MIM Programme
INTERNATIONAL BUSINESS STRATEGIES
September 7, 2009
Andrey G. Medvedev,
Professor
INTERNATIONAL BUSINESS STRATEGY
PLAN OF THE COURSE
1. GLOBALISATION AND MULTINATIONAL COMPANIES
2. INTERNATIONAL STRATEGIC MANAGEMENT
3. GLOBAL–LOCAL DILEMMA
4. NON-INVESTMENT FOREIGN OPERATION MODES
5. INVESTMENT FOREIGN OPERATION MODES
6. INTERNATIONAL STRATEGIC ALLIANCES
7. INTERNATIONAL ORGANISATION DESIGN AND CONTROL
8. THE SUBSIDIARY-LEVEL STRATEGY
9. INTERNATIONAL OPERATIONS STRATEGY
10. REPORT PRESENTATIONS
11. INTERNATIONAL FUNCTIONAL STRATEGIES. CONCLUSIONS
© Andrey Medvedev
PHILOSOPHY OF THE COURSE

OUTWARD INTERNATIONAL BUSINESS
– AN AMERICAN APPROACH

INWARD INTERNATIONAL BUSINESS
– GSOM APPROACH
© Andrey Medvedev
READINGS

RECOMMENDED TEXT
– Hill C. W. L. International Business,
6th ed. 2007.
– Lasserre P. Global Strategic
Management, 2nd ed. 2007.

ADDITIONAL READING
– Bartlett Ch. A., Ghoshal S.,
Birkinshaw J. Transnational
management: text, cases, and
readings in cross-border
management, 5th ed. 2008.

CASE COLLECTION
© Andrey Medvedev
COURSE ASSESSMENT

IN-CLASS ACTIVITY (10 PERCENT)
– TEAM CASE ANALYSIS AND DISCUSSIONS
• STRATEGY, OD, FDI MODE SELECTION, COMPARISONS OF FOMs

MIMI-STUDIES AND IN-CLASS TESTS (20 PERCENT)
– MNC PRESENTATIONS (IN GROUPS OF TWO)
– MICRO-TESTS

GROUP PROJECT REPORT (20 PERCENT)
– INTERNATIONAL CASE ANALYSIS
WRITTEN REPORT AND ORAL PRESENTATION

EXAMINATION (50 PERCENT)
– WRITTEN TEST
© Andrey Medvedev
1. GLOBALISATION
AND MULTINATIONAL COMPANIES
1. THE NATURE OF INTERNATIONAL BUSINESS
2. MODEL FOR ANALYSIS OF FOREIGN ENTRY
3. INTERNATIONAL BUSINESS ENVIRONMENT
4. TYPOLOGY OF CROSS-BORDER OPERATIONS
5. MULTINATIONAL CORPORATIONS
© Andrey Medvedev
GLOBALISATION IS A MEGA TREND,
AND IT WILL PREVAIL
BASED ON ITS KEY DRIVERS:
TECHNICAL PROGRESS,
POLITICS AND ECONOMICS
Dr. Ulrich Lehner,
President and СЕО, Henkel KGaA
© Andrey Medvedev
THE NATURE OF INTERNATIONAL BUSINESS

DOMESTIC VS. INTERNATIONAL BUSINESS

MOTIVES FOR INTERNATIONALISATION
– PROACTIVE MOTIVES
– REACTIVE MOTIVES

BARRIERS TO INTERNATIONAL BUSINESS
– EXTERNAL ENVIRONMENT
– MANAGERIAL BARRIERS
© Andrey Medvedev
IMPORTANCE OF INTERNATIONAL
BUSINESS

Despite being the world’s largest beer producer,
Anheuser-Busch relies on the U.S. market for most of its sales.
Foreign markets account for only 16 percent of its revenue.

