Student Learning Notes
MCR008 – Corporate Strategy
Student Learning Notes
Topic 9: International Strategy
(Chapter 11 – Global strategies and the multinational corporation)
1. What are the special challenges associated with global strategic planning?
The challenges that must be allowed for in strategic planning for international businesses include
those arising out of dealing with different governments and regulations, economic conditions,
trade arrangements and barriers, local customer behaviours or deficiencies, levels of training and
the costs and capabilities of labour. All of these factors combine to mean that the strategic plan
for international business must incorporate flexibility and focus on the needs of the divisions in
different markets and environments. A ‘one size fits all’ approach is a guarantee for failure in
global markets where levels of competition will quickly push out organisations that do not have
this level of capability. From a planning perspective, this means that simple solutions, e.g.
centralisation to improve efficiency, cannot be applied. A careful balance between minimising
operating costs and achieving sufficient levels of flexibility is paramount, as is having a
concentrated focus and management competence.
2. What is the impact of globalisation on international market entry strategies?
Despite globalisation, it is still possible to enter international markets successfully. Dunning’s
theory suggests that the organisation must possess competitive advantages in the desired market,
and that there should be something about that market that can be combined with the
competencies of the organisation in a clearly advantageous manner. If after analysis of these
requirements, it is not clearly desirable for the organisation to enter the new market, then it
should not consider doing so. Competitors in the same markets will ensure that organisations that
are not committed to, and gaining substantial advantage out of, such markets will not retain
adequate market share.
Customers have become more aware of product and service standards and have access to greater
ranges of products and services than ever before. Globalisation has meant that there are basically
no untapped markets anymore. Even smaller markets, which have appealed in the past to small
organisations as niches that are unattractive to larger organisations and companies from larger
economies, are now also being taken up by multinationals who are raking over the remains of
global markets looking for further opportunities.
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The consequence of globalisation is that, while organisations must be well prepared, they also
need to move very quickly and take up opportunities whilst they last. The combination of speed
and preparedness is difficult, but it is an approach organisations must embrace if they are to be
successful in international markets.
3. What is the importance of management competency in international market entry?
Coordination of resources, management across different cultures and preparedness for a range of
unanticipated events or contingencies are just part of the portfolio of a good international
manager. Without these skills, or with skills that only suit service of a domestic market,
organisations will find it impossible to implement even the best planned international market
entry strategy. Furthermore, even if the organisation was to successfully enter the market, the
likelihood of it being a profitable process is substantially reduced if the correct management
competencies do not exist.
While this may seem a fairly obvious requirement, the number of large and, presumably, wellinformed organisations that enter international markets with inadequate international
management skills, is surprising. Entry into these markets with inadequate management
competencies is usually identified by failure and withdrawal from these markets in a relatively
short time.
Particular management activities to focus on when entering international markets include training,
job creation, upgrading of all competencies and introducing more flexible operating systems and
rules.
4. Describe the various international market entry modes. Briefly list the pros and cons of each
mode.
Exporting is attractive but demanding to maintain and, as a result of additional transportation and
other representation costs, not usually very profitable. Companies with high-value-added products
or services planning on entering a market where there is limited availability of competing products
or services may be able to maintain an export market entry strategy for a reasonable period of
time, until a competitor enters the market and undercuts their high-cost products or services.
International licensing and franchising shift the risk to the partner, but usually also result in
relatively small financial benefits. These arrangements usually mean that the company is
restrained from entering that market directly for a period of time, after which the licensee is
usually well-established and would represent significant competition.
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Contracts represent a self-contained opportunity for exposure to a local market, however the
peaks and troughs associated with operating on a contract basis will only suit organisations that
operate in the same way in their home environment.
Direct investment is the market entry approach with the most long-term viability, particularly the
establishment of a new business units or acquisition of an existing business unit in the target
market.
All of these approaches have risks and benefits associated with them. It is the ability of the
organisation to balance these, and be aware of its sensitivity to environmental/market variations
which will impact upon the way the market entry actually performs, that is the measure of success
for such a market entry exercise.
5. Contrast the classic structured approach to market entry with alternative approaches.
The classic structured approach is to plan entry into an international market on the basis of the
needs of the market, the availability of the right products or services within the organisation, the
formation of a strategic plan with qualitative objectives and specific entry modes and the design of
many plans for the various activities such as marketing and distribution.This is a solid and sensible
approach to market entry.
