International Strategy :

Creating Value in Global Markets

Gregory G. Dess
G. T. Lumpkin
Marilyn L. Taylor, Modified
Dan sumber2 lainnya

What is a multinational
corporation?
A corporation that operates
in two or more countries.
Decision making within the
corporation may be
centralized in the home
country, or may be
decentralized across the
countries the corporation
does business in.

Why do firms expand into other

countries?
To seek new markets.
To seek new supplies of raw materials.
To gain new technologies.
To gain production efficiencies.
To avoid political and regulatory
obstacles.
To reduce risk by diversification.

What are the major factors that

distinguish multinational from domestic
financial management?
Currency differences
Economic and legal differences
Language differences
Cultural differences
Government roles
Political risk

International Business-Level Strategy:

Determinants of National Advantage
Factors of
production

Firm strategy,
structure, and
rivalry

Demand
conditions

Related and
supporting
industries

Porters Diamond of National Advantage:

As Applied to India

Adapted from Exhibit 7.1 Indias Virtual Diamond in Software

Need for Global Integration

International Corporate-Level Strategy

High
Global
strategy

Transnational
strategy

Multidomestic
strategy
Low
Low

High

Need for Local Responsiveness

Strengths and Limitations of Various Strategies

Strategy

International

Global

Strengths

Limitations

Leverage and diffuse

parents knowledge and
core competencies.
Lower costs because of
less need to tailor
products and services.
Greater level of worldwide
coordination
Strong integration across
various businesses.
Standardization leads to
higher economies of scale
which lowers costs.
Helps to create uniform
standards of quality
throughout the world.

Limited ability to adapt to

local markets.
Inability to take advantage of
new ideas and innovations
occurring in local markets.

Exhibit 7.6 Strengths and Limitations of Various Strategies

Limited ability to adapt to

local markets.
Concentration of activities
may increase dependence
on a single facility.
Single locations may lead to
higher tariffs and
transportation costs.

Strengths and Limitations of Various Strategies

Strategy

Strengths

Multidomestic Ability to adapt products

and services to local
market conditions.
Ability to detect potential
opportunities for attractive
niches in a given market,
enhancing revenue.
Transnational

Limitations

Less ability to realize cost

savings through scale
economies.
Greater difficulty in
transferring knowledge
across countries.
May lead to overadaptation
as conditions change.
Ability to attain economies Unique challenges in
of scale.
determining optimal locations
of activities to ensure cost
Ability to adapt to local
and quality.
markets.
Ability to locate activities in Unique managerial
challenges in fostering
optimal locations.
knowledge transfer.
Ability to increase
knowledge flows and
learning.

Exhibit 7.6 Strengths and Limitations of Various Strategies

Basic Strategic Alternatives in the Global

Marketplace
Become the lowest cost producer and
compete on the basis of low costs and prices
Develop a differentiated product and compete
on the basis of value, be it superior design,
reliability, service, or performance
Seek government protection in local markets
(onlyuntil the competition arrives!)

Five Global Product and Promotion

Strategies

Market Entry Strategies

Entry Modes of International Expansion

Wholly Owned
Subsidiary

Extent of Investment Risk

High

Joint Venture
Strategic Alliance
Franchising
Licensing
Exporting

Low

Low

High
Degree of Ownership and Control

Global Market Entry: Choice of Entry Mode

Type of Entry

Characteristics

Exporting

High cost, low control

Licensing

Low cost, low risk, little control, low returns

Strategic alliances

Shared costs, shared resources, shared risks,

problems of integration

Acquisition

Quick access to new market, high cost,

complex negotiations, problems of merging
with domestic operations

New wholly owned

subsidiary

Complex, often costly, time consuming, high

risk, maximum control, potential aboveaverage returns

International Promotion: Advertising

Constraints on the International Advertising
Program
1.
2.
3.
4.
5.
6.

Languages
Role of Advertising in Society
Media Availability
Government Controls
Competition
Advertising Agency Availability

International Environment The Foreign Environment

Population Tools
Population Size: Range from over 1 billion to less than
100,000
Population Growth Rates: significant variance in growth
rates around the world; generally industrialized countries
have lower growth rates and the developing countries are
growing much faster
Distribution of Population by Age: examines the
percentage of the population in each segment - the
dependent group (0-14), the productive group (15-64), and
the senior group (over 65)
Population Density: will affect how concentrated and
reachable the market is and the logistics problems facing
the firm

Income Measures

Per capita income: range is extreme around the world; over half
the worlds populations live in countries with a per capita income
of $380; although it is the most widely used measurement to
indicate market potential, it may not reflect purchasing power
adequately
Distribution of income: the distribution of incomes relative to the
average income of a given population
Bi-modal income distribution: occurs when most people are
below the per capita income figure and there is a small wealthy
group above it (a dual economy without a middle class)
Gross National Product: measures the total domestic and
foreign value added claimed by residents; industrial sales and
purchases by governments may be best indicated by GNP

A Nations Physical Endowment

Natural Resources: an important part of the wealth of
a nation; may indicate its economic health and
attractiveness as a market. They may serve as raw
materials for a firm that produces within the country.
Natural resources are not static and change over
time.
Topography: an important indicator of the logistics
situation within the country.
Climate: influences the firms product offerings, its
packaging, and its physical distribution within the
market.

