03 Intl Biz Entry Strategy Sess 5 & 6

7/30/2019 03 Intl Biz Entry Strategy Sess 5 & 6

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INTERNATIONAL BUSINESS

Prof Bharat Nadkarni


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International Business Prof Bharat Nadkarni

International Organisation

Factors determining the International Organisation

Extent of commitment to International Business

Nature of International Orientation

Size of International Business & Expansion Plans

Number and Consistency of Product lines

Characteristics of the Foreign Markets


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International Business

International Business Corporate Approaches

1. Ethnocentric

2. Polycentric

3. Regiocentric

4. Geocentric


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SAARC (7):

South Asian Association for Regional Cooperation

India, Pakistan, Sri Lanka, Nepal, Bhutan, Bangladesh, Maldives

NAFTA (3) : North American Free Trade Agreement

USA, Canada, Mexico

LAFTA (9) : Latin American Free Trade Area

Argentina, Brazil, Mexico, Chile, Peru, Uruguay, Paraguay,Columbia, Ecuador

ASEAN (5) : The Association of South East Asian Nations wasformed by the Bangkok Declaration, 1967, by five countries, viz.,Indonesia, Malaysia, Philippines, Singapore and Thailand.


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EU (15) : European Union

Austria, Belgium, Britain, Denmark, Finland, France, Germany,

Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain,Sweden.

Euro : Common currency of the EU was launched by 11 memberson 1.1.1999, Britain, Denmark, Sweden didnt join. Greece joined in 1.1.2001

Maastricht Treaty of 1991 set the stage for the monetory union.

EU Additions

With effect from May 1, 2004 the total membership of EU increasedto 25. Following ten countries were inducted.

Estonia, Latvia, Lithuania, Poland, Czech Republic, Hungary,

Slovenia, Slovakia, Cyprus and Malta.Two more members, Bulgaria and Romania, were inducted in 2007,taking the tally to 27 countries.


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International BusinessBusiness Entry Strategy

Exporting Licensing & Franchising

Contract Manufacturing

Management Contracts

Turnkey Contracts

Fully owned manufacturing facilities

Assembly Operations

Joint Venturing

Counter Trade

Mergers & Acquisitions

Strategic Alliance

Third Country Locations


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Determinants of Business Entry Strategy

1. Cost of Logistics

2. Cost of Negotiation, Monitoring and Enforcement3. Comparative Advantages of

a. Land

b. Minerals

c. Labour

4. Comparative Advantage of

a. Capital

b. Technology

c. Technical know-how

d. Management expertise

e. Market expertiseSegmentation, Niche etc


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Strategies of Cooperation

Prof Bharat Nadkarni


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M & A involve the combination of two organisations.The termmerger refers to the integration of two previously

independent organisations into a completely new organisation;

Acquisition involves the purchase of one organisation by

another for integration into the acquiring organisation.

Organisations have a number of reasons for wanting to acquire

or merge with other firms, including horizontal

or vertical integration, diversification ; gaining access to global

markets, technology, or other resources; and achievingoperational efficiencies, improved innovation, or resource

sharing. As a result, M&A have become a preferred method for

rapid growth and strategic change.


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Types of Mergers & acquisitions

1. Horizontal mergersex. Tata Steel acquiring Corus, Bridgestone and Firestone

2. Vertical mergers

ex. Tata Power acquiring Boomi coalmines

3. Concentric mergers

ex. Footware co merging with Hosiery co making socks.

4. Conglomerate mergersex. Reliance Textiles to petrochemicals or Mobile Telephony


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Domestic and Cross Border Mergers & acquisitions

M & A have been a very important market entry strategy aswell as expansion strategy. It may be noted that the major part

of the recent FDI has been driven by cross border M&As.

Between 1980 and 2000, the value of cross border M&As grew

at an average annual rate of over 40%. It continues to be a

powerful driver of international investment and globalisation.Several industries, such as automobiles, pharmaceuticals,

banking, telecom, etc. have undergone a global restructuring

as a result of cross border M&As.