Its one drawback is that in many cases it may hinder the organisation from actually taking
advantage of a good market entry opportunity. The reason is that faster moving organisations may
snap up these opportunities, even if they then fail themselves because of poor planning. For
example, an organisation that rushes into a market, undercutting its more conservative
competitors, may also ruin the chances of viable pricing for new market entrants for some time. If
the market is not informed, as new markets usually are, the benefits of quality are unlikely to be
apparent to customers when there is a significant cost increase attached to high-quality products
or services.
Approaches such as franchising, joint ventures and contract jobs can often be good short-term
compromises, paving the way for the organisation to enter the market. These approaches must,
however, give way in the long term to the type of market entry strategy described at the
beginning of this answer.
6. Identify and discuss the success factors for establishing global business.
We have discussed the importance of management competency above. To be successful,
organisations also need to have a degree of focus on the global objectives they wish to achieve.
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While opportunism will bring the organisation closer to some good opportunities, most (if not all)
organisations simply do not possess the resources to take up all opportunities. Therefore,
opportunities for market entry must be taken up prudently and consistently with the other
planned market entry activities. For example, an organisation focusing on gearing itself up to enter
European markets should not suddenly jump into a market opportunity in China, for which it does
not possess the correct resources. Not only is this unlikely to be successful, but it could stop the
organisation picking up potential future opportunities that are in the area of focus.
On the other hand, organisations should not blindly stick with a particular course of action,
ignoring opportunities that may present themselves from time to time in different areas. The
recent findings that integration in international business does not necessarily provide the level of
benefit that one would anticipate mean that organisations sometimes can afford to diverge from
single focus activities. However, this must be done with the confidence that the management of
the organisation can cope with a more diverse range of responsibilities and that it has the skills
necessary for the market entry opportunity that has presented itself.
Finally, time is the most important ingredient for success in international markets. Entry into an
international market is simply not an easy activity. It will take time because of the need to gather
extra resources to develop the opportunities in the new market, and also the need to develop
people’s attitudes. A long-term strategy is really the only approach that has any guarantee of
success for international market entry. Tools such as the internet can be used to facilitate and
accelerate such processes. However, in the end, the organisation must be prepared to wait for
such activities to bear fruit. This is why it is so important to recognise and back the right
opportunities and pass up other opportunities that the organisation cannot afford.
7. What are some of the organisational structures that are appropriate for global business?
Why are these structures more appropriate for global operations than other kinds of
structures?
Typical organisational structures include:
 bureaucratic
 flat
 hierarchical
 centralised
Introducing international activity to a domestic organisation can be accomplished simply by adding
an export department or international division. However, major international initiatives, such as
transnational strategies, require structures that provide a lot of flexibility, such as matrix
structures, which can allow resources and capabilities to be transferred around the organisation
without a major reshuffle of the systems and reporting processes in the organisation. Such
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structures can still be oriented toward the overall organisational strategy, while allowing change at
the regional level.
8. What are the advantages for global businesses of operating in different regions?
The advantages include:
 access to different markets with different degrees of sophistication and the possibility of’
recycling’ of the technology no longer attractive to sophisticated markets
 access to local materials, services and labour at more attractive costs or with greater
availability
 ability to achieve economies of scale greater than possible in a domestic market
 access to local technology developments
 greater awareness of global level developments and development of management
competencies.
9. Describe the factors that are shaping international joint ventures.
The regulations in large, previously restricted markets such as India and China are becoming more
relaxed, reducing the pressure for compulsory global alliances and shifting the emphasis towards
establishing alliances to increase competitiveness, such as the sharing of critical resources
required for a particular market. Not all large markets are becoming less difficult to enter,
however, and accessing local distribution networks is still a driver for forming partnerships in
several large international markets. In many cases, new markets are so large that entering these
markets requires extensive levels of resources, encouraging organisations to enter into alliances to
share the risk.
Organisations in developing countries will often rely on alliances to provide access to technology
and an opportunity to learn more about developed country markets. Lenovo, through its
partnership with IBM is a good example of this. In other cases, the rate of local infrastructure
development may be so great that local contractors and governments actively seek out jointventure alliances to provide the resources necessary to meet demand.
Issues around maintaining strategic alliances include the protection of intellectual property that is
exposed as part of the partnership and the problems experienced when a partner withdraws from
the agreement. Mutual understanding of the purpose of the alliance and the expected outputs will
help keep the alliance focused on the desired goals. Having critical staff involved in the
partnership, such as the CEO and having good communication will also assist as well as
establishing formal positions around management of key resources shared by the alliances.
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10. Identify an industry that has limited imports or foreign direct investment. Explain why the
industry has escaped globalisation. Explore whether there are opportunities for successful
globalisation within the industry and, if so, the strategy that would offer the best chance of
success.
