Strategy in the Global Environment

Welcome to Global
Strategy and
Sustainability
Topic: Strategy in the Global Environment –
Profit Growth through Global Expansion

Today’s Agenda
Quick Recap of Previous Week’s Topic (Internal analysis)
Globalisation and the impact on a firm’s strategy
The motives for a firm to expand internationally
• Activity 1: Individual – CASE STUDY: How Aerogen’s ‘Born Global’ Mindset Drove Export Success
BREAK
Strategies to compete in the global market
• Activity 2 Group: How to Grow a Business in 190 Markets: 4 Lessons from Airbnb
Different models/strategies for entering foreign markets
• Activity 3: Group – CASE STUDY – Why Starbucks Failed In Australia
• Review of Apply Activity
• Recap, Q&A, Discussion
• Next steps

Previous Week Recap – Internal analysis
Assess the sources of competitive advantage that a global
firm might possess
Analyse and explore how competitive advantage is built and
maintained
Critically evaluate the concept of the value chain and be able
to apply it in assessment terms for global enterprise
Evaluate approaches to global supply chain management and
how technology can enable competitive advantage

Today’s Learning Outcomes
Examine the process of globalisation and how it impacts a
company’s strategy
Analyse and discuss the motives for expanding internationally
Recommend the different strategies a company can use to
compete in the global market
Evaluate the pros and cons of different models for entering
foreign markets

Globalisation and the
impact on a firm’s strategy

At a glance: globalisation
Globalisation is the spread of products, technology,
information, and jobs across national borders and
cultures. In economic terms, it describes an
interdependence of nations around the globe fostered
through free trade.
Globalisation impacts more than just
trade, in fact, globalisation is indeed a
multi-dimension phenomenon.

5 dimensions of globalisation
Economic
Consumption of foreign-sourced
goods and services (exports, &
imports) and investment
Political Cultural
Environmental Social
International connections among
elected officials, bureaucrats, judges,
social movement activists, and states
Transmission and translation of meaning
embedded in faith traditions, ideas,
products, practices and symbols
Transnational connections
formed by mobile individuals as
they create social relationships
Environmental problems are
international problems that
require international solutions
GLOBALISATION
Globalisation increase
The world is more globalised than ever before
DHL Global Connectedness Index (2020)
4 pillars of globalisation:
Trade
Capital
Information
People flows
On the rise during the
last two decades
The Internet continues to power
large increases in information
flows within and across borders

Globalisation growth has slowed down
Source: Petersen et al. (2020)
Global economy will be
fueled by emerging
countries, no longer by
developed countries
.
Trade is moving from global
to regional trade.
Why?
Globalisation: a different pattern of growth
Emerging countries’ degree of
integration remain very low at the
moment. They have the greatest
potential to increase their degree of
globalisation.
There are more than 20
regional trade agreements in
the world
Emerging countries Regional trade
Competitive Advantage in the International Context
Industries are impacted in different
ways depending on the extent to
which international trade and
investment are required.
• lower entry barriers to national markets
• increased internal rivalry within industries
• increased bargaining power of buyers
Source Grant (1998)
Competitive Advantage at National Level:
Porter’s Diamond
This Photo by Unknown Author is licensed under CC BY-SA
Germany’s luxury high power car manufacturing industry
No speed limits,
sophisticated homebuyers
want more powerful cars
Iron and steel industry, high
level of education, banks
for capital, component
suppliers
Skilled engineers,
government’s focus on
scientific research
Strong rivalry
through more innovative
and quality products

The motives for a firm to
expand internationally

Firm’s individual reasons for internationalisation
• Saturated domestic market
• Economies of scale
• Limited size of domestic market
• First mover advantages
• Government subsidies in new country
• Low-wage economies
• Better access to raw materials
• Increasing company growth rate
• Stability of revenue across several economies
but… the key question is:
What general key drivers
do provide a favorable
context for firms to
internationalise?
Each company has unique reasons to internationalise

Yip’s internationalisation framework
Yip’s internationalisation
framework provides a set
of four key drivers,
important for companies
to assess during their
strategy process

Firm’s drivers for internationalisation – examples
Firm
international
strategy
Market drivers
Similar customer needs
Global customers
Transferable marketing
Cost drivers
Scale economies
Country-specific
differences
Favorable logistics
Market drivers
Interdependence
between country
Competitors’ global
strategy
Government
drivers
Trade policies
Technical standards
Host government policies

