Session 8: Global Business

Strategies

Ms. Dilki Hansika

Department of Management

Department of Management
GLOBAL BUSINESS
STRATEGY
 LEARNING
OBJECTIVES
 To learn how firms gradually progress
through an internationalization process.
 To understand the strategic effects of
internationalization.
 To study the various modes of entering
international markets.
 To understand the role and functions of
international intermediaries.
 To learn about the opportunities and
challenges of cooperative market
development.

3
 THE STEPS TO DEVELOPING
INTERNATIONAL COMMITMENT

 Become aware of international

business opportunities.
 Determine the degree of the firm’s
internationalization.
 Decide the timing of when to start
the internationalization process and
how quickly it should progress.

4
MOTIVATIONS FOR FOREIGN
EXPANSION
Natural resource
Market seeking.
seeking.

Strategic resource
Efficiency seeking.
seeking.

5
 18.2 Questions to Consider Before Going Global

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part, except for use as permitted in a license distributed with a certain product or service or otherwise on a
password-protected website for classroom use.
DIMLAH TEA SUCCESS
STORY
INTERNATIONALLY
 Dilmah Tea was established by Fernando’s father Merrill J.
Fernando in 1988 based on the three core principles of taste,
health and purpose. Its introduction launched what Fernando has
deemed a ‘paradigm shift’ for the tea industry in Sri Lanka
against the odds.
 He added that Dilmah’s presence in the Asia Pacific region had
reached just about every country, though so far it been a
‘premium’ one. This means that Dilmah Tea is mostly found in
specialty retail and luxury hospitality, especially in Indonesia,
Australia, Thailand, Singapore and Malaysia.
 MOTIVATIONS FOR GOING
INTERNATIONAL ANOTHER
VIEW
Proactive Motivations Reactive Motivations
 Profit advantage  Competitive pressures
 Unique products  Overproduction
 Technological advantage  Declining domestic sales
 Exclusive information  Excess capacity
 Tax benefit  Saturated domestic markets
 Economies of scale

8
INTERNATIONAL ENTRY
STRATEGIES

Exporting
Importing

Licensing

Franchising

Foreign Direct Interfirm

Investment Cooperation
9
EXPORTING AND IMPORTING

 Firms can export and import using two

methods:
 Indirect involvement means that the firm
participates in international business through an
intermediary and does not deal with foreign
customers or markets.

 Direct involvement means that the firm works

with foreign customers or markets with the
opportunity to develop a relationship.

10
 STRATEGY
OPTIONS  Exporting
 Selling products produced in the home country

FOR to customers in another country.

 Low-cost way to expand into international markets
 Ease of selling on the Web has fueled export

GLOBAL activity.

FIRMS
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 Exporting Challenges
STRATEGY
 Communicating in a foreign language
 International shipping
OPTIONS FOR
 Product modification GLOBAL
 Governmental regulations and relations FIRMS
 Currency exchange rates and payment methods (CONT.)

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 INTERNATIONAL
INTERMEDIARIES
 Importers and exporters often use international
intermediaries who provide assistance in:
 Documentation
 Financing
 Transportation
 Identification of foreign suppliers and trading companies
 Providing business contacts

13
 EXPORT MANAGEMENT
COMPANIES
 Firms that specialize in performing
international business services for
other companies are known as
export management companies
(EMCs)
 The two primary roles of EMCs are:
 Agents
 Distributors

14
 LICENSING
 Under a licensing agreement, one firm permits
another to use its intellectual property for
compensation designated as royalty.
 The property licensed may include:
 Patents
 Trademarks
 Copyrights
 Technology
 Technical know-how
 Specific business skills

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 STRATEGY OPTIONS FOR GLOBAL
FIRMS (CONT.)
 Foreign Licensing
 Allowing a firm in another country to purchase the right to manufacture
and sell a firm’s products in international markets.
 Licensee—the company buying the licensing rights

 Licensor—the company selling the licensing rights

 Royalties

 Fees paid by the licensee to the licensor for each unit produced under a
licensing contract
 Counterfeit activity

 A counterfeit is an item that uses someone else's trademark without their

permission. By making or selling a counterfeit, criminals seek to profit unfairly
from the trademark owner's reputation. Counterfeiting is a fraudulent imitation
(a forgery) of a trusted brand and product, and it is a serious crime.

