1. 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8-1 Chapter 8 STRATEGY IN THE GLOBAL ENVIRONMENT

2. 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8-2 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 1-2 Learning Objectives Understand process of globalization and its impacts on company strategyUnderstand process of globalization and its impacts on company strategy Discuss motives for expanding internationallyDiscuss motives for expanding internationally Review different strategies used to compete in global marketplaceReview different strategies used to compete in global marketplace Explain pros/cons of modes for entering foreign marketsExplain pros/cons of modes for entering foreign markets

3. 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8-3 “No war should be begun until it is first determined what is to be achieved and how it will be conducted.” - Carl von Clausewitz

4. 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8-4 Global/National Environments Implications of trend toward globalization: 1.Industries becoming global in scope- industry boundaries no longer stop at borders. 2.Shift from national to global markets has intensified competition. 3.Steady decline in barriers to cross- border trade & investment has opened once protected markets to companies based elsewhere.

5. 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8-5 National Competitive Advantage Figure 8.1 Source: Adapted from M.E. Porter, “The Competitive Advantage of Nations,” Harvard Business Review, March-April, 1990, p. 77. Porter’s Diamond: 1.Companies from given nation likely to succeed in industries with four favorable attributes. 2.Attributes form a mutually reinforcing system with the effect of one attribute dependent on state of others.

6. 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8-6 1) Factor Endowments- cost/quality of factors of production 2) Local Demand Conditions- most sensitive to needs of closest customers 3) Competitiveness of Related & Supporting Industries- benefits from investments 4) Intensity of Rivalry- competitive advantage National Competitive Advantage (Attributes of Porter’s Diamond)

7. 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8-7 Increasing Profitability Through Global Expansion $ Expand leveraging products- goods/services developed at home & selling internationally $ Economies from global volume- economies of scale $ Location economies- economic benefits from performing value creation in optimal location $ Leveraging skills of global subsidiaries- applied elsewhere Must also consider transportation costs, trade barriers, as well as political and economic risks.

8. 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8-8 Pressures for Cost Reduction & Local Responsiveness Figure 8.2 Strategy depends on pressures: Cost Reductions or Cost Reductions or Local Responsiveness Local Responsiveness

9. 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8-9 Pressures for Cost Reductions oDifferentiation on non-price factors difficult oCompetitors are based in low-cost location oConsumers are powerful & face low switching costs oPersistent excess capacity oLiberalization of world trade & investment Greatest in industries producing commodity- type products where price is the competitive weapon:

10. 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8-10 Pressures for Local Responsiveness Differences In: oCustomer tastes & preferences oInfrastructure & traditional practices oDistribution channels oHost government demands Dealing with these contradictory pressures is a difficult strategic challenge, primarily because being locally responsive tends to raise costs.

11. 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8-11 Four Basic Strategies Figure 8.3    

12. 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8-12 Choosing a Global Strategy 1) Globalization Standard- Reaping cost reductions from economies of scale & location 2) Localization- Customizing goods & services to provide good match to tastes & preferences in different national markets

13. 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8-13 Choosing a Global Strategy 3) Transnational- business model that simultaneously:  Achieves low costs  Differentiates across markets  Fosters a flow of skills between subsidiaries 4) International- multinational companies sell products serving universal needs (minimal need to differentiate) & don’t face significant competitors (low cost pressure).

14. 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8-14 Changes in Strategy over Time Figure 8.4

15. 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8-15 Choice of Entry Mode  Exporting- most use to begin expansion but later switch to another mode.  Licensing- licensee buys rights to produce product & puts up most of overseas capital.  Franchising- franchiser sells intangible property & insists franchisee follow rules on doing business.  Joint Ventures- typically a 50/50 venture & favored mode for entering new market  Wholly-Owned Subsidiaries- parent company owns 100% of subsidiary’s stock

16. 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8-16 Advantages & Disadvantages of Entry Modes Table 8.1

17. 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8-17 Choosing An Entry Strategy o Distinctive Competencies & Entry Mode Technological know-how- wholly-owned subsidiary preferred over licensing & joint ventures to minimize risk of losing control.Technological know-how- wholly-owned subsidiary preferred over licensing & joint ventures to minimize risk of losing control. Management know-how- franchising, joint ventures, or subsidiaries preferred as risk is low of losing management know-how.Management know-how- franchising, joint ventures, or subsidiaries preferred as risk is low of losing management know-how. o Pressures for Cost Reduction & Entry Mode Export finished goods from wholly-owned subsidiaryExport finished goods from wholly-owned subsidiary Marketing subsidiaries oversee distribution- tight control over local operations allows company to use profits generated in one market to improve position in other markets.Marketing subsidiaries oversee distribution- tight control over local operations allows company to use profits generated in one market to improve position in other markets.

18. 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8-18 Global Strategic Alliances oAdvantages Facilitate entryFacilitate entry Share fixed costs & associated risksShare fixed costs & associated risks Bring together complementary skills & assetsBring together complementary skills & assets Set technological standards for industrySet technological standards for industry o Disadvantages Give competitors low-cost route to gain technology & market accessGive competitors low-cost route to gain technology & market access Cooperative agreements between companies… that are actual/potential competitors… range from short-term contractual… to formal joint ventures with equity participation.

19. 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8-19 Alliance Warning Some alliances benefit the company. Beware, alliances can end up giving away technology and market access with very little gained in return.

20. 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8-20 Making Strategic Alliances Work Success Factors: Successful partners view alliance as opportunity to learn rather than purely as cost- or risk-sharing device. 1.Partner selection Helps achieve strategic goalsHelps achieve strategic goals Shares vision of allianceShares vision of alliance Unlikely to exploit alliance to own endsUnlikely to exploit alliance to own ends 2.Alliance structure Risk of giving too much away at acceptable levelRisk of giving too much away at acceptable level Guard against opportunism by partnerGuard against opportunism by partner 3.Manner in which alliance is managed Sensitivity to cultural differencesSensitivity to cultural differences Build relationship with interpersonal relationshipsBuild relationship with interpersonal relationships