Assignment Requirements: Research Proposal

Your task for Week 5 is to prepare and hand in a proposal for your Final Project for this module. The purpose of the Final Project is to apply the concepts and techniques of the module and the analysis of real-world situations or problems. Students are expected to use diverse sources of information and to carry out an original analysis rather than summarize or rehash existing work. Students are encouraged to use situations and data from their own experience where possible.

The proposal must include the nature of the project, the sources of information you plan to use, and the most important concepts and techniques to be applied.

Topics:
For this project, you will research the international business activities conducted in one specific emerging market by a well-known multinational company or a multinational organisation you know well. Multinational enterprises are often present in many international markets, so you should limit yourself to looking at the organisation’s activities in one target country or regional market, such as: (a) one of the BRIC countries—Brazil, Russia, India, and China—which are large enough on their own to be discussed in some depth, or (b) an emerging market region, e.g., South America, Central America and the Caribbean, Eastern Europe excluding Russia, Southeast Asia, or sub-Saharan Africa (or a sub grouping such as West Africa).

Your task is:
1. To assess the progress made by the organisation in establishing itself in the market from first planning its entry strategy until now.
2. To analyse the environment of the emerging market concerned, with reference, for example, to any cultural, political, or legal features that the organisation needed to take into special account.
3. To evaluate the organisation’s strategies: first for international entry, then for organising and structuring its global operations, and finally for maintaining competitive advantage in the face of new challenges and changing conditions.
To come to reasoned and evidence-based conclusions about the level of success achieved by the organisation in seizing the opportunities and overcoming the problems present in the chosen market for expanding its international business.

International business strategies

Market entry strategies

Textbook reading (Shenkar & Luo: Ch. 10, pp. 275–306)

Any strategy for international business expansion is bound to be based on three fundamental considerations—location, timing, and mode of entry—and as such, must answer the questions of where, when, and how. The textbook explains some specific location choices made by DuPont, Siemens, Ford, Nike, Mercedes-Benz, Burger King, and so on. As you will see, three types of decisions were determined by a wide range of cost and tax, demand, strategic, regulatory, and sociopolitical factors. These are discussed in detail in the chapter, and they also are presented in a useful summary table, shown as Exhibit 10.1. The case of Federal Express, and its choice of locating in Subic Bay in the Philippines as a regional base, shows how the interests of local governments and multinational enterprises (MNEs) can coincide. This is a good example of the mutual benefits to be derived from foreign direct investment.

Timing is also important. Being a first or early mover in the market can reap substantial rewards, but it can have disadvantages, too. Early foreign entrants can gain long-term customer loyalty simply from being in the market before the rest of the competition. This kind of market power is illustrated by the example of Bank of America and Citibank in South America. Preemptive advantages can be won by companies who take advantage of opportunities that are only available to first movers. The cases of Toys ’R’ Us in Japan and Volkswagen in China exemplify this kind of advantage.

However, first and early movers also face many risks and uncertainties that may be considerably reduced by the time late investors arrive. For example, rules about foreign investment may still be unclear, leaving room for corruption; local infrastructure may not be adequate; suppliers may need a lot of encouragement and training to reach acceptable standards; and the right kind of financial and professional services may not yet be available. By the time the late movers arrive, many of these problems will have been sorted out. There are many examples of spectacular success and disastrous failure where the timing of market entry may have been a significant factor.

Choosing the most effective way to enter the international market is a complex matter and a crucial strategic decision. A mistake at this stage will have long-term repercussions. If the company plans to make a direct investment overseas, there are several possible ways to do this—by opening its own local offices, getting into a joint venture, taking an equity stake in a local firm, or buying it out completely. There are likely to be local laws that will shape and influence this kind of decision, apart from the pure business considerations. If the company is not ready to make a direct investment, there are transfer-related modes of entry available, such as franchising operations or licensing local production. In any of these cases, the company is probably already familiar with the market through exporting to it or subcontracting some processes to a local organisation.