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for classroom use.
 FRANCHISING
 Franchising is the granting of the right by a parent
company to another independent entity to do business in
a prescribed manner.
 The major forms of franchising are:
 Manufacturer-retailer systems such as car dealerships,
 Manufacturer-wholesaler systems such as soft drink,
companies
 Service-firm retailer systems such as fast-food outlets.

 To be successful, the firm must offer unique products or

propositions, and a high degree of standardization.

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 KEY REASONS FOR
FRANCHISING
Market Potential

Financial Gain Saturated Domestic

Markets

18
 INTERFIRM COOPERATION
 A strategic alliance is an arrangement between two or
more companies with a common business objective.
 To better compete, many companies form strategic
alliances with suppliers, customers, competitors, and
companies in other industries to achieve goals.
 Reasons for interfirm cooperation include:
 Market development
 To share risk or resources
 To block and co-opt competitors

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 TYPES OF INTERFIRM
COMPETITION
Number of Partners
Equity 2 More than 2

Informal Cooperation
None
(no binding agreement)

None Contractual
Agreement
Consortia

New Joint Venture

Equity
Some Participation

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CONTRACTUAL AGREEMENTS

 Strategic alliance partners may join forces for R&D,

marketing, production, licensing, cross-licensing, cross-
market activities, or outsourcing.
 Contract manufacturing allows the corporation to
separate the physical production of goods from the R&D
and marketing stages.
 Management contracts involve selling one’s expertise in
running a company while avoiding the risk or benefit of
ownership.
 A turnkey operation is a contractual agreement that
permits a client to acquire a complete system following
its completion. 21
 EQUITY PARTICIPATION
 Some companies have acquired minority
ownerships in companies that have
strategic importance for them.
 Reasons for engaging in equity
participation include:
 It ensures supplier ability
 It builds working relationships
 It creates market entry and support of global
operations

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 JOINT VENTURES
 A joint venture involves the participation of two or more
companies in an enterprise in which each party
contributes assets, has some equity, and shares risk.

 The 3 reasons for establishing a joint venture are:

 Government policy or legislation.
 One partner’s needs for another partner’s skills.
 One partner’s needs for another partner’s attributes or assets.

 The key to a joint venture is the sharing of a common

business objective.

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 CONSORTIA
 To combat the high costs and risks of
research and development, research
consortia have emerged in the United
States, Japan, and Europe.

 The Joint Research and Development Act of

1984 allows domestic and foreign firms to
participate in joint basic research efforts
without the fear of antitrust action.

 Since this act passed, over 100 consortia

have been registered in the United States.

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 Political Risk

• The potential for political forces in a

country to negatively affect the
performance of businesses operating
within.
CHALLENGE
S TO GLOBAL Economic Risk
BUSINESS
• The probability government
mismanagement of the economy
changes the business environment in
ways that hinder the performance of
firms operating there.

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CHALLEN
GES TO  Economic Risk (cont.)
 Exchange rate—the value of one country’s currency relative

GLOBAL
to that of another country. Variations in currency values
affects the profitability of international trade deals.

BUSINESS

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Mutiple avenues to
internationalize

The key motivations to SUMMARY

expand

understand the different

ways to expand
internationally with the key
characteristics
EXTERNAL/DIFFERENTIATION: ALIGNMENT
FOR FREE AGENTS
Compensation
Compensation rates are relatively high in organizations

To hire and retain highly skilled employees, these organizations

must pay higher wages than other organizations.
In addition, variable transactional compensation provides higher
wages to top performers.
The lack of emphasis on long-term contribution means that newly
hired employees are often paid the highest wages
Designed to provide immediate reward for high contribution

Department of Management