Message Board 4: Applying the ADDING value framework & CAGE analysis to the SBA
Apply the concepts and techniques learned in this module to answer the following questions:
1. Widener’s School of Business Administration is considering whether it should offer its MBA program globally. Apply the ADDING framework to determine whether or not it would be worthwhile for the SBA to enter international markets with an MBA program.
2. Widener’s School of Business Administration (SBA) is trying to decide in which global markets to offer its MBA program. (a) Perform a CAGE analysis to explain what factors should be considered when deciding where to offer the MBA. (b) Pick a suitable market based on your CAGE analysis and explain why this would be good market for the SBA to enter.
Global Strategy Managing for Results Through Global Strategy How to Find and Leverage Global Opportunities for Superior Results 1 The Problem Globalization is the trend, but… Is it a mandate or an option? Can it enhance value? Multinationals’ global operations often under-perform domestic operations Why? Wrong focus - market size & similarities → growth, but bigger is not always better Fit/integration & an effective strategy is still relevant An example: eBay entering China failed twice 2 eBay in China EachNet acquisition in 2003 ($180 mil) Founded in 1999 70% market share by 2003, but… Enter a local rival to lead the market – TaoBao of Alibaba.com Tom Online joint venture in 2006 ($40 mil) EachNet separated from this global platform by 2007 www.eBay.cn in 2007 for international trade A platform to link local entrepreneurs to buyers worldwide (finally a success) 3 Key Questions to Ensure Superior Global Performance Will going global improve our results? i.e. Why enter international markets? The ADDING Value Scorecard What global markets should we enter? CAGE Analysis What is the best global strategy for us? Aggregation, adaptation, or arbitrage 4 1. The ADDING Value Scorecard Economic Value Volume Margin Risk Knowledge C.A. Cost Differentiate Industry Attractiveness Does going global add value? See notes section See notes section for more details. Back to considering competitive advantage (CA) and unpacking the elements. Unpacking economic value moves beyond just considering market size (i.e. potential volume) to a consideration of decreasing costs, enhancing the differentiation source of advantage, and improving industry attractiveness. 5 Components of ADDING Value Add volume Will volume increase profitability? → Bigger is not always better Decrease costs Will costs increase or decrease? Differentiation Does going global affect WTP? Industry Attractiveness Will attractiveness improve industry attractiveness → the 5 Forces? Normalize risk Will risk increase or decrease? Gain knowledge Will the firm acquire new knowledge/resources/capabilities? 6 2. Which global markets to enter? Country Portfolio Analysis (CPA) - GOOD Attractiveness determined by: Unilateral factors: Economic indicators related to market size, consumer wealth, and consumption rates Multilateral factors: Tariffs, insularity, home bias, or remoteness Problem – does not consider all dimensions of “distance” Misses out on bilateral differences that are specific to country-pair/industry/company CAGE Analysis - BETTER 7 CAGE Analysis Considers distance between home and target country on 4 dimensions. Cultural distance Administrative distance Geographic distance Economic distance Impact of each type is felt differently by different industries and firms 8 Differences Matter Differences between countries affect the success of global strategy A business model that succeeded in one country may not succeed in another Example: eBay’s problems in China Importance of face-to-face meetings, liability of foreignness (cultural) Government style, censorship, suspicious of foreign entities (administrative/legal) Local presence (geographic) Auction/pricing differences, bartering (economic) 9 Cultural Distance Language, religious/social norms/values Influences consumer choices, business actions, societal sanctions Greater impact on products that have: High linguistic content (e.g. multi-media) Cultural identity (e.g. food, sports) Country-specific quality perceptions (wine) Preferences/attributes that vary by country 10 Administrative Distance Laws, policies, institutions, treaties, historical ties, political beliefs, currency Influences government restrictions, legal enforcement, protectionism Greater impact on firms/industries that: Produce staples/entitlement products Affect national security, economy, or pride Sell to govt., exploit resources, build infrastructure 11 Geographic distance Physical remoteness, climate, lack of common border, sea access, transport or communication infrastructure Affects transportation costs Greater impact on products that: Have low value-to-weight ratio Are fragile or perishable Require communication, supervision 12 Economic distance Differences in income, capital costs and access, natural resources, education, labor productivity, infrastructure Affects costs and WTP Greater impact on products that are: Income-elastic Labor intensive or distribution intensive Dependent on infrastructure (e.g. phones) 13 Example: India or China? Cultural distanceAdmin. distance IndiaEnglish spoken Ethnic tensionCommon law Democratic Corruption ChinaHomogenous Language Communism Infringement Geographic distance Econ. distance Poor transportation & communication links DistantMore educated Income disparity Poor infrastructure Better transportation & communication links DistantLarger market Better infrastructure (e.g. distribution systems U.S. Call centers in India versus U.S. manufacturing in China See notes section for more details. Blue check marks indicate closeness between India and the U.S. Gray check marks indicate closeness between China and the U.S. 14 3. What kind of global strategy? Arbitrage Exploiting CAGE differences between countries by locating value chain activities in different locations Adaptation Customizing product/process in response to CAGE differences Aggregation Achieving economies of scale by grouping similar countries into regions Consider fit/integration with existing activities 15 Approaches to Adaptation → Variation Mix of features, policies, etc. to meet various needs Focus Meet segments with similar needs to ↓need for variation Externalization Joint ventures, franchises, etc. Design Modular/changeable product Innovation Adapting to the local environment 16 Aggregation → Use regional strategies based on the situation Home base Main operations at home – supply worldwide Portfolio Operations in important markets Hub Regional bases provide resources /services to country operations Platform ↓ number of basic offerings that are offered worldwide Mandate Some regions supply a product or perform a role for entire organization ↓ redundancy & ↑ efficiency/scale where possible 17 Which global strategy to select? The firm’s particular circumstances suggests which strategy to favor, for example: Arbitrage – when labor costs are high Adaptation – when advertising is key Aggregation – economies of scale are key Maybe a combination? What factors determine if this is possible? 18 Message Board 4: Applying the ADDING value framework & CAGE analysis to the SBA Apply the concepts and techniques learned in this module to answer the following questions: 1. Widener’s School of Business Administration is considering whether it should offer its MBA program globally. Apply the ADDING framework to determine whether or not it would be worthwhile for the SBA to enter international markets with an MBA program. 2. Widener’s School of Business Administration (SBA) is trying to decide in which global markets to offer its MBA program. (a) Perform a CAGE analysis to explain what factors should be considered when deciding where to offer the MBA. (b) Pick a suitable market based on your CAGE analysis and explain why this would be good market for the SBA to enter.