INTERNATIONAL BUSINESS INTERNATIONAL BUSINESS MANAGEMENTMANAGEMENT

Prof Soumitra MookherjeeLecture 18

EPRG APPROACH AND GLOBAL BUSINESS STRATEGY OPTIONS

EPRG Model

• Ethnocentric: everything is centered on the domestic market, and home country culture is perceived superior to that of others

• Polycentric: several important foreign markets exist that could be distinctly different.

• Regiocentric: the market is constituted by several large economic regions, where each economic zone is different from the other.

• Geocentric: the world is one large global market, where an uniform strategy is designed based on cultural similarities across various regions.

EPRG Model - CharacteristicsEthnocentric Polycentric Geocentric

Approach International operations are secondary

Each country is relatively independent

The world is one common market

Vision Centered on the domestic market

Each market is unique

Global vision of the world

Priority Searching for identical segments in foreign markets

Taking into consideration differences in foreign markets

Unifying differences in the world market

Planning center National headquarters

Subsidiary in each country

World headquarters

Structure International division

Division for each zone

Matrix structure

EPRG Model - CharacteristicsEthnocentric Polycentric Geocentric

Staff Citizens from the domestic market

Citizens from each market

Most qualified

Marketing strategy

Extension Adaptation Extension, Adaptation, Creation

Management style

Centralized Decentralized Integrated and interactive

Production Domestic Local Low-cost sources of supply

Partnerships Agent, licensing Joint-ventures Strategic alliances

Performance measures

Global market share

Local market share World market share

5

Upstream Company’s Downstream Value Chains Own Value Chain Value Chains

Activities,Costs, &

Margins ofSuppliers

Buyer/ UserValueChains

Activities, Costs, &

Margins of Forward Channel

Allies andStrategic Partners

InternallyPerformedActivities,Costs, &Margins

PORTER: VALUE CHAIN SYSTEM

6

The Value Chain System

• Comparing Costs All Along the Value Chain

• Suppliers Value Chain Influence Operational Costs

• Forward Channels Costs & Margins “Determine Prices”

• Activities reflect end user satisfaction.

Upstream Value Chain Internal Value Chain Downstream Value Chain

Activities, Costs & Margins of Suppliers

7

PORTER: GENERIC STRATEGIES

Competitive Scope

Cost Uniqueness

Broad Focus

Narrow Focus

CostLeadership

Differentiation

Focused Cost Leadership

Focused Differentiation

8

COST LEADERSHIP

• Produce/ Deliver Goods & Services at Lowest cost – with Acceptable features

“Cut costs Provide Excellent Service”

HOW:

1. Technology and process efficiency

2. Economies of scale and productivity

3. Eliminating unwarranted activities

• Effective Implementation of the Cost Leadership Strategy allows Firms to earn Supernormal Profits

9

COST LEADERSHIP: EXAMPLES

Indigo Airlines:

Operating domestic and overseas flights at most economical price

GINGER/ NOVOTEL Group:

Budget Hotels with all modern amenities at affordable prices

LG/ SAMSUNG

Affordable FMCG products catering to needs of common mass

RELIANCE INDUSTRIES:

Mass scale production of high quality globally acceptable products at competitive prices

GLOBAL STRATEGY

The approach is to operate under the following framework:

1. Combination of geocentric and ethnocentric approach2. Centralization of operations3. Cost Leadership focus4. Standardized products and services – minor modifications if

absolutely essential5. Technology advancement for attaining Economies of scale6. Global headquarters takes critical business decisions7. Regional heads to coordinate with Global heads8. No major delegation of authority

11

GLOBAL STRATEGY: EXAMPLES

BOEING/ AIRBUS:

All standardized variants of different aircrafts like A 320/ B 777/ 787 Dreamliner – but same models supplied to all airlines

CAPITAL GOODS/ MACHINERY/ PLUG ADAPTERS:

Plant and Machinery/ technology of global giants virtually standardized

MICROSOFT

ALL MS Office windows software products are standardized with minimum modifications

INTEL/ APPLE

Standardized Microchip Processors and complimentary to all PCS/ Laptops, etc I Pad, I Phone – distribution through own stores to maintain identity.

