International Business Strategy and Global Strategic Analysis

Risks and Opportunities in Emerging Economies

The Business Model

1)      Customer Value Proposition

n  Who are your target customers?

n  What is the problem or need you will help them with?

n  How will you meet their needs?

2)      Key Resources (needed to deliver the CVP)

3)      Key Processes (Porter’s Value Chain activities)

4)      Profit Formula (costs and revenues)

Managers look at how these factors will vary

n  as the SCALE of output rises

n  over TIME – lead times, throughput, cash flows

n  over SPACE – do you need to adapt the business model when you move beyond your home market?

(Johnson, M.W., Christensen, C.M. and Kagermann, H. (2008) Reinventing Your Business Model. Harvard Business Review. 86/12 p: 50)

‘Established’ and ‘Emerging’ Multinationals (Ghemawat and Hout 2008)

n  Established MNEs are world leaders, usually with

n  Home bases in the developed countries of the traditional Triad (Western Europe, USA/Canada, Japan)

n  High global market share

n  Easy access to capital and technology

n  Expertise in cross-border co-ordination

n  Emerging MNEs are vigorous challengers, usually with

n  Home bases in emerging economies

n  Low labour costs

n  Excellent local knowledge of customers and distribution networks

n  The Triad 17:

n  USA, Canada; Japan; Denmark, Finland, Norway, Sweden, UK, Ireland, Germany, Austria, Switzerland, France, Belgium, Holland, Italy, Spain

n  13% of world population in 2003 and 2008; 74% of world Gross Domestic Product in 2003 and 62% in 2008

n  Accounted for 70% of world exports in 1990 and 60% in 2003

n  The Fast-Growing 18:

n  China, Taiwan, South Korea; India; Indonesia, Malaysia, Singapore, Thailand; Brazil, Mexico; Australia, South Africa, Saudi Arabia, Turkey; Czech Republic, Hungary, Poland, Russian Federation

n  53% of world population in 2003 and 2008; 17% of world GDP in 2003 and 26% in 2008

n  14% of world exports in 1990 and 23% in 2003

The Economic Pyramid
(Prahalad, C.K. And Lieberthal, K. (1998) The End of Corporate Imperialism. Harvard Business Review, July)

At the Bottom of the Pyramid

n  Opportunities exist to reach billions of customers (Prahalad and Hammond 2002)

n  Mobile phones and microfinance can emancipate previously marginalised groups

n  Low-cost operations give competitive advantage

n  Emerging multinationals know how to create appropriate distribution networks

n  To compete successfully, established multinationals need to use their best managers and work with local allies

Some ‘Established MNEs’ now have most of their operations in emerging economies…

Global Chess: 

Interactions between Established and Emerging MNEs
(Bartlett and Beamish 2014: Ch 3, pp. 219-222) 

n  Emerging Challengers: moving rapidly from a low-profile foothold position to build a strong international presence

n  Focus on developing strong competence in a narrow niche

n  Careful expansion along both product and geographic dimensions; step-by-step

n  Established Triad giants: developing a transnational strategy to defend worldwide dominance (Frynas and Mellahi Ch 9; Lectures 6 and 7)

n  Reinforce existing and develop new assets and capabilities – without damaging the old ones

n  Compensate for deficiency or approximate competitor’s source of advantage

n  Domestic defenders: protecting established niches

n  Lobby for tariff protection or change industry standards

n  Copy your competitors

Transnational Strategic Management
(Bartlett and Beamish Ch 7)

n  The Entrepreneurial Process (geographic subsidiary and operating-level managers)

n  Creating and pursuing local opportunities

n  Aligned with leader’s strategic mission

n  Delivering required returns

n  The Integration Process (global business and senior-level functional managers)

n  Linking and leveraging competencies

n  Sharing information, ideas and resources

n  Building an organizational identity

n  The Renewal Process (top-level corporate management)

n  Questioning current strategies through benchmarking and forecasting

n  Rationalisation and restructuring

n  Envisioning the next quantum leap

n  Transnational in mentality, transformational in leadership style

Balancing Integration and Responsiveness through Learning

Other Challenges Facing Established MNEs

n  Understanding new environments

n  Coping with distance: CAGE framework

n  Overcoming the liability of foreignness

n  Value of local partners

n  Coping with global uncertainties

n  Nationalism, religious fundamentalism

n  Global warming, consumer concerns about health

n  Rapid social and political change outside the Triad

n  Managing local-level risk

n  Exchange rate fluctuations, taxation reforms

n  Warfare, corruption, theft or confiscation of assets

Assessing and Managing Risk

n  Appoint a Chief Risk Officer to nurture a culture of awareness (Cleary S. and Malleret T. (2007) Global Risk. Palgrave Macmillan. Chapter 8)

n  Involve all members of staff

n  Encourage sharing of lessons from failure

n  Engage in systematic monitoring and analysis of significant risk factors

n  Communicate danger signals fast

Forestalling Crises

n  Build partnerships for innovation and local responsiveness

n  Engage with stakeholders to anticipate concerns

n  Be willing to change your attitude

n  Reinvigorate legitimacy with governments by aligning with development goals

Ethical Dilemmas

Bartlett et al (2014: Ch 8, pp 645-655): Four MNE postures in the face of

n  Anti-globalization protest movements

n  Global poverty

1.            The Exploitative MNE

n  taking advantage of disadvantage (sweatshops)

2.            The Transactional MNE

n  Doing deals, respecting laws (do no harm)

3.            The Responsive MNE

n  Making a difference (Hindustan Lever laundry bars)

4.            The Transformative MNE

n  Leading broad change (Merck and river blindness)

Making Your Values Work (Phatak, Bhagat and Kashlak (2005) International Management. New York: McGraw-Hill. 534-537)

n  Be committed – at top management level

n  Develop a written code of conduct

n  Involve divisional and subsidiary managers - establish committees (http://www.unitedplantations.com/Files/PDF/Announcements/UP%20Annual%20Report%202012%20(2).pdf p. 46)

n  Ask line managers to train employees

n  Fire people who violate the code

n  Withdraw from countries or industries where you cannot act with integrity