The fourth biggest beer company in the world, Heineken NV
owns 115 breweries in 65 countries. The home market
of the Netherlands accounts for only 14 percent of Heineken’s sales.
© Andrey Medvedev
GLOBALISATION

GLOBALISATION
– THE SHIFT TOWARDS A MORE INTEGRATED
AND INTERDEPENDENT WORLD ECONOMY

THE GLOBALISATION OF MARKETS
– THE MERGING OF HISTORICALLY DISTINCT
AND SEPARATE NATIONAL MARKETS
INTO ONE HUGE GLOBAL MARKETPLACE
– GILLETTE IN 120 COUNTRIES

THE GLOBALISATION OF PRODUCTION
– THE TENDENCY AMONG FIRMS TO SOURCE GOODS
AND SERVICES FROM LOCATIONS
AROUND THE GLOBE TO TAKE ADVANTAGE
OF NATIONAL DIFFERENCES IN THE COST
AND QUALITY OF FACTORS OF PRODUCTION
– GILLETTE IN 20 COUNTRIES
© Andrey Medvedev
FOREIGN ENTRY: A MODEL FOR ANALYSIS
Competences,
values, overall
strategy & OD
Industry (SBA) /
product nature
(multi-domestic
vs. global)
Current performance
Reasons to internationalise
PEST-factors of
opportunities
and threats
Goals of internationalisation
entry mode; entry-mix; entry stages
Implementation
Development (real option)
© Andrey Medvedev
REASONS TO INTERNATIONALISE: WHY?

UNSATISFACTORY CURRENT PERFORMANCE
IN COUNTRIES OF EXISTING OPERATIONS
BECAUSE OF
–
–
–
–
–
–
SLOW ECONOMIC DEVELOPMENT
UNATTRACTIVE REGULATION
HIGH BUSINESS RISKS, COMPETITION
SATURATED MARKETS, LOW DEMAND
LOW EFFICIENCY, HIGH COST
LACK OF RESOURCES, KNOWLEDGE, TECHNOLOGY,
COMPETENCES, SKILLED SPECIALISTS
© Andrey Medvedev
INTERNATIONAL BUSINESS ENVIRONMENT:
WHERE?

DIFFERENT POLITICAL AND ECONOMIC ENVIRONMENT
– POLITICAL RISKS, GROWTH RATE, INFLATION

DIFFERENT CURRENCIES
– EXCHANGE RATE FLUCTUATIONS

NATIONAL REGULATION DIFFERENTIALS
– ESTABLISHMENT, TAXATION, FUND REMITTANCE,
CURRENCY CONVERTIBILITY

NATIONAL CULTURAL DIFFERENTIALS
© Andrey Medvedev
RUSSIA: BUSINESS OPPORTUNITIES

Igor Savelyev, Wrigley’s chief for Eastern and Southern Europe:
“We’re open to more acquisitions in Russia.
There’s huge growth opportunity.” 17.09.2007.

Peter Forster, GM Europe president:
“We remain bullish and dedicated to Russia.” 11.11.2008,
at the ceremony of official opening a new plant in St. Petersburg.

Sanjay Khosla, president of Kraft Foods International Inc:
“We have already invested $100 million
in the construction of the coffee plant...
This year we will invest $50 million more to double that capacity.
According to our forecasts, the crisis will not change anything…
We see this trend clearly, even in the first months of 2009.”
09.06.2009, an interview with Vedomosti newspaper.
© Andrey Medvedev
RUSSIA: BUSINESS OPPORTUNITIES

Unilever plans to spend $140 million
on building Russia’s largest ice cream factory.
Unilever so far has 2,000 employees in its Russian companies
Antoine de Saint-Affrique, executive vice president of Unilever’s
Central and Eastern European businesses:
“The potential for growth is enormous here”.
Russia is “a key strategy priority” for Unilever,
as it has “been raising market share” and will “continue to do so.
We are extremely active in this country”.
03.07.2009, an interview with St. Petersburg Times newspaper.
© Andrey Medvedev
RUSSIA: BUSINESS OPPORTUNITIES


Intel has hired some 600 Russian computer specialists. Moscowbased Elbrus and its Novosibirsk subsidiary Unipro – two prominent
but sash-strapped research centres – signed an agreement with Intel
in May, 2004. The employees will actually be on the Intel’s payroll.
Christian Anderka, Intel spokesman: “This makes Russia
a very significant R & D centre for us. This is part
of our commitment to invest in growing economies.”
Hewlett-Packard announced plans to open
a research centre in St. Petersburg as a result of a strategy
“establishing research centres in growing economies.”
Shane Robison, HP executive vice president and chief strategy and
technology officer: “Russia’s high growth and pool of talent make it
an exciting location to expand HP’s global research capabilities.”
30.01.2007, the statement distributed on the web.
© Andrey Medvedev
COUNTRY RISKS (THREATS)
Possible regulation changes
Low level of economic freedom
High level of corruption index
Two-digit inflation
Dependence on oil prices
Growing gap between rich and poor families

NEVERTHELESS!

