MGX 5181 International Business Strategy Week 11 International

MGX 5181 International Business Strategy Week 11 International Strategy Implementation • • Strategic Leadership Corporate Governance Corporate entrepreneurship and innovation Issues for SMEs

Objectives • By the end of this session, students should be able to: u u Recognise the leadership challenges in internationalisation Understand the role of innovation and creativity in gaining international market share Identify the different challenges of small business in gaining international market share and strategies for success Implement a basic international corporate governance program

Strategic Leadership • Definition: u Is the ability to anticipate, envision, maintain flexibility and empower others to create strategic change as necessary. (Hanson et al 2010) • Requires: u u u Managing through others Managing an entire enterprise rather than a functional sub-unit Coping with change

Cross-cultural implicit leadership dimensions • According to Mansour Javidan, Peter W. Dorfman, Jon Paul Howell, and Paul J. Hanges there are 7 cross-cultural implicit leadership dimensions: u 1. Face Saving (mean societal score = 2. 89 [low]; range 2. 01– 4. 75) u 2. Autonomous (mean societal score = 3. 84; range 2. 23– 4. 67) u 3. Bureaucratic (formerly labelled Procedural) (mean societal score = 3. 86; range 2. 79– 4. 95) u 4. Internally Competitive (formerly labelled Conflict Inducing) (mean societal score = 3. 95; range 2. 92– 5. 04) u 5. Status Conscious (mean societal score = 4. 27; range 2. 34– 5. 81) u 6. Humane (mean societal score = 4. 74; range 3. 31– 5. 59) u 7. Charismatic–Self-Sacrificial (mean societal score = 5. 00 [high]; range 3. 92– 6. 07) In Handbook of Leadership Theory and Practice, from the Harvard Business School Press, Harvard Business Press Books, 2010, Chapter 13: “Leadership and Cultural Context: A Theoretical and Empirical Examination Based on Project GLOBE.

Mind-Set • A leader will have a set of assumptions, premises and knowledge of accepted wisdom regarding understanding the firm and the industry(ies) it competes in. • Strategic leaders need to respond appropriately and quickly to changes in the global competitive environment • Require: u u Reliable information sources on macro environment: economic, political, legal, technical and cultural environment Reliable information sources on micro environment: industry, competitors, customers, substitutes Flexible organisation with strategic goals and an effective corporate culture Personal characteristics: strong analytical skills; effective communication skills; self-confidence, commitment, interpersonal skills, tolerance of ambiguity

Leadership in a global world • According to a study by Accenture (2001) 14 key attributes of a global leader: u u u u Think globally Anticipate opportunity Create a shared vision Develop and empower people Appreciate cultural diversity Build teamwork and partnership Embrace change Show technical savvy Encourage constructive challenge Ensure customer satisfaction Achieve competitive advantage Demonstrate personal mastery Share leadership Live the values

Cultural Values • Key internal issues: u u Organisational structure Reward system • Personal values u Evidence suggests top executives have a major effect on a firm’s culture. Therefore they impact on organisational activities and performance • (Mayer, Davis & Schoorman, 1995)

Strategic Leadership Teams • Top Management Team u u Aim for a heterogeneous team composed of individuals with different functional backgrounds, experience and education. Why? • Benefit from sharing different perspectives therefore better debate on options • Research shows heterogeneous teams are generally superior to homogeneous teams and provide: – – Stronger competitive actions Positive market share movements Above average returns (Simons, Pelled, Smith 1999)

Team Effectiveness • Heterogeneous Teams u Implementation harder due to communication difficulties when people have different backgrounds and different skills • Finkelstein & Hambrick (1995) u u Quality of team members also important – do the people have the substantive expertise in core functions and businesses to provide necessary input. Provide more innovation and strategic change. Team members forced to think outside the box for creative solutions. • Tomie (2000).

