Lecture III Globalization: Driving Forces of Global Integration and the pressure to Localize ( ch. 2)

Globalization - from 80’s to nowIntroduction T. Levit [1983]  Globalization of markets  Global product – good quality, low price  Cultural universal?

From Simple, Standardized Global Product to Complex Global Supply Chain  T. Friedman, FromThe Lexus and The Olive Tree [1999]to the World is Flat [2006]   Friedman believes the world is flat in the sense that the competitive playing fields between industrial and emerging market countries are leveling. Friedman recounts many examples in which companies in India and China are becoming part of large global complex supply chains that extend across oceans, providing everything from service representatives and X-ray interpretation to component manufacturing. He also describes how these changes are made possible through intersecting technologies, particularly the Internet. Friedman criticizes those who resist these changes, arguing that global change is inevitable. He also warns that companies that are now part of a supply chain may eventually want to build a supply chain of their own. As he puts it, "they are racing us to the top." The World is Flat is part global reporting, part theory and reflection about how the world got here and what the ramifications are for education, government policy and readers.Internet

Standardize or differentiate?  Globalization - Economic Forces  Local Differentiation - Cultural and Political Forces

Globalization – scale, scope, factor costs, and free trade Economies of Scale New technologies, capital-intensive products Problems of over-capacity: go international or perish Economies of Scope Product variety: module production, FMS better utilization of firm’s infrastructure

Globalization (Contd..) Factor Costs S. Europe – Central America – Far East ASEAN – E. Europe ( Review: Theory of International Trade, Theory of DFI, and Theory of IPLC) Free Trade

Localization Cultural Differences (pp ) G. Hofstede [1984] – Cultural Map, how cultural dimensions affect MNCs’ management and structure  Power Distance  Uncertainty Avoidance  Individualism/Collectivism  Masculinity/Femininity

Localization (Contd..) Conflicts between Host Government and MNC (pp ) DFI regulations from the host government  Local content requirement  Technology transfer  Voluntary import restrains  Other NTBs (non-tariff barriers)

Responding to Conflicting Forces MNEs must simultaneously manage Efficiency Responsiveness (Flexibility) Innovation/worldwide learning and innovation “MNCs must build global efficiency through a worldwide infrastructure or distributed but specialized assets and capabilities that exploit comparative advantages, scale economies, and scope economies simultaneously….”

Transnationality? Administrative costs of coordinating and scheduling demands in various markets vs. the efficiency of scale economies - Works against the concept of reduced lead-time in modern manufacturing? Internet and advanced production technologies – CAD/CAM, CIM,FMS,..etc, made it possible to have both efficiency and effectiveness in the management of international operation?

“The End of Corporate Imperialism”, by C.K. Prahalad and K. Lieberthal, HBR, 8/2003 MNCs need to rethink their operating, marketing and distribution decisions to better serve the rising middle class consumers in developing countries