Infrastructure of a Nation
Transportation: a firm is dependent on local transportation
infrastructure for procuring products and supplies as well
as for reaching its customers.
Energy: a firm needs energy for local production and
conducting business; energy availability influences the
kinds of products that the firm can sell (see table 3-7).
Communications: a firms marketing and operational
success depends on the local communications
infrastructure.
Commercial Infrastructure: Marketing is a commercial
activity and its success depends on a number of
commercial institutions outside of the firm (wholesalers,
retailers, advertising agencies, banks, etc.)

Other Characteristics of Foreign Economies

Farm vs. City: considers the degree of urbanization in a foreign
market; where people live affects their economic situation and
their role as consumers. Marketers generally find it easier to
market in cities due to higher income levels,
communication/transportation infrastructure, and consumer
attitudes.
Inflation: a firms procurement and pricing in a market is greatly
influenced by the inflation rate there.
Role of government: governments regulate, tax, and often serve
as partners in joint ventures with foreign firms. The government
is often a top customer.
Foreign investment in the economy: indicates the countrys
investment climate as well as the extent and nature of
competition the firm will face.

What is Culture??
Technology, Material Culture, Language,
Aesthetics, Education, Religion, Attitudes,
Values, Social Organization, Politics
CULTURE
Culture is the distinctive way of life of a
people.

The Impact of Language

Provides a cultural mirror: language gives an
accurate picture of the culture; its values,
attitudes, social relations, religion, technology,
etc. are all reflected in the language
Linguistic and social diversity: many countries
have more than one language and this
indicates social as well as linguistic divisions
(ex. Canada, Indonesia, Yugoslavia)
Language as a challenge: communication is a
major element of marketing, so local language
sensitivity is important in advertising, branding,
packaging, personal selling, and market
research.

The Aesthetics of International Marketing

Design: as ideas of form and beauty vary, the firm must
be culturally sensitive in the design of its buildings,
products, and packaging abroad (ex. McDonalds,
Kratingdaeng)
Color: the significance of colors and color preferences
vary internationally - the international marketer should use
colors appropriate for the foreign market
Music: music in advertising commercials must fit local
tastes (ex. Michael Jackson)
Brand names: a products name carries significance and
important connotations - names should be pleasing to
local customers

Religion and the Market

Religious holidays are important consumption periods (ex.
Christmas, Ramadan)
Consumption patterns may be shaped by requirements or
taboos (ex. McDonalds challenged in India while Coke
benefits from Islam)
The economic role of women is largely by religion and
affects their consumption patterns and work behavior
Caste affects both market staffing and market segments
(ex. India)
Religious institutions (church, temple, mosque) affect
consumption patterns and marketing activity
Religious divisions can lead to political and economic
instability (ex. Northern Ireland, Bosnia)

The Impact of Cultural Values

Negative attitudes toward change: international
marketers are trying to introduce new products and
techniques when they enter a market - to bring
change; if tradition and continuity are valued more
than change, this can be difficult.
Negative feelings toward risk: consumers take a risk
with a new product. If they are risk-averse,
innovation will be more difficult for international
marketers.
Cultural values and consumer behavior: changing
values and behavior is difficult. It generally is easier
and more cost effective to adapt to them.

The Constraints of Education

The firms ability to communicate will depend in part

on the educational level of its market:
Advertising programs and package labels must be
adapted to the educational level.
The marketing program must be altered if women are
not educated.
The educational level affects the possibilities of
market research.
Complex products or those requiring written
instructions may need to be modified.
Relationships with members of various distribution
channels will depend on the educational attainments
of members in its channel.