Advantages of M&As1. Market entry

2. Possession of marketing infrastructure

3. Achieving economies of scale

4. Increasing the market power


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5. Diversification

6. Acquisition of technology7. Use of surplus funds

8. Optimum utilization of resources and facilities

9. Product mix optimisation

10. Pre-emptive strategy (to block competitor from acquisition)

11. Horizontal or Vertical integration12. Tax benefits

13. Logistical factors

14. Acquisition of brands

15. Minimisation of Risk16. Regulatory factors

Ex. Asian Paints takeover of Singapore based Berger paints

entry to 11 countries incl China. Tata SteelCorusentry to

Europe and Latin America.


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Disadvantages of M&As

1. Indiscriminate acquisitions land several companies in financial

and other problems

2. When company is taken over, its problems are also often

inherited

3. If adequate homework was not done and the evaluation was not

right, the acquisition decision could be wrong.4. Some of the units acquired would have problems such as old

plant, obsolete technology, surplus or demoralised labour

5. The company may not have the experience and expertise to

manage the unit taken over if it is in an entirely new field.


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How Mergers & Acquisitions take place?

Spell out the objectives

Indicate how the objective would be achieved?

Assess managerial quality

Check the compatibility of business styles

Anticipate and solve problems early

Treat people with dignity and concern


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Hostile takeoversWhere a takeover is resisted, or expected to be opposed, bythe existing management or professionals, follow a different

route. Here, the shares are picked up from open markets andcontrolling interests obtained. With the tacit help of othermajority shareholders (usually one or more of the financialinstitutions) , a bid is made to enter companys board and toacquire control. Resistance is offered by the existing

management by refusing to register the transfer of shares, orto forestall the moves by deals through court orders andinjunctions. It is believed that political support matters a lot inthe measure of success achieved in a bid to takeover a firm.ArgumentsThat professionalism gets replaced by money power, thattakeovers do not create any real assets for the society and aredetrimental to the national economy, the interests of theminority shareholders is not protected and avoidable stressesand strains are created in the companies taken over or


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exposed to the threat of takeovers. Besides, takeovers reduce

competition and thereby facilitate monopolistic or oligopolistic

tendencies among firms, increase of price and job losses foremployees. Also, there could be difficulties in the cultural

integration of the merging firms and while dealing with the

hidden liabilities of the target firms.


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Joint Venture Strategies

A joint venture could be considered as an entity resulting from

a long term contractual agreement between two or moreparties, to undertake mutually beneficial economic activities,exercise joint control and contribute equity and share in theprofits or losses of the entity.

The technical definition of Joint venture by the RBI is :a foreign concern formed, registered or incorporated inaccordance with the laws and regulations of the host country inwhich the Indian party makes a direct investment, whethersuch investment amounts to a majority or minorityshareholding.


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Conditions for Joint ventures

Joint ventures may be useful to gain access to new business,

mainly under four conditions:

1. When an activity is uneconomical for an organisation to do alone.

2. When the risk of the business has to be shared and, therefore, is

reduced for the participating firms.3. When the distinctive competence of two or more organisations

can be brought together.

4. When setting up an organisation requires surmounting hurdles

such as import quotas, tariffs, nationalistic-political interests andcultural roadblocks.


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Triggers for Joint venture

Technology

Geography

Regulation

Sharing of risk and capital Intellectual exchange

Benefits and drawbacks in Joint Ventures

Change of strategy by one partner Regulatory changes Success of Joint venture Having partner, hampers growth Lack of transparency


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Strategic alliances

Characteristics:

1. Two or more firms unite to pursue a set of agreed upon goals, butremain independent subsequent to the formation of the alliance.

2. The partner firms share the benefits of the alliance and control

over the performance of assigned tasksperhaps the mostdistinctive characteristic of alliances and the ones that makesthem so difficult to manage.

3. The partner firms contribute on a continuing basis, in one or morekey strategic areas, for example, technology, product and so

forth.


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Reasons for Strategic Alliances

Entering new markets

Reducing manufacturing costs

Developing and diffusing technology


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Thank you

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03 Intl Biz Entry Strategy Sess 5 & 6

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