Determining Strategic Direction • Strategic direction: u u u Involves developing long term vision of the firm’s strategic intent. Long-term definitions differ – may mean 5 -10 years. Requires adequate time to develop vision and framework for implementation Charisma helpful but not a requirement for successful strategic leadership Key is maintaining direction and structuring the firm correctly to achieve the vision • Hodgetts et al (2012)

Exploiting and maintaining core competencies • Core competencies u u Resources and capabilities that are a source of competitive advantage over rivals. Often functional issues: eg • Competitive agility (ability to change) • Competitive speed (ability to act quickly) • Synergies developed across divisions (knowledge sharing, customer service)

Developing human capital • People u u Provide the only sustainable source of competitive advantage. Issues: • • • Effective recruitment and selection Rewards must be adequate Must be team players People require on-going development Strategic leaders must develop subordinates and delegate

Organisational Culture • The main elements of culture include: u Routines • Opening times, breaks etc u Rituals • Infrequent routines of special value – Planning workshops, conferences in special places u Rules • Attendance, completing work, time clocks, holidays u Symbols • Uniforms, workplace layout, building quality, logos on equipment

Organisational Culture u Stories and Myths • Founders history, amazing success to overcome adversity at some time – these are the glue to enhance values u Systems and structures • Performance measures, customer or production focus, flexibility versus rigidity in systems and structures u Values and beliefs • Base of organisation and embedded in its people – E. g Answering phone of others to ensure best customer service – Unique to each organisation and can provide a competitive advantage – Multiple cultures exist within an organisation – Values are at the national, industry and organisational levels

Sustaining effective organisational culture • Organisational culture u u u Is a source of competitive advantage Fiol (1991) Is an essential task of strategic leaders Ghoshal & Bartlett (1994) Entrepreneurial orientation • You need to look at the following factors to see your EO: • Autonomy – Staff ability to take actions • Innovativeness – Engage and support new ideas, experimentation, creative processes etc • Risk taking – Willingness of firm/staff to accept risks to pursue marketplace opportunities • Proactiveness – Ability to be market leader of ideas rather than follower • Competitive aggressiveness – Take actions to outperform competitors • Relational Dynamism – Culture that promotes trust and effective communication

Entrepreneurship • Schumpeter viewed entrepreneurship as a process of “creative destruction” through which existing products or methods of production are destryed and replaced with new ones. • Thus entrepreneurship is “concerned with the discovery and exploitation of profitable opportunities” • Shane and Venkataraman (2000)

Entrepreneurship • Corporate entrepreneurship u Is a process whereby an individual or a group in an existing organisation creates a new venture or develops an innovation • Entrepreneurs u u Are primary agents of economic growth. They are individuals acting independently or as part of an organisation who create a new venture or develop an innovation and take risks entering them into the marketplace All members of a firm can be entrepreneurs, expectations of their entrepreneurship vary by organisational level.

Innovation and Entrepreneurship • Peter Drucker (1998) argues that: “ Innovation is the specific function of entrepreneurship, whether in an existing business, a public service institution, or a new venture started by a lone individual in the family kitchen”. • Entrepreneurship and innovation are central to the creative process in the economy and to promoting growth, increasing productivity and creating jobs. Reynolds, Hay and Camp (1999). • Innovation provides a competitive advantage

Innovation and Entrepreneurship • Henry Ford (2000) u suggests that firms that continue to develop and improve do not die. But firms that believe they have reached perfection and need do nothing more are doomed. • Entrepreneurship is not risk free. However not seeking to innovate through entrepreneurship may be riskier than are actions. • In a rapidly changing global economy firms simultaneously encounter risk and opportunity in terms of innovation.

Innovation • Moss Kanter (1999) u “Winning in business today demands innovation. Companies that innovate reap all the advantages of a first mover. ” • Definition u u u Schumpeter (1934) said innovation is the process of creating a commercial product from an invention. Innovation is a key outcome firms seek through entrepreneurship and is often a source of competitive success for firms competing in the global economy. Thus innovation is intended to enhance a firm’s strategic competitiveness and financial performance.

Innovation • Research shows that firms competing in global industries that invest more in innovation also achieve the highest returns. • Price (1996) • Investors often react positively to the introduction of a new product thereby increasing the price of a firm’s shares. Innovation then is an essential feature of high performance firms. • Lumpkin and Dess (1996)

Innovation • Roberts (1999) found u Firms differ in their propensity to produce value-creating innovations, as well as in their ability to protect innovations from imitation by competitors. Roberts found that these were indicators of innovation’s ability to be a source of competitive advantage. • Innovation is relatively rare in organisations. • Firms that innovate consistently and effectively are well positioned to rely on innovation as a competitive advantage.

