© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 1 Session 7 The Global Environment.
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Transcript of © 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 1 Session 7 The Global Environment.
© 2000 The McGraw-Hill Companies, Inc.
Irwin/McGraw-Hill
1
Session 7Session 7
The Global Environment
© 2000 The McGraw-Hill Companies, Inc.
Irwin/McGraw-Hill
2
Learning ObjectivesLearning Objectives
1. Why firms globalize
2. Identify Major Multi-National Market Groups
3. Recognize the typical evolutionary development from domestic to a global corporation
4. The complexities of the global environment
5. The globalization strategies for firms in foreign markets
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Globalization DefinedGlobalization Defined
Globalization refers to the strategy of approaching worldwide markets with standardized products
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Why Globalize?Why Globalize?
Competitive Disadvantage
If you are not global in your reach and your rivals are…
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Increasing Profitability Through Global Increasing Profitability Through Global ExpansionExpansion Location economies
Economic benefits from performing a value creation activity in the optimal location
EffectsCan lower costsCan enable differentiation – superior crafsmanship
CaveatsTransportation costs and trade barriersPolitical and economic risks
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Increasing Profitability Through Global Increasing Profitability Through Global Expansion (cont’d)Expansion (cont’d) The experience curve
Serving a global market from one or a few plants is consistent with moving down the experience curve and establishing a low-cost position
Transferring distinctive competencies Companies with distinctive competencies can realize
large returns by expanding to global markets where competitors lack similar competencies and products
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Why Firms Globalize: Best Defense is a Why Firms Globalize: Best Defense is a good offensive globalization strategygood offensive globalization strategy
Direct penetration of foreign markets can drain vital cash flows from a foreign competitor’s domestic operations
The resulting lost opportunities, reduced income, and limited production can impair the competitor’s ability to invade U.S. markets
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Conditions are RipeningConditions are Ripening
Firms are able to globalize more easily and rapidly due to
Fall of centrally planned economies in China, Russia/Eastern European companies – more free market based.
The emergence of trade alliances: EEU, Nafta…
Rapid Industrialization in Developing Nations
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Dominant Multinational Market GroupsDominant Multinational Market Groups
The G-8 NationsNAFTA – (soon to be AFTA?)Pacific Rim /AsiaEEC, European Union, Common Market
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These meetings of the leaders of the United States, Britain, Italy, Japan, France,
Germany, Russia, and Canada are the way the powerful industrialized nations of the
world seek to work out differences between themselves and arrive at policies that can
reduce conflict and other problems elsewhere.
THE GROUP OF 8 NATIONS
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The European Economic CommunityThe European Economic Community
Austria, Belgium, Bulgaria,Cyprus (Greek part)
Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, United Kingdom of Great Britain and Northern Ireland
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1. Export-import activity
2. Foreign licensing and technology transfer
3. Direct investment in overseas operations (manufacturing plants and global management skills)
4. Substantial increase in foreign investment (foreign assets comprise significant portion of total assets)
Evolution of a global firm entails
progressively involved strategy
levels
Evolutionary Development of a Global Evolutionary Development of a Global CorporationCorporation
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Differences Between Factors: Environmental Factors Differences Between Factors: Environmental Factors
U.S. Operations International Operations
Language English used almost universally Use of local language required in many situations
Culture Relatively homogenous Quite diverse, both between countries and within countries
Politics Stable and relatively unimportant Often volatile and of decisive importance
Economy Relatively uniform Wide variations among countries and among regions within countries
Government interference
Minimal and reasonably predictable Extensive and subject to rapid change
Labor Skilled labor availableSkilled labor scarce, requiring training or redesign of production methods
Financing Well-developed financial markets Poorly developed markets; capital flows subject to government control
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Differences Between Factors: Control ProblemsDifferences Between Factors: Control Problems
U.S. Operations International Operations
Media research
Data easy to collect Data difficult and expensive to collect
Advertising Many media available; few restrictions
Media limited; many restrictions; low literacy rates may rule out print media
