Internationalization decisions

Hello and welcome to this series of introductory talks on business strategy. My name is Robert Grant. I'm a professor of strategic management at Bocconi University in Milan, Italy. I'm also the author of 'Contemporary Strategy Analysis', a leading strategic management textbook used in business programmes throughout the world.

In this talk, we shift out attention to the global arena and ask what happens to strategy and to strategy analysis when we view the firm within a broader geographical context. The short answer is that it makes strategy and its analysis more complex. At the level of the industry it means the industries are now global, widening the range of market opportunities available to the firm and increasing the number of competitors the firm must contend with. A global perspective also widens the range of resources and capabilities that a firm has access to. My goals for this talk are for you to become more competent in two types of internationalisation decision. First, where to locate business activities. Second, how to enter foreign markets. In terms of the structure of this talk, I shall begin with the analysis of international location. I shall then consider foreign market entry decisions.

In the case of locational decisions, we need to consider the resources and capabilities that the product needs and where these are most available. If we want to grow corn then we need temperate climate and rich soil. The United States, Brazil, and Ukraine tend to be the most favorable locations. If we want to produce T-shirts, our key resource we require is low cost labour. Bangladesh, Vietnam and Honduras are all major producers of T-shirts. If we want to make semiconductors, engineering skills and capital are going to be most important. The United States, Taiwan, South Korea and China tend to be the leading producers. There are also the proprietary resources and capabilities of the firm. What are they and are they mobile? In the case of diamonds, De Beers is the world's leading producer. The key resource that is required is diamond deposits. These are very immobile. De Beers need to produce where the dimaond deposits are, primarily in South Africa. McDonald's on the other hand, its capabilities are its business system. It can replicate those almost anywhere, so that McDonald's is able to produce its hamburger restaurants anywhere in the world. A third consideration is whether the product itself is mobile. If the product is mobile, it can be produced in the optimal location and then exported to users. As in the case of airplanes. If it is immobile, then the production needs to be co-located with the consumption, as is the case of virtually all service industries. Finally, there is the need for integration across the value chain. If there is a low need for integration, then we can globally fragment the value chain having each activity where it is best to produce it. For example, Apple's iPhone. But if there is a high integration need, all the stages of the value chain need to be co-located, as is the case with Steinway pianos. Let us turn to international market entry decisions.