12

• Unique Attributes and features of a product “ Customer Value”

• Differentiation Unique Needs Premium Price

• Ways of Differentiation

• Distinguish across various dimensions, functionality, performance

• Superior customer service and bonding

• Product Design, Features, Shape, Color

• Product Innovation and Durability

• State of the art Technology – Quality

DIFFERENTIATION STRATEGY

MULTIDOMESTIC STRATEGY

Objective is to operate under the following framework:

1. Combination of Polycentric and Regio-centric approach2. De-Centralization of operations3. Major emphasis on differentiation 4. Customized and adapted products and services – as per

cultural diversities, legal differences and variation in consumer behaviour, tastes and preferences

5. Country specific strategies are formulated and implemented for better impact

6. Regional headquarters takes critical business decisions7. Regional heads to coordinate with Global heads – but

there is delegation of authority

14

MULTI-DOMESTIC DIFFERENTIATION: EXAMPLESMC DONALDS/ PIZZA HUT/ KFC:

International franchisee – flavours and tastes customized to suit local preferences

e.g. Tikka Masala flavour, all vegetarian outlets,

COKE/ PEPSI:

Most powerful FMCG brands –flavours, tastes, packaging different across various regions

MARUTI SUZUKI/ HYUNDAI:

Worldwide popular brands of vehicles – differentiation features, design and

customer service

NESTLE/ UNILEVER/ P&G

Powerful global brands making toiletries, personal care products, Dairy products – highly customized and adapted to suit local cultures, tastes and preferences.

15

Sources of Competitive Advantage

RESOURCE STRENGTH:

Access to information, cheap skilled labour, cheap capital, supplies, raw materials,

ASSET STRENGTH:

Well established Brand, Patents, Proprietary technology, distribution network, etc

COMPETENCIES:

Superior productivity, Technology, business processes, lead time management, information management and technical know how, etc

16

STRATEGY OPTIONS: GLOBAL OR MULTI-DOMESTIC

1. EXISTENCE OF SOURCES OF EXTERNAL AUTHORITY (EA)

When the degree of external control is HIGH due to changes in tariffs and taxation, regulations protecting local sectors, government controlled, etc –

Then the firm’s ability to enforce cost leadership strategies through aggressive pricing and efficiency is limited:

In such cases firms have the following options:

1. Operate in countries having low degree of control

2. Firms switch towards adopting differentiation based strategies comprising improvement in design, quality, features, after sales service, aggressive Brand Promotion, customization, etc

3. Alternatively, operate in your own country and adopt and execute the “ GLOBAL STRATEGY”

17

STRATEGY OPTIONS: GLOBAL OR MULTI-DOMESTIC

2. EXCHANGE RATE VOLATILITY (ERV)

The risks and uncertainties associated with exchange rate fluctuations are prominent in countries having floating rate systems

Any sharp currency appreciation would make exports less competitive and export growth may suffer and profit margins may decline.

In such cases firms have the following options:

1. Operate in countries having fixed exchange rates and / or low exchange rate risks

2. Firms switch towards adopting non price differentiation based strategies to hedge foreign currency risks. This is indicative of “MULTI-DOMESTIC STRATEGY” to reduce risks associated with unfavorable exchange rate movements.

18

GLOBAL STRATEGY FRAMEWORK

GLOBAL AMBITION

GLOBAL POSITIONINGGLOBAL BUSINESS

SYSTEMS

GLOBAL ORGANIZATION

Relative importance of regions and countries in terms of size, assets, resources

• Choice of Regions• Value Proposition Global or Multi-Domestic

• Invest in resources, assets, to create a global value chain

• Develop through M & As

• Global Structure• Global Processes• Global HRM and Coordination