FOREIGN COMPANIES WIN 78 PERCENT OF TAX CASES
BROUGHT AGAINST THEM BY THE STATE
SINCE RUSSIA HAS RAISED EXPORT DUTIES ON TIMBER,
FORESTRY FIRMS INVESTED IN PROCESSING THERE

© Andrey Medvedev
GOALS OF INTERNATIONALISATION:
WHAT FOR?

DEMAND FACTORS
– MARKETS; CUSTOMER ACCESS

SUPPLY FACTORS
–
–
–
–

UNIQUE OR CHEAPER RAW MATERIALS
PRODUCTION EFFICIENCY (LABOUR, ETC.)
KNOWLEDGE, TECHNOLOGY, COMPETENCES, SKILLS
ATTRACTIVE BUSINESS CLIMATE (REGULATIONS, ETC.)
INTERNATIONAL DIVERSIFICATION OPPORTUNITIES
© Andrey Medvedev
FOREIGN MARKET AND/OR INDUSTRY ENTRY

MARKET ENTRY

INDUSTRY ENTRY

RUSSIA IS MAINLY A MARKET
FOR COMPANY’S PRODUCTS

RUSSIA IS VIEWED
AS A SET OF RESOURCES

INVESTMENT IS NOT NEEDED
(OR COULD BE RELATIVELY
SMALL TO SUPPORT
COMMERCIAL / DISTRIBUTION
OR ADMINISTRATIVE
FUNCTIONS)

RESOURCES MAY BE
IMPORTED OR MAY BE
PROCESSED ON THE SPOT
(FOREIGN DIRECT
INVESTMENT USUALLY
TAKES PLACE)
© Andrey Medvedev
MARKET ENTRY FOLLOWED
BY INDUSTRY ENTRY: FORD MOTOR



Ford Motor, a U.S. MNC, was selling its passenger cars
in Russia since the beginning of 1990s.
In 2001, Ford after investing $150 million set up a facility
in a Town of Vsevolozhsk, Leningrad Region
to assemble Focus cars.
A number of employees is 2000 persons.
© Andrey Medvedev
FOREIGN OPERATION METHODS (FOM): HOW?

ANY TYPE OF BUSINESS ACTIVITY
THAT CROSSES NATIONAL BORDERS

INTERNATIONAL COMMERCIAL OPERATIONS
– MERCHANDISE TRADE AND SUPPORTING OPERATIONS;
TRADE IN KNOWLEDGE, TECHNOLOGY, KNOW-HOW;
TRADE IN SERVICES

INTERNATIONAL CONTRACTUAL OPERATIONS
– LICENSING, FRANCHISING, CONTRACT MANUFACTURING

INTERNATIONAL INDUSTRIAL
AND TECHNOLOGY CO-OPERATION
– JOINT PROJECTS

FOREIGN DIRECT INVESTMENT
– INTERNATIONAL INSTITUTIONAL INTEGRATION
© Andrey Medvedev
TIMING OF ENTRY: WHEN?
WINDOW OF OPPORTUNITIES

PREMATURE PHASE (LOW DEMAND, ETC.)

WINDOW PHASE
– THE CHOICE IS TO TAKE A FIRST-MOVER VIEW
OR A FOLLOWER VIEW

COMPETITIVE GROWTH PHASE
– NEW ENTRY IS RISKY

MATURE PHASE
– COMPETITION IS WELL ESTABLISHED
© Andrey Medvedev
MULTINATIONAL CORPORATIONS
Responsibilities of International Manager:




Know a content and specific features
of international business operations
Understand the main reasons for foreign expansion
Define internationalisation goals for the company
Know the nature and legal terms
of a multinational corporation’s organisation
© Andrey Medvedev
MULTINATIONAL CORPORATION





