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10 CHAPTER Global Strategy: Competing Around the World McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

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Presentation on theme: "10 CHAPTER Global Strategy: Competing Around the World McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved."— Presentation transcript:

1 10 CHAPTER Global Strategy: Competing Around the World McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

2 2–2 Part 2 Strategy Formulation

3 LO 10-1 Define globalization, multinational enterprise (MNE), foreign direct investment (FDI), and global strategy. LO 10-2 Explain why companies compete abroad and evaluate advantages and disadvantages. LO 10-3 Explain which countries MNEs target for FDI, and how they enter foreign markets. LO 10-4 Describe the characteristics of and critically evaluate the four different strategies MNEs can pursue when competing globally. LO 10-5 Explain why certain industries are more competitive in specific nations than in others. LO 10-6 Evaluate the relationship between location in a regional cluster and firm-level competitive advantage. 10–3

4 Chapter Case 10 Hollywood Goes Global Hollywood movie: The quintessential American product  However, non-US sales increased: 50% in 2000, and 70% in 2010  Altered global strategic focus  Movies that fit the global market by adapting foreign scripts, hiring international actors/actresses…etc. Treat emerging markets as focal targets  Not just filmmaking industries, but also the electronics industry (example: Korea, China), and auto industry (example: India)  Key questions: How can a company compete effectively in a global market place? 10–4

5 What Is Globalization? Globalization is a process of closer integration and exchange between different countries and peoples worldwide. Made possible by:   Falling trade and investment barriers   Advanced telecommunications   Reduced transportation costs   Importance of MNEs and FDIs 10–5

6 What Is Globalization? Multinational Enterprise (MNE)   Deploys resources and capabilities in the procurement, production, and distribution in at least two countries   Less than 1% of firms, BUT employ 19% of U.S. workforce – –74% of private sector R&D spending Foreign Direct Investment (FDI)   Investments in value chain activities abroad Global Strategy   To sustain a competitive advantage   Competing against foreign and domestic companies around the world 10–6

7 Why Global? Gain access to a larger market   Capitalize on market potential, such as China, India, and emerging economies Gain access to low-cost input factors   Labor, natural resources, technology, logistics Managing corporate risk Leverage core competencies Develop new competencies   Location economies   Unique locational advantages 10–7

8 1–8 STRATEGY HIGHLIGHT 10.1 Stages of Globalization Globalization 1.0: 1900–1941  Only sales and distribution took place overseas Globalization 2.0: 1945–2000  Duplicating business functions overseas Globalization 3.0: 21 st century  MNEs become global collaboration networks (see Exhibit 10.2)

9 EXHIBIT 10.2 Globalization Collaboration Networks 10–9

10 EXHIBIT 10.3 International Sales as % of Total Data from –10

11 1–11 STRATEGY HIGHLIGHT 10.2 Does GM’s Future Reside in China? Market opportunity in China  1.4 billion population, only 1 in 100 people owns a vehicle GM entered China in 1997  Joint venture with Shanghai Automotive Industrial Corp  China is 25% of GM’s revenues and GROWING fast  GM China factories are more productive than U.S. plants GM’s future relies on China and other emerging economies  $ 250 million on a state-of-the-art R&D center…in Shanghai  Future of GM likely decided in their international HQ…in Shanghai 10–11

12 Disadvantages of Expanding Internationally Liability of foreignness   Additional cost of doing business in an unfamiliar cultural and economic environment   Cost of coordinating across geographic distance   Economic development may increase the cost of doing business   Rising wages with improved living standards   Difficulty in protecting intellectual property 10–12

13 LO 10-1 Define globalization, multinational enterprise (MNE), foreign direct investment (FDI), and global strategy. LO 10-2 Explain why companies compete abroad and evaluate advantages and disadvantages. LO 10-3 Explain which countries MNEs target for FDI, and how they enter foreign markets. LO 10-4 Describe characteristics of and critically evaluate four different strategies MNEs pursue when competing globally. LO 10-5 Explain why certain industries are more competitive in specific nations than in others. LO 10-6 Evaluate the relationship between location in a regional cluster and firm-level competitive advantage. 10–13

