Module-8

Internationalization, Driver, Porter's

Diamond,Market Selection & Entry,
Portfolio & performance
• Internationalisation- is a factor affecting many
organisations in a wide variety of ways. First of all,
internationalisation can extend both the size of
the market and the range of competitors. These
are issues faced everyday by a large multinational
like Dell, which sources, manufactures and sells
across the world and whose competitors come
from Japan, Taiwan and Europe.
• But even small firms are now increasingly ‘born
global’, as for instance small software companies
making applications for games systems or
telephone operating systems that are sold by large
corporations around the world.
• Public sector organisations too increasingly
confront the opportunities and challenges of
internationalisation.
• Patients in the UK National Health Service may
now have their operations undertaken
overseas, if appropriate services are not
available at home.
• It is possible to outsource ‘back-office’ public
sector functions to cheaper locations around
the world.
• Porter’s Diamond-The determinants of National
Advantage:-
• Porter’s Diamond suggests that there are inherent
reasons why some nations are more competitive
than others, and why some industries within
nations are more competitive than others.
• This is another example of how the impact of
macro-environment factors on the competitive
environment can be understood strategically.
• Porter suggests that the national home base of an
organisation plays an important role in creating
advantage on a global scale. This home base
provides factors which organisations are able to
build on and extend to provide such advantage.
There may be specific factor conditions that
help explain the basis of advantage on a
national level.
These provide initial advantages that are
subsequently built upon to yield more
advanced factors of competition.
For example, in countries such as Sweden and
Japan, in which either legislation or custom
means that it is difficult to lay off labour, there
has been a greater impetus towards
automation of industries.
• Home demand conditions provide the basis
upon which the characteristics of the
advantage of an organisation are shaped.
• For example, Japanese customers’ high
expectations of electrical and electronic
equipment have provided an impetus for
those industries in Japan leading to global
dominance of those sectors.
• One successful industry may lead to
advantage in related and supporting
industries.
• In Italy, for example, the leather footwear
industry, the leather working machinery
industry and the design services, which
underpin them, benefit from one another.
• In Singapore, port services and ship repair
industries are mutually advantageous.
• The characteristics of firm strategy, industry
structure and rivalry in different countries
also help explain bases of advantage.
• In Germany the propensity for systematic,
often hierarchical, processes of management
has been particularly successful in providing
reliability and technical excellence in
engineering industries.
• It is the process of opening the economies of
the nation for the other nations and to sync the
rules and regulations with other nations.
• Internationalization means to produce goods or
deliver services that have the capability of
entering into the international markets and have
the standards that are globally accepted.
• Internationalization is the process through
which globalization can be achieved.
• Globalization is related to economies of the
nation. Internationalization is more related to
the individual firm, business for goods and
services.
• The major example of Globalisation is
Elimination of Visa Obligations, removing tariff
and non-tariff trade barriers, liberalizing
investment-related obligations, etc.
• while an example of internationalization is
sourcing, producing or selling materials or
delivering services from one or more
countries, setting up of the branches and
subsidiaries in other countries, etc.
 Market Selection and Entry
• The process of market entry requires an
organisation to select attractive and profitable
national markets and to identify the
appropriate entry mode.
• The selection of national markets involves
considerations at the macro level and in terms
of competitive and market conditions.
• Some factors that require particular attention
in comparing the attractiveness of national
markets are these:
• Macro-economic conditions reflected in
indicators such as the GDP and levels of
disposable income which help in the
estimation of the potential size of the market.
Companies must also be aware of the stability
of a country’s currency which may affect its
income stream.
• The political environment may create
significant opportunities for organisations.
• The infrastructure of national markets will
also be an important factor in assessing the
attractiveness of national markets for entry,
in particular: – existing transport and
communication infrastructure; – availability of
necessary local resources such as
appropriately skilled labour; – tariff and non-
tariff barriers to trade:
• The extent of political and legal risks that an
organisation might face when doing business
in the country.
• For example, Microsoft has been engaged in
an ongoing effort to ensure the protection of
its intellectual property in the face of product
piracy in China.
