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• Strategy of pursuing opportunities anywhere in the world that
enables a firm to optimize its business functions in the countries in
which it operates
• Standardization vs Customization. Standardization performed well
until the late 1990s. Consumers reaching for local products better
aligned with their cultural identities. Change in consumer behavior ->
Evolution of international strategy
• Multinational firms need to “Think global, Act local” – Douglas Daft,
CEO, Coca-Cola. Top ranked global brand in carbonated beverages –
450 localized brands in 200 countries
Why Firms Globalize ?
• Tech advantage once enjoyed by U.S has declined dramatically during the
past 30 years
• In contrast, France impressive advances in electric traction, nuclear power
& aviation
• Germany leads in chemicals and pharmaceuticals, precision & heavy
machinery, heavy electrical goods, surface transport equipment
• Japan leads in optics, solid state physics, engineering, metallurgy
• Eastern Europe, former Soviet Union, China – patents
• U.S firms want to reap benefits from industries, technologies developed
abroad. Distinct competitive advantage capitalizing on overseas operations
Strategic Orientation of Global Firms
At the Start of Globalization
• Japanese investors conduct extensive assessments & analyses before
selecting a U.S site for a Japanese owned firm
• Preference for states with strong markets, low unionization & taxes.
Manufacturers prefer countries with mfg conglomeration, low
unemployment/poverty rates, concentrations of educated, productive
• Paying attention to economic progress, political control & nationalism.
Stability provides investors with confidence. Iran, North Korea, Cuba ? How
the stability is achieved ? J-Curve
• Stakeholder Activism
Multidomestic Industries
• An industry in which competition is segmented from country to country
• Competition in one country is independent of C in others. Retailing,
Insurance, Consumer Finance
• Global corporation’s subsidiaries should be managed as distinct entities.
Autonomous subsidiaries having the authority to make independent
decisions in response to local market conditions
• Factors:- Need for customized products(Tastes/Preferences), fragmentation
of industry, Lack of Economies of Scale, Unique Distribution Channels,
Lower tech dependence on Central R&D
• Renault Nissan – Design for Low-Cost automobile strategy
Global Industries
• An industry in which competition crosses
national borders on a worldwide basis
• Firm’s strategic moves in one country can be
significantly affected by its competitive position
in another country. Commercial aircraft,
mainframe computers & Consumer Electronics
6 Reasons for Strategic Management
Planning to be Global
• Increased scope of the global management task
• Increased globalization of firms
• Information explosion
• Increase in global competition
• Rapid development of Technology
• SMP breeds managerial confidence
Global Challenge
• Location & Coordination of Functional Activities –
Autonomy : Low coordination, Tight coupling of
functional activities of different locations : High
• Location & Coordination issues – depend on the
nature of its industry & on the type of international
strategy being pursued
Competitive Strategies for Firms in Foreign
• Categorised by the degree of complexity of each foreign
market being considered & by the diversity in a company’s
product line
• Complexity refers to the no of critical success factors
required to prosper in a given competitive arena
• Diversity refers to the breadth of a firm’s business lines
• Together the 2 variables form a continuum of possible
strategic choices
Niche Market Exporting
• Firm’s approach (that wants to export) – to modify select product performance or
measurement characteristics to meet special foreign demands
• Combining product criteria from both the U.S and foreign markets can be slow
and tedious
• Expansion techniques – Copying product innovations in countries where patent
protection is not emphasized & utilizing nonequity contractual arrangements
with a foreign partner can assist in rapid product innovation
• Philips, Sony, Matsushita working together for common global product standards
within their markets. Taiwanese co Gigabyte exporting mini-PCs $200 to $300.
Dell $ 750
• Exporting usually requires minimal capital investments. Bangalore IT
• Problem with licensing – partner gains experience, loss of control
• A special form of Licensing
• Allows the franchisee to sell a highly publicized product/service
using the parent’s brand name or trademark, carefully developed
procedures & marketing strategies
• In exchange, the franchisee pays a fee to the parent co, based on
sales volume
• McDonald’s Domino’s
• Raymond franchised its first Raymond shop in 1967 in New Delhi.
Later 300 towns, 700 stores – only 60 are owned
• Effective option for scaling up for entrepreneurs
Foreign Branching
• An extension of the company in its foreign market
• A separately located SBU directly responsible for fulfilling the
operational duties assigned to it by corporate management (includes
sales, customer service & physical distribution)
• Local managers in branches
• Branch most likely will be outside any U.S legal jurisdiction – Liabilities
may not be restricted to the assets of the given branch
• Short duration operational licenses
• Mexico’s Gruma Tortillas – mfg branches in 89 countries . $ 4 billion
Joint Ventures
• MNC firms include some form of JV with a target nation firm
• JVs begin with a mutually agreeable pooling of capital,
production/marketing equipment, patents, trademarks or
management expertise
• They offer more permanent cooperative relationships than
export/contract manufacturing
• Eg Airbus Industries (wide bodied passenger aircraft for world
market) as a result of JVs among many companies in Britain, France,
Spain & Germany
• Compatibility of partners
Wholly Owned Subsidiaries
• Considered by companies that are willing and able to
make the highest investment commitment to the
foreign market
• Cos insist on full ownership for reasons of control &
managerial efficiency
• Policy decisions about local product lines, expansion,
profits & dividends typically remain with Parent co
Wholly Owned Subsidiaries 2
• Irish software giant SAS wanted to expand its law
enforcement ( & criminal justice, homeland security &
intelligence offerings) business. It acquired Memex, a
Scottish firm whose software is used to combat crime and
• PepsiCo pursued a similar strategy but its plan involved
several more actions & required a longer time frame. Its
eastern European snack attack (Exhibit 5.11)