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Globalization

● approaching worldwide markets with standardized products.


● prefer lowerpriced, standardized over higher-priced, customized products
● global corporations that use their worldwide operations to compete in local
markets.

DEVELOPMENT OF A GLOBAL CORPORATION

first level
● entails export-import activity,
● minimal effect on the existing management orientation or existing product lines.

Second level
● Involve foreign licensing and technology transfer,
● requires little change in management or operation.

third level
● direct investment in overseas operations, including manufacturing plants.
● Large capital outlays and the development of global management skills.
● Although domestic operations of firm at this level continue to dominate its policy
● Categorized as true multinational corporation (MNC).

Fourth Level
● substantial increase in foreign investment,
● Foreign assets comprising a significant portion of total assets.
● Emerge as a global enterprise
● global approaches to production, sales, finance, and control

WHY FIRMS GLOBALIZE

● Reap benefits from industries and technologies developed abroad.


● Even a relatively small service firm that possesses a distinct competitive
advantage can capitalize on large overseas operations.

Diebold Inc. once operated solely in the USA


● selling ATM machines, bank vaults, and security systems to financial institutions.
● However U.S. market saturated expand internationally to continue growth.
● development of new technologies in emerging markets
● opportunistic entry into entirely new industries
● significantly improved sales.
● makes sense as competitive weapon.
● Direct penetration of foreign markets can drain vital cash flows from a foreign
competitor’s domestic operations.

IBM
● establish a position of strength in the Japanese mainframe computer industry
before 2 key competitors,
● achieved a substantial share of Japanese market,
● Deny competitors vital cash & production experience needed to invade USA
market

Should they act before being forced to do so by competitive pressures or after?

(1)
● be proactive
● entering global markets in advance of other firms
● enjoy first-mover advantages often accruing to risk taker firms that intro new
G&S

(2)
● be reactive
● following other companies into global markets
● once customer demand has been proven and
● high costs of new G&S introductions been absorbed by competitors

START OF GLOBALIZATION

External assessment

● Careful examination of critical features of the global environment,


● particular attention being paid to the status of the host nations
● areas as economic progress, political control, and nationalism.
● Expansion of industrial facilities, favorable balances of payments, improvements
in technological capabilities determination of the host nation’s economic
progress.
● Political status host nation’s power in and impact on global affairs.

Internal assessment

● identification of basic strengths of firm operations.


● characteristics of a firm that host nation values most
● offer significant bargaining leverage.
● Firm’s resource strengths and global capabilities analyzed.
● technical and managerial skills, capital, labor, and raw materials
● firm’s product delivery and financial management systems.

EXAMPLE OF FACTORS

Complexity of the Global Environment

Coke
● achieving a goal that it had set a decade earlier when it went to India.
● take the market away from Pepsi and local beverage companies.
● found that Indian market extremely complex and smaller than estimated.
● Encountered cultural problem
● Changed its marketing strategy by pushing their “Thumb Up” products a local
brand owned by Coke.
● focus their efforts on creating new products for rural areas and lowering the
prices of their existing products to increase sales.
● new advertising campaign to better relate to Indian consumers.
● highlights the fact that global strategic planning is more complex than purely
domestic planning.

five factors that contribute to increase in complexity:

1.Face multiple political, economic, legal, social, and cultural environments as


well as various rates of changes within each of them.

2. Interactions between the national and foreign environments are complex, because of
national sovereignty issues and widely differing economic and social conditions
.
3. Geographic separation, cultural and national differences, and variations in business
practices all tend to make communication and control efforts between HQ and
the overseas affiliates difficult.

4. Differences in industry structures

5.Restricted in their selection of competitive strategies by various regional blocs and


economic integrations

GLOBAL STRATEGIC PLANNING

● Trade-off decisions which multiple products, country environments, resource


sourcing options, corporate and subsidiary capabilities, strategic options
Stakeholder activism
● demands placed on the global firm by the foreign environments in which it
operates,
● principally by foreign governments

Global Industries

● Competition crosses national borders.


● Firm’s strategic moves in one country can be significantly affected by its
competitive position in another country.
● Examples are commercial aircraft, automobiles, mainframe computers, and
electronic consumer equipment.

1.
increased scope of the global management task.
● Growth in the size and complexity of global firms made management virtually
impossible without a coordinated plan of action
● detailing what is expected of whom during a given period.
● management by exception is impossible without such a plan.

2.
The increased globalization of firms.
● differences among the environmental forces in different countries,
● greater distances,
● interrelationships of global operations.

3.
Information explosion.
● ordered means for assembling, analyzing, and distilling the information required

4.
increase in global competition.
● adjust to changing conditions or lose markets to competitors.
● search for methods of increasing efficiency and economy.

5.
Rapid development of technology.
● Shortened product life cycles.
● ensure the replacement of products that are moving into the maturity stage, with
fewer sales and declining profits
● Greater control of all aspects of new product introduction.

