STRATEGIC

MANAGEMENT IN
GLOBAL ENVIRONEMT
GLOBALIZATION
A process of interaction and integration among the people,
companies and governments of different countries, a process driven
by international trade and investment and aided by information
technology. This process affects the environment, culture, political
systems, economic development and prosperity, and physical
human well being in societies around the world
- Carnegie Endowment for International Peace

Globalization on one hand is seen as an irresistible and benign force for
delivering economic prosperity to people throughout the world and on the
other end, it is blamed as a source of all contemporary ills
- International Labor Organization

P
r
o
f
.

D
e
e
p
a
k

R
.

G
u
p
t
a

-

N
M
I
M
S

S
D
L

Mcdonaldization &
Starbuckization
McDonald's has 13,700
U.S. stores, 31,000
globally.
The central concepts
employed in the fast-food
industry have spread to all
types of restaurants.
Everything from pizza to
lobster, from ice cream to
bread, from alcohol to fried
chicken is dominated by
the Chain mentality.
It has 7,950 U.S. stores
plus 3,275 elsewhere.
An average of five opening
every day worldwide.
Its long-term goal is 15,000
U.S. stores, 30,000 globally.
"Starbucks has found a way
to reach every demographic,"
says Barry Glassner, author
of The Culture of Fear.
Mc DONALDS STARBUCKS

P
r
o
f
.

D
e
e
p
a
k

R
.

G
u
p
t
a

-

N
M
I
M
S

S
D
L


P
r
o
f
.

D
e
e
p
a
k

R
.

G
u
p
t
a

-

N
M
I
M
S

S
D
L

Globalisation could
involve all these
things!
REASON FOR COMPANIES TO
GO GLOBAL
Market Saturation
Rise of New Markets
Ambition To Rise
Expansion Of Business
To Maintain Market Share
To Utilise Full Capacity
To offset the Business Downturns
To Take Advantage Of Tax Concession
To Effect Saving In Cost
To Compete Competitors
To Develop And Test New Product
To Have Access To International Technology, Raw Material
And Economic Groups

WHY NOT SWADESHI?
U. S. A. represents roughly 25% of the total world
market for all products and services.
Coca-Cola is one American Based company; 72% of
revenues generated by its soft-drink business outside
the US.
Prof. Deepak R. Gupta
WHY NOT SWADESHI??
Nestle derives only 2% of its total sales from its home
market Switzerland.


Similarly only 8% of the total sales comes from Holland
for Phillips.
Prof. Deepak R. Gupta
Large Number of Multinationals Have Moved to India Post Globalization
(Strategy 100% Equity, Collaboration, Franchise, Importing,
Manufacturing)
Beverages (Coke, Pepsi)
Fast Foods (McDonalds, Pizza Hut, KFC)
Coffee (Barista, Caf Coffee Day)
Sports Wear & Goods (Nike, Adidas)
Apparels & Garments (Levis, Reid & Taylor)
Cosmetics (Revlon, Oriflamme, Maybellene)
Two/Four Wheelers (Honda, Toyota, Suzuki, Hyundai, General Motors,
Ford, Mercedes)
Computers (Dell, HP, IBM, Samsung, Sony, Compaq)
White Goods (LG, Samsung, GE)
Pharmaceuticals (US, Europe, Britain)
Music (Sony, BMG, Warner)
Entertainment Channels (Star, National Geographic, Discovery, Sony)
Sourcing (IKEA, Adidas, Nike, many others)

DEVELOPMENT OF GLOBAL
CORPORATION
Exporting
Licensing
Franchising
Sales Subsidiary
Wholly owned Subsidiary
Joint Ventures
Strategic Alliances
Offshoring

Exporting
In national accounts "export consist of
transactions in goods and services (sales, barter,
gifts or grants) from residents to non-residents.
A strategy in which a company exports a product
from its home base without having any production
facilities or any organization overseas.
Advantages:
Avoids cost of establishing manufacturing
operations.
May help achieve experience curve and location
economies.
Exporting Types
INDIRECT EXPORTING: exporting to
destination through an intermediary. Eg.
India expots sugar to Pakistan through
Singapore and Dubai
DIRECT EXPORTING: is selling the
products in a foreign country directly through
its distribution arrangement or through a
host countrys company.
INTRACORPORATE TRANSFER: are
selling of products by a company to its
affiliation company in host country (or
another country). Eg. HLL in India to
UNILEVER in USA
Turnkey Projects
In Turn key project, the contractor agrees to handle every
detail of the project for a foreign client including the training
of the personnel and hands over the key to the project on
completion. Common in the chemicals, pharmaceuticals,
petroleum refining, Airports construction etc.

