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, 6 th ed. 2007.

– Lasserre P. Global Strategic Management, 2 nd ed. 2007.



ADDITIONAL READING

– Bartlett Ch. A., Ghoshal S., Birkinshaw J. Transnational management: text, cases, and readings in cross-border management, 5 th 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

© Andrey Medvedev

Development (real option)

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

. Moscow based 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.

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

81.5

49.4

56.6

74.3

34.0

39.2

40.3

72.8

37.8

48.4

71.2

57.2

51.8

47.8

48.7

68.0

60.2

© Andrey Medvedev

MULTINATIONALS WITH THE LARGEST TRANSNATIONALISATION INDEX

Corporation  Nestl é  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 Capability Index (GCI) Global Operator Global Player Regional Dominant Global Player 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

a sustainable response to provide 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



FRANCE 7 5

    

UNITED KINGDOM 3 ITALY 2 RUSSIA SWITZERLAND 1 1 NORWAY 1

DAIMLER, VOLKSWAGEN, SIEMENS, E.ON, DEUTSCHE POST, METRO, DEUTSCHE TELECOM TOTAL, CARREFOUR, ARCELORMITTAL, PEUGEOT, ELECTRICIT É DE FRANCE ROYAL DUTCH SHELL, BP, TESCO ENI (ENERGY), FIAT GAZPROM NESTL É 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 Vyborg

LAKE LADOGA

Podporozhje Lodeinoe Pole Primorsk

GULF OF FINLAND

ESTONIA

Sosnovyi Bor Ivangorod Kingisepp Gatchina

ST. PETERSBURG

Vsevolozhsk Petrokrepost Kirovsk Volkhov

LENINGRAD OBLAST

Tikhvin 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