Entry modes differ in the degree of resource
commitment to a particular market and the
extent to which an organisation is
operationally involved in a particular location.
The key entry mode types are: exporting,
contractual arrangement through licensing
and franchising, joint ventures and alliances
and foreign direct investment which may
involve the acquisition of established
companies.
• The joint venture is a business arrangement in which two or
more companies combine resources on a project or service.
• The length of the agreement and what resources it will
include will vary. Participant companies typically agree to
split any profits the venture creates. As a result, joint
ventures are potentially advantageous for companies in
need of expanded resources with minimal (or no) infusion of
capital.
• Caradigm (Microsoft Corporation + General Electric) One of
the more well-known joint venture examples is the
“Caradigm” venture between Microsoft Corporation and
General Electric (GE) in 2011.
•
A strategic alliance is an arrangement between
two companies that have decided to share
resources to undertake a specific, mutually
beneficial project.
• The deal between Starbucks and Barnes&Noble
is a classic example of a strategic alliance.
• Starbucks brews the coffee. Barnes&Noble
stocks the books. Both companies do what they
do best while sharing the costs of space to the
benefit of both companies.
• Foreign direct investment is critical
for developing and emerging
market countries. Their companies need
multinational funding and expertise to
expand their international sales. Their
countries need private investment in
infrastructure, energy, and water to increase
jobs and wages.
• In a franchising model, the franchisee uses
another firm's successful business model and
brand name to operate what is effectively an
independent branch of the company.
• The franchiser maintains a considerable degree of
control over the operations and processes used by
the franchisee, but also helps with things like
branding and marketing support that aid the
franchise.
• The franchiser also typically ensures that branches
do not cannibalize each other's revenues.
• Under a licensing model, a company sells licenses
to other (typically smaller) companies to use
intellectual property (IP), brand, design or business
programs.
• These licenses are usually non-exclusive, which
means they can be sold to multiple competing
companies serving the same market. In this
arrangement, the licensing company may exercise
control over how its IP is used but does not control
the business operations of the licensee.
• Governed by
• Securities law (franchising) Contract law (Licensing)
• RegistrationRequired Not required (Licensing)
• Territorial rightsOffered to franchisee
• Not offered; licensee can sell similar licenses and products in
same area.
• Support and training Provided by franchiser
• Not provided (Licensing)
• Royalty paymentsYes Yes
• Use of trademark/logoLogo and trademark retained by
franchiser and used by franchisee
• Can be licensed
• ExamplesMcDonalds, Subway, 7-11, Dunkin Donuts
• Microsoft Office
• controlFranchiser exercise control over franchisee.licensor does
not have control over licensee
 Ex:- Starbucks International Strategy
• Starbucks has developed an internationalization
strategy to enable the company to open stores and
franchises in countries across the globe.
• Starbucks entry into emerging and developed markets
is informed by market research. Starbucks conducted
market research to enable a deeper understanding of
the Chinese markets, and the way that capitalism
functions in the People's Republic of China (PRC).
China contains a number of distinct regionally-based
markets, a factor that makes market research crucial
to launching new stores and franchises in China.
• Instead of taking the conventional approach to
advertising and promotions—which could
have been seen by potential Chinese
consumers as attacking their culture of
drinking tea—they positioned stores in high-
traffic and high visibility locations.
• Moreover, Starbucks very deliberately began
to bridge the gap between the tea drinking
culture and the coffee drinking culture by
introducing beverages in the Chinese stores
that included local tea-based ingredients.
• Market research supported the development
of Starbucks' competitive internationalization
strategy. The overarching competitive strategy
was to create an aspirational brand.
• The Starbucks experience conveys status that
is highly appealing to those aspiring to
Western standards or to climbing the ladder in
their own culture. Market research indicates
that brand consistency is important to
Starbucks' customers.
• Market research helped to identify the
attributes of capitalism in the Peoples'
Republic of China (PRC).
• The middle class in China has rapidly accepted
Western standards as an acceptable standard
of the bourgeois class. Moreover, Chinese
consumers accept purchases of luxury goods
as a means of pursuing quality lifestyles.
