1. Chapter 8 Internationalization and Globalization

2. Chapter Outline Introduction: Internationalization and Globalization Drivers of Corporate Internationalization and Globalization: Why Firms Go Abroad Preparing the Company for Internationalization and Globalization Effects of Globalization Financing International and Global Operations

3. Internationalization and Globalization  Internationalization Defined: Internationalization: firms extend products and services in overseas markets, usually from their home country. Internationalization is the first stage in the globalization process

4. Internationalization and Globalization  Globalization Defined  Globalization: the process by which businesses create value by leveraging their resources and capabilities across borders, and includes the coordination of cross-border manufacturing and marketing strategies

5. Internationalization and Globalization Measuring Internationalization and Globalization Objective measures: United Nations Conference on Trade and Development (UNCTAD) has developed an index to show international corporate involvement called Transnationality Index.

6. Internationalization and Globalization Measuring Internationalization and Globalization Objective measures: United Nations Conference on Trade and Development (UNCTAD) has developed an index to show international corporate involvement called Transnationality Index. It is based on: Foreign assets to total assets.

7. Internationalization and Globalization Measuring Internationalization and Globalization Objective measures: United Nations Conference on Trade and Development (UNCTAD) has developed an index to show international corporate involvement called Transnationality Index. It is based on: Foreign assets to total assets. Foreign sales to total sales

8. Internationalization and Globalization Measuring Internationalization and Globalization Objective measures: United Nations Conference on Trade and Development (UNCTAD) has developed an index to show international corporate involvement called Transnationality Index. It is based on: Foreign assets to total assets. Foreign sales to total sales Foreign employment to total employment

9. Internationalization and Globalization Measuring Internationalization and Globalization Objective measures: Corporate measures: Governance and responsibility: who are controlling to corporation

10. Internationalization and Globalization Measuring Internationalization and Globalization Objective measures: Corporate measures: Governance and responsibility: who are controlling to corporation Strategy and planning: of global corporations that Produce standardize products could be ventrally planed, must meet local needs should be decentralized

11. Internationalization and Globalization Measuring Internationalization and Globalization Objective measures: Corporate measures: Governance and responsibility: who are controlling to corporation Strategy and planning: of global corporations that Produce standardize products could be ventrally planed, must meet local needs should be decentralized Market orientation also depends on the orientation of the countries where the company is active. If they are similar, a unified marketing strategy will be use. Otherwise, each country requires its own strategy.

12. Internationalization and Globalization Measuring Internationalization and Globalization Objective measures: Corporate measures: Governance and responsibility: who are controlling to corporation Strategy and planning: of global corporations that Produce standardize products could be ventrally planed, must meet local needs should be decentralized Market orientation also depends on the orientation of the countries where the company is active. If they are similar, a unified marketing strategy will be use. Otherwise, each country requires its own strategy. Manufacturing operations and technology. Customers, country conditions, and competition determine where resources should be allocated. Whether economies of scale could be exploited; whether low cost factors could be utilized;

13. Internationalization and Globalization Measuring Internationalization and Globalization Objective measures: Corporate measures: Governance and responsibility: who are controlling to corporation Strategy and planning: of global corporations that Produce standardize products could be ventrally planed, must meet local needs should be decentralized Market orientation also depends on the orientation of the countries where the company is active. If they are similar, a unified marketing strategy will be use. Otherwise, each country requires its own strategy. Manufacturing operations and technology. Customers, country conditions, and competition determine where resources should be allocated. Whether economies of scale could be exploited; whether low cost factors could be utilized; R & D intensive industries must balance their activities across borders when possible and advantageous and safe. R&D are usually centralized due to secrecy as well as need for specific knowledge and resources.