The bottled water industry in Australia experiences relatively limited imported product
competition and foreign direct investment due to the cost of importing water internationally
(although premium waters such as Perrier and Evian are present in the market). The naturally pure
water available in Australia provides a competitive advantage against which the imported
products (which also have to carry transportation costs) find it difficult to compete. The relatively
low cost of water production in Australia, current retail prices make foreign direct investment
relatively unattractive, although, the Coca-Cola Company is active in bottled water through its
Australian subsidiary, Coca Cola Amatil.
11. What characteristics of national resources explain the different patterns of comparative
advantage for Germany and Japan?
Japan has almost no commercial forests so its wood manufacturing industry infrastructure and
capabilities are not as developed as those in Germany which still has commercial forests. In
addition, industries requiring specialist wood products still operating German (including the
cuckoo clock industry). Neither Japan nor Germany has significant metal deposits and so their
infrastructure in both areas is very weak. Both Japan and Germany are significant manufacturers
of food and beverages, however, the Japanese efficiency in general manufacturing has spread to
its food and beverage manufacturing industries, dramatically increasing export levels and resulting
in much larger economies of scale. Refinery and chemical manufacture has long been a particular
strength of Germany which reflects the history of high demand for these products in Europe and
the convenience of many of the European rivers for transportation of these products. This has
enabled Germany to develop very efficient and effective refinery and chemical manufacturing
facilities. Japan’s development of these industries has been more recent and predominantly only
services in Japan, hence the economies of scale are smaller.
German manufactured motor vehicles predominately compete on the basis of quality and
advanced features, whilst Japanese vehicles mainly compete on the basis of quality and value for
money. Globally, there is more demand for value for money cars, which has resulted in greater
levels of sales and greater economies of scale for the Japanese automotive industry. Prior to the
Second World War, Germany would have possessed a greater comparative advantage in radio,
television and communication equipment manufacture. Following the Second World War, a
particular effort was made to encourage the development of these industries in Japan, taking
advantage of the relatively low labour costs are there and the impact of labour costs on the cost of
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this type of equipment. In addition, the shortage of raw materials supported the manufacture of
relatively small high-value products such as radios, in Japan. As a result, Japan developed
considerable expertise in the manufacture of this equipment and established large export markets
which enabled it to achieve high economies of scale. To this day, Japanese labour costs are still
lower than those of Germany, providing an ongoing cost advantage.
12. According to Porter’s Competitive Advantage of Nations, the United Kingdom possesses a
comparative advantage in several industries including: advertising, auction trading of
antiques and artwork, distilled alcoholic beverages, hand tools and chemical preparations
for gardening and horticulture. Use Porter’s national diamond framework to explain this
pattern of international competitive advantage.
Local demand for many of these industries (including advertising, antiques, alcohol and gardening
accessories) is very high in the UK resulting in extensive associated support industries and local
expertise being developed around these products. Whilst government support for these industries
may not be particularly high, significant rivalry from other European countries in these areas and
the relative ease of importation of these products would spur local producers to innovate in these
areas to maintain their domestic advantage. These innovations would provide the industry with a
comparative advantage in this area. The lack of government support might also have traditionally
driven this industry to operate more efficiently than other UK industries, such as the automotive
industry which has continuously received support because of its important role in providing
employment.
13. When Porsche decided to enter the SUV market with its luxury Cayenne model, it surprised
the industry by locating its new assembly plant in Leipzig in eastern Germany. Many
observers believed that Porsche should have located the plant either in central or eastern
Europe where labour costs were very low, or (like Mercedes and BMW) in the United States
where it would be close to a major market. Using the criteria outlined, explain Porsche’s
decision.
Porsche chose to locate their operations in an area where considerable existing automotive
manufacturing industry activity, trained staff and support industries already existed. Western
Germany has long been a centre of automotive manufacture. As a result, a large range of specialist
support industries, such as tyre and automotive component manufacturers are also wellestablished in that area. Demand conditions for luxury vehicles in Germany are high which has
created considerable competition amongst German automotive manufacturers including
Mercedes Benz, Porsche and BMW, so the local demand conditions could be expected to
contribute to creating performance improvements in the new subsidiary. As a high-value product,
transportation costs for a luxury vehicle are probably not a significant component of the raw costs
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in other international markets. The high level of competition in the German automotive
manufacturing industry could also be expected to produce innovations in this industry which could
be adopted by the new subsidiary as well.
14. As Swiss International Air Lines discovered, using matrix structures for global operations can
be challenging. However, it can be made to work – as the Siemens Group has demonstrated.