AN ENTERPRISE WHICH OWNS OR CONTROLS
PRODUCTION OR SERVICE FACILITIES
OUTSIDE THE COUNTRY IN WHICH IT IS BASED
FDI IS AN ACTIVITY WHICH IS SPECIFIC TO MNCs
PARENT COMPANY IS LOCATED
IN A HOME (PARENT) COUNTRY
ITS SUBSIDIARIES (USUALLY WITH MAJORITY INTEREST
OF A PARENT COMPANY) ARE LOCATED
IN HOST COUNTRIES
IF A PARENT COMPANY’S SHARE
IN A FOREIGN ENTERPRISE IS NOT HIGH
(USUALLY 49 PERCENT OR LESS) THIS ENTERPRISE
MAY BE CALLED AS AFFILIATED COMPANY (AFFILIATE)
© Andrey Medvedev
MNC COMPOSITION

THE MNC OF TODAY MAY WELL BE
THE FOREIGN SUBSIDIARY OF TOMORROW

A MULTINATIONAL COULD WELL BECOME
THE TARGET OF A TAKEOVER BID BY FOREIGN MNCs
© Andrey Medvedev
MNC COMPOSITION: BSH



BSH (Bosch und Siemens Hausgeräte GmbH) is a Munich-based
corporate group stemmed from a joint venture set up in 1967 between
Robert Bosch GmbH and Siemens AG. BSH is today made up
of 70 companies in 41 countries, employing about 39,000 people.
At its 43 plants located in 15 countries (Germany, France, Greece,
Poland, Russia, Slovakia, Slovenia, Spain, Turkey, the United States,
Mexico, Brazil, Peru, China, and Thailand), BSH produces a full range
of major household appliances, including cooking equipment,
dishwashers, refrigerators, freezers, washing machines,
and dryers, as well as vacuum cleaners
and small appliances such as coffeemakers,
food processors, deep fryers, and irons.
With annual sales in the year 2008 in excess of €8.8 billion,
BSH is the largest maker of household appliances
in both Germany and Western Europe, and ranks third worldwide.
©
© Андрей
Andrey Medvedev
Медведев
QUANTITATIVE DIMENSIONS
OF MULTINATIONALS

NUMBER OF COUNTRIES (INTERNATIONAL DIVERSIFICATION)

NUMBER OF SUBSIDIARIES
II – NUMBER OF FOREIGN SUBSIDIARIES
AS A PERCENTAGE OF TOTAL NUMBER OF SUBSIDIARIES


REVENUE GENERATED FROM FOREIGN OPERATIONS
FOREIGN ASSETS,
AND NUMBER OF FOREIGN EMPLOYEES
AS A PERCENTAGE OF TOTAL REVENUES,
ASSETS, AND NUMBER OF EMPLOYEES

TNI – INDEX COMBINING ALL THREE DIMENSIONS
(REVENUES, ASSETS, AND NUMBER OF EMPLOYEES)
© Andrey Medvedev
MNC CHARACTERISTICS:
NESTLÉ
ASSETS
OF WHICH ABROAD
REVENUES
OF WHICH ABROAD
NUMBER OF EMPLOYEES
OF WHICH ABROAD
TNI
$76.965 BILLION
$65.396 BILLION
$69.778 BILLION
$68.586 BILLION
247 000
240 406
93.5% (2004)

NUMBER OF SUBSIDIARIES
OF WHICH ABROAD (IN 86 COUNTRIES)
II
501
471 (13 IN RUSSIA)
94.1% (2006)

2008: NET PROFIT WAS €12 BILLION (69.4 PERCENT GROWTH)









© Andrey Medvedev
LARGEST MNCs BY REVENUES, $ BILLION
Corporation
 Wal-Mart Stores
 ExxonMobil
 Royal Dutch/Shell
 BP
 Toyota Motor
 Chevron
 Total
 General Motors
 ConocoPhilips
 Daimler
 General Electric
 Ford Motor
* 2008 ** 2004
Country
US
US
UK
UK
J
US
F
US
US
D
US
US
Revenues*
378.799
372.824
355.782
291.438
230.201
210.783
187.280
182.347
178.558
177.167
176.656
172.468
TNI,%**II,%**
24.1
83.3
63.0
75.5
71.9
40.3
81.5
72.8
49.4
37.8
56.6
48.4
74.3
71.2
34.0
57.2
39.2
51.8
47.8
48.7
68.0
60.2
© Andrey Medvedev
MULTINATIONALS WITH THE LARGEST
TRANSNATIONALISATION INDEX
Corporation
 Nestlé
 Thomson
 Solvay
 ABB
 Electrolux
 Unilever
 Philips Electronics
 Roche Holdings
 SCA
 Northern Telecom
 Glaxo Welcome
 Cable and Wireless
Country
Switzerland
Canada
Belgium
Sweden/Switzerland
Sweden
Netherlands/UK
Netherlands
Switzerland
Sweden
Canada
UK
UK
TNI
93.5%
93.3%
89.6%
88.6%
88.3%
87.1%
85.4%
85.1%
79.7%
78.4%
76.5%
75.6%
© Andrey Medvedev
GLOBAL REVENUE INDEX
AND GLOBAL CAPACITY INDEX