Innovation • Many companies are able to create ideas that lead to inventions, but commercialising those inventions through innovation, has at times proved difficult. • Why? u To turn an invention into a commercial application requires money (venture capital). The problem of lack of venture capital in Australia has forced many firms off-shore eg to USA.

Innovation • R&D Spending u global results 2012 • http: //www. booz. com/global/home/what-wethink/multimedia/video/mm-video_display/global-Innovation 1000 -2012 What are the key lessons we can learn from this survey’s results. What drives innovation?

R&D capabilities Lasserre 2012 25

Traditional R&D principles • “Critical Mass Requirements”: u 50 to 100 minimum size for a multi-disciplinary laboratory • Linkages with sources of scientific knowledge: u Proximity to universities • Face to face communications: u Personal contacts • Pooled R&D more efficient than sequential • Growing need for closer interaction with customers 26 26

International R&D networks • Advantages u u u u Close to markets Close to production Close to raw materials Close to universities Small size Flexibility Integrating acquisitions 27 • Disadvantages u u Loss of critical mass Difficult to communicate Risk of duplications Difficult to integrate 27

Management of global R&D network Structure Systems • SMALL CENTRAL STAFF • SPECIALISED LOCAL CENTRES • PROJECT MANAGEMENT • PROFIT CENTRES ? • OPTIMAL SIZE (20 -300) • PLANNING INVOLVING OPERATIONS • INTENSE COMMUNICATION • SYSTEMATIC DIFFUSION • DOCUMENTATION • INFORMATION SYSTEM NETWORK • MEETINGS, CONFERENCING • “FREE BUDGET” People • ROLE OF GATEKEEPERS • TEMPORARY ASSIGNMENTS • TRAINING • LANGUAGE POLICY • INTENSE TRAVELLING Values • LEARNING CULTURE • SHARED VALUES • NETWORK CULTURE 28

Performance evaluation criteria of R&D Lasserre 2012 29

Global R&D projects Low Communication among researchers located at different sites Self Contained Projects Parallel Projects Example of HP Capricorn Inkjet for Japan. Singapore develops it entirely. ( not successful) ) engines Integrated Projects. Project Example of HP Alex HP inkjet Alex inkjet Singapore does sourcing, does sourcing , Manufacturing, , some manufacturing some design And Vancouver and develops Vancouver and marketability printer design and marketability ( not successful) successful ) High Single Lasserre, 2012 Example of HP recent development inkjet development Singapore develop printer engines develops And Vancouver and develop Vancouver printer ergonomics ((successful) successful ) Multiple Location 30

Definition • Corporate Governance u Represents the relationship among stakeholders that is used to determine and control the strategic direction and performance of organisations • (Mitchell, Agle, Wood, 1997) u u u Ensure strategic decisions are made effectively Means to establish order between the firm’s owners and its top-level managers whose interests may be in conflict. (Blair 1999) Corporate governance reflects and enforces the company’s values • Magretta, (1998)

National interest in corporate governance • Governments u Worldwide, governments want corporations to act responsibly to improve employment, wealth and satisfaction. • Can only be achieved via good corporate governance • Corporations u u Are making an effort to improve the performance of their boards as past controls have failed to adequately monitor top managers’ strategic decisions. Also corporations have found good corporate governance can result in a competitive advantage for them.

