You are on page 1of 7

2016/02/07

Learning Objectives of the Lecture


After this lecture you should be able to
understand:
The basic concept of SWOT analysis.
Application of SWOT to business, generally.
Application of SWOT to international
business.

INTERNATIONAL SWOT
ANALYSIS

THE BASIC CONCEPTS ON SWOT


ANALYSIS

Importance of SWOT Analysis

Situation Analysis is an important part of


International Business Planning process.
Situation Analysis involves scanning of the
internal and external environment of a business.
Factors INTERNAL to the firm are usually
classified as Strengths (S) or Weaknesses (W),
and those EXTERNAL to the firm are classified
as Opportunities (O) or Threats (T).
Such an analysis of the environment is referred to
as a SWOT analysis.

SWOT analysis provides information that is


helpful in matching a companys resources and
capabilities to the competitive environment in
which it operates.
As such, it is instrumental in the formulation
and selection of realistic Objectives and
Strategies.
The following diagram shows how a SWOT
analysis helps in achieving objectives:
3

The SWOT Analysis

Use of SWOT Analysis: The Matrix


A matrix can be constructed to help in
developing Objectives and Strategies that take
into account the SWOT Profile of a firm.
The SWOT Matrix is shown below:

2016/02/07

Broad Guidelines for Developing


SWOT Based Strategies

SWOT (or TOWS) Matrix


Strengths

Weaknesses

Opportunities S-O Strategies W-O Strategies

Threats

S-T Strategies W-T Strategies

S-O strategies pursue opportunities that are a


good fit to the company's strengths.
W-O strategies overcome weaknesses to pursue
opportunities.
S-T strategies identify ways that the firm can use
its strengths to reduce its vulnerability to external
threats.
W-T strategies establish a defensive plan to
prevent the firm's weaknesses from making it
highly susceptible to external threats.

FACTORS INTERNAL TO THE


FIRM FIRM
Strengths
A firm's strengths are its resources and
capabilities that can be used as a basis for
developing a competitive advantage. Examples of
such strengths include:

APPLICATION OF SWOT TO
BUSINESS, GENERALLY

Patents
Strong brand names
Good reputation among customers
Cost advantages from proprietary know-how
Exclusive access to high grade natural resources
Favourable access to distribution networks.

10

FACTORS EXTERNAL TO THE


FIRM

Weaknesses
The absence of certain strengths may be
viewed as a weakness. For example, each of
the following may be considered weaknesses:

Opportunities
The external environmental analysis may
reveal certain new opportunities for profit and
growth. Some examples of such opportunities
include:

Lack of patent protection


A weak brand name
Poor reputation among customers
High cost structure
Lack of access to the best natural resources
Lack of access to key distribution channels.

An unfulfilled customer need


Arrival of new technologies
Loosening of regulations
Removal of international trade barriers.
11

12

2016/02/07

Threats
Changes in the external environment also may
present threats to the firm. Some examples of
such threats include:

APPLICATION OF SWOT TO
INTERNATIONAL BUSINESS

Shifts in consumer tastes away from the firm's


products
Emergence of substitute products
New regulations
Increased trade barriers.

13

WHY FIRMS INTERNATIONALIZE


THEIR OPERATIONS: INTERNAL
FACTORS

In order to develop effective international


strategies, managers must examine their
enterprises' internal conditions; they must
conduct an internal audit to become familiar
with the company's internal situation.
Knowledge of their firm's internal factors will
help its managers develop wise strategies
(realistic) for penetrating a foreign market or
for coping with environmental changes.

14

Basically, managers need to consider whether


a company is Strong or Weak in regard to its: Money,
Physical assets, and
Personnel capabilities.

15

16

1. Money: Local and Foreign Sources


of Finance
Before venturing into international business, a
firm must assess how much money it can
access, including cash on hand, borrowing
power, and ability to sell stock, which can be
used to finance the strategy.
Even if an enterprise has access to the funds
required to finance the expansion, managers
should inquire about the availability of
financial assistance in the foreign market.

The governments of many foreign countries make


special concessions to foreign firms that bring them the
technologies they believe will aid their nations'
development efforts.
For example, the government of Morocco was actively
seeking foreign investment in its tourism sector.
To attract investment, it offered several incentives, such
as the possibility of 100 percent foreign ownership; tax
exemptions of up to ten years, depending on the
location of investment; and the availability of longterm, low-interest financing.
17

18

2016/02/07

2. Nature of the Firm's Physical Assets

3. Nature of the Firm's Personnel


Competencies
Furthermore, managers must obtain information
about their firms personnel competencies in
relation to the company's international strategy.
Does the enterprise have the personnel capable of
producing for the foreign market(s)?
Does it have personnel with the ability to manage
the international operations?
Again, some governments of foreign countries
assist in training personnel, as a means of
attracting technologies to aid in accomplishing the
nation's developmental objectives.

Managers also need to obtain information


about the enterprise's physical assets and their
current state.
Is their manufacturing capacity capable of
producing for the foreign market?
Or are new manufacturing means needed?

