Video Transcript: Lecture 9

Hello. So here we are in module number nine. We are talking about international strategy. I actually think the book does a really good job on international  strategy. So looking forward to you looking at these other resources that we  have provided, and going through and doing some of those readings. But  certainly the book does a good job of breaking this down, so we will discuss it as well. One of the things that I just want to get off, right off the bat, discuss right off the bat is the fact that international strategy, even if you're a domestic company,  international strategy is going to affect you. So remember very, very few  businesses are not touched by an international business somewhere in the  supply chain. So as we talk about that value chain, and as we talk about that  supply chain, remember that there are tons of businesses that touch that and  what I mean by that is you have businesses that are, that are. Say you're a  coffee shop or a chocolate shop. Even better, you are a chocolate shop that  operates in, I don't know, in, let's go to a very oh, let's go to a town I was in  recently, Silva, North Carolina. So you add a local chocolate shop where you  make your own chocolate in Silva, North Carolina. Now one may say, well, there is no way in the western Appalachian Mountains in Silva, North Carolina, that  that can be an international business, but it can be, remember, you can ship  your goods overseas. Certainly, if you have a website where you sell your  goods, somebody can buy them, or you also have things like, where do you get  your chocolate from? Where does that come from? Does that come from  America? Is that grown in America, or does it come from overseas. It comes  from somewhere else. When you when you box your product up and you ship it,  where does it go? It could go internationally. One of my favorite things was a  local sub shop in in Florida. It's still rounds called Russo's. Russo's subs. Let me see if I can bring it up. I Yeah, so Russo's, I used to go in there as a kid, and one of the things that Russo's did, oh, they got rid of the picture is Russo's they they  would have a board where they talked about all the places that that they would  ship to, and they had it, it was around the world, and you could, they would put  their little submarine sandwiches on dry ice, and they would ship them  everywhere. So their website is not showing that anymore, and it's pretty slow.  So we're gonna, we're gonna go ahead and we're gonna abandon that. But they  they would ship their subs everywhere. So even a little submarines shop in West Palm Beach, Florida was an international company and shipped their product  everywhere. So there you go. So you know, anything can be international,  whether it's supplies coming in or get their get their products internationally. So  let us talk about the advantages and the disadvantages of competing in an  international market. Obviously, if you're going to compete in international  market, that's going to be a larger customer base, certainly the more people will  be able to purchase your product if you're competing internationally. Easy way to think about that is, if you are, well, let's take let's take that submarine shop. So  Russo's has been in business for 73 years. According their website, I don't know

if it's still 73 or might be 75 at this point, but they've been, they've been in  business for almost three quarters of a century. So Russo's be by shipping their  their product nationally and internationally, which they've done, they are able to  serve more customers. So somebody in in Ohio or in Michigan, where I'm at  right now, can enjoy one of their subs. So you could call up Russo's, hey, put it  on dry ice, get a FedEx overnight to me, and I could be enjoying one of their  submarine sandwiches with oil and red pepper tomorrow morning. So Russo's is an example of having that expanded customer base. And when you can expand  your customer base, there's more people buying your product, then you're able  to sell more which generates more revenue, and all those things now. Now there is disadvantages for going with that strategy, and that is, let's take our little sub  shop Russo's, disadvantages that adds a lot of complexity, right? So now, not  only do they have to worry about getting product in, but instead of people just  coming to them, now they have to worry about shipping product out. So they  have to, they probably have you FedEx come to them. But let's, for this  example, we'll pretend they did. So they're gonna have to make those  submarine sandwiches. They're gonna have to buy a cooler with dry ice to pack  them in. Then they're gonna have to go to the shipping store. They're gonna  have to select next day shipping. They're going to have to hope that there's not  shipping delays, which would ruin their product, because then they would have  to work that out with the customer. Then they're going to have to ship their  product to wherever their product is going. Then the customer is going to open it up, be home to receive that product and then enjoy that product. Whatever you  can see that it adds quite a bit of complexity to the process. So that's one of the  things about operating internationally. When you're thinking about operating  internationally, your strategy is to go international. You have to consider all of the complexity that is added. There's legal requirements, certainly different countries operate under different laws. There's political considerations companies like  stability, and when you are operating overseas, in a place that's different from  your own and you're further away from what's going on, you may not understand all the political nuances, cultural nuances, socio cultural nuances you might  understand and not understand currency, and the different currency rates and  the effects on currency when you're doing those kind of things. So all these  things are considerations when you're operating internationally and when you're  creating an international strategy. Also think about supplies. Supplies are a big  thing as well, and sometimes shipping your products overseas, or even getting  supplies overseas, if you're operating overseas, is a difficult thing. But you know, there are other advantages. You know, let's certainly not talk about all the bad  things, besides opening yourself up to new customers. We talked about that  term, that term diversification yesterday, I mean, in the last module. So  diversification is a another element, and then lower cost, because if you can  reduce your lower labor costs, or you can reduce some of your other costs, then

