Lecture7

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University of Cagliari, Faculty of Economics, a.a. 2012-13
Business Strategy and Policy
A course within the II level degree in
Managerial Economics
year II, semester I, 6 credits
Lecturer:
Dr Alberto Asquer
[email protected]
Phone: 070 6753399
Business Strategy and Policy
Lecture 7
Internationalisation Strategy
Introduction
1. What is internationalisation?
2. Where do firms go international? The “global shift”
3. How do firms go international?
4. What issues do international firms face?
5. What kind of institutions do support internationalisation?
------------6. Summary
1. What is internationalisation?
Internationalisation is the process through which a firm expands its
business outside the national (domestic) market
Firms go international:
to enter new output markets
to reduce costs and enhance competitiveness
to exploit their own core competences in new markets
to share risks over a larger market
to take advantage of lower labour cost, lower taxation, cheaper
natural resources
(sometimes, because the domestic market is just too small for
company growth)
1. What is internationalisation?
Firms generally go international by exporting their products first, then
by establishing sale representatives in the foreign countries, and
then possibly setting up production facilities
Eventually, international firms may develop into:
Multinational corporations (MNC): a firm that carries out its value
chains in more than one country. It is generally headquartered in
one home country while it also operates in one or more host
countries.
Trans-national corporations (TNC): a MNC that does not identify
itself with any specific nation, but acquires truly international (i.e.,
not country-dependent) features and high local responsiveness
British East India
Company, est. 1600
Siemens, Berlin,
est. 1847
Royal Dutch
Shell, est. 1907
1. What is internationalisation?
Example: Cobra beer
Subsidiaries
Licensed and brewed
in the UK by
Wells & Young's
First brewed in
Bangalore, India,
by Mysore Breweries
Majority of the firm
acquired by a
US-Canada brewer
Exported to the UK
Est. Fulham, London
1989
1990
1997
Exported to
about 45 countries
2009
2. Where do firms go international? The “global shift”
Theories about international trade and localisation:
Absolute cost advantage (Smith, 1776)
Comparative cost advantage (Ricardo, 1817)
Size of economic activity and distance (“gravity model of trade”)
Market imperfections to exploit (e.g., proprietary technology,
exclusive control of inputs, scale economies, control of distribution
channels, etc.)
Higher returns to scale and network effects that (possibly in
conjunction with favourable government policies) shield industries
from international competition (“new trade theory”)
2. Where do firms go international? The “global shift”
2. Where do firms go international? The “global shift”
2. Where do firms go international? The “global shift”
3. How do firms go international?
Entry strategies into foreign markets include:
Merely exporting a firm's products into a foreign market, possibly with
the support of trade brokers
Licensing a firm's production and marketing process, or asking for
royalties to be paid for the use of firm's assets and resources
Franchising a firm's business
Directly undertaking production and selling in a foreign country
a) through a 'multinational approach' by adapting to local markets
b) through a 'global approach' by mass-marketing the same product
Strategic alliances and joint ventures with foreign firms
3. How do firms go international?
Entry strategies into foreign markets include:
Merely exporting
Licensing or asking for royalties
Franchising a firm's business
“Multinational approach”
“Global approach”
Strategic alliances and joint ventures
4. What issues do international firms face?
Internationalisation strategy brings about some issues, for example:
Managing cultural differences
Facing risk of exchange rate fluctuation
(e.g., €/US$)
Coping with unwelcoming host government policies
5. What kind of institutions do support internationalisation?
Among various institutions that support internationalisation, an
important role is played by the
Chambers of Commerce Abroad
They are business associations established as private sector
organisations, based on the principle of freedom of association,
and that operate for the interests of their members without any
obligation to assist the government (i.e., CCA are akin to so-called
'Anglo-Saxon model' rather than 'Continental model' CC).
5. What kind of institutions do support internationalisation?
Among various institutions that support internationalisation, an
important role is played by the
Chambers of Commerce Abroad
They generally originate from the spontaneous gathering of
businessmen and/or business company executives based in the
same local area within foreign countries, that later apply for
recognition of CCA status from home country public authorities or
home national association of CC.
The CCA play a silent albeit substantive role in trying to shape
institutions and regulations of foreign markets (e.g., Amcham
Belgium; Cowles, 1996, 2001, and Peterson and Cowles, 1998),
although they have not been largely researched so far.
