Brexit, Britain's mid-2016 decision to leave the European Union (EU), created costs for many businesses. General Motors, the US car-maker with major production and sales in the UK, for example pinned down costs of Brexit to the company in the third quarter of 2016 to US$100 million (mainly due to the depreciation of the British pound and softening demand). However, Scotch whisky producers see Britain's new ability to strike its own free trade agreements as an opportunity. EU has been slow in its free trade negotiations with India, for example, and Scottish whisky producers are hoping that the British government can be more effective than EU in persuading India to reduce its 150% tariffs on whisky imports. India became the world's 3rd largest importer of Scotch (after France and the US) and is its key growth market.
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Karan, an Indian student who was about to finish his Master of International Business degree in New Zealand, was considering internship opportunities in New Zealand and the UK. After studying about the rise of emerging giants—MNEs from emerging markets—he realized that his “golden opportunity” might be closer to home. He picked up the phone and after an interview process landed an internship and later a full time job with Tata International. Tata International is a global trading and distribution division of India’s Tata Group. It leverages the group’s global presence and marketing capabilities across 5 business lines: metals; leather & leather products; agricultural trading; distribution; and minerals.
· Collaborative capabilities are crucial for the success of alliances and networks
· Understand and master the rules of the game governing alliances and networks · Carefully weigh the pros and cons of alliances vis-à-vis those of acquisitions · Alliances can be relatively easy to form - but may not be best solution · Alliances need not be permanent · Flexibility in alliance relationships is key · An international knowledge network is a basis for learning · Develop learning and innovation capabilities to leverage multinational presence as an asset.
· Think about whether your international R&D facilities are home-base-exploiting or augmenting. · Assess whether your knowledge-generating activities are in the best possible locations. · When exploring the drivers of innovation, examine the contribution of subsidiary initiatives. · Reflect on the potential to partner in alliances to absorb new knowledge in your industry. · Align your R&D initiatives in host country labs with the firm’s overall corporate goals. · Consider alternative avenues for acquiring new knowledge (alliances, acquisitions etc.) · Come up with the right strategy-structure configurations based on your industry’s evolution.
· Master the external rules of the game governing MNEs and home/host country environments. · Be prepared to change the internal rules of the game governing MNE management. · Get informal: it is crucial to understand the role of informal rules of the game abroad
· Get local: doing business abroad is more costly and complex—get an insider’s perspective · Don’t fake it: integrate ethical decisions as part of the core strategy process, it’s not just “PR” · Managers need to build valuable, rare, non-imitable and organisationally feasible resources.
· Competitor imitation or benchmarking is not likely to be a successful strategy. · Managers need to build up resources and dynamic capabilities for future competition. · Investment decisions—decisions about what activities to finance
o Example: Capital budgeting that quantifies the benefits, costs and risks of an investment · Financing decisions—decisions about how to finance those activities o Example: Choice between equity loan (selling shares to investors) and debt loan (bonds) · Money management decisions—decisions about how to manage the firm’s finances o Example: Minimising cash balances, reducing transaction costs, tax optimisation · Internationalisation by firms inside the economic bloc
· Rationalisation of operations · Mergers and acquisitions · Regional products and marketing strategy · Internationalisation by firms from outside the bloc · Research to gather knowledge and intelligence
· Choose the most appropriate entry strategies · Take advantage of duty free foreign trade zones · Seek favorable duty classifications for exports · Take advantage of investment incentives · Lobby for freer trade and investment Example: Hong Kong's government paid $1.74 billion to Disney to build a Disneyland theme part there. |
ImplicationsLessons learned and recommendations for action to capitalise on trends in international business. Learn more with Featherlight Quizzes (120 questions and answers about key concepts in international business and strategy) Archives
November 2016
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