you're going to be in better shape financially. So those are reasons that you  would want to do it. Think about offshoring and and offshoring is a way to go  overseas and to offer your products over offer elements of your business  overseas. So you certainly see that a lot with call centers and things like that,  which are operated out of India and other countries. Before you go overseas,  you're going to want to do something called a PESTEL. You see it spelled  different ways, P, E, S T, L, E or P E, S, T, E, L, as I said, I think the book does a  good job on this. So I'm going to show the visual that's in the book. And you  want to analyze when you're trying to decide to go overseas, you want to  analyze the political environment. You want to see what's going on economically, what the socio cultural tendencies are, some of the technological, technological  considerations as well, ecological and then finally, the legal implications. And  you can see if it would be a positive move for your company to move overseas,  or whether or whether you should not take on that international strategy. So  certainly, PESTEL is a good thing to do. It. Remember, when you go overseas,  there are certain levels of risk. So, so you got to consider those. As I said, the  book goes through this well, I don't want to rehash the book or re state what's in  the book, but I do like this chart, which are the examples of cultural risk. You do  not want to snap your fingers if you're asking for your check. Certainly  provocative dress in certain countries is not wanted. The one that would bother  me is punctuality. You know, I like to be on time or early to places, and certainly  that is different and cultural expectation in other places. So the key is, if you're  going to operate in another country, or if you're part of a business, or you're a  leader or whatever, you got to have a measure of cultural adaptability. There's  this man named Hofstede, and Hofstede came out with these cultural  dimensions, individuality versus collectivism, masculinity versus femininity,  power, distance and all these other terms that I would encourage you to look at.  But these cultural dimensions are part of understanding the culture of a country.  There's a thing that did a globe study, which rated them for all the countries in  the world. So that is meaningful and good research and data to understand the  cultural nuances about with operating in a different country. So remember that  there is also cultural differences with language, certainly terms that we use here  in the United States, or terms that are used in England to represent certain  things, like they have a different word for cigarette, for instance, and and that  word could be considered offensive in the United States. So you know, certainly  things like that need to be considered as well. In addition to international there,  when thinking about international strategy, there are things which is how far a  business should go from their target market. This is called cage. Cage  dimensions are made up of four things, and like you would think cage cultural,  administrative, geographic and economic. So cultural distance, that's the  distance between a target and a home country. So that's the similarity between  the cultures. For example, you know, your cultural distance between Australia 

and the United States would certainly be less, even though they're quite far  apart, than the cultural distance between the United States and Venezuela,  which is geographically closer. So remember that that that because of colonial,  colonialization and because of these other things, certainly there's less cultural  distance between certain places than other places. So that's one thing you have  to be concerned with. And if you notice most of these things cultural dimensions. We're going to talk about administrative, which is legal and political. These are  all part of the PESTEL as well that we just talked about pestle, remember I said  there's two different spellings of it. You'll see it both ways. So the legal and  political systems and the target country. So again, using Australia as an  example, they have a fairly close administrative distance with their framework  and their structure as the United States. One of the things to keep in mind with  this is labor laws. In Sweden, for example, they have a lot they give a lot of time  off for working families. And if you were a company that was going to operate in  Sweden, you would have to be aware of what those laws were and make sure  that you are following them. Geographic distance. I mean, that's pretty obvious.  Obviously. If you are trying to do business in Australia from the eastern part of  the United States, that's pretty far. That distance is going to add cost to your  shipping and everything else. So that's going to have to be figured into the cost  of products and your determination of whether you want to go overseas or not.  And then finally, economic distance. That would be the distance between two  countries as far as economic factors. So things that are looked at as GNI or  GDP, is what most people are familiar with, which is gross domestic product. So  you know, if you're a US based company, and you are going to operate in a  company that has a similar GDP, that has a similar standard of living, obviously  your product is going to find more success, and you're going to have to modify  your your product less than if it was a country that had a much lower standard of living. So depending on what your depending on what your your product is, it  may not be advantageous to start a business there, for instance, Tiffany jewelry  is very expensive. Going to a country that average salary is $2.50 a month for  the average worker may not make sense, as opposed to going to a country with  a much higher standard of living. So that is cage. So you have international  strategy, of a global strategy, of transnational strategy. You have a multi  domestic strategy. So all these terms are a little bit of confusing, but I think this  chart, and we'll talk about what each of these do, but I think this chart kind of,  kind of gives a kind of a good framework for us to begin the conversation, and  that is, you know, if you have high cost pressure, but low responsiveness, a  global strategy would make sense versus a multi domestic would be, if you have low cost or high cost pressure, I'm sorry, low cost, pressure, high responsive,  responsiveness, pressure. So we'll talk about what that means. But you know,  as you're reading through this, go back to that figure quite a bit. I think it will help you. So a multi domestic strategy, you're not worried about cost or efficiency, but

