Part 7: Regional Economic Integration

Liaoning University Dr Yuanyuan Xing International Business

Learning Objectives
Evaluate regional economic integration Discuss regional integration in Europe Evaluate regional integration in the Americas Examine regional integration in Asia Review regional integration in the Middle East and Africa

50 40 30 20 10 0

Regional Shares of World Merchandise Exports (%)

1980 1999

N. Am er ica L. Am er ica W C. . Eu ro & pe E. Eu ro pe Af ric a M id -E as t As ia

WTO, International Trade Statistics 2000; also Annual Report 2000.

Free Trade Area Customs Union

Regional Economic Integration

Common Market Economic Union Political Union

Types of Regional Economic Integration

Free Trade Area Remove trade restrictions among members Common external trade policy towards nonmembers Free movement of labor & capital among members Harmonize policies under central control Customs Common Econ. Union Market Union

?
NAFTA

? ?
ANCOM

? ? ?
CARICOM

? ? ? ?
EU

Benefits of Regional Economic Integration

Trade Creation Greater Consensus Political Cooperation Global presence of local businesses Foreign competition

Drawbacks of Regional Economic Integration

Trade Diversion Shifts in Employment Less National Sovereignty Backlash of Globalisation

Source & Direction of Merchandise Exports W. Europe - 47%

The Global Triad:

NAFTA - 21%

Asia - 19%
(of which Japan - 7%)

Non-Triad countries - 13% of world exports. Thickness of arrows corresponds to volume of exports.

The Triads Share (% of World Merchandise Exports)

100 50 0 70.4 86.5

1980

1998

Integration in Europe Integration in Europe

European European Coal and Steel Coal and Steel Community Community Single Single European Act European Act European Economic Community Maastricht Treaty

Structure of the European Union

European Council Court of Justice Council of Ministers European Parliament European Commission

United States - Canada Free Trade Agreement

Integration in North America

North American Free Trade Agreement (NAFTA)

Latin American Free Trade Association (LAFTA) The Andean Community Pact Latin American Integration Association (ALADI) Southern Common Market (MERCOSUR)

Integration in Latin America

Central America and the Caribbean

Caribbean Community and the Common Market (CARICOM) Central American Common Market (CACM)

Proposed Trade Agreements

Free Trade Transatlantic Area of the Economic Americas (FTAA) Partnership (TEP)

Integration in Asia
Association of Southeast Asian Nations (ASEAN) Asia Pacific Economic Cooperation (APEC)

Integration in the Middle East and Africa

Gulf Cooperation Council (GCC) Economic Community of West African States (ECOWAS)

Part 11: Planning and Organizing International Operations

Liaoning University Dr Yuanyuan Xing International Business

Learning Objectives
Explain the stages of identification and analysis that precede strategy selection Identify organizational strategies of international companies Learn how production affects strategy Learn how marketing affects strategy Discuss the structures of international organizations

Strategy Formulation Process

Identify Company Mission and Goals Identify Core Competencies and Value-Creating Activities Formulate Strategies

Export Strategy
Entry mode depends on ownership advantages, location advantages, and internal advantages Companies will sometimes choose export strategy if their ownership levels are low Traditional theory states that the larger the company, the greater the chance of being an exporter

Import Strategy
Three types of importers: 1) looking for a product to buy and sell 2) looking for a cheaper source overseas 3) using foreign source as part of the global supply chain Two types of imports 1) Industrial and consumer goods 2) Intermediate goods that are part of a firms supply chain

Company Mission and Goals

Define the Business Define Main Objectives

Core Competencies and Value-Creating Activities

Unique Abilities Support Activities Primary Activities Business Environments

Multinational Strategies

International Strategies

Global Strategies

Growth Growth

Retrenchment Retrenchment

Corporate-Level Corporate-Level Strategies Strategies

Stability Stability Combination

Business-Level Strategies Strategic Advantage

Uniqueness Perceived by the Customer Low Cost Position

Strategic Target

Industrywide

Differentiation Differentiation

Overall Cost Overall Cost Leadership Leadership

Particular Segment Only

Focus Focus

Department-Level Strategies
Primary
Manufacturing Marketing and Sales Customer Service Efficient Logistics