14. Internationalization and Globalization Measuring Internationalization and Globalization Objective measures: Corporate measures: Governance and responsibility: who are controlling to corporation Strategy and planning: of global corporations that Produce standardize products could be ventrally planed, must meet local needs should be decentralized Market orientation also depends on the orientation of the countries where the company is active. If they are similar, a unified marketing strategy will be use. Otherwise, each country requires its own strategy. Manufacturing operations and technology. Customers, country conditions, and competition determine where resources should be allocated. Whether economies of scale could be exploited; whether low cost factors could be utilized; R & D intensive industries must balance their activities across borders when possible and advantageous and safe. R&D are usually centralized due to secrecy as well as need for specific knowledge and resources. Organization and human resource management the challenge has been to train and retain managers with local market knowledge as well as with global understanding.

15. Advantages of Internationalization and Globalization Extension and expansion of market

16. Advantages of Internationalization and Globalization Extension and expansion of market Exploitation of resources overseas

17. Advantages of Internationalization and Globalization Extension and expansion of market Exploitation of resources overseas Taking advantage of economies of scale

18. Advantages of Internationalization and Globalization Extension and expansion of market Exploitation of resources overseas Taking advantage of economies of scale Acquiring economies of scope: building and using foreign market expertise in against their rivals

19. Disadvantages of Internationalization and Globalization Divert resources from dometic to international markets

20. Disadvantages of Internationalization and Globalization Divert resources from dometic to international markets Going overseas is a permanent learning process. You need to constantly adapt to new and changing environment

21. Internationalization, Globalization, and industry strategy High Pressures for global integration Low Low Pressures for local responsiveness High Global Integration Strategy Global/Local (cross border branding and supply chain) Internationalization Strategy Multinational Strategy (Export /Import)(localized marketing with supply chain)

22. Drivers of Corporate Internationalization and Globalization  Market Drivers  Cost Drivers  Competitive Drivers  Government Drivers  Globalization and Information Technologies

23. Drivers of Corporate Internationalization and Globalization  Market Drivers  Common customer needs: products and technology is transferred with its cultural baggage to other countries with similar needs. Some products such as Coca-Cola, McDonalds, KFC, etc. have been palatable to many cultures

24. Drivers of Corporate Internationalization and Globalization  Market Drivers  Common customer needs: Coca-Cola, McDonalds  Global channels: global channels have emerged with free trade as free trade enabled companies to distribute goods and provide services internationally. Carrefour, Toys R Us, Wal-Mart have developed global channels to distribute products.

25. Drivers of Corporate Internationalization and Globalization  Market Drivers  Common customer needs: Coca-Cola, McDonalds  Global channels: Carrefour, Toys R Us, Wal-Mart  Marketing Transfers and Global Branding: IBM, Toyota, Bic, Kodak have become household names throughout the world

26. Drivers of Corporate Internationalization and Globalization  Market Drivers  Common customer needs: Coca-Cola, McDonalds  Global channels: Carrefour, Toys R Us, Wal-Mart  Marketing Transfers and Global Branding: IBM, Toyota, Bic, Kodak  Lead Countries: Made in xxxx. Countries have developed a name for some products, e.g., Japan for consumer electronics, Switzerland for watches, USA for computer software, etc.

27. Drivers of Corporate Internationalization and Globalization  Cost Drivers  Economies of scale: expensive to set up production but they could service any market such as steel and microprocessors

28. Drivers of Corporate Internationalization and Globalization  Cost Drivers  Economies of scale: steel and microprocessors  Steep Experience Curves: knowledge and technology intensive sectors: aircraft

29. Drivers of Corporate Internationalization and Globalization  Cost Drivers  Economies of scale: steel and microprocessors  Steep Experience Curves: knowledge and technology intensive sectors: aircraft  Low Cost Production: low cost labor (textiles)

30. Drivers of Corporate Internationalization and Globalization  Cost Drivers  Economies of scale: steel and microprocessors  Steep Experience Curves: knowledge and technology intensive sectors: aircraft  Low Cost Production: textiles  Favorable Logistics: transportation costs important as we decide where to produce: lumber, non-specialty chemicals

31. Drivers of Corporate Internationalization and Globalization  Cost Drivers  Economies of scale: steel and microprocessors  Steep Experience Curves: knowledge and technology intensive sectors: aircraft  Low Cost Production: textiles  Favorable Logistics: transportation costs important) lumber, chemicals  New Product Development Costs: are rising due to short life of their products that require higher return on their investment (airlines, telecommunications, chips, pharmaceuticals )

32. Drivers of Corporate Internationalization and Globalization  Competitive Drivers Competing with imports and other global rivals have placed increasing pressures on both domestic and international companies to be competitive in national and international markets.