14 Global Expansion: Where How does an MNE decide where to go?   National institutions:   Well-established legal and ethical pillars as well as well- functioning economic institutions such as capital markets, banks, and infrastructures   National culture: "Programming of the mind"   Geert Hofstede’s Cultural Dimensions 1. 1.Power distance 2. 2.Individualism 3. 3.Masculinity/femininity 4. 4.Uncertainty-avoidance 5. 5.Long-term orientation 10–14

15 EXHIBIT 10.4 Corporate Tax Rates Institutional Difference Matters 10–15

16 Global Expansion: How Exporting: producing goods in one country to sell in another country Acquisition, strategic alliance are also popular vehicles for entry into foreign markets MNEs sometime prefers greenfield operations or wholly-owned subsidiaries   Greenfield is building new factories/offices from scratch   Physically and organizationally building from the "ground up." 10–16

17 EXHIBIT 10.5 Modes of Foreign Market Entry Market Entry along the Investment and Control Continuum 10–17

18

19 Strategy around the World: Cost Reduction vs. Local Responsiveness Local responsiveness :   Tailor product and service offerings to fit local consumer preferences and host-country requirements   Higher cost   Example: McDonald’s uses mutton in India Cost reduction:   MNEs enter global marketplace with the intention to reduce operation cost   Example: Toyota Prius 10–19

20 EXHIBIT 10.6 The Integration-Responsiveness Framework

21 Four Global Strategies International strategy   Leveraging home-based core competencies   Selling the same products or services in both domestic and foreign markets   Example: Selling Starbucks coffee internationally Localization (product differentiation) strategy   Maximize local responsiveness via a multi-domestic strategy   Consumers will perceive them to be domestic companies   Example: Nestlé’s customized product offerings in international markets 10–21

22 Four Global Strategies Global standardization (cost leadership) strategy   Economies of scale and location economies   Pursuing a global division of labor based on best-of-class capabilities reside at the lowest cost   Example: Lenovo’s R&D in Beijing, Shanghai, and Raleigh; production center in Mexico, India, and China Transnational strategy   Combination of localization strategy (high responsiveness) with global standardization strategy (lowest cost position attainable)   Example: German multimedia conglomerate Bertelsmann : Caterpillar’s earth-moving equipment

23 EXHIBIT 10.7 Characteristics, Benefits, and Risks of Four Types of Global Strategy CharacteristicsBenefitsRisk Often the first step in Leveraging core No or limited local internationalizing.competence.responsiveness. Used by MNEs with relatively large Economies of scale. Highly affected domestic markets (e.g., MNEs from Low-cost implementationby exchange rate U.S., Germany, Japan).through:fluctuations. International Well-suited for high-end products Exporting or licensing IP embedded in product Strategy (such as machine tools) and luxury (for products)or service could be goods that can be shipped across Franchising (for services)expropriated. the globe. Licensing (for trademarks) Products and services tend to have strong brands. Main competitive strategy tends to be differentiation since exporting, licensing, and franchising add additional costs. Used by MNEs to compete in Highest-possible local Duplication of key host countries with large and/orresponsiveness.business functions lucrative but idiosyncratic domestic Reduced exchange-ratein multiple countries Localization markets (e.g., Germany, Japan,exposure.leads to high cost of (Multidomestic) Saudi Arabia).implementation. Strategy Often used in consumer products Little or no economies of and food industries.scale. Main competitive strategy is Little or no learning across differentiation.different regions. MNE wants to be perceived as local Higher risk of IP company.Expropriation. 10–23

24 EXHIBIT 10.7 Characteristics, Benefits, and Risks of Four Types of Global Strategy CharacteristicsBenefitsRisk Global- Used by MNEs that are offering Location economies: No local responsiveness. Standardization standardized products and servicesglobal division of labor Little or no product Strategy (e.g., computer hardware orbased on wherever best-of-differentiation. business process outsourcing).class capabilities Some exchange-rate Main competitive strategy is price.reside at lowest cost.exposure. Economies of scale. “Race to the bottom” as wages increase. Some risk of IP expropriation. Transnational Used by MNEs that pursue an Attempts to combine Global matrix structure (Glocalization) integration strategy at the businessbenefits of localization andis costly and difficult to Strategy level by simultaneously focusing onstandardization strategiesimplement, leading to high product differentiation and low cost.simultaneously by creatingfailure rate. Mantra: Think globally, act locally.a global matrix structure. Some exchange-rate Economies of scale,exposure. location, and learning. Higher risk of IP expropriation.