Support
Research & Development Human Resources Procurement Accounting & Finance

Production Considerations
Capacity Planning Facilities Location Planning

Process Planning

Facilities Layout Planning

Marketing Marketing Considerations Considerations

Standardization Standardization Adaptation Adaptation

Centralization Centralization

Decentralization Decentralization

Industrialized Markets

Measure Market Potential

Emerging Markets

Pricing Factors
Exchange rates Transportation costs Duties Channels Insurance Banking

Measure Site Potential

Quality of Local Resources Investment of Time and Money Stability of Local Infrastructure

Select the Market or Site

Field Trips

Competitor Analysis

Difficulties of Conducting International Research

Availability of data Comparability of data Cultural problems

Evaluating Investment Proposals

Estimating Future Cash Flows
Present Value Return on Investment Risk and Return

Types of Organizational Structure

International Division Structure

Headquarters

Planes Division (domestic)

Trains Division (domestic)

Automobiles Division (domestic)

International Division

Planes Division (France)

Planes Division (Brazil)

Trains Division (United States)

International Area Structure

Headquarters

Asia Division

Americas Division

Europe Division

Middle East and Africa Division

Japan

China

S. Korea

Global Product Structure

Headquarters

Planes Division (global)

Trains Division (global)

Automobiles Division (global)

Trains Division (domestic)

Trains Division (Germany)

Trains Division (India)

Trains Division (Mexico)

Global Matrix Structure

Headquarters Asia Division Planes Division Americas Division Europe Division

Trains Division

Automobiles Division

Part 13: Acquiring Personnel Resources

Liaoning University Dr Yuanyuan Xing International Business

Traditional Human Resource Management

Staffing a Company Ensuring Productivity

International Human Resource Management

Training and Development Managing Compensation Accommodating Expatriates

International Staffing
Ethnocentric Polycentric Geocentric

THREE APPROACHES TO STAFFING FOREIGN SUBSIDIARIES

Expatriate staffing
An expatriate is home-country national, usually an employee of the firm, who is assigned abroad to manage the enterprises foreign subsidiary(s)

Host Country National

A resident of the country where the firms subsidiary is located, or is to be located, employed to manage the local operation.

Third Country
A resident of a country other than the home country and the host country employed to manage the operation.

Recruiting and Selecting Human Resources

Planning

Recruiting

Selecting

DIMENSIONS OF THE INTERNATIONAL HRM FUNCTION

The broad function: procurement, allocation, and utilization. Country categories: the home country, or the host country, or where the subsidiary is located; and third countries, or other countries that may be a source of labor Types of employees: home-country employees, host-country employees, and third-country employees.

ADDITIONAL FUNCTIONS AND ACTIVITIES

Developing a Global Mindset throughout Organization International Taxation International Relocation and Orientation Providing International Administrative Services Foreign Government Relations Providing Foreign Language Training

Culture Shock

Special Challenges for Managers

Reverse Culture Shock Expatriate Failure

Training and Development

Environmental Briefings Cultural Assimilation Language Training Cultural Orientations Sensitivity Training Field Experience

Employee Compensation
Managerial Employees Non-Managerial Workers

THE IMPACT OF CULTURE ON BUSINESS PRACTICES

Time
Time equals Money versus Relationship Issues with schedules:
Individuals in some cultures possess an it must be done by tomorrow mentality, but people in other cultures possess a when it gets done is when it is doneattitude.

Time and Decision Making Process

THE IMPACT OF CULTURE ON BUSINESS PRACTICES: The Pace of Life

A sample of selected countries from a total of 31 studied
Country Switzerland Ireland Germany Japan Italy United States Syria El Salvador Brazil Indonesia Mexico Overall pace 1 2 3 4 5 16 27 28 29 30 31 Walking 60 feet 3 1 5 7 10 6 29 22 31 26 17 Postal Service 2 3 1 4 12 23 28 16 24 26 31 Public Clock 1 11 8 6 2 28 27 31 28 30 26

THE IMPACT OF CULTURE ON BUSINESS PRACTICES (continued)

Thought Patterns
Some cultures thought patterns are circular. Circular cultures believe that since individuals can see what has happened in the past, their past is ahead of them, and since they cannot see into the future, their future is behind them. Linear cultures view the past as being behind them and the future in front of them.