Factors for creation of a global industry are:

● Economies of scale in the functional activities of firms in the industry.


● High level of R&D expenditures that require more than one market to recover
development costs.
● Presence in the industry of predominantly global firms that expect consistency of
● G&S across markets.
● Presence of homogeneous product needs across markets,reduces the
requirement of customizing product for each market.
● Presence of a small group of global competitors.
● Low level of trade regulation and of regulation regarding FDI

The Global Challenge


● Responsive to local market conditions.
● cannot totally ignore opportunities to utilize intra corporate resources in
competitive
● positioning.
● decide which of its corporate functional activities should be performed where and
what degree of coordination should exist among them.

Location and Coordination of functional activities

● purchases of input resources, operations,R&D, marketing & sales, after-sales


● Wide range of possible location options for each of these activities
● decide which sets of activities will be performed in how many and which locations
● may have each location perform each activity, or it may center an activity in one
location to serve the organization worldwide.
● R&D centered in one facility serve entire organization.
● Degree to which functional activities are to be coordinated across locations. can
be extremely low, allowing ach location to perform each activity autonomously,
● extremely high, tightly linking the functional activities of different locations.

Coca-Cola
● Tightly links its R&D and marketing functions worldwide
● offer a standardized brand name, concentrate formula, market positioning, and
advertising theme.
● operations function is more autonomous,
● artificial sweetener and packaging differing across locations.
Location and Coordination Issues
● decide where to perform after-sale service and whether to standardize such
service.
● depends on the nature of its industry and on the type of international strategy that
firm is pursuing.
● Little coordination of functional activities across countries in multidomestic
industry
● increasingly global, begin to coordinate an increasing number of functional
activities to effectively compete across countries
● ability to adjust to a workforce of varied cultures and lifestyles
● capacity to incorporate cultural differences to benefit of the company’s mission

COMPETITIVE STRATEGIES FOR FIRMS IN FOREIGN MARKETS

Niche Market Exporting

● Modify select product performance or measurement characteristics to meet


special foreign demands.
● Combining product criteria from both U.S. and foreign markets can be slow &
tedious. C
● copying product innovations in countries where patent protection is not
emphasized
● utilizing non equity contractual arrangements with a foreign partner can assist in
rapid product innovation
● requires minimal capital investment.
● maintains its quality control standards over production processes and finished
goods inventory,
● risk to the survival of the firm is typically minimal.
● government agencies lowers the risks to smaller companies by providing export
information and marketing advice.

Gigabyte Company

● Research & found out that that a sizable number of computer buyers wanted a
PC that could complete the basic tasks BUT needs to be considerably smaller.
● exporting their mini PCs into the USA with price of $200 to $300.
● Less than the closest U.S. manufacturer, Dell, minicomputer still larger & cost
$766
Franchising

● sell a highly publicized G&S using the parent’s brand name or trademark,
carefully developed procedures, and marketing strategies.
● In exchange, pays a fee to the parent company,
● on the volume of sales of the franchisor in its defined market area.
● operated by the local investor who must adhere to the strict policies

jointventure (JV)

● mutually agreeable pooling of capital, production or marketing equipment,


● patents, trademarks, or management expertise,
● more permanent cooperative relationships than export or contract manufacturing.

Benefits
● Small company without the managerial or financial assets to make a profitable
independent impact on the integrated foreign markets
● Share management tasks & cash requirements often
● coordination of manufacturing and marketing allows ready access to new
markets intelligence data, and reciprocal flows of technical information.

Challenges.
● may involve managerial relationships where no single authority exists to make
strategic decisions or solve conflicts.
● Requires the disclosure of proprietary information and potential loss of control
over production and marketing quality standards.
● Compatibility of partners & enduring commitments to mutually supportive goals..

Foreign Branching

● Extension of the company in its foreign marke


● separately located strategic business unit directly responsible for fulfilling the
operational duties assigned to it by corporate management
● Sales, customer service, and physical distribution.
● Host countries may require that the branch be “domesticated”, that is, have
some local managers in middle and upper-level positions
Wholly Owned Subsidiaries

● Willing and able to make the highest investment commitment to the foreign
market.
● Full ownership for reasons of control and managerial efficiency.
● Policy decisions about local product lines, expansion, profits, and dividends
typically remain with the host senior managers.
● Started either from scratch or by acquiring established firms in the host country.
● Benefit significantly if the acquired company has complementary product lines or
an established distribution or service network

1.
if the high capital investment is to be rewarded,
managers must attain extensive knowledge of the market, host nation’s language,
business culture.

2.
thost country expects both a long-term commitment
portion of their nationals to be employed in positions of management or operations.

3.
Changing standards mandated by foreign regulations may eliminate a company’s
protected market niche.
Product design and worker protection liabilities may extend back to home office.