Money U.S. dollar used universallyDifferent currencies; problems created by changing exchange rates and government restrictions
Transportation/Communication Among the best in the world Often inadequate
Control Always a problem, but centralized control will work
A worse problem - centralized control won’t work
Contracts Once signed, are binding on both parties even if one makes a bad deal
Can be avoided and renegotiated if one party becomes dissatisfied
Labor relations
Collective bargaining; layoff of workers easy
Layoffs often not possible; may have mandatory worker participation; change sought via political process
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Comparative Management FrameworkComparative Management Framework
Compare and Contrast the Management Models, Practices, Principles, Strategies, Policies…Across Classes of Organizations
Could be Profit vs Not-For-Profit, Small vs Large , Private vs Public
Most Often Concerned with Comparative Analysis Among Different Regions of World
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Globalization Strategy Options: Two Key Globalization Strategy Options: Two Key ConsiderationsConsiderations
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Pressures for Cost ReductionsPressures for Cost Reductions
When companies produce commodity products Where differentiation on nonprice factors is difficult
and price is the main competitive weapon Where competitors are based in low-cost locations Where there is persistent excess capacity Where consumers are powerful and face low switching
costs The liberalization of the world trade and investment
environment
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Pressures for Local ResponsivenessPressures for Local Responsiveness
Differences in customer tastes and preferences Differences in infrastructure and traditional
practices Differences in distribution channels Host government demands
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Four Basic StrategiesFour Basic Strategies
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Choosing a Global StrategyChoosing a Global Strategy
International strategy Creating value by transferring competencies and
products to foreign markets where indigenous competitors lack those competencies and products
Makes sense if a company has a valuable competence that indigenous competitors in foreign markets lack and if it faces weak pressure for local responsiveness and cost reductions
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Choosing a Global Strategy (cont’d)Choosing a Global Strategy (cont’d)
Multidomestic strategy Developing a business model that allows a company
to achieve maximum local responsiveness Makes sense when there are high pressures for local
responsiveness and low pressures for cost reductions Companies may become too decentralized and lose
the ability to transfer skills and products
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Choosing a Global Strategy (cont’d)Choosing a Global Strategy (cont’d)
Global strategy Focusing on increasing profitability by reaping cost
reductions that come from experience curve effects and location economies; pursuing a low-cost strategy on a global scale
Makes sense when there are strong pressures for cost reductions and demand for local responsiveness is minimal
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True Global StrategyTrue Global Strategy
The strategy of
approaching worldwide
markets with
standardized products.
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Choosing a Global Strategy (cont’d)Choosing a Global Strategy (cont’d)
Transnational strategy (Most Common)Simultaneously seeking to lower costs, be
locally responsive, and transfer competencies in a way consistent with global learning
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Cost Pressures and Pressures for Local Cost Pressures and Pressures for Local Responsiveness Facing CaterpillarResponsiveness Facing Caterpillar
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Advantages and Disadvantages of Different Advantages and Disadvantages of Different Strategies for Competing GloballyStrategies for Competing Globally
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Multidomestic and Global IndustriesMultidomestic and Global Industries
A global industry is one in which competition crosses national borders (tires, athletic shoes)
A global industry is one in which competition crosses national borders (tires, athletic shoes)
A multidomestic industry competition is essentially
segmented from country to country (beer, food retailing)
A multidomestic industry competition is essentially
segmented from country to country (beer, food retailing)
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Strategic Management in Global IndustriesStrategic Management in Global Industries28
The World as One Battleground
More interconnected/similar than ever before
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Globalization of the Company MissionGlobalization of the Company Mission
Different environmental opportunities, constraints, and risks confront a firm going global
Top management must reassess firm’s fundamental purpose, philosophy, and strategic intentions
Mission statement must be revised to accommodate changes in Strategic decision making Corporate direction Strategic alternatives Strategic capabilities