Personal Space
People in the United States prefer a wide distance from those with whom they are involved in face-to-face communication. People in Arab cultures prefer a very short distance between themselves and those with whom they are communicating.

THE IMPACT OF CULTURE ON BUSINESS PRACTICES (continued)

Material Possessions
Individuals in some cultures, e.g., the U.S., equate success with material wealth (items such as expensive clothes, automobiles, houses, large offices, expensive furnishing, and so forth). The Japanese take pride in relatively inexpensive but tasteful arrangements that are used to produce the proper emotional setting.

Family and Friendship Roles Competitiveness and Individuality Social Behaviors

Eating, Foods, Gift giving, Greeting

HIGH-CONTEXT VERSUS LOWCONTEXT CULTURES

Advice to an executive from the U.S. (a low-context culture) seeking to do business in a high-context, South American Spanish-speaking country:
It is necessary to spend much more time with your business partner. You have to get to know your man and vice versa. You must meet with him several times before you talk business. Take your price list and put it in your pocketDown here price is only one of the many thing taken into account before closing the deal. People like to do business with men who are somebody. In order to be somebody, it is well to have written a book, to have lectured at a university, or to have developed your intellect in some way.

HIGH-CONTEXT VERSUS LOWCONTEXT CULTURES

You will note that the people here are very proud of their past and of their Spanish blood, but they are also exceedingly proud of their liberation from Spain and their independence. Well, down here, you have to wait much longer, and I really mean much, much longer, before you can begin to talk about the reason for your visit. There is another point I want to caution you about. At home, the man who sells takes the initiative. Here, they tell you when they are ready to do business. But, most of all, dont discuss price until you are asked and dont rush thing.

Part 14: Global Segmentation and Positioning

Liaoning University Dr Yuanyuan Xing International Business

Global Segmentation and Global Segmentation and Positioning Positioning

Overview
Grouping consumers within countries into homogenous segments Use of strategically equivalent segments Use of macro and micro data Implications for positioning Tools for forming groups

Input into segments

Environment
Economic Cultural Political Micro variables Macro variable s Segment

Market research

Criteria for good segmentation

Screening markets
market entry based on KSFs

A viable segment is:

measurable sizeable accessible actionable competitive growing

Reasons for segmentation

find common purchase motives build global segments
economies of scale

alternative to close psychic distance screening markets/countries

based on macro data despite limitations develop criteria for go/no go and those with future possibilities niche players screening based on low competitive pressure

Market intensity (World average = 100)

Macro segmentation - Market Intensity and Growth Rates

6 5 4 3 2 1 0
-20

USA 1

Japan 3
France 7
Spain 14
Mexico 11

Canada 12 Russia 6 Turkey 17 Italy 8

India 4 UK 9

Argentina 19 Taiwan Brazil 10 16 Germany 5

0 20 40

Indonesia 15 60

China 2
80

Five-year growth rates 1990-94 (percentage)

Macro Segmentation Macro Segmentation

Demographic/Cultural Segmentation Demographic/Cultural Segmentation - Cathay - Cathay Pacific airlines Pacific airlines
PRC population of ethnic Chinese: 1.12billion
80 P o 70 p u l 60 a t i o n i n M i l l i o n s 0 Hong Kong Malay s ia V ietnam Singapore Philippines Taiw an 30

Ethnic Chinese
V ietnames e Other

Total ethnic Chinese population in these countries = 39 million + PRC vs < 3.5 million in HK

50

40

Malay and Indigenous Indian Chines e

20

10

New brushwin g logo

Positioning strategy Positioning strategy Cathay Pacific based in Cathay Pacific based in Hong Kong Hong Kong

Cathay Pacific Positioned as Asian airline with: Meals Entertainment Cabin interiors

Slogan

 Overcomes problems with macro segments since consumer behaviour is not uniform within countries Approach
1. Micro segmentation from within country data (segments are equivalent, not the same - SES approach) 2. strategies less standard than with universal segments 3. Consolidate across countries
Country A (segment 1a) Country B (segment 1b) Country C (segment 1c)