you want to work on the local requirements for each market. So. So instead of  Netflix, instead of just doing American based shows, they offer different  programming based on what country they are in a global strategy is you're not  really worried about the local market, so the cultural requirements and things  like that, because you're more worried about cost and efficiency. You are worried about making, you make, make some minor modifications to your product. But  generally, you're not going to be worried too much, because you're you're  worried, you are focusing on lower cost, lower strategy. So there's examples of  that. The book talks about Intel as one that has that strategy, a transnational  strategy, is kind of the middle ground. So McDonald's does that in KFC, where  they certainly keep a lot of their business model, but certainly have some  regional favorites based on where you go. There's a movie that talks about  McDonald's having a royalle with cheese in a different location, but taking movie examples out of it, if you go to McDonald's overseas, you will see different  offerings based on the local taste, like being able to get wine at the McDonald's  in France. So Porter, we've heard about him. Porter has what's called a die, a  diamond strat model for national advantage, and this is what it looks like. So you want to look at the strategy, the structure, the rivalry, the factor conditions, the  main conditions, and then what are the support industries? So you need to look  at the home countries, demand conditions, the home country, their home  country's factor conditions. And then what are the support industries within that?  And you may find that there is not a lot of demand for a product, or there's a  smaller demand for a product. For instance, in America, we tend to want to go  bigger and better, but that's not always the demand strategy for other countries,  which may favor smaller meals or favor smaller products, or maybe less waste  and things like that. So, you know, I will tell you, you know, certainly European  roads, some European roads, you don't want my vehicle on European roads,  because I would take up the entire two lanes in my vehicle. For example. By the  way, I don't prefer being large vehicles. I just happen to have to have one for  reason. There's also factor conditions. So, you know, think, think about how  India is the seventh largest country in terms of land mass, but its population size is second. It has more English speakers than the United States. So, so India has a fact, there's a factor condition which makes them very attractive for  businesses that speak English. And then think about support industry. So if  you're a restaurant like McDonald's or whatever, going to a country that has a  larger agricultural presence, obviously would be advantageous to you and would help you with your business. And then keep in mind, you have to know what  rivalry is there, what your competitors are doing and things like that. There are  different options for going internationally. And again, I think the book does a  good job of explaining these. So I just want to bring up this chart that's  exporting. Many of you are familiar with exporting that's that's making that  Russo's sub in West Palm Beach, Florida, and then shipping it to wherever 

around the world that somebody wants to eat a Russo's sub. I would argue  everybody in the world should eat a Russo's sub. Licensing is granting a foreign  company the right to use your product. Coca Cola does this a lot. In fact, what's  interesting is one of my favorite, when I used to drink soda, one of my favorite  sodas was, was in the Middle East, you can get it, but you couldn't get it  anywhere else in America or anywhere else. And it was a, it was called, it was, it wasn't Coke Zero, it was something else. It was like, Coke none or something.  Anyway, it was this product that Coca Cola does? They license it out. They use  their secret formula, and you can only get it in the Middle East. And was  delicious. And I drank tons of them, and I couldn't find them, and I gave up soda, so I don't even drink anymore. Franchising is giving the name over to somebody else. Joint Venture is, we've talked about that a lot is working with another  company. You can just buy a company. And that's that's one way to do it as well. So you know what? When you're looking at your international strategy, you got  to see what strategy makes the most sense. Do you want to just keep your  entire brand, or do you want to do you want to do other things? And then what  kind of controls are going to be? Certainly, when you're franchising something,  you need to make sure that that your brand and the elements of your brand are  kept obviously, if you go international with that, the further away you go, the  harder is to monitor to make sure that the requirements that you have around  your brand are being met. Okay, so what that boils down to is investment and  risk. I just kind of talked about this, and you can see here that exporting,  licensing and franchising, it really is pretty low risk, but obviously the profit  potential and any ownership and things like that is not really controlled as tightly  as if you do a fully owned subsidiary. So just wanted to mention that I think that  is the main things I wanted to cover, it is. So next one, we will talk about  executing strategy through organizational design. So we will talk about the  basics of organizational structure, whether it's a flat a flat organization, a matrix  organization, there's all kinds, but we will be discussing that next, and I look  forward to sharing sharing some thoughts on organizational design with you as  we continue our discussion of strategy. Thank you so much