PROPOSED BY P. LASSERRE, THE GLOBAL REVENUE INDEX
REPRESENTS THE RATIO OF A COMPANY’S DISTRIBUTION OF
SALES IN THE MAJOR WORLD REGIONS TO THE INDUSTRY’S
DISTRIBUTION OF DEMAND IN THE SAME REGIONS
THE GLOBAL CAPACITY INDEX REPRESENTS,
IN A SIMILAR WAY, THE RATIO OF ASSETS OR PERSONNEL
BY COMBINING THE GCI AND GRI IN ONE CHART, ONE OBTAINS
A MAPPING OF THE GLOBAL AMBITION OF PLAYERS
THE GLOBAL STRATEGIC AMBITION EXPRESSES THE ROLE
A COMPANY WANTS TO PLAY IN THE WORLD MARKETPLACE
AND HOW IT VIEWS THE FUTURE COMPOSITION OF ITS SALES
AND ASSETS IN THE KEY REGIONS OF THE WORLD
© Andrey Medvedev
MAPPING OF GLOBAL STRATEGIC AMBITION
ACCORDING TO P. LASSERRE
1
Global Player
Global
Operator
Regional Dominant
Global Player
Global Capability
Index (GCI)
Regional
Player
Exporter
Global
Exporter
0
0
Global Revenue index (GRI)
© Andrey Medvedev
1
PARENT’S VALUES
AND STRATEGIC DECISIONS

ETHNOCENTRISM
– STRATEGIC DECISIONS ARE GUIDED BY THE VALUE
AND INTERESTS OF THE PARENT COMPANY ALONE

POLYCENTRISM
– STRATEGIC DECISIONS ARE TAILORED TO SUIT THE CULTURES OF
THE VARIOUS COUNTRIES IN WHICH THE MNC COMPETES

REGIOCENTRISM
– A STRATEGY TRIES TO BLEND THE INTERESTS
OF THE PARENT COMPANY WITH THAT OF THE SUBSIDIARY,
AT LEAST ON A LIMITED REGIONAL BASIS

GEOCENTRISM
– THE MNC SEEKS TO INTEGRATE DIVERSE SUBSIDIARIES
THROUGH A GLOBAL SYSTEMS APPROACH TO DECISION-MAKING
© Andrey Medvedev
MNC VALUES:
TOTAL




Total is a multinational energy company committed
to leveraging innovation and initiative to provide
a sustainable response to humankind’s energy requirements.
The world’s fourth-largest oil and gas company
and a world-class chemicals manufacturer,
Total operates in more than 130 countries.
In addition to conducting its business according
to the highest standards of professional
behaviour, Total maintains an ongoing commitment
to transparency, dialogue and respect for others.
Total is strategically dedicated to meeting the challenges
faced by all its businesses when developing natural resources,
protecting the environment, integrating its operations into
host country cultures, and dialoguing with civil society.
© Andrey Medvedev
MNC GENERAL PROFILE:
STORA ENSO





The second largest paper & board producer in the world. It is
an integrated forest products company producing magazine papers,
newsprint, fine papers, packaging boards, and wood products.
Total sales were EUR 12.2 billion in 2003. Percentage of sales by
country is: Germany (15 percent), North America (11), UK (11),
Sweden (8), France (8), Finland (6), and other countries (33 percent).
Capacities are located in Finland (35 percent), Sweden (24), North
America (17), Germany (15), other Europe (8), and Asia (1 percent).
Average number of employees in 2004 was some 44 000.
Percentage of employees by country is: Finland (34 percent),
Sweden (21.3), USA (13.7), Germany (10.8), France (3.1), and other
countries (17.1 percent).
TNI (2004) = 68.2%. II = 88.8%.
© Andrey Medvedev
MNC PRESENTATION: BASF






