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ISM lectures summary week 1, 2 and 3
ISM lectures summary week 1, 2 and 3. For Pre-master IBM
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ISM SummaryLecture week 1
What is ‘international strategic management’?
Strategy = an integrated and coordinated set of commitments and
actions, designed to exploit core competencies, to gain a competitive
advantage.
Core competencies= look at the picture
Strategic management = the ongoing process that evaluates the
company, its competitors, and sets goals and strategies to meet all
existing and potential competitors; and then reassesses these to
determine whether it has succeeded or needs replacement by a new strategy.
International strategic management= a management planning process aimed at developing
strategies to allow an organization to expand abroad and compete internationally.
But why bother expanding internationally? And why do we need to manage that process?
Let’s consider four competitive configurations:
1. Domestic configuration
a. We operate in one country, source in one country and supply in one country.
b. How does it generate value?
i. Labour + capital = product
ii. Consumers prefer beer to the money (consumer surplus)
iii. Consumers pau more than the cost of production (producer surplus)
c. Nothing. No international manager.
d. Problem:
i. Small market
ii. Limited growth potential
iii. High market dependence
2. Export configuration
a. Differentials in price (i.e. they are willing to pay more) and/or demand (i.e.
they are able to drink more) create opportunities abroad.
b. If the differential in price and demand are high enough, and the costs of
supply (transportation costs) are low enough, profit can be created
c. Defining market attractiveness. Selecting export markets.
d. Transportation costs create an inefficiency
3. Multinational configuration
a. Replicating the firms operations. Avoid transportation costs.
b. How is value generated?
i. Transportation costs are minimized
ii. Foreign consumers pay foreign prices for domestic goods.
c. In addition to choosing markets, the manager must consider:
i. Organizing subsidiary: what to set up, where, and with who?
ii. Managing international staff: who to hire, or to send abroad?
d. Duplication of functions, inefficient use of resources
4. Global configuration
a. Firms split their supply chains across countries, to maximize profits at each
stage, to exploit regional differentials in cost, supply and demand.
, b. Functions which are unprofitable in one country are moved to locations in
which they are profitable. Value maximized across the entire supply chain.
c. In addition to the tasks in the previous models, the manager must:
i. Assign functions to countries
ii. Circulate managers and staff between functions
iii. Ensure communication between functions
d. Nothing. It’s the most efficient model we know. Global businesses have been
made possible by ‘globalization’, however, and that may make it vulnerable.
For each we must ask:
a. What is it?
b. How does it generate value?
c. What is the role for the internationalization manager?
d. What are the problems with the model?
Globalization= the process of international integration arising from the interchange of world
views, products, ideas and other aspects of culture.
First 3 are pull factors, and the fourth one a push factor.
Clearly, internationalizing provides the firm with significant advantages:
- Costs benefits
o Lower production costs
o Lower transportation costs
- Revenue benefits
o Bigger markets with more consumers
- Learning benefits
o Learn from international failures
o Learn from the host country
- Arbitrage benefits
o Find expensive resources cheaper
!Three critical things that we need to be aware of when we are internationalizing:
1. Liability of foreignness= the set of costs ‘based on a particular company’s
unfamiliarity with and lack of roots in a local environment’. Eden and miller: a
stranger in a strange land. It means; that you will not have the same success and you
will incur more costs in the foreign market
, 2. Localization advantages= the advantages that come when the firm chooses to focus
on serving one (local) market, rather than all (global) markets. These advantages
come from:
In a market with localization advantages internalization implies:
o Loss of flexibility
o Loss of proximity
o Loss of quick response abilities
In other words: in every industry there is one force pushing us to globalize and
another pushing us to localize.
3. Location-bound advantages= not all firms should internationalize. To understand
why, we must:
a. Identify the firms competitive advantage
b. Determine if it is location-bound. Competitive advantages are location bound
if they:
i. Use immobile sources
ii. Are based on things like local market reputation or knowledge
Only non-location bound advantages can be transferred across borders.
Warning: non-location bound competitive advantages are a necessary, but
not a sufficient condition for international success.
In all setting concerning an international expansion, your first question should
ALWAYS be:
o What are the firms advantages?
o Are the firms advantages location bound?
If the firm does not have non-location bound advantages, then all additional
questions are irrelevant. If what makes the firm great is based in the country of
origin, and the firm cannot develop non-location FSAs then the firm should not
internationalize!!
Review questions:
1. Which type of firms can internationalize?
a. All firms
b. Firms with internationalisable staff
c. Firms with internationalisable competitive advantages
d. Firms in markets with localization advantages
2. The liability of foreignness implies:
a. Firms underperform in foreign markets
b. Foreign employees are more expensive
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