A new path for internationalisation: “Born global”
Born global is a type of company that from the beginning of its activities
pursues a vision of becoming global and globalises rapidly without any
preceding long term domestic or internationalisation period

A new path for internationalisation: “Born global”
1. High activity in international markets from or near their founding
2. Limited financial and tangible resources
3. Managers have a strong international outlook and international
entrepreneurial orientation
4. Emphasis on differentiation strategy
5. Emphasis on superior product quality
6. Leveraging advanced information and communications technology
(ICT)

Individual Activity: Case Study
How Aerogen’s ‘Born Global’ Mindset drove
Export Success
This Photo by Unknown Author is licensed under CC BY-SA
This Photo
by Unknown Author is licensed under CC BY
Break Time – 15 minutes
Strategies to compete in the
global market

Firm’s internationalisation strategies
High pressure for local responsiveness
implies a greater need to disperse operations
and adapt to local demand
Pressures for global
integration encourage
organisations to
coordinate their activities
across diverse countries
to gain efficient
operations
The
global-local
dilemma

Internationalisation strategies: Export strategy
Strategy that leverages
home country capabilities,
innovations and products in
different foreign countries
This Photo by Unknown Author is licensed under CC BY
Companies that have distinctive
capabilities together with strong
reputation and brand names often
follow this strategy with success.
Preferred internationalisation
strategy for SMEs

Internationalisation strategies: Standardisation
strategy
Standarisation/global strategy
maximises global integration by
considering the world as one
marketplace with standardised
products and services that fully
exploits integration and
efficiency in operations
China India Saudi Arabia
Internationalisation strategies: Multi-domestic
strategy
Strategy based on different
product or service offerings and
operations in each country
depending on local market
conditions and customer
preferences. Each country is
treated differently with
considerable autonomy for
each country manager to best
meet the needs of local
markets and customers
China India Saudi Arabia
Internationalisation strategies: Transnational strategy
Products and services and
operational activities are,
subject to minimum efficiency
standards, adapted to local
conditions in each country.
However, this strategy also
leverages learning and
innovation across units in
different countries

Group activity: Case Study
How to grow a business in 190 markets:
4 lessons from Airbnb
This Photo by Unknown Author is licensed under CC BY-SA
This Photo
by Unknown Author is licensed under CC BY-NC-ND
Different models/strategies
for entering foreign markets

Firm’s entry models/strategies
• Manufacturing the product in a centralised location and then exporting it to
other national markets
Exporting
• Licensees purchase the rights to produce a company’s product in their
country for a negotiated fee
Licensing
• Specialised form of licensing in which the franchiser expects the franchisee
to abide by rules governing how it does business
Franchising
• Most typical form of this is a 50/50 venture
Joint venture
• Parent company owns hundred percent of the subsidiary’s stock
Wholly owned subsidiary
• Most typical form of is a 50/50 venture Collaboration between competitors i.e., network strategies
Strategic Alliance
Entry: Export model
More than 1,800 Trent XWB engines are
in service or on order worldwide.
Manufactured at the Rolls-Royce facility
in Derby, in the East Midlands area
of England.
Export model:
• requires relatively less
investment of resources
• entails lower costs and
risks
• offers speedy entry
• potential to take full
advantage of production
economies in existing
facilities.
https://edition.cnn.com/travel/article/airplane-engine-made-rollsroyce/index.html#:~:text=More%20than%201%2C800%20Trent%
20XWB,and%20to%20the%20highest%20standard.