5. What kind of institutions do support internationalisation?
The CCA perform various activities:
influencing economic and social actors for creating and seizing
new business opportunities,
working with rule-making organisations that affect international
trade and foreign investments,
preventing potential conflicts with stakeholders and minimising
political risk,
and actively engaging the media and other public arenas for
safeguarding image and reputation of their members.
The meaning of what they do – sometimes labelled “business
diplomacy” – can be better defined by drawing some conceptual
boundaries between their activities and those of other related
concepts (Lakoff, 1987).
5. What kind of institutions do support internationalisation?
Field of
activity
Organisational
venues
Desired
performance
Objectives of
the activity
Mode of
operation
Role of
actor(s)
Diplomacy
(Lee and
Hudson,
2004; Satow,
1917; Saner
et al., 2000)
Inter-governmental
The pursue of
peaceful means for
conducting business
between states
To build and sustain
positive and
constructive relations
between states
Advising, organising,
negotiating, information
gathering and analysis,
rules compliance,
ambiguity handling
Facilitators
Economic/
commercial
diplomacy
(Rana, 2002;
Lloyd, 2003;
Coolsaet,
2004; Yeung,
2004)
Inter-governmental or
businessgovernment
The pursue of
economic gains and
advantages for
countries
To promote exports,
attract inward foreign
investments, and
stimulate other
economic activities
Advising, networking,
negotiating, gathering
information and
analysing it, and conflict
handling
Professional
'salesmanship'
Business
diplomacy
(Saner et al.,
2000)
Inter-governmental or
businessgovernment
The pursue of
economic gains and
advantages for
business companies
To establish
favourable conditions
for business
companies' activities
Creating and seizing
business opportunities,
safeguarding image and
reputation
of
business companies,
affecting rule-making,
conflict prevention
Entrepreneurial
broker
Public
relations
(Hutton, 1999;
Bernays,
1955; Harlow,
1977)
Inter-organisational
or personal
The pursue of the
interests of the
organisation or of the
public
To actively reap
opportunities or react
to threats
Communicating,
cooperating, issue
management, gathering
information,
defining responsibilities,
embrace change,
anticipate trends.
Strategic
relationship
managers
5. What kind of institutions do support internationalisation?
Let us look at CCA established by four main EU countries...
Germany (Die Deutschen Auslandshandelskammern, AHK)
about 40,000 companies associated in 80 countries
France (Union des Chambres de Commerce et d'Industrie
Françaises à l'Etranger, UCCIFE)
about 25,000 companies associated in 78 countries
Italy (Assocamereestero)
about 24,000 companies associated in 49 countries
The UK (British Chambers of Commerce Abroad)
in over 90 countries
in 15 Asian countries (Bangladesh, Cambodia, China, India,
Indonesia, Japan, South Korea, Laos, Malaysia, Philippines,
Singapore, Sri Lanka, Taiwan, Thailand, Vietnam)
5. What kind of institutions do support internationalisation?
Country of origin
Host
Germany
France
The UK
Bangladesh
1996
1991
Cambodia
1998
Italy
China
1981
1992
1980s (1950s)
1991
Hong Kong
N.A.
1986
N.A.
1997 (1993)
India
N.A.
1977
1970 (1924)
1979
1990s
Japan
N.A.
1918
1950s
1972
South Korea
1981
1986
1977
2000s
Malaysia
N.A.
1991
1964
Philippines
N.A.
1919
1997
2011
Singapore
2004
1979
1998 (1974)
N.A.
Indonesia
N.A.
Laos
N.A.
Sri Lanka
Taiwan
1981
1991
N.A.