Countertrade is another important entry mode, involving trading arrangements between parties from different countries in which goods and/or services are exchanged without the need for cash. These arrangements include barter, counterpurchases, offset agreements, and buyback contracts.

International business strategy

Textbook reading (Shenkar & Luo: Ch. 11, pp. 309–323)

Operating on a global scale requires special kinds of organisation to deal with different businesses and parts of businesses that are located in widely separated locations. The firm’s international business strategy must ensure that appropriate structures are in place to manage and coordinate an MNE. This demands not only specialised knowledge of the business processes involved but also a comprehensive understanding of the geographical nodes of the MNE and why they were selected as the best possible locations for particular business activities.

International business strategy must aim to find the most effective balance between global integration and local responsiveness. Economies of scale must be traded carefully against the competitive advantages to be gained from meeting the particular needs of different markets. For the MNE, certain countries and regions may contain parts of the supply chain, have bases for some elements of production or logistics, and be markets for the organisation’s products and services all at the same time. Harmonising all these activities effectively within and across national boundaries presents major challenges. Excellence in the management of operations is only one aspect of this. International strategy must take full account of the constraints as well as the opportunities that are present in all the different areas where businesses are located. This means being fully aware of the cultural, political and legal environment in each location and how these constraints and opportunities will impact any business decisions taken centrally.

The textbook offers many examples of organisational structures and international strategies adopted by MNEs like Citigroup, Procter and Gamble, Unilever, Shell, and so on. Geographic, product, and matrix structures are examined and compared.

Integrating global operations

Textbook reading (Shenkar & Luo: 11, Ch. pp. 323–329)

Coordinating and controlling the global operations of an MNE concerns the integration of all the parts of the organisation to achieve strategic orientation. Implementation of the international business strategy will be achieved by clear communication of corporate values and strategic objectives, appropriate performance targets, and effective procedures for monitoring progress and measuring results. The textbook reading explains how various mechanisms (output, bureaucratic, and cultural) are used for this purpose: data processing systems for integrating and analysing information, management tools for establishing strategy and planning implementation, human resource management tools for setting objectives and guiding behaviour, and so on.

The idea of corporate socialisation is proposed as an effective tool for integration, involving the rotation of key staff to foreign postings and management development programmes to ensure that subsidiaries understand their role in the global strategy. Effective implementation depends upon having the right organisational structure to manage an ongoing reform programme of considerable complexity across cultural as well as national boundaries.

Developing global alliances

Textbook reading (Shenkar & Luo: Ch. 12, pp. 331–353)

Strategic alliances are part of the fabric of globalisation. Finding the right partner to assist the process of market entry is a critical strategic decision, and there are many examples of cases where things have gone disastrously wrong because inappropriate local partners were chosen on the basis of poor local knowledge. The Siemens–Motorola opening case in the textbook illustrates the kind of mutual benefits that companies hope to derive from teaming up. Alliances may or may not involve equity. The partner organisations can form an equity joint venture that structures an appropriate level of ownership for each. However, cooperative joint ventures can be formed without involving equity arrangements. These are contractual partnerships, which can be designed to enable joint exploration, joint research and development (R&D), coproduction, comarketing, and so on, as required.

There are many examples of alliances that begin with dazzling hopes, only to end in failure. Bringing two separate business entities—with different backgrounds, organisational structures, and management cultures—into a smooth and constructive working relationship is an extremely difficult task. Empirical research suggests that over half of such strategic alliances fail [Park, S.H. & Ungson, G.R. (2001) ‘Interfirm rivalry and managerial complexity: a conceptual framework of alliance failure’, Organization Science, 12 (1), January–February, pp. 37–53]. Fujitsu’s partnership with the National Telephone Company of Spain, mentioned in the textbook, offers some insights into how things can go wrong. The interpartner learning process is extremely important in helping to surmount some of the problems, and the textbook goes on to consider aspects of managerial control and methodologies for heightening cooperation designed to ease the process of integration.

