Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-1 Global Strategy: Harnessing New Markets by Robert Pitts & David Lei Slides prepared by John P. Orr Webster University Chapter 7

Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-2 What you will learn… Why companies need to develop strategies to expand across national borders The key environmental factors that promote the need to expand into overseas markets The two basic strategies used for expanding overseas: –Global –Multidomestic Slide 1 of 2

Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-3 What you will learn… Balancing the benefits and costs of overseas expansion How companies can continue to grow by becoming global players Slide 2 of 2

Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-4 Global Strategy: Introduction Globalization –Viewing the world as a single market for the firm; –The process by which the firm expands across different regions and national markets. Industry-Level View of Globalization –Changes in economic factors, such as economies of scale, experience, and R&D, which make competing on a worldwide basis a necessity.

Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-5 Building Global Capabilities at Nokia Digital, wireless and broadband Strategy: Low-cost producer Narrowing of product lines Partnership plant in China Digital innovation and 3G Globalized R&D efforts Strategic Snapshot

Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-6 Factors Promoting the Globalization of Markets Narrowing of demand characteristics Escalating costs of R&D Cost reduction pressures and R&D Government industrial policies Reduction of factor costs (e.g., labor, capital) Rise of new distribution channels Reduction of transportation, communication, and storage costs Internet access Reduction of tariffs worldwide Exhibit 7-1

Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-7 Examples of Growing Homogeneity of Demand Communications equipment Cellular phones Sony Walkmans Levi’s jeans Commercial banking Financial services Color televisions and VCRs Semiconductors Exhibit 7-2A

Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-8 Examples of Growing Homogeneity of Demand Machine tools Computers Pharmaceuticals Construction equipment Commercial aircraft Hollywood films Television shows Data and computer networks Exhibit 7-2B

Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-9 Examples of R&D Intensive Industries Semiconductors Software Biotechnology Communications systems Pharmaceuticals Commercial aircraft Electronics Composite materials Exhibit 7-3A

Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-10 Examples of R&D Intensive Industries Advanced imaging systems Medical equipment Fiber optics Exhibit 7-3B

Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-11 Rising Economies of Scale/ Cost Pressures Steel Automobile engines Color television tubes Semiconductors Fiber optics Office equipment Telecommunications Aircraft Chemicals Exhibit 7-4

Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-12 Strategic Competency in action Creating Distinctive Value: China’s TCL Shifting to top-tier products Purchasing Thomson’s plants Manufacturing capability + economics of scale Chairman Li pushes free-market model Overcoming value-chain gaps

Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-13 Government Initiatives to Promote Industrial Development Sematech (semiconductors) Steel, Computers, Autos, Artificial Intelligence, Advanced Materials, Aerospace Semiconductors, Aerospace, Automobiles, Advanced Lasers, Optics US Japan EU Exhibit 7-5

Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-14 Examples of Declining Costs Transport Costs Containerization Intermodal shipping/rail Air freight Communication Costs More global long distance carriers Better ways to transmit voice, video data Internet access Exhibit 7-6A

Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-15 Examples of Declining Costs Storage Costs Refrigeration Just-in-time inventory Reduction of perishability Supply chain management Virtual production/design Exhibit 7-6B

Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-16 Global Strategy of Expansion Systemwide approach to competing worldwide Mutually interdependent subsidiaries Centralized control and reporting of activities Facilitates cross-subsidization policies across markets HQ Exhibit 7-7

Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-17 Characteristics of a Global Strategy Standard products Global economies of scale in key components and activities Leverage technology across many markets Global coordination of marketing and sales systemwide Cross-subsidization policies to respond to competitive moves by other global strategy firms Exhibit 7-8

Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-18 Multidomestic Strategy of Expansion Competitive advantage is built in each separate national or regional market. Markets and subunits are treated independently from one another. Decentralized controls of activities, reporting back to headquarters. HQ Exhibit 7-9

Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-19 Characteristics of a Multidomestic Strategy Customization or frequent adaptation of products for each separate market Few systemwide opportunities for economies of scale Value-adding activities performed and duplicated in each market Coordination of marketing and sales within each market Quality and image across markets are important sources of competitive advantage Exhibit 7-10

Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-20 Benefits of Global Expansion Market growth and expansion opportunities Recovery of R&D and investment costs Creation of a distinct image Accelerated learning and transfer of new skills Exhibit 7-11

Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-21 Costs Associated with Global Expansion Costs of Strategic Leverage Sustained investment required Preserving and extending image Costs of Flexibility High interdependence of subsidiaries (and businesses) Change or development affecting all markets Exhibit 7-12A

Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-22 Costs Associated with Global Expansion Costs of Cooperation Compromise Accountability Exhibit 7-12B

Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-23 Balancing Global & Multidomestic Ford 2000 global product teams Small car Midsized car Luxury car SUV Commercial truck

Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-24 Balancing Global & Multidomestic Personal care products P&G uses blended strategy Bausch & Lomb pursues regional gains

Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-25 Ethics: Global Concerns Scandals with global reach Lloyd’s of London embezzlement French, German stock market fraud Japanese business, political scandals

Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-26 Ethics: Global Concerns Varying approaches to ethics Individual views strongly shape ethics of U.S. workers Asian workers seen as ‘industrial soldiers’ U.S. enacts Foreign Corrupt Practices Act