Going Global

Ketan Gandhi
PGCBM – 13 / 101874
DAKC - Mumbai
 REASONS FOR GOING INTERNATIONALS

International Opportunities

Reactive Reasons

• Globalization of competitors – competition one of the strong reasons

to go international. If it doesn’t go, some else will capture the market.

• Trade Barriers – Restrictive trade barriers like tariff, quotas, political

reasons and other trade practices can make export to foreign country
expensive, hence other measures to go global are adopted.

• Regulation & Restriction – at firm’s home government eg. Smikthkline

& Beecham merger

• Customer Demand – primary reason.

 REASONS FOR GOING INTERNATIONALS

Proactive Reasons

• Economies of scale – achieve economies of scale by access to various

regional resources by setting up huge capacities & distribution centers
at low cost

• Growth Opportunities – where home market is matured – new market

provide place to invest surplus profit & underutilize resources

• Resource Access & Cost Savings – access to low cost and better
control over resources, inputs like raw materials and lower
transportation cost

• Incentives (by Government) – tax exemptions, tax holidays, subsidy,

loans at cheaper rates, access to properties etc
 STRATEGIC FORMULATION PROCESS

Strategic Planning Process

• Define Mission & Objectives
• Assess environment for threats & opportunities
» Political instability
» Nationalism
» International Competition
» Environmental Scanning
• Assess internal strengths & weakness
• Evaluate alternate strategies
• Choose the strategy

Implementation Process
• Implement Strategy thru structure, system & Operational process
• Set up control & feedback system
• Feedback to planning
 Approach to World Markets
Global Strategic Alternatives
Globalization
Is a term that refers to the establishment of worldwide operations and the
development of standardize products & marketing

Treating all the countries similar regardless of the culture

Essentially captures the linkages among countries

Rationale behind globalization is to compete by establishing worldwide

economies of scale, offshore manufacturing and international cash flows.

Main reasons for adopt globalization:

(a) increasing competitive clout from regional trading blocks
(b) declining tariffs, encouraging trading across the boarders
(c) growth of information technology

More riskier than to regionalization – difficult to manage – requires coordination

of diverse culture
Approach to World Markets
Global Strategic Alternatives

Regionalization
Is one of the ways in which markets are linked together within a
region allowing more local representatives and specialization

Establishing capabilities at regional level

Recognizes local consumer preference – local culture – adjustment

to local political environment.

By ‘acting local’ firms can focus on individual countries more

effectively.
 Approach to World Markets
Global Strategic Alternatives
Globalization or Regionalization?

Depends on:
Nature of industry,
Type of company,
Company’s goal and strengths (or weakness),
Nature of control it wish to have

Direct approach – companies directly enter the foreign market by

merger or acquisition (or setting up new companies)

Indirect Approach – where company takes time to evaluate the market

on various fronts – begins with simple export than moves to large scale
export with branch in foreign country and eventually sets up production
unit.

Variant of above strategies are also possible.

 Approach to World Markets
Global Strategic Alternatives

Role of E-Business (thru web)

It is a new industry in itself and cannot be regarded as an
extension of existing business.

Opens up new area of business.

Poses various problems like sharing of tax revenue, visuals of

product, product demo, management of supply chain etc
 Approach to World Markets
Entry Strategic Alternatives
In what way the new market can be best served by the Company in light of various risks
investment carries.

Exporting
• Simplest form with relatively low risky way to begin international expansion
• Little investments required, hence most suitable for small firms
• Critical factors – choice of distributors – tariffs, shipment cost, quotas etc

Licensing
Involves granting right to a firm in the host country to produce or sell a product or both.
The process involves transfer of rights.

Mainly suitable where company does not wish to take risk of setting up its own production /
distribution unit or there is regulatory prohibition on repatriation.

Critical factors – patent & trade marks protections in the host country – track record and
quality of licensee (should not become a direct competitor) – legal system (royalty
repatriation etc)
Approach to World Markets
Entry Strategic Alternatives

Franchising
The franchisor licenses its trademark, products, services and operating
principles to the franchisee for an initial fees & subsequent royalties.
Carries little risk – Eg McDonald’s.
Ideal for small business at local level

Contract Manufacturing
Utilizing & availing services of cheaper labour overseas is contract
manufacturing – it may be a entire product or any part of the product
being outsourced to other country - quality & reliability must be
maintained at contractors level
Approach to World Markets
Entry Strategic Alternatives
Service Sector Outsourcing

Onshore & offshore outsourcing of ‘white collar’ jobs – Onshore thru transfer of
human capital from one country to other – offshore is work being outsourced to
host country.

Turnkey Operations
Entire operations ranging from designs to setting up of facility, training to
personnel etc is done by the Company & finally keys are turned to local
management for day to day operations – eg Fiat at Russia

Management Contract
Facility is set up by the local partner (may be as per instructions from
international partner) and management is done by global partner. Eg. Hotel
industry
Approach to World Markets
Entry Strategic Alternatives
International Joint Venture (J/V)
Agreement to produce product or render services by 2 or more partners together
– ownership is shared between local partner & global partner – reduces risk of
expropriation and harassment by the host country – eg Maruti Suzuki. J/V
partner, very critical to success hence must be carefully selected – fit between
the partners on objectives, strategies and resources should be enough to work
j/v – leverage to enter market on its own by the global market (eg. Hero Honda,
Honda entering Indian market alone also).

Fully Owned Subsidiary

Company can set its own subsidiary in the host country by way of acquiring an
existing firm or resorting to merger (these may reduce the risk) or it can set up
its own subsidiary (highest risky way) – problems like attitude towards foreign
owners, currency stability, political & economic policies like repatriation of
earnings etc
 Factors Affecting Entry Level Alternatives

Entry Level Choice

Which mode to select depends upon various factors viz;

Critical advantages / disadvantages each options offer in relation to

firm’s capabilities

Critical environmental factors

Contribution each option shall make to company’s overall mission &

vision
 Thank You!

Globalization is a fact of economic life.

Carlos Salinas de Gortari

Globalization has changed us into a company that searches the world, not just
to sell or to source, but to find intellectual capital - the world's best talents and
greatest ideas.
Jack Welch