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Chapter 7: Strategy (4 International Strategies to compete in…

- - - - Primary Activities
        
        R&D: Value add thru design of products/services/production process
        (E.g. Banks compete on designing new financial products like mortgages, insurance policies, online banking, smart money cards.
        
        2. Production:
        Convert raw material to product
        (E.g. Producing cars, computers)
        Health care services: Production consists of delivering a service. (Eg. Heart operations, prescription)
        
        3. Marketing & Sales:
        Increase perceived value of a product/service through branding and advertising.
        (E.g. Gillette differentiate its razors from non-branded razors)
        
        4. Customer services:
        Giving support throughout the whole buying experience
        (E.g. US-based company Caterpillar manufactures heavy earth-moving machines and vehicles, and can deliver spare parts to a customer anywhere in the world within 24 hours after a malfunction.)
      - Support Activities
        (Inputs that allow the primary activities to occur)
        
        Logistics, Information system, HR management, Procurement…
        
        E.g. Logistics:
        Dell: Lower cost increase value of product
        
        Direct Model - Sells PC directly to customer without a retail channel
        
        Build to Order Mode: Keep inventories to zero
        
        Worldwide Integrated Supply Chain
- - - - 1. Political/Legal:
        
        promotes favourable conditions for economic growth?
        
        legislation to regulate business activities
        (E.g. Labour law, Education and training policies, Product Safety Law)
      - 2. Economic
        
        Wealth of Market
        
        Presence of Financial Markets – Banks/loan (Check)
        
        Investment by government, private sector, SMEs (Check)
      - 3. Social-Cultural
        
        Young workforce/aging population
        
        Values (e.g. support buying luxury items?)
        
        Education
        
        Demographic Profile
        
        Preference/tastes, health conscious, work-life
      - 4. Technological (Check)
        
        Adopt new technology/speed of change (e.g. Internet)
        
        Investment on R&D
        
        Infrastructure, Communication network
      - 5. Environmental: (Check)
        
        Sustainable and green issues
        
        Recycling and waste disposal
        
        Pollution laws
        
        Renewable energy
      - E.g. Automotive industry (Sports vehicle)
        P/L: Government COE can affect the sale of cars. Speed limit?
        Economic: Taxes for owning a car, tax on fuel. GDP per capital, Interest rates affects whether to take out loan to buy cars.
        Social-cultural: Society support the purchase of luxury items/ Interested in material things/status symbols? People Tech-savvy; buy things online and drive less.
        Technological: Infrastructure available? (E.g communications network, transport system, traffic condition) Technological expertise in the country?
    - - Analyse the internal and external influences of a company
        
        Focus on strengths, minimise weakness and threats, and take advantage of opportunities available
      - Minimax Analysis
        & SWOT of ZARA and Ikea (See my notes)
  - - - Cultural
        religious beliefs, language, social norms and behaviours
      - Administration
        
        political, legal, formal institutional systems
        (E.g. Formal colonies are more likely to trade with each other. Regional trading arrangements and common currency also increases trade by 300%.)
      - Geographical
        
        Physical distance, different time zone
        
        More likely to trade with countries that are nearer
        
        Physical distance affects cost of transportation
        (More likely to trade within 1000 miles apart, only 20% of trade with those 5000 mile apart)
      - Economic
        
        personal income, infrastructure, human talent
        
        similar economic profiles to replicate their existing business model
        (E.g. Walmart in USA and Canada are similar; failure to understand this made Walmart suffer badly in Asian countries - India, South Korea)
      - Example: CEMEX
        
        3rd largest cement company in the world
        
        Success is partly due to entering markets with shared similarities on several CAGE dimensions
        Cultural:Acquire companies from former Spanish colonies - less cultural differences
        Administrative:Many common policies, legal and institutional frameworks with other former Spanish colonies.
        Geographical:Cement have low value to weight - incur high cost of transportation with distance. Trade with former Spanish colony countries that are located near Mexico helps them to save cost on transportation.
        Economic:Most former Spanish colony countries are developing countries like Mexico - CEMEX’s business model will also work well with the other trading countries.
    - - Purpose:
        
        Adapt to host country to add value
        
        Lower cost by Aggregation and Arbitrage
      - Adaptation:
        
        Adjusting to difference between countries
        
        Offer different products/services to suit different consumer tastes in foreign countries. (Exploiting local differences)
        
        Pros: Adjust to host country needs
        Cons: Costly to implement
        
        Example: IKEA
        Adapts kitchen products to suit local living conditions
        (E.g. Chopsticks in Asia)
        (E.g. Asian countries (prefer public transport)- sited in locations with public transport; Europe - sited in suburbs with huge parking space)
        (E.g. Asia: DIY Fix-it culture is not dominant , hence it offers delivery and logistics services where a handyman team will help home owners with fixing the furniture.)
        Other Example: McDonald's adapt menu to countries
      - Aggregation:
        (Overcome differences using economies of scale – by grouping devices)
        
        Regional strategies that aggregate on geography – regional hubs, shared service centres in the region, regional marketing and sales platforms. (Exploit cost differences)
        
        Example: Tata Consultancy Services (TCS) - aggregates by language
        (Uruguayan operations service Spanish-speaking markets, Hungarian operation service German-speaking countries, and Morocco services French speaking countries)
      - Arbitrage:
        (Locating different parts of supply chain in different countries to take advantage of location economies)
        
        Produce in the location with lower cost, and sell it at locations with higher economic power.
        (Possible with the global supply chain management and improved communications and technology networks)
        
        Example: Lenovo Thinkpad
        
        Designed in the US, case keyboard and hard drives made in Thailand, wireless cards in Malaysia, microprocessor in the US, final assembly in Mexico, and then shipped back to US for final sale.
        
        Other example: DELL
      - Conclusion: Need to look at the trade-offs between the 3 A’s when entering a specific country to form an integrated AAA strategy.
        
        Uses of AAA: Helps a firm design strategy to deal with international differences highlighted by CAGE and PESTEL.
        
        4 international strategies
      - Limitations:
        
        Only large MNEs can implement AAA
        
        Stretch a managerial's bandwidth
        
        Force a company to operate with multiple corporate cultures
        
        Serious constraint to use all 3 A’s