Managing global research and development

Textbook reading (Shenkar & Luo: Ch. 13, pp. 355–373)

Journal article reading (Oxley & Sampson: pp. 723–749)

Firms outsourcing R&D projects are often looking to enhance their competitive position in target markets by locating innovation close to the customer base to ensure responsiveness to local tastes and requirements. There are also benefits to be gained from specialised expertise that may be available more readily and cheaply overseas. Developing countries can derive major benefits from becoming targets for outsourcing by gaining new skills from the transfer of technology. There are challenges to be faced as well, and companies outsourcing innovation are bound to be concerned with security and copyright regarding intellectual property that may be fundamental to their future success. However, the track record of success in this area seems to be much more encouraging than the experience of global strategic alliances. The textbook offers many examples of R&D outsourcing and explains both the benefits to be gained and the difficulties to be overcome.

This week’s journal article explores the dangers faced by companies outsourcing R&D to partner organisations that are direct competitors in strategic resource markets and how these dangers can be mitigated by limiting the scope of alliance activities. A number of alliances involving electronics and telecommunications

equipment companies are analysed to provide empirical support for the argument presented.

Globalization of R&D and Developing Countries (This United Nations report provides a detailed review of some key issues related to the globalisation of R&D, with two useful case studies.)

http://www.unctad.org/en/docs/iteiia20056_en.pdf

In summary

This week’s work has covered some important aspects of international business strategy. Decisions about the location, timing, and mode of entry into international markets were considered in light of many practical examples offered by well-known firms. The need for an international business strategy, to ensure that appropriate structures are in place to manage and coordinate an MNE, was discussed. This led directly to consideration of the importance of successful integration of all the parts of the organisation to achieve strategic orientation and the methods by which that objective could be achieved. The great difficulties and challenges involved in developing successful global alliances were explored. The course concluded with an examination of the benefits and dangers of outsourcing R&D projects globally.

Next week you will go on to study global financial management and accounting. The main topics to covered will concern raising capital for developing global business activity, the importance of managing foreign exchange risk, diversity in methods of accounting and moves towards harmonisation, dealing with foreign currency transactions, and pricing and taxation strategies for a global business.

Week 5 Individual Project

Your task for Week 5 is to prepare and hand in a proposal for your Final Project for this module. The purpose of the Final Project is to apply the concepts and techniques of the module and the analysis of real-world situations or problems. Students are expected to use diverse sources of information and to carry out an original analysis rather than summarize or rehash existing work. Students are encouraged to use situations and data from their own experience where possible.

The proposal must include the nature of the project, the sources of information you plan to use, and the most important concepts and techniques to be applied.

Topics:
For this project, you will research the international business activities conducted in one specific emerging market by a well-known multinational company or a multinational organisation you know well. Multinational enterprises are often present in many international markets, so you should limit yourself to looking at the organisation’s activities in one target country or regional market, such as: (a) one of the BRIC countries—Brazil, Russia, India, and China—which are large enough on their own to be discussed in some depth, or (b) an emerging market region, e.g., South America, Central America and the Caribbean, Eastern Europe excluding Russia, Southeast Asia, or sub-Saharan Africa (or a sub grouping such as West Africa).

Your task is:

1. To assess the progress made by the organisation in establishing itself in the market from first planning its entry strategy until now.
2. To analyse the environment of the emerging market concerned, with reference, for example, to any cultural, political, or legal features that the organisation needed to take into special account.
3. To evaluate the organisation’s strategies: first for international entry, then for organising and structuring its global operations, and finally for maintaining competitive advantage in the face of new challenges and changing conditions.

To come to reasoned and evidence-based conclusions about the level of success achieved by the organisation in seizing the opportunities and overcoming the problems present in the chosen market for expanding its international business.

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