Societal Link • Corporate governance reflects the standards of the company, which in turn, collectively reflect societal standards. • OECD u u Fundamental goal is to maximise shareholder value Traditionally, shareholders are treated as the firm’s key stakeholders (as their legal owners). Firm owners expect top-level managers to make decisions that will maximise a company’s value, and hence their own wealth. • Prahalad & Oosterveld, (1999)

Corporate Governance Mechanisms • Four internal mechanisms in Western-style corporations: u Ownership concentration • Relative amounts of shares owned by individual shareholders and institutional investors u Board of directors • Individuals responsible for representing the firm’s owners by monitoring top-level managers’ strategic decions u Executive compensation • Use of salary, bonuses and long-term incentives to align managers’ interests with shareholders’ interests u Multi-divisional structure • Creation of individual business divisions to closely monitor top-level managers’ strategic decisions • External governance mechanism u Market for corporate control • The purchase of a firm that is underperforming relative to industry rivals in order to improve its strategic competitiveness

Global corporate governance • Globalisation u Shareholders becoming more global and demands on managers more similar. • Ethics u Many examples of employees displaying unethical behaviour • Result may be exposure of profit manipulation and financial irregularities – World. Com, Enron, Cendant and others u Most effective boards set boundaries on business ethics and values. • Must be communicated to top management • Must hold people accountable for development and support of ethical corporate culture.

Global ethical web Host Countries United Nations International institutions Governments European Union IMF World Bank Investors’ Countries CSR Global firms Financial markets Shareholders Front-line Managers SRI Funds Industry associations Corporate Executives Caux Amnesty International Non-Government Organisations Public opinions Green Peace Press TV 36 Churches Academia Transparency International Lasserre, 2012 Corpwatch

Sustainable Development Business Ethics Global Social responsibility Issues Human Rights and Dignity Global Citizenship Lasserre, 2012 37

Are global corporations bad global citizens? • Destruction of the ozone layer • Global (50% of emission of greenhouse gases) • Persistent organic pollutants • Radioactive waste • Unsustainable agriculture • Deforestation • Over fishing 38 Sources: Various NGOs (Corpwatch, Transparency International, Greenpeace. . )

Are global corporations bad global citizens? • Pollution - intensive mining, refining and smelting of metals • Human rights • Non respect of normal labor practices • Corruption • Political backing of repressive regimes • Dual standards 39 Sources: Various NGOs (Corpwatch, Transparency International, Greenpeace. . )

Emphasising ethical practices • Ethical companies: u u u Attract loyal customers Keep quality personnel Have strong organisational cultures Make greater profits as they focus on corporate results rather than personal gain (Blalock 1996) Effective strategic leaders have ethics that inspire others. They focus on honesty, trust and integrity (Milton-Smith 1995)

What is corporate social responsibility ? • Concerns how business enterprises relate to and impact upon society’s needs and goals • Concerned with firm’s operational behavior and its impact on surrounding society • Beyond philanthropy and compliance with the law 41

Corporate and Social Responsibility CSR • Research by the Society of HRM in 2006 of 1004 HR professionals found: u u 4 out of 5 HR professionals in USA, Australia, China and India reported their organisation participated in corporate social responsibility practices. Only 66% reported policies in place to direct CSR. • 71% of Australian HR professionals had formal or informal CSR policies, USA 91% with policies but only 62% implementing them. • Main practices were donations to local charities or for natural disaster relief. u Main benefits seen by corporations for CSR: • • Improved public image (Australia 65%) Improved employee morale Increased brand recognition Contribution to society (Australia 70%) – Source: HR Monthly Feb 2007

The Ten Principles At the World Economic Forum, Davos, on 31 January 1999, UN Secretary-General Kofi A. Annan challenged world business leaders to "embrace and enact" the Global Compact, both in their individual corporate practices and by supporting appropriate public policies. These principles cover topics in human rights, labour , environment: and anti-corruption. The Secretary-General asked world business to: Human Rights: Principle 1: Businesses should support and respect the protection of internationally proclaimed human rights; and Principle 2: make sure their own corporations are not complicit in human rights abuses. Labour Standards: Principle 3: Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining; Principle 4: the elimination of all forms of forced and compulsory labour; Principle 5: the effective abolition of child labour; and Principle 6: the elimination of discrimination in respect of employment and occupation. Environment : Principle 7: Businesses should support a precautionary approach to environmental challenges; Principle 8: undertake initiatives to promote greater environmental responsibility; and Principle 9: encourage the development and diffusion of environmentally friendly technologies. Anti-Corruption : Principle 10: Businesses should work against all forms of corruption including extortion and bribery. See p. 421