Identify the major advantages and disadvantages of a matrix structure for Wesfarmers (a
large diversified organisation). Visit the Wesfarmers website (www.wesfarmers.com.au) and
identify the various industries and locations in which this organisation operates.
Wesfarmers operates in a number of industries: supermarket retail (Coles), home improvement
and office improvement, consumer goods retail (Target and Kmart), resources, insurance,
chemicals/energy/fertilisers, and in the industrial and safety sector.
Advantages of a matrix structure for Wesfarmers:
– Resource coordination and efficiency in knowledge/information exchange across the
different product lines and industry sectors that the company is operating in;
– Flexibility in the allocation of resources (financial/human/technological etc);
– The matrix structure presumably helps in the faster flow of resources – it is more fluid,
making it easier to manage collaboration between functional areas
Disadvantages of a matrix structure for Wesfarmers:
– Can be very expensive to maintain such structure with so many product lines and industry
sectors;
– It introduces internal complexity when people may become troubled or unsure about who
they are supposed to approach to make decisions – should he/she report solely to the
divisional director or should the other divisional directors be included as well – the decision
outcomes would potentially affect all parts of the organisation so decisions cannot be
done/made in isolation;
– This also leads to a potential problem of internal conflict where some divisions may
wonder why certain divisions have a higher budget and/or resources as compared to
others.
15. British expatriates living in the United States frequently ask friends and relatives visiting
from the United Kingdom to bring with them bars of Cadbury’s chocolate on the basis that
the Cadbury’s chocolate available in the United States is manufactured under licence by
Hershey’s and is inferior to ‘the real thing’. Should Cadbury-Schweppes maintain its licensing
agreement with Hershey or should it seek to supply the US market itself, either by export
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from the United Kingdom or by establishing operations facilities in the United States?
Explain your reasoning.
One of the biggest issues for Cadbury Schweppes is whether sufficient control over the product
has been achieved through the Hershey’s licensing agreement. The demand for imported versions
of Cadbury chocolate may suggest that the full features or quality of the product is not being
achieved by the licensee and so Cadburys is not enjoying the share of the market that it might
otherwise achieve. On the other hand, the interest in British Cadbury chocolate may simply reflect
patriotism and slightly different customer preferences of a relatively small segment (UK
immigrants) of the US market. A larger issue, quite probably, is the lower returns that Cadbury will
be receiving from its licensing arrangement, compared to the returns it could potentially achieve
with direct investment in the very large US confectionery market. In the longer term, Cadbury
would be expected to transfer its chocolate manufacturing competencies to the US market
through direct foreign investment to achieve both a larger market share and also increase the
profitability of its US operations.
16. Has McDonald’s got the balance right between global standardisation and national
differentiation? Should it allow its franchisees in overseas countries greater initiative in
introducing products that meet national preferences? Should it also allow greater flexibility
for its overseas franchisees to adapt store layout, operating practices and marketing? What
aspects of the McDonald’s system should McDonald’s top management insist on keeping
globally standardised? Why?
Whilst McDonald’s does change relatively slowly to meet local demand, the Strategy Capsule
indicates that it is able to evolve its operations to suit local demands. Wholesale departure from
the franchise model will destroy the transferable competitive advantage that McDonald’s has to
offer and diminish the value of the franchise. As a franchise system is both complex (as some raw
materials are sourced from different countries and considerable training and equipment
development is involved) and has evolved over time, a more gradual adjustment to local
conditions should be adopted. On the other hand, McDonald’s may choose to retain a relatively
tight control over some aspects of operations permanently (such as marketing) to ensure that the
value of the franchise for all franchisees, is maintained. This is one of the main reasons for global
standards amongst such global businesses.
17. Consider the characteristics required of a global leader in an Indonesia-originating global
steel producer that is both interested in and affected by the growing economic and market
significance of China and India.
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The characteristics of the organisation could include some of the following although the list is far
from exhaustive:
– It has sufficient financial resources backed by favourable economic conditions in Indonesia
to ensure adequate access to capital;
– It needs to have sufficient human resources (and human resource management practices)
with regards to the Chinese and Indian markets so that they can target their efforts to
attract the possibly large number of consumers of steel;
– Technological resources are important so that business success in Indonesia could be
emulated in other countries;
– Market research is obviously important and the company needs to have conducted this
exercise comprehensively before entering the Chinese and Indian markets;
– The organisation must also be structured efficiently to accommodate different approaches
to business in the different locations (a transnational structure could be adopted);
– The company also needs to have a number of capabilities and core competencies in terms
of marketing, financial management, international resource management, leadership, and
supportive global supply chains management.