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GLOBAL ENVIRONMENT

Globalization
• 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
•Ethnocentric
•Polycentric
•Regiocentric
•Geocentric
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
workers
• 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
equipment
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
coordination
• Location & Coordination issues – depend on the
nature of its industry & on the type of international
strategy being pursued
Competitive Strategies for Firms in Foreign
Markets
• 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
Franchising
• 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
sales
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
terrorism
• 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)