POLITICAL ENVIRONMENT
National interests of the host country - all want to protect
their national sovereignty, security, prestige, and
economic welfare (Freeport, Blok Cepu ?)
Controls used by the host country - countries use a variety
of controls to try to assure the maximum contribution by
foreign firms: 1) entry restrictions (ex. prohibit 100%
ownership) 2) price controls 3) quotas, tariffs, and
exchange control (the firm is forced to decrease imports,
increase local purchases, and/or limit profit remittances)
and 4) expropriation- the official seizure of foreign property
Political risk assessment: the firm must continuously
monitor the political environment of the host-country using
consultants, government services, etc. (ex. South Africa)

External Factors
The firms home country relations with the host
country
The potential sensitivity of the product or
industry (ex. defense, public utilities,
communications)
The size and location of the firms operations
The visibility of the firm (consumer vs. industrial
goods, level of advertising, popularity of brand,
etc.)
Host-country political situation

Home-Country Political Environment

The home government can limit the countries
that the international firm may enter (ex.
Cuba, Iraq, Libya, North Korea) - a trade
embargo can serve to open the market for
international competition!
The home government can limit the products
that the international firm may export (missile
technology, nuclear controls, supercomputer
controls, see Table 5-3)

Risk Rankings
Credit
Total Risk
Economic Political
Rank Country
Assessment Performance Risk
1
Luxembourg 99.51
25.00
24.51
2
Switzerland
98.84
23.84
25.00
3
United States 98.37
23.96
24.41
40
China
71.27
18.93
16.87
55
Poland
57.12
18.56
13.97
63
Vietnam
52.04
14.80
11.91
86
Russia
42.62
11.47
8.33
114
Albania
34.23
8.48
5.04
161
Mozambique 21.71
3.28
2.75
178
Afghanistan
3.92
0.00
3.04

Exhibit 7.3

A Sample of International Country Risk Rankings

Source: Adapted from worldbank.org/html/prddr/trans/so96/art7.htm.

Total of
Total
and Access
Debt
to Finance
Indicators Indicators
20.00
30.00
20.00
30.00
20.00
30.00
19.73
15.74
9.36
15.23
18.51
6.82
17.99
4.83
19.62
1.09
13.85
1.83
0.00
0.88

Beberapa Fakta Tentang Risiko

NEGARA

% RESIKO YANG HILANG

AMERIKA
INGGRIS
ITALIA
ARGENTINA
BRASIL
INDONESIA

73,0
65,5
60,0
19,0
31,0
19,0

Economic Factors
and a Firms Value
Economic Growth
Economic growth in the Indonesia is commonly
measured as the percentage change in the gross
domestic product (GDP).
Firms in some industries are more exposed
to changes in economic growth (autos, housing).
Financial managers must try to anticipate changes
in economic growth and estimate the extent to
which these changes will affect the firms cash
flows.

Economic Factors
and a Firms Value
Economic Growth
When growth is expected to decline, financial
managers reduce production, inventory, new
projects, and new capital.
The reduction in cash flows from existing and
planned new business can cause a firms value to
decline.
Investors tend to shift their investments to those
firms that are more insulated from changes
in economic conditions.

Economic Factors
and a Firms Value
Interest Rates
Changes in interest rates can affect a firms value
in several ways.
First, increases in interest rates will raise the cost
of borrowing for consumers, thus reducing
the demand for a firms products.
Second, increases in interest rates will raise the
cost of financing for the firm which adversely
affects firm value.
Increases in interest rates will also raise investor
required rates of return which reduces firm value.

Economic Factors
and a Firms Value
Interest Rates
Firms whose cash flows are most
sensitive to interest rate
movements are those that
commonly sell products on credit.
Examples would include auto
manufacturers, home builders,
boat manufacturers, and
appliance manufacturers.

Economic Factors
and a Firms Value
Inflation
Inflation can force the firm to have higher cash
outflows as the cost of purchasing supplies and
hiring labor rises during periods of high inflation.
Some of these higher costs may be offset in whole
or in part by rising prices for the firms products.
Inflation can also affect the firm through its impact
on interest rates.
Higher rates of inflation are normally accompanied
by higher interest rates.

Economic Factors
and a Firms Value

Government Effects
on Firm Value
Monetary Policy
Monetary policy describes the BI programs for
controlling the Indonesian money supply, which
influences interest rates.
The BI controls the money supply through (a)
open market operations, (b) changes in the
discount rate, or (c) changes in reserve
requirements.
In general, reducing or slowing the growth in
money supply increases interest rates which has a
negative impact on firm value.

Government Effects
on Firm Value
Fiscal Policy
Fiscal policy describes the Indonesia governments
programs of taxation and public spending.
Expansionary fiscal policy would result
from a reduction in the overall level of taxation
and/or increase in Government spending.
On the other hand, contractionary fiscal policy
would result from an increase in taxes or reduction
in spending.