19

20

1. Implications for Market Entry Mode


The firm's internal conditions (Strengths or
Weaknesses) affect how it enters a foreign market.
Two fundamental approaches to conducting
business abroad are by exporting to it or by
manufacturing in it.
Exporting involves manufacturing at home and
shipping the goods to the foreign market.
Exporting generally requires less investment than
manufacturing abroad.

Implications of Internal Conditions


(Strengths and Weaknesses) for
Strategy

21

22

2. Lead from Strength


If the firms cash-short, has idle equipment, and its
personnel is not highly competent in international
business, the firm may prefer to export.
However, by producing abroad, the company can often
save on transportation, labor, and materials costs, as
well as on tariffs.
Therefore, if an enterprise has adequate cash to invest,
has international managerial know-how, the foreign
demand justifies the investment, and the foreign
environment is conducive to the investment, it may
want to produce abroad.

A business should always "lead from strength";


that is, a firm should focus on doing what it
can do better than its competitors.
For example, a firm's strength may be
engineering and design.
Instead of manufacturing, it may be more
efficient for the firm to farm it out to a
company whose strength is manufacturing.
23

24

2016/02/07

WHY FIRMS INTERNATIONALIZE


THEIR OPERATIONS: EXTERNAL
FACTORS

Furthermore, a firm may be strong in


production, but weak in conducting foreign
business.
This firm may therefore have to form a joint
venture or enter into a strategic alliance with
an enterprise that is strong in conducting
foreign business.

Historically, domestic enterprises have


internationalized their business operations
either to seize Opportunities or to deal with
Threats, or Both.
The ensuing sections discuss the opportunities
and threats that cause domestic enterprises to
internationalize their operations.

25

OPPORTUNITY REASONS

26

2. Greater Economies of Scale

1. Selling the Product at Higher Prices


Sometimes companies can sell their products
at a higher price in other countries.
For example, in China one can purchase a
bottle of beer for about U.S. $0.30.
The same bottle of beer sells for about U.S.
$1.30 in the United States.

Some enterprises internationalize their


operations because they find out that they
could earn higher profits by attaining greater
economies of scale with foreign expansion.

27

28

4. Appearance of New Markets

3. Cheaper Labour and Raw Materials


The cost of labour and raw materials varies among
countries.
In order to attract foreign investments, some lessdeveloped nations, have developed a capable
workforce.
The cheaper costs and the capable workforce in a
country sometimes enables foreign firms to realize
greater profits if they transfer their manufacturing
operations there.
Clothing, electronics, watchmaking, and numerous
other industries have transferred portions of their
operations to foreign locations in pursuit of lower costs.
29

Population expansion, income growth, and


technological advancements around the globe
have created new markets and demands and
thus new business opportunities.
Many domestic firms have internationalized
their operations to meet those new demands.

30

2016/02/07

6. Obtaining New Products for the


Domestic Market

5. Faster Growth in New Markets

Many individuals from the home market travel


abroad and develop a desire for a product that
they would like to have available in their home
market.
For example, English ales, German beers, and
French wines sell well in the U.S. market.
Domestic enterprises therefore internationalize
their operations to obtain products for domestic
consumers.
If they do not, their competitors will.

Many domestic organizations have a strong


growth orientation.
These firms often enter foreign markets
because they can grow at a faster rate there
than they can in the established domestic
market.

31

32

THREAT REASONS

7. Globalization of Financial Markets


In recent decades, there has been an expansion in
the ways by which international business can be
financed.
This growth in financial options has been the
catalyst for the expansion of international
business.
These new tools include the International
Monetary Fund, created in 1945 to encourage
world trade, and the World Bank, all created the
United Nations for the purpose of encouraging the
extension of loans to less-developed countries.

The threat reasons for internationalizing


operations include:
Protection from declining demand in the home
market,
Acquisition of raw materials,
Acquisition of managerial know-how and capital,
and
Protection from imports.

33

1. Protection from Declining Demand


in Home Market

34

2. Acquisition of Raw Materials

Demand for a firm's product may be low in the


home market due to recessionary conditions, a
saturated market, or a declining product life
cycle.
Many firms have been able to hedge against
recessions at home and maintain their growth
by expanding into foreign markets.

35

Some domestic manufacturers depend on


imported raw materials available in foreign
countries.
To be assured of the necessary raw materials,
some of these enterprises have set up
operations overseas.

36

2016/02/07

3. Acquisition of Managerial KnowHow and Capital

4. Protection from Imports

Enterprises sometimes must go abroad to obtain


the managerial know-how and capital that they
lack but need to improve their operations.
For example, in recent years, there has been a
booming demand for travel in Russia.
The Russian airline, Aeroflot, was one of the least
efficient airlines in the world.
To deal with this problem, the Russian carrier's
management shopped around for Western partners
who could bring the managerial know-how and
capital it needed to meet its expansion demands.

Foreign competitors often hold an advantage over


domestic firms because they have access to
cheaper labour and/or materials.
To remain competitive, domestic firms must
transfer their production activities to a foreign
country to obtain the same cost advantages the
foreign competitors enjoy.
For example, many of the parts used to
manufacture U.S. produced automobiles are
actually manufactured abroad.

37

38