33. Drivers of Corporate Internationalization and Globalization  Government Drivers United Nations, and its agencies like the IMF, World Bank and WTO: free trade, privatization (but can retard also)

34. Drivers of Corporate Internationalization and Globalization  Globalization and Information Technologies Inter-firm linkagesInternational new product development has become more quicker Customer responsiveness has been reduced from 125 days to about 10 days due to supply chain Inter-organizational systems (IOS) connecting insurance, banks, customs, immigrations to minimize duplication Internet-based E- commerce Extranet: allowing outside parties limited access to the company’s information system IntranetGroupware technology allowing email, screen sharing, and other forms of global communications have allowed around the clock work on projects Organizational Memory System that allows access to past information and strategies and therefore enhances the ability of the decision-makers to do a better job

35. Preparing the Company for Internationalization & Globalization  Focusing the Organization: Corporate Competencies  Focusing the Organization: Supply Chain Restructuring  Developing Leadership and Management Capabilities  Globalizing the Corporate Culture

36. Preparing the Company for Globalization  Focusing the Organization  Corporate Competencies  – those activities that have proven international potential  – hard decisions must be made on activities that do not add value to the globalization move

37. World Business Analysis & Opinion: What do you think? 100+ year old essentially family-run Italian firm is an automobile producer (all types, from basic to luxury—half the company’s sales). It also produces trucks, agricultural tractors, construction equipment, trains, and is in chemicals, publishing and insurance. It needs to internationalize and globalize its operations. What should its first steps be? -

38. Preparing the Company for Globalization  Focusing the Organization  Supply Chain Restructuring  De-layer corporate hierarchies for quicker decisions  Rethink manufacturing systems to close unproductive plants and consolidate production  Reevaluate supplier relationships to focus on a few, well- positioned providers  Reassess distributor capabilities for the global arena

39. Preparing the Company for Globalization  Developing Competent Leadership and Management Capabilities  Global Leadership Characteristics  Unbridled Inquisitiveness : the desire to learn and the ability to enjoy the constant stimulation and challenges  Personal characteristics: The ability to connect socially and emotionally with wide varieties of individuals  Duality: senior management’s ability to balance global and local considerations in making  Savvy: Management leaders have instinctive recognitions of strategic tradeoffs

40. Preparing the Company for Globalization  Developing Leadership and Management Capabilities  Developing Global Leaders  International travel to see and learn other cultures  Global team experiences to see and learn the decision making process and social interaction at the local level with  Cross-cultural training  Overseas assignments

41. Preparing the Company for Globalization  Globalizing the Corporate Culture  What is Corporate Culture Authority structures Degree of organizational formality Information flows Tolerance for maverick behaviors Competitive or cooperative culture Decision- making apparatus Organizational focus Organizational structure Gender orientations

42. Preparing the Company for Globalization  Globalizing the Corporate Culture  Deciding on Corporate Cultures in Foreign Markets: no ‘right’ or wrong answers  Global Standardization of Corporate Cultures is the trend but caution is always required

43. Preparing the Company for Globalization  Globalizing the Corporate Culture  Adapting Corporate Cultures to National Culture Influences depends on:  Societal competitiveness: the amount of competition within societies—political, economic, social class systems  Shareholder-Stakeholder Orientations: the specific objectives or audiences corporate cultures oriented toward: spread of capitalism vs. local needs  National culture influences on corporate cultures

44. World Business Analysis & Opinion: What do you think? 8-2: How would you globalize a corporate culture? -

45. Preparing the Company for Globalization  National Culture Influences on Corporate Cultures  Power Distance: the extent to which strong social class distinctions are maintained at societal and corporate levels  Individualism/Collectivism: the degree to which individual or group actions are the bases for getting issues resolved  Masculine and Feminine Societies: the tolerance levels for aggressive behaviors and their gender orientations  Uncertainty Avoidance: the extent to which societal behaviors are risk-oriented or risk-averse  Long Versus Short Term Orientations: East-West contrasts