Government Effects
on Firm Value
Fiscal Policy
An increase in personal tax rates will reduce
disposable income, thereby reducing the demand
for a firms products; this has a negative affect
on firm value.
An increase in corporate tax rates reduces firm
cash flows directly; this has a negative affect on
firm value.
Not only can the level of government spending
affect firm value, but also the allocation of that
spending.

Government Effects
on Firm Value
Fiscal Policy
For example, fiscal policy that increases military
equipment spending will benefit those firms that
produce that equipment.
Finally, the aggregate level of government debt
may also affect firm value.
If the level of debt increases, the government
demand for funds will put upward pressure on
interest rates, increasing the cost of financing for
firms.

Government Effects
on Firm Value

How Industry Conditions

Affect Firm Value
Industry Demand
Demand for products or services can change
in response to changes in consumer
preferences.
For example, as consumers became more
health conscious, the demand for health
industry related products (like exercise
equipment) grew, while
the demand for those that harm health
(like cigarettes) declined.

How Industry Conditions

Affect Firm Value
Industry Competition
As competition within an industry increases,
firms may be adversely affected for two reasons.
First, firms may have to reduce prices or face
losing customers to competitors.
Second, increased competition will reduce
revenues as market share declines.
In addition, in recent years, technology has
intensified the competition in many industries.

How Industry Conditions

Affect Firm Value
Industry Labor and Regulatory Conditions
Labor conditions within industries change over
time.
When an industry becomes unionized, firms within
this industry are likely to experience substantially
higher cash outflows as wages and benefits
increase.
Some industries, such as public utilities, are more
heavily regulated than others; this has the affect of
preventing firm value from reaching its full
potential.

How Industry Conditions

Affect Firm Value

How Global Conditions

Affect Firm Value
Impact of Foreign Economic Growth
Firms that operate in more than one country
are subject to the economic conditions within
the countries that they operate.
This can benefit the firm if conditions in the foreign
country are strong while the United States economy
is weak.
Of course, it is also possible that the foreign economy
is relatively weaker than the United States economy.
Diversifying across countries should generally have
a net affect of reducing firm cash flow variability.

How Global Conditions

Affect Firm Value
Impact of Foreign Interest Rates
A change in foreign interest rates can affect the
cash flows and the cost of financing of a
Indonesian firm.
If interest rates in foreign countries increases,
Indonesian firms that sell in those countries will be
adversely affected as consumer demand declines.
Finally, if foreign interest rates rise, Indonesian
firms that obtain financing in those countries will
experience an increase in financing costs.

How Global Conditions

Affect Firm Value
Impact of Exchange Rate Fluctuations
One of the main concerns of a firm when it
considers engaging in international business is the
effect
that fluctuations in exchange rates can have
on cash flows.
Exchange rate risk can affect both exporting
and importing firms, firms that engage in direct
foreign investment, and even purely domestic
firms.

How Global Conditions

Affect Firm Value

How Global Conditions

Affect Firm Value
Impact of Political Risk
Firms that are engaged in international business
are typically exposed to political risk, or the risk
that the host countrys political actions will
adversely affect the firms performance.
Common examples of political risk include taxes
imposed by the host government, government
restrictions on fund transfers, consumer attitudes,
and, at the extreme, expropriation.

How Global Conditions

Affect Firm Value

I. SIZE OF THE MARKET

A. Population - First Consideration in analyzing economies
Half the world lives in countries of 100 Million or more 2/3 of the countries have less than 10
million. 60 have fewer than 1 million population
Asia contains six of the ten most populous markets. Latin America has two relatively populous countries:
Brazil with 161 million
Mexico with 93 million
1. Population Growth Rates (Projections)
High-income countries will grow at only 0.3% annually to 2010. Low-income countries will grow at 2.2%
annually(rule of 72!)
By 2010 the world will have 7,500,000,000 people. High-income countries will have only 1,000,000,000 total
2. Distribution of Population
Age: Developing countries vs. industrialized countries
Developing countries: Population growth, short life expectancies. 50% in productive (15-64) age group
Industrialized: 2/3 in productive age group
Density:

The concentration of population is important to the international marketer.

U.S. population density is 29 per square kilometer
Netherlands is about 450 --Laos -- 20
Bangladesh -- 930
Careful interpretation of density figures is important (Egypt)

Population Pyramid Summary for Indonesia

http://www.census.gov/ipc/www/idbpyr.html

Map of countries by GDP (PPP) per capita, based on the

2004 IMF data

$/Yen
$/GBP

$/Euro

Perkembangan Tingkat Inflasi beberapa Negara 1990 2005

20
15

USA
Jepang

10

Indonesia
5

Thailan
Singapore

-5

61

56

51

46

41

36

31

26

21

16

11