that the next product can become the Eurobrand.
How would you implement tour recommendation
The two issues is the organization structure with regards to Eurobrands and the budgets for each subsidiary. With regards to organization, there needs to be a straight forward approach as James Miller said. A European product structure where there is clear authority for decision making. This would also result in lower SG&A expenses as decision making is now a stream lined process.
Developing a Transnational Organization
- Foreign product diversity vs Foreign Sales as a Percentage of Total Sales
Global matrix structure has fallen out of favour.
- Complex and bureaucratic
- Dual reporting caused confusion
a. European empire (multinational model) b. American empire (international model) c. Japanese empire (global model)