Entry: Licensing and franchising models
Licensing or franchising:
• involves a contractual
agreement
• a local firm receives the right
to exploit a product
technology or a service
concept commercially
• for a fee
• during a specific time period
• Conventional franchise: McDonald’s owns the land
and building, the franchisee pays for equipment,
signs, seating and décor.
• Developmental license: licensees provide capital
for the entire business, including the real estate.
• Affiliate model: McDonald’s holds only an
equity interest in the associated restaurants.
https://www.fool.com/investing/general/2016/04/03/whatpercentage-of-mcdonalds-restaurants-are-owned.aspx
Entry: Joint Venture model
Joint ventures:
• jointly owned companies
• international investor shares
assets, equity and risk with a
local partner
• resource and financial
commitments are limited
• financial and political risks
are reduced
• local partner builds
knowledge of customer
needs and local institutions
• 50:50 joint venture with Indian Tata Global
Beverages, called Tata Starbucks Ltd.
• Initial investment of 4bn rupees ($80m)
• Tata Starbucks Ltd owns and operates 219 outlets
branded “Starbucks, A Tata Alliance“.
• Espressos are made from Indian roasted
coffee beans supplied by Tata Coffee.
https://www.bbc.co.uk/news/
world-asia-india-16788563

Entry: Strategic Alliances model
Strategic alliance:
• arrangement between two
companies
• undertake a mutually
beneficial project
• each retains its
independence
• Alliance leverages the two global automakers’ strengths
to better compete, innovate and serve customers
• Companies first plan to deliver medium pickup trucks
for global customers, aiming to start in 2022
• Volkswagen and Ford are also committed to exploring
potential collaboration on EVs, autonomous vehicles
and mobility services
https://money.cnn.com/2018/01/17/news/compa
nies/save-barnes–noble/index.html

Entry: Wholly owned subsidiaries model
Wholly owned subsidiary:
• 100% control entirely new
company
• by investing from the
beginning (greenfield
investment) or
• M&A – mergers and
acquisitions (brownfield
investment)
• strong control over
technologies, operations,
sales and financial
• exploit production and
coordination economies
• Tata bought (M&A) Jaguar and Land Rover from Ford in
an all-cash transaction of $2.3 billion in June 2008
• Tata Motors majorly focused on three areas – improving
liquidity, cost control and new products
• Jaguar Land Rover (JLR) was transformed from a £400
million loss in 2008 to £2.6 billion profit in 2015
• JLR continues to see high sales in China
https://www.autocarpro.in/news-international/tata-jlrjourney-billion-pounds-billion-pounds-29749
Risks associated with entry models
Advantages and disadvantages for each entry model/strategy
depend on a range of factors.
Managers need to take these into
account when choosing between
market entry models/strategies

Group Activity: CASE STUDY –
Why Starbucks failed in Australia
This Photo by Unknown Author is licensed under CC BY-SA
Review of Apply
Activity

Apply Activity Instructions
Discussion Forum (100 words)
Apply the learning from the prepare section by engaging with these questions and answering and
discussing them within the discussion forum.
• Conduct some research on a firm of your choice that has expanded internationally and state whether
you think that the strategy used was a standardisation strategy, an export strategy, a transnational
strategy or a multidomestic strategy. Please also explain why.
• Conduct some research into a firm of your choice that has expanded internationally and state whether
you think they used the export model, the licensing and franchising model, the joint venture model, the
strategic alliances model or the wholly owned subsidiaries model. Please also explain why.

Assessment Instructions
For this assessment, in the role of a Management Consultant, you are required to undertake an overall strategy
review of Tesla and provide a business report and a PowerPoint presentation to the CEO on further growth
opportunities using the techniques and concepts you have covered in the module. Background reading has
been provided for the case study which you can access via links on the HUB and via the core textbook also.
The business report comprises of 4 tasks (this task is part of both formative and summative assessments):
LO3: Evaluate the implications of global strategy to management practice within a business environment.
Task 2 – Strategy in the Global Environment – profit growth through global expansion (15 marks)
Using relevant models for analysing how organisations enter into foreign markets, critically evaluate the
motives for Tesla expanding internationally and explain how this impacts their overall company strategy.
Provide justified recommendations for the different strategies Tesla can use to compete in the global
environment.
Support your arguments with academic literature and references to other similar real companies.
Recap, Q&A,
Discussion

Key Takeaways
You should be now able to :
• Examine the process of globalisation and how it
impacts a company’s strategy
• Analyse and discuss the motives for expanding
internationally
• Recommend the different strategies a company can
use to compete in the global market
• Evaluate the pros and cons of different models for
entering foreign markets

Next Steps
• Review this topic
• Go through the Preparation and Apply part of this week (if
not done yet)
• Go through the Consolidation part of this week
• Go through the Preparation and Apply part of next week
Prepare Task 2 of your Assessment
• See you next week same time!