In 1865 the stock corporation Badische Anilin- & Soda-Fabrik (BASF)
was founded by Friedrich Engelhorn
for the production of coal tar dyes and preliminary products.
BASF is the world’s leading chemical company with customers
in more than 170 countries, more than 100 large production sites
in 41 countries and approximately 94 000 employees. The number
of subsidiaries is 298, of which 241 are located outside Germany.
In 2004, BASF posted sales of €37.5 billion: 22.5 in Europe
(15.2 in Germany), 9.9 in Americas, and 5.2 in the ROW. TNI = 54%.
BASF supplies 8,000 products from its five business segments:
chemicals (19% of total sales), plastics (28%), performance products
(21%), agricultural products & nutrition (14%), and oil & gas (14%).
BASF's customer industries are chemical, automotive, energy,
agriculture, construction, and others.
BASF's strategic goal is to continue to grow profitably.
© Andrey Medvedev
MNCs IN THE WORLD

A NUMBER OF ENTERPRISES CLASSIFIED AS MNC
APPEARS AS 77 000 (UNCTAD REPORT, 2005)

SUBSIDIARIES OF MNCs COUNT IN EXCESS OF 850 000.

NUMBER OF EMPLOYEES AT MNCS’ SUBSIDIARIES AMOUNTS
TO 72 MILLION (2005)

MNC OUTPUT ABOUT ONE-FIFTH
OF THE GROSS INTERNATIONAL PRODUCT

MNCS CONTRIBUTE TO 2/3 OF THE WORLD TRADE

IN SOME COUNTRIES,
A SHARE OF MNC AMOUNTS TO ONE THIRD OF THE GDP
© Andrey Medvedev
LARGEST MNCs IN EUROPE:
COUNTRY OF ORIGIN

GERMANY
7

FRANCE
5

UNITED KINGDOM
ITALY
RUSSIA
SWITZERLAND
NORWAY
3
2
1
1
1




DAIMLER, VOLKSWAGEN, SIEMENS,
E.ON, DEUTSCHE POST, METRO,
DEUTSCHE TELECOM
TOTAL, CARREFOUR,
ARCELORMITTAL, PEUGEOT,
ELECTRICITÉ DE FRANCE
ROYAL DUTCH SHELL, BP, TESCO
ENI (ENERGY), FIAT
GAZPROM
NESTLÉ
STATOILHYDRO
© Andrey Medvedev
ADVANTAGES OF MULTINATIONALS

ECONOMIES OF SCALE

MANAGERIAL AND MARKETING EXPERTISE

ADVANCED TECHNOLOGIES

FINANCIAL STRENGTH

DIFFERENTIATED PRODUCTS
© Andrey Medvedev
ST. PETERSBURG
AND LENINGRAD REGION (OBLAST)
FINLAND
LAKE ONEGA
Svetogorsk Priozersk
LAKE LADOGA
Podporozhje
Vyborg
Lodeinoe Pole
Primorsk
ST. PETERSBURG
Vsevolozhsk
GULF OF FINLAND
Volkhov
Petrokrepost
Kirovsk
Sosnovyi Bor
Tikhvin
Ivangorod
ESTONIA
Kingisepp
LENINGRAD OBLAST
Gatchina
Tosno
Kirishi
Slantsy
The important industrial centres
Luga
© Andrey Medvedev
MNC GENERAL PROFILE PRESENTATION:
ASSIGNMENT

IN GROUPS OF 2

SELECT A MULTINATIONAL CORPORATION

SEARCH FOR INFORMATION ABOUT THE MNC
– REPORTED DATA
– THE LAST NEWS

STUDY THE INFORMATION COLLECTED

PREPARE A REPORT ON MNC’S GENERAL BUSINESS PROFILE
– A WRITTEN REPORT (2 PAGES)
– AN ORAL PRESENTATION BY SELECTED TEAMS,
SEPTEMBER 14 (5 MINUTES)
© Andrey Medvedev