Micro Segmentation

Targeting
limited scale economies due to minor adjustments to marketing mix

Consolidated segment 1a,1b,1c

Universal SES segment

SES: Strategically Equivalent Segment* Transnational segments

consumers likely to respond similarly to marketing mix segmentation for product class

similarities in microsegments in qualified countries

lifestyles personality culture a viable SES segment will enable economies of scale

Marketing mix directed at segment/s

SES Approach
Qualifying dimensions
Geographic location Support services Legal/economic conditions Political climate

Determining dimensions Socioeconomic

Demographic Personality and lifestyle

Combined SES Segment 1

Country

A
1 2 3

B
1 3 4

C
1 5 6

Large combined cross national segment responds to equivalent marketing mix enable scale economies

Behaviour based segmentation Consumer Expenditure Patterns of Selected

Countries -- Percentage of Total Spending
FB&T FB&T C &F &F C HH H H M H MH T &C &C T R &E &E R 50% 50% 100% 100% O ther ther O Italy Italy Ireland Ireland G reece reece G C anada anada C 0% 0%

KEY: FB&T = Food, Beverages, & Tobacco; C&F = Clothing & Footwear; HH = Household Expenses; MH = Medical Health; T&C = Transpo tation & Communications; R&E = Recreation & Education

segments based on BSB Global Scan Similar global attitudes across 18 countries
22 % 14% 18% 12 % 14% 19% 22% 18% 17 % Adaptors psychographicallysimilar psychographically similar differencesin how differences in how segments translate into segments translate into preferences preferences USStrivers short of time US Strivers short of time and money and money cars- -fun, stylish and cars fun, stylish and value for money value for money Japanesestrivers not short Japanese strivers not short of money of money cars- -extension of cars extension of home, accessories home, accessories important important Customisedmarketing mix Customised marketing mix Contrastwith SES approach Contrast with SES approach

Lifestyle and values - Global

16% 12%

Traditionalists

Pressured Achievers

17%

29%
22%

Strivers

26 %

Japan

US

UK

Source: p.180

requiresequivalent requires equivalent Keegen and Green 1997, strategy across markets strategy across markets

Values and Lifestyle Segments - Problems

Not specific product related Popular with advertisers
likelihood of responding similarly to promotional messages values

too general to predict consumption patterns

greater specificity associated with greater predictive power

not always actionable, not stable and applicability can be limited

Segmentation Tools
Development of homogenous clusters from micro or macro level data Distance = (X
c u tryA on

Cluster Analysis

-X

c u tryB on

)2+(Y

c u tryA on

-Y

c u tryB on

)2

Where: X, Y are segmentation variables eg. X = buying power (PPP) Y = culture variables (Power Distance) Distance score differences between data from different measures allows classification into 2 or more clusters enables analyst to place consumers into one group or another

Cluster Analysis
Segmentation variable y

Cluster 1
(eg. culture)

Cluster 2

Segmentation variable X (eg. buying power)

Cluster analysis - an example

Two variables
X = category growth Y= concentration

Task
to group consumers from countries into two or more homogeneous groups (clusters)

Two cluster solution

Interpretation: Canada and UK are more similar than the group of other countries using these variables Clustering based on two variables, often based on multiple variables and multiple clusters are formed

Three clusters
Usefulness of this is questionable since a cluster of one country is less efficient

Regression analysis
Y=a+ Contrasts with cluster analysis which is bx Y a classificatory method Regression: use of one or more independent variables to predict dependent variable Y = a + b1X1 + b2x2 + b3X3..
Microwave ownership
-76.7 - 0.5 (frozen food) +2.7 (women in wf) t = 2.9 - 0.3 (GDP/Cap)

R2 = 0.52 only significant variable

Conclusions
Use of macro and micro data
to form market clusters SES

economies of scale

classification of markets and segments

Cluster analysis and regression analysis

tools to develop these

Global Manufacturing: Key Supply chain: Terms - Coordination of materials, information and

funds from the initial raw material supplier all the way to the final consumer Logistics: - Part of the supply chain that plans, implements and controls efficient, effective flow and storage of goods, services and related information from the point of origin to the point of consumption

Key Terms (cont)

Manufacturing compatibility: - focus on cost, efficiency, quality, flexibility and innovation EDI: - electronic data interchange between all relevant parties ERP: - enterprise resource planning software that links data and organisations