2 Learning ObjectivesThe importance of a company’s decision to globalizeThe four main strategic orientations of global firmsThe complexity of the global environment and the control problems that are faced by global firmsMajor issues in global strategic planning, including the differences for multinational and global firmsThe market requirements and product characteristics in global competitionThe competitive strategies for firms in foreign markets
3 GlobalizationGlobalization refers to the strategy of pursuing opportunities anywhere in the world that enable a firm to optimize its business functions in the countries in which it operates.
4 Globalization (contd.) Awareness of the strategic opportunities faced by global corporations and of the threats posed to them is important to planners in almost every domestic U.S. industryUnderstanding the nuances of competing in global markets is rapidly becoming a required competence of strategic managers
5 Development of a Global Corporation Four LevelsLevel 1 – export/import activity has minimal effect on the existing management orientation or on existing product linesLevel 2 – foreign licensing and technology transfer requires little change in management or operation
6 Development of a Global Corporation (contd.) Level 3 – direct investment in overseas operations –is characterized by large capital outlays and the development of global management skillsLevel 4 – substantial increase in foreign investment – the firm begins to emerge as a global enterprise with foreign assets comprising a significant portion of total assets
7 Why Firms Globalize? Question: Should firms be proactive or reactive? U.S. firms can reap benefits from industries and technologies developed abroad.Direct penetration of foreign markets can drain vital cash flows from a foreign competitor’s domestic operations.The resulting lost opportunities, reduced income, and limited production can impair the competitor’s ability to invade U.S. markets.Question: Should firms be proactive or reactive?
8 Reasons for Going Global PROACTIVEAdditional resourcesLowered costsIncentivesNew, expanded marketsExploitation of firm-specific advantagesTaxesEconomies of scaleSynergyPower and prestigeProtect home market
9 Reasons for Going Global (contd.) REACTIVETrade barriersInternational customersInternational competitionRegulationsChance
10 4 Strategic Orientations of Global Firms Ethnocentric orientationWhen the values and priorities of the parent organization guide the strategic decision making of all its international operations
11 4 Strategic Orientations of Global Firms (contd.) Polycentric orientationWhen the culture of the country in which the strategy is to be implemented is allowed to dominate a company’s international decision making process
12 4 Strategic Orientations of Global Firms (contd.) Regiocentric orientationWhen a parent company blends its own predisposition with those of its international units to develop region-sensitive strategies.
13 4 Strategic Orientations of Global Firms (contd.) Geocentric orientationWhen an international firm adopts a systems approach to strategic decision making that emphasizes global integration.
14 At the Start of Globalization External and internal assessments are conducted before a firm enters global marketsExternal assessment involves careful examination of critical features of the global environmentInternal assessment involves identification of the basic strengths of a firm’s operations
15 Complexity of the Global Environment Five factors affecting the increasing complexity of global strategic planning:Multiple political, economic, legal, social, and cultural environments as well as various rates of changeInteractions between the national and foreign environments are complexGeographic separation, cultural and national differences, and variations in business practices all tend to make communication and control efforts difficult
16 Complexity of the Global Environment (contd.) Globals face extreme competitionGlobals are restricted in their selection of competitive strategies by various regional blocs and economic integrations
17 Control Problems of the Global Firm Financial policies typically are designed to further the goals of the parent company and pay minimal attention to the goals of the host countriesDifferent financial environments make normal standards of company behavior more problematicImportant differences in measurement and control systems often existThese problems can be reduced through more attention to strategic planning
18 Global Strategic Planning: Stakeholder Activism Demands placed on a global firm by the stakeholders in the environments in which it operates, principally by foreign governments.
19 Global Strategic Planning Increasingly complex decisionsMultidomestic vs. Global industriesA multidomestic industry is one in which competition is essentially segmented from country to countryIn a multidomestic industry, a global corporation’s subsidiaries should be managed as distinct entitiesA global industry is one in which competition crosses national borders
20 Multidomestic Industry Factors that increase the degree to which an industry is multidomestic include:The need for customized products to meet the tastes or preferences of local customersFragmentation of the industry, with many competitors in each national marketA lack of economies of scale in the functional activities of firms in the industryDistribution channels unique to each countryA low technological dependence of subsidiaries on R&D provided by the global firm
21 Global Strategic Planning (contd.) Reasons why strategic planning must be global:The increased scope of the global management taskThe increased globalization of firmsThe information explosionThe increase in global competitionThe rapid development of technologyStrategic management planning breeds managerial confidence
22 Global IndustryFactors that make for the creation of a global industry:Economies of scale in the functional activities of firms in the industryA high level of R&D expenditures on products that require more than one market to recover development costsThe presence in the industry of predominantly global firms that expect consistency of products and services across marketsThe presence of homogeneous product needs across markets, which reduces the requirement of customizing the product for each marketThe presence of a small group of global competitorsA low level of trade regulation and of regulation regarding foreign direction investment
23 Competitive Strategies for Firms in Foreign Markets Strategies for firms that are attempting to move toward globalization can be categorized by the degree of complexity of each foreign market being considered and by the diversity in a company’s product line
24 Competitive Strategies for Firms in Foreign Markets (contd.) Complexity refers to the number of critical success factors that are required to prosper in a given competitive arenaWhen a firm must consider many such factors, the requirements of success increase in complexity
25 Competitive Strategies for Firms in Foreign Markets (contd.) Diversity, the second variable, refers to the breadth of a firm’s business linesWhen a company offers many product lines, diversity is high
26 Ex. 5.8 Escalating Commitments to International Markets
27 Competitive Strategies for Firms in Foreign Markets Niche Market ExportingThe primary niche market approach for the company that wants to export is to modify select product performance or measurement characteristics to meet special foreign demandsLicensing and Contract ManufacturingLicensing involves the transfer of industrial property right from the home market (e.g., the U.S.)
28 Competitive Strategies for Firms in Foreign Markets (contd.) FranchisingFranchising is a special form of licensing which allows the franchisee to sell a highly publicized product or service, using the parent’s brand name or trademark, carefully developed procedures, and marketing strategiesJoint VenturesJVs begin with a mutually agreeable pooling of capital, etc. Consequently, they offer more permanent cooperative relationships than export or contract manufacturing.Wholly Owned SubsidiaryThis involves making the highest investment commitment to the foreign market. These can be started either from scratch or by acquiring established firms in the host country.