INTERNATIONAL BUSINESS MANAGEMENT

EPRG APPROACH AND GLOBAL BUSINESS STRATEGY OPTIONS

Prof Soumitra Mookherjee Lecture 18

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 - Characteristics

Ethnocentric Approach International operations are secondary Centered on the domestic market Searching for identical segments in foreign markets Polycentric Each country is relatively independent Each market is unique Taking into consideration differences in foreign markets Subsidiary in each country Division for each zone Geocentric The world is one common market Global vision of the world Unifying differences in the world market World headquarters Matrix structure

Vision Priority

Planning center National headquarters Structure International division

EPRG Model - Characteristics

Ethnocentric Staff Marketing strategy Management style Production Citizens from the domestic market Extension Polycentric Citizens from each market Adaptation Geocentric Most qualified Extension, Adaptation, Creation Integrated and interactive Low-cost sources of supply Strategic alliances World market share

Centralized Domestic

Decentralized Local

Partnerships Performance measures

Agent, licensing Global market share

Joint-ventures Local market share

PORTER: VALUE CHAIN SYSTEM

Upstream Value Chains Companys Own Value Chain Downstream Value Chains

Activities, Costs, & Margins of Suppliers

Internally Performed Activities, Costs, & Margins

Activities, Costs, & Margins of Forward Channel Allies and Strategic Partners

Buyer/ User Value Chains

The Value Chain System

Upstream Value Chain Internal Value Chain Downstream Value Chain

Activities, Costs & Margins of Suppliers

Internally Performed Activities, Costs & Margins

Activities Costs & Margins of Allies & Strategic Partners

User Value Chains

Comparing Costs All Along the Value Chain

Suppliers Value Chain Influence Operational Costs Forward Channels Costs & Margins Determine Prices Activities reflect end user satisfaction.
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PORTER: GENERIC STRATEGIES

Cost Broad Focus Competitive Scope Narrow Focus Uniqueness

Cost Leadership

Differentiation

Focused Cost Leadership

Focused Differentiation

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

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
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GLOBAL STRATEGY
The approach is to operate under the following framework:

1. 2. 3. 4.
5. 6. 7. 8.

Combination of geocentric and ethnocentric approach Centralization of operations Cost Leadership focus Standardized products and services minor modifications if absolutely essential Technology advancement for attaining Economies of scale Global headquarters takes critical business decisions Regional heads to coordinate with Global heads No major delegation of authority

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.
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DIFFERENTIATION STRATEGY
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

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MULTIDOMESTIC STRATEGY
Objective is to operate under the following framework:

1. 2. 3. 4.

Combination of Polycentric and Regio-centric approach De-Centralization of operations Major emphasis on differentiation 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 decisions 7. Regional heads to coordinate with Global heads but there is delegation of authority

MULTI-DOMESTIC DIFFERENTIATION: EXAMPLES

MC 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. 14

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

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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 firms ability to enforce cost leadership strategies through aggressive pricing and efficiency is limited:

In such cases firms have the following options:

1. 2. Operate in countries having low degree of control Firms switch towards adopting differentiation based strategies comprising improvement in design, quality, features, after sales service, aggressive Brand Promotion, customization, etc Alternatively, operate in your own country and adopt and execute the GLOBAL STRATEGY
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3.

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.
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GLOBAL STRATEGY FRAMEWORK GLOBAL AMBITION

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

GLOBAL POSITIONING Choice of Regions Value Proposition Global or Multi-Domestic

GLOBAL BUSINESS SYSTEMS Invest in resources, assets, to create a global value chain Develop through M & As

GLOBAL ORGANIZATION
Global Structure Global Processes Global HRM and Coordination

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