46. World Business Analysis & Opinion: What do you think? 8-3: A large US multinational operating in Malaysia noticed that US expatriates and local managers were not on the same cultural page. In particular: (i) Malaysian managers took fewer initiatives in front of their bosses; (ii) they often said ‘yes’ when they meant ‘no’; (iii) they were upset when a lower status US engineer openly disagreed with his boss in a meeting (iv) Malaysian managers copied everyone in their e-mails. Why do you think? -

47. Effects of Globalization  Industry Structure Effects  Organizational Structure Effects  Corporate Culture Effects  Relationships Among Strategies, Structures and Corporate Cultures

48. Effects of Globalization  Industry Structure Effects  At the national level, domestic firms must attain critical mass size to deal with foreign competitors  At the regional level, firms need to attain regional market coverage and scale economies to compete against other global producers  At the worldwide level, industry structures have been affected by a series of ‘mega-mergers’ between large international companies

49. Effects of Globalization  Organizational Structure Effects  International department  Worldwide functional structure  Worldwide product structure  Geographic structures

50. International Division Structure Headquarters Domestic Division International Division Regional Managers Latin AmericaEuropeAsia

51. Worldwide Functional Structure Headquarters Vice Presidents – Worldwide Responsibilities ManufacturingMarketingR & DFinanceHuman Resource Markets 1----n Products 1----n

52. Worldwide Product Structure Headquarters Product Division 1 Product Division 2 Product Division 3 Product Division ‘n’ Region 1Region 2Region ‘n’

53. Geographic Structure Headquarters Region 1Region 2Region 3Region ‘n’ etc. Country 1Country 2Country ‘n’ Product 1Product 2Product ‘n’

54. Effects of Globalization  Corporate Culture Adjustments  Ethnocentric corporate cultures emphasize home-market orientations in strategic decision making and attitudes: ‘made in’ advantages, alcohol, fashion, food  Polycentric operations involve complete host country orientations; competitive advantage based on responsiveness  Regiocentric cultures blend national subsidiaries within regions into cohesive strategy-making units; regional brands, supply chains  Geocentric corporate cultures are totally globally-oriented; no regard for individual national cultures

55. Effects of Globalization  Relationships Among Strategies, Structures, and Corporate Cultures  Causes of Change: marketplace change and new strategy; new structure (M & A, JVs); leadership changes  Relationships among international strategies, structures, and corporate cultures: ethnocentric and exporting; polycentric and consumer goods; regional, global products=regiocentric/geocentric

56. Financing International and Global Operations  Equity Options Using Outside Financing: availability of national stock exchanges; appear ‘local’  Equity Options Using Internal Financing: cross- holdings of shares among subsidiaries; good control; protection from takeovers  Debt Options Using External Financing: local financial institutions must be sound; low interest rates  Debt Options and Internal Financing: borrowing from HQ/subsidiaries; can adjust interest rates according to subsidiary/market needs

57. Key Points  Defining internationalization  Defining globalization  Measuring them?  Globalization drivers  Preparing for globalization  Globalizing corporate cultures  Effects of globalization on industries, organizations, corporate cultures  Financing foreign operations

58. Key Points  Internationalization occurs as firms extend products and services into foreign markets.  As companies globalize, they must balance pressures to globally integrate their operations with pressures to localize output.  Globalization can be measured objectively through foreign percentages of assets, sales, and employment.

59. Key Points  Globalization drivers can be based on market, cost, competitor, or government factors.  Companies prepare for globalization by assessing corporate competencies, supply chains, leadership capabilities, and corporate cultures.

60. Key Points  Globalizing corporate cultures involves defining and critically examining organizational relationships, communication patterns, and employee behaviors.  Effects of globalization must be assessed for industry structure, organizational structure, and corporate culture  International firms have a number of options in financing their internationalization and globalization efforts.