5. What kind of institutions do support internationalisation?
Common membership services
(access to members directory, subscription to newsletters and bulletin, access to
sectoral industry publications and country reports, participation to social events,
workshops, and seminars, attendance to language courses, benefits from CCA's
media presence, and access to job seekers databases)
“On demand” services for members
(provision of information on specific companies or markets, the search and screening
of potential suppliers and business partners, the organisation of and assistance for
business meetings and trade missions, the organisation of and assistance for
participating to trade fairs and exhibitions, the legal assistance for the establishment
of businesses, business domiciliation and secretary services, legal assistance and
advice, translation and interpreter services, advertisement and sponsorships, and
employment services)
Consultative and policy advocacy functions
(members' committees focused on various thematic areas such as corporate social
responsibility, industrial relations, education, young professionals, government
relations, policy and consultation, sustainable development, taxation and regulation;
they also serve to share information and updates on legislation, policy initiatives,
government officers' political orientations, and turnover of key officers positions within
the governmental bureaucracy)
5. What kind of institutions do support internationalisation?
Type of CCA
Activities
Orientation
'Proto-CCA'
Maintenance of registered address, at least
minimal networking between members, emergent
visibility
Establishing membership
base and enlarging
membership
'Transit node'
Gathering data and providing general information
on the country and industries, facilitating
networking through social events and other venues
Strengthening ties between
members and diffusing
information
'Service provider'
Providing legal assistance and advice,
advertisement and sponsorship, translation and
interpreter services, organisation and assistance
for business meetings and trade missions, and
organisation and assistance for participating to
trade fairs and exhibitions
Meeting business needs of
specific members
'Prospector'
Gathering data and providing information on
Realising business
specific companies and markets, searching and
opportunities
screening potential suppliers and business partners
'Policy advocate'
Managing issue-specific committees, formulating
Representing policy positions
policy issues, and communicating issues and policy on international trade and
proposals to policy-makers
foreign investment issues
within policy-making venues
5. What kind of institutions do support internationalisation?
Type of CCA
Activities
'Proto-CCA'
Maintenance of registered address, at least
minimal networking between members, emergent
visibility
Orientation
Establishing membership
base and enlarging
membership
'Escalation' at the EU, rather than domestic, level:
'Transit node'
Gathering data and providing general information
Strengthening ties between
Instance:
establishment
of
European-ASEAN
Business
Centre
on the country and industries, facilitating
members
and
diffusingin
networking
social events
andvarious
other venues
information
Thailand,
by through
Eurochambers
and
EU member
states' CCA,
under the patronage of the EU Commission.
'Service provider'
'Prospector'
Providing legal assistance and advice,
Meeting business needs of
It aims
to
“drafting,
publishing
and
dissemination
of joint
European
advertisement and sponsorship, translation and
specific
members
interpreter
services,papers
organisation
assistance
industry
position
andand
lobby
them to the Royal Thai
for business meetings and trade missions, and
Government
in regards
tofor
new
and existing
regulations; supporting
organisation and
assistance
participating
to
fairs
and exhibitions
withtrade
trade
related
information, legal analysis and advisory services
(IPR & Standard Helpdesk); organizing 'European Flagship' events/
Gathering data
and providing
on at trade
Realising
business
conferences,
seminars
andinformation
EU pavilions
fairs to
foster the
specific companies and markets, searching and
opportunities
European
in theand
business
and interacting as
screeningdimension
potential suppliers
businesscommunity;
partners
the European business voice in Thailand” (EABC, 2011).
'Policy advocate'
Managing issue-specific committees, formulating
Representing policy positions
policy issues, and communicating issues and policy on international trade and
proposals to policy-makers
foreign investment issues
within policy-making venues
5. What kind of institutions do support internationalisation?
Contemporary institutional and political context includes EU's
efforts to intensify bilateral or regional trade relationships with
Asia ('Global Europe: Competing in the World', EU DG Trade,
2006)
The coming into force of the Lisbon Treaty (2009) moved
international trade policy, including trade of services, trade-related
intellectual property rights protection, and foreign investment, to
the exclusive competence of the EU
Instance: Free Trade Agreement (FTA) between the EU and
South Korea (signed 6.10.2010, come into force 1.7.2011). It is
unprecedented in terms of scope and rapidity of tariff liberalisation
and removal of non-trade barriers across several sectors
(including automotive, pharmaceuticals, and consumer
electronics).
Regarded as a “template FTA” for other similar negotiations
6. Summary
Main points
Internationalisation - the process through which a firm expands its
business outside the national (domestic) market – is pursued because
of several reasons
The rapid growth of Asian economies triggers a 'global shift' of
traditional established patterns of international trade and FDI
Successful internationalisation calls for a careful entry strategy and
capacity to cope with various issues
Internationalisation of firms may be supported by various public and
private organisations – including Chambers of Commerce Abroad
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