• Under the influence of Communism, the
Chinese considered conspicuous
consumption to be decadent or indicative of a
lack of a nationalistic orientation.
• Capitalism in The Peoples' Republic of China
supports the status-conscious population that
manifests its interest in keeping up with the
Jones' through excessive luxury consumption.
• Legal environment- It is essential to understand the
intellectual property rights laws and licensing issues
when planning market entry in an emerging market. 
• Starbucks has used intellectual protection laws to
prevent its business model and brand from being
illegally copied in China.
• Four years after opening its first café in China in
1999, Starbucks had registered all its major
trademarks in China. A number of Chinese businesses
have overstepped legal bounds in their efforts to
mimic the successful Starbucks model.
 Continue,
• The complexity of the Chinese markets led to regional
partnerships to aid in Starbucks' plans for expansion in
China; the partnerships provided consumer insight into
Chinese tastes and preferences that helped Starbucks
localize to the diverse markets.
• Northern China - a joint venture with Beijing Mei Da coffee
company.
• Eastern China - partnered with Taiwan-based Uni-
President.
• Southern China - worked with Maxim's Caterers in Hong
Kong.
• Starbucks' competitive advantage is built on
product, service, and brand attributes, many of
which have been shown through market
research to be important to Starbucks'
customers.
• Western brands have an advantage over local
Chinese brands because of a commonly
accepted reputation for consistently higher
quality products and services, a factor that
establishes the Western brands as premium
brands in the minds of consumers.
• The portfolio manager is, in effect, a corporate
parent acting as an agent on behalf of financial
markets and shareholders with a view to
enhancing the value attained from the various
businesses in a more efficient or effective way
than financial markets could.
• Its role is to identify and acquire under-valued
assets or businesses and improve them. It
might do this, for example, by acquiring
another corporation, divesting low-performing
businesses within it and encouraging the
improved performance of those with potential.
Portfolio managers seek to keep the cost of the
centre low, for example by having a small
corporate staff with few central services,
leaving the business units alone so that their
chief executives have a high degree of
autonomy.
Some argue that the days of the portfolio
manager are gone. They are certainly not
popular with financial analysts not least
because financial analysts and investors have
become more adept at analysing for
themselves.
• Defn:- Synergy refers to the benefits that
might be gained where activities or processes
complement each other such that their
combined effect is greater than the sum of the
parts.
• The synergy manager: a corporate parent seeking
to enhance value across business units by
managing synergies across business units.
• In terms of corporate parenting, the logic is that
value can be enhanced across business units in a
number of ways.
• Resources or activities might be shared: for
example, common distribution systems might be
used for different businesses; overseas offices
may be shared by smaller business units acting in
different geographical areas; common brand
names may provide value to different products
within different businesses.
• There may exist common skills or competences
across businesses.
• For example, on the face of it there may be diverse
products or technologies within an industrial
products business; but the value-adding capabilities
of service offered to industrial customers may be a
common thread through such businesses.
• If this is so, then the skills and competences learned
in one business may be shared by another, thus
improving performance. Or there may exist expertise
built up, for example, in marketing or research,
which is transferable to other businesses within a
portfolio.
• However, the problems in achieving such
synergistic benefits:-
• Excessive costs: the benefits in such sharing or
transference of skills need to outweigh the costs
of undertaking such integration.
• Overcoming self-interest: managers in the
business units have to be prepared to cooperate
in such transference and sharing; and there are
reasons they may not wish to do so, not least of
which is that such sharing detracts from focusing
on the primary concerns they have for their own
businesses.
• The problem is that rewards to business
managers are typically on business-unit
performance, whereas under this strategy
they are being asked to cooperate in sharing
activities between businesses.
•
Managing the Corporate Portfolio:-
To take two examples: a parent acting as a
portfolio manager might be able to manage a
very diverse set of businesses with no
particular similarities between them, largely
by setting financial targets, whereas a synergy
manager needs to understand the businesses
well and can therefore probably only cope
with a limited number of related-type
businesses.