Advantages:
Can earn a return on knowledge asset.
Less risky than conventional FDI.
Disadvantages:
May create a competitor.
No long-term interest in the foreign country.
Selling process technology may be selling
competitive advantage as well.

Licensing
It is an arrangement wherein a licensor grants the
rights to intangible property to another entity ( the
Licensee) for a specified period for a royalty fee.
Intangible property includes copy rights, patents,
inventions, formulae, designs and trademarks.

Advantages:
Low investment on the part of licensor.
Low financial risk to the licensor
Licensee gets the benefits with less investment on
research and development
Licensee escapes himself from the risk of product
failure.

Licensing: Example
Tokyo Disneyland is owned and operated by
Oriental Land Company under license from
Disney
In return for being able to use the Disney
name, Oriental Land Company pay royalties to
Disney
Philips has entered into a brand licensing
agreement with Videocon under which it will
assume the responsibility of selling and after
sale services of Philips consumer television set
in India, for 5 yrs.


Joint Ventures
A joint venture is a legal organization that takes the
form of a short term partnership in which the persons
jointly undertake a transaction for mutual profit.
Generally each person contributes assets and share
risks.
The venture can be for one specific project only, or a
continuing business relationship.
Sony Ericsson joint venture.
ADVANTAGES:
Benefit from local partners knowledge.
Shared costs/risks with partner.
Reduced political risk.
Developing Joint Venture

JV Example: Motorola and
Wipro
Objective is to supply managed network outsourced
services.
Wipro 80%
Motorola 20%
Focus on delivering outsourced telecom services to help
customers focus on their core business.
Joint venture: WMNetServ
Headquarter in Europe
Both companies will invest $ 20 million over three years
in network operations and service infrastructure.

Joint Ventures: Disadvantage
Risk giving control of technology to partner
May not realize experience curve or location
economies
Decision making process can be delayed if
joint venture partners have to consult each
other on all decisions
Chances of conflicts because of cultural
problems, divergent goals, disagreement over
production and marketing strategies.
Conflicts can arise over control if not a 50:50
partnership
Franchising
Franchising is a special kind of licensing wherein the
franchiser not only sells intangible property but also insists
that the franchisee agrees to abide by strict rules as to how
he does business.
Under franchising an independent organization called the
franchisee operates the business under the name of
another company called the franchisor.
Under this agreement the franchisee pays a fee to the
franchisor.
It is an agreement whereby the franchisor gives the
franchisee the right to use the franchisors trade names,
trademarks, business models, and or know/how in a given
territory for a specific time period, normally 10 years.


In a business format franchise, the integration of the
business is more complete.

The franchisee not only distributes the franchisors
products and services under the franchisors trade mark,
but also implements the franchisors format and
procedure of conducting the business.


BUSINESS FORMAT
FRANCHISING



Famous Examples
BUSINESS FORMAT FRANCHISING -
outlet in
Sale, Australia
outlet in
Marseille, France
A form of service agreement.

The franchisee provides the management expertise,
format and/or procedure for conducting the business.


MANAGEMENT FRANCHISE



Famous Examples
Leveraging on a recognized brand name
Enhancing business image
Ensuring consistent quality
Attaining higher productivity/better motivated staff
Access to good locations
Economies of scale
Reducing risks of failure

IMPORTANCE
WHOLLY OWNED
SUBSIDIARY
A wholly owned subsidiary is the most costly method
of serving a foreign market. Companies taking this
approach have to bear the full costs and risks
associated with setting up overseas operations.
Advantages:
No risk of losing technical competence to a
competitor.
Tight control of operations.
Realize learning curve and location economies.
Disadvantage:
Bear full cost and risk.
STRATEGIC ALLIANCES
Cooperative agreements between potential or
actual competitors.
Advantages:
Facilitate entry into market.
Share fixed costs.
Bring together skills and assets that neither company has
or can develop.
Establish industry technology standards.
Disadvantage:
Competitors get low cost route to technology and
markets.
STRATEGIC ALLIANCE:
EXAMPLE
A case in point is the partnership a stabilize by
the coca-cola and Nestle to market ready to
drink Coffees and teas under the Nescafe and
Nestea brand names.
This deal allowed the two partners to combine
a well stabilize brand name with assets to a
vast proven distribution network.
In India, huggies, Kimberly, clarks, diapers, are
manufactured and distributed through and
alliance with Hindustan Lever, the Local unit of
Unilever, whose powerful distribution network
covers four Lacs retail outlets.

A merger is a combination of two companies to
form a new company

Eg. The formation of Brook Bond Lipton India Ltd.
through the merger of Lipton India and Brook
Bond.

32
MERGERS
THANK YOU