Research on 996 global corporations • 1 out of 3 publish environmental and social information • 4 out of 10 enforce worldwide minimum environmental standards • 1 out of 10 conduct a systematic financial analysis of their environmental policies and measures ( ex: « full cost pricing » ) • 1 out 3 monitor environmental performances for most of their operations 44 Source: SAM Group in Hollidays, Schmidheiny and Watts, Walking the Talk, Greeleaf Publishing, 2002

Research on 996 global corporations • 6 out of 10 have implemented environmental and social policies • 1 out of 2 have adopted at least partially an EMS (Environmental Management System including objectives setting, measurement, reporting and performance evaluation for environmental performances) • 1 out of 2 have a code of conduct valid for all employees Source: SAM Group in Hollidays, Schmidheiny and Watts, Walking the Talk, Greeleaf Publishing, 2002 45

Scope survey 46

CSR: What employees want • Corporate and Social Responsibility (CSR) summit in Australia 2007 found: u u Graduates now asking questions at interview stage about company culture, values and workplace giving programs. Organisations need to: • Find a program that your staff and your colleagues are passionate about • Ensure it engages staff and helps the community • Manage enthusiasm and involvement via effective leadership, providing awards, and developing effective communication both internal and external. – O’Carroll, S. (2007) HR 13 Nov.

Definition of SMEs • United Nations definition of SME u Less than 500 employees • Australia u u Small business is defined by the Australian Bureau of Statistics as less than 20 employees. Small business spread throughout Australia. Lowest incidence is in Victoria (24%) than large business (29%) with NSW and Queensland having largest percentage of small business to large business.

Global Start-ups • Require 6 key elements: u Dispersed human resources • Key skills exist in different locations around the world so must locate where key people are u International sources of venture capital • Need sources of capital both within native country and overseas therefore access to cheap funds u The existence of global demand • Products or services in demand in many countries

Global Start-ups u The lack of a geographically protected market • Where flow of information and communication break down barriers and allow international competition to domestic markets u The necessity of worldwide sales to support the venture • Need to ensure more than one market required to support the business eg Large R&D expense u The potential to avoid later resistance to internationalisation • Better where easier to start global rather than start local and then go international. – (Oviatt and Mc. Dougall, 1995).

Developing a Small. Business Global Culture • Requires owners to have a global mindset for themselves and the company. • Characteristics of decision-makers u Perceived low psychic distance to foreign markets • Believe international markets are not too different to local u International experience • Either have worked or travel overseas u Not risk adverse • Accept need to take risks overseas to succeed u Believe in international strategies • Identify with benefits of going global

Key Issues • Size u Harder to get started international but likely to have greater percentage of international sales compared to local sales • Speed u SMEs can change quickly to take advantage of opportunities • Customers u Need to identify customers via: • • • Trade shows Catalogue expositions International advertising agencies and consulting firms Government sponsored trade missions Direct contact

When to go international • Several questions need to be answered: u Do we have a global product or service? • Requires minimal change per country u Do we have managerial, organisational, and financial resources to internationalise? • Now and as we grow u Are we willing to commit the required resources and face the risks of internationalisation? • Psychological and cultural boundaries exist u Is there a profitable market for our product or service? • Which markets are potential users of our products and services?

When to go international u Which country should we enter? • Rank in order of opportunities and threats u Do we have unique products or services that are not easily copied by larger MNCs or local entrepreneurs? • Must be rare resources or valuable resources eg technical superiority, innovation and high quality u Do location advantages exist upstream in the value chain? • Can we gain advantage manufacturing in foreign markets? u Can we afford not to be a multinational? • Threat of others taking our place.

Entry Wedge • Main advantages of SMEs u First mover advantage • Quickly establish before others. Must meet customers needs including warranty, customer service and supplies u Technological leadership • R&D keeps you ahead of competition u Social relationships and network contacts • Develop many distribution channels u Switching costs • The higher the cost for customers to switch to another supplier the better for you.

Entry Wedge • Copycat business u u u u Be first to change to a new standard Go after the toughest customers Play to minor differences in customer needs Transfer the location Become a dedicated supplier or distributor Seek abandoned or ignored markets Acquire existing business