25 1–25 STRATEGY HIGHLIGHT 10.3 Wal-mart Retreats from Germany Wal-mart entered Germany  Acquisition of 21 stores and 74 hypermarkets Wal-mart duplicated its U.S. policies and applied them in Germany  Employees refused to accept those policies Wal-mart faced significant cultural differences Wal-mart could not develop efficient economies of scale and distribution centers to drive cost down The result is a defeated Wal-mart that sold its stores to Metro, Wal-mart’s key rival in Germany ALDI, another of Wal-mart’s competitors in Germany, is now expanding aggressively in the U.S.

26 LO 10-1 Define globalization, multinational enterprise (MNE), foreign direct investment (FDI), and global strategy. LO 10-2 Explain why companies compete abroad and evaluate advantages and disadvantages. LO 10-3 Explain which countries MNEs target for FDI, and how they enter foreign markets. LO 10-4 Describe the characteristics of and critically evaluate the four different strategies MNEs can pursue when competing globally. LO 10-5 Explain why certain industries are more competitive in specific nations than in others. LO 10-6 Evaluate the relationship between location in a regional cluster and firm-level competitive advantage. 10–26

27 National Competitive Advantage Death-of-distance hypothesis   Geographic location alone should not lead to firm-level competitive advantage because firms are now more able to source inputs globally (ex: capital, commodities, etc.) Labor markets also have become more global.   Computer manufacturers – China & Taiwan   Consumer electronics – Japan & South Korea   Mining companies – Australia Why are certain industries in some countries more competitive than in others?   Answer: National Competitive Advantage 10–27

28 EXHIBIT 10.8 Porter’s Diamond Model of National Competitive Advantage Porter American Future Video 10–28

29 National Competitive Advantage Framework Factor conditions   A nation’s endowments in terms of national, human, and other resources as well as supportive infrastructure and institutions. Demand conditions   Specific characteristics of demand in a firm’s domestic market Competitive intensity   Highly competitive environments tend to stimulate firms to outperform others ( e.g., German car industry) Related and supporting industry   Leadership in related and supporting industries can also foster world-class competitors in downstream industry   Complementarity 10–29

30 Regional Clusters Regional cluster   A group of interconnected companies and institutions in a specific industry, located near each other geographically and linked by common characteristics   Knowledge spillover   Positive externalities that are regionally constrained   Exchange of ideas among firms in a cluster 10–30

31 EXHIBIT 10.9 Mapping a Regional Cluster: Research Triangle 10–31

32 Omaha Telemarketing Hotel Reservations Credit Card Processing Wisconsin / Iowa / Illinois Agricultural Equipment Detroit Auto Equipment and Parts Rochester Imaging Equipment Western Massachusetts Polymers Boston Mutual Funds Medical Devices Mgmt. Consulting Biotechnology Software and Networking Venture Capital Hartford Insurance Providence Jewelry Marine Equipment New York City Financial Services Advertising Publishing Multimedia Pennsylvania / New Jersey Pharmaceuticals North Carolina Household Furniture Synthetic Fibers Hosiery Dalton, Georgia Carpets South Florida Health Technology Computers Nashville / Louisville Hospital Management Baton Rouge / New Orleans Specialty Foods Southeast Texas / Louisiana Chemicals Dallas Real Estate Development Wichita Light Aircraft Farm Equipment Los Angeles Area Defense Aerospace Entertainment Silicon Valley Microelectronics Biotechnology Venture Capital Cleveland / Louisville Paints & Coatings Pittsburgh Advanced Materials Energy West Michigan Office and Institutional Furniture Michigan Clocks San Diego Golf Equipment Biotech/Pharma Minneapolis Cardio-vascular Equipment and Services Warsaw, Indiana Orthopedic Devices Colorado Computer Integrated Systems / Programming Engineering Services Mining / Oil and Gas Exploration Las Vegas Amusement / Casinos Small Airlines Oregon Electrical Measuring Equipment Woodworking Equipment Logging / Lumber Supplies Seattle Aircraft Equipment and Design Software Coffee Retailers Boise Information Tech Farm Machinery Geographical Distribution of Clusters Source: Adapted from Professor Michael E. Porter, Harvard Business School 10–32


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