Four Global Industry Drivers Global Markets Global Cost Drivers Government Drivers Competitive (competition) drivers
Examples: Global Market industry drivers…. The higher the global market drivers, the greater the integration pressure. Common customer needs (e.g. automobiles; pharmaceuticals; consumer electronics) Global customers: usually companies, looking for global suppliers of components. (PC manufacturers). Marketing can be transferred: can use same name brand, advertising and channels of distribution.
Costs: The greater the global costs drivers, the greater the pressure for integration….. Economies of scale (no one country can support efficient production runs – e.g., airplanes; disposable syringes) Global sources of low-cost raw materials. If so, then better to use, but if not, then save on cost of shipping. Cheaper sources of high skilled labor – so you outsource a part of the value chain, leading to greater integration across borders. High product development costs – more efficient to produce a few products that a company sells worldwide (single market can’t absorb high development costs). E.g. Toyota and high end sedan.
Government drivers are more of a mixed bag…. Often can inhibit integration! Eg. Subsidizing local companies Import tariffs, quotas E.g. Japan and rice producers Regulations that restrict operations – such as on how much foreign ownerships is ok; what kind of advertising is possible. But can help with integration… E.g. Trade agreements such as WTO and trading blocs such as NAFTA and EU
Competition often a driver towards globalization and integration…. E.g. if a highly global, integrated company attacks you in your home market, you can stick with a multidomestic strategy. Need a coordinated counter-attack! Or, if a competitor becomes more globalized, then often you have to as well, in order to keep customers demanding global service.
Global Integration Strategy Product or process specialization; Benefit from cost reduction and standardization What does this mean? Two top priorities: seek location advantages and gain economic efficiencies from operating worldwide. Location advantage: disperses value-chain activities (manufacturing, R&D, sales) to anywhere in the world the company can “do it best or cheapest”. Usually integration occurs in the upstream value activities (cheap sources of raw material, low-cost labor, centers of R&D, low-cost financing). Global platforms: a country location where a firm can best perform some, but not necessarily all, of its value-chain activities.
Multidomestic Strategy (host-country focus) Top priority to local responsiveness. Often a form of a differentiation strategy. Often leads to adjusting ads, packaging, sales outlets and pricing to local standards. Produce unique or special products for different countries. Use different distribution systems. Extra costs from adapting products, such as changing ingredients or colors. Means treating foreign subsidiaries as independent businesses. Each subsidiary often has its own local production, marketing strategy, sales staff, and distribution system, and often uses local sources of raw materials and employs mostly local people.