Recap and revisit of international strategy Management 446 Spring, 2010

Is this company operating in a multidomestic, international or global industry? Does it have a host-country focus, global integration or hybrid strategy? KEY: look at the industry drivers!

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.