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Transcript of 10 CHAPTER Global Strategy: Competing Around the World McGraw-Hill/Irwin Copyright © 2013 by The...
10CHAPTER
Global Strategy: Competing Around the
World
McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
2–2
2–2
Part 2 Strategy Formulation
LO 10-1 Define globalization, multinational enterprise (MNE), foreign direct investment
(FDI), and global strategy.
LO 10-2 Explain why companies compete abroad and evaluate advantages and disadvantages.
LO 10-3 Explain which countries MNEs target for FDI, and how they enter foreign markets.
LO 10-4 Describe the characteristics of and critically evaluate the four different strategies MNEs can pursue when competing globally.
LO 10-5 Explain why certain industries are more competitive in specific nations than in others.
LO 10-6 Evaluate the relationship between location in a regional cluster and firm-level competitive advantage. 10–3
Chapter Case 10 Chapter Case 10 Hollywood Goes Global
• Hollywood movie: The quintessential American product However, non-US sales increased: 50% in 2000,
and 70% in 2010
Altered global strategic focus Movies that fit the global market by adapting foreign scripts, hiring
international actors/actresses…etc.
• Treat emerging markets as focal targets Not just filmmaking industries, but also the electronics industry
(example: Korea, China), and auto industry (example: India)
Key questions: How can a company compete effectively in a global market place?
10–4
What Is Globalization?
• Globalization is a process of closer integration and exchange between different countries and peoples worldwide.
• Made possible by:
Falling trade and investment barriers
Advanced telecommunications
Reduced transportation costs
Importance of MNEs and FDIs
10–5
What Is Globalization?
• Multinational Enterprise (MNE) Deploys resources and capabilities in the
procurement, production, and distribution in at least two countries Less than 1% of firms, BUT employ 19% of U.S. workforce
– 74% of private sector R&D spending
• Foreign Direct Investment (FDI) Investments in value chain activities abroad
• Global Strategy To sustain a competitive advantage Competing against foreign and domestic companies
around the world 10–6
Why Global?
• Gain access to a larger market Capitalize on market potential, such as China, India, and
emerging economies
• Gain access to low-cost input factors Labor, natural resources, technology, logistics
• Managing corporate risk
• Leverage core competencies
• Develop new competencies Location economies Unique locational advantages
10–7
1–8
STRATEGY HIGHLIGHT 10.1STRATEGY HIGHLIGHT 10.1 Stages of Globalization
• Globalization 1.0: 1900–1941
Only sales and distribution took place overseas
• Globalization 2.0: 1945–2000
Duplicating business functions overseas
• Globalization 3.0: 21st century
MNEs become global collaboration networks
(see Exhibit 10.2)
EXHIBIT 10.2 Globalization 3.0 - Collaboration Networks
10–9
EXHIBIT 10.3 International Sales as % of Total
Data from 201010–10
1–11
STRATEGY HIGHLIGHT 10.2STRATEGY HIGHLIGHT 10.2 Does GM’s Future Reside in China?
• Market opportunity in China
1.4 billion population, only 1 in 100 people owns a vehicle
• GM entered China in 1997
Joint venture with Shanghai Automotive Industrial Corp
China is 25% of GM’s revenues and GROWING fast
GM China factories are more productive than U.S. plants
• GM’s future relies on China and other emerging economies
$ 250 million on a state-of-the-art R&D center…in Shanghai
Future of GM likely decided in their international HQ…in Shanghai
10–11
Disadvantages of Expanding Internationally
• Liability of foreignness
Additional cost of doing business in an unfamiliar cultural and economic environment
Cost of coordinating across geographic distance
Economic development may increase the cost of doing business
Rising wages with improved living standards
Difficulty in protecting intellectual property
10–12
LO 10-1 Define globalization, multinational enterprise (MNE), foreign direct investment (FDI), and global strategy.
LO 10-2 Explain why companies compete abroad and evaluate advantages and disadvantages.
LO 10-3 Explain which countries MNEs target for FDI, and how they enter foreign markets.
LO 10-4 Describe characteristics of and critically evaluate four different strategies MNEs pursue when competing
globally.
LO 10-5 Explain why certain industries are more competitive in specific nations than in others.
LO 10-6 Evaluate the relationship between location in a regional cluster and firm-level competitive advantage.
10–13
Global Expansion: Where
• How does an MNE decide where to go?
National institutions: Well-established legal and ethical pillars as well as
well- functioning economic institutions such as capital markets, banks, and infrastructures
National culture: "Programming of the mind"
Geert Hofstede’s Cultural Dimensions
1. Power distance
2. Individualism
3. Masculinity/femininity
4. Uncertainty-avoidance
5. Long-term orientation
10–14
EXHIBIT 10.4 Corporate Tax Rates
Institutional Difference Matters
10–15
Global Expansion: How
• Exporting: producing goods in one country to sell in another country
• Acquisition, strategic alliance are also popular vehicles for entry into foreign markets
• MNEs sometime prefers greenfield operations or wholly-owned subsidiaries
Greenfield is building new factories/offices from scratch Physically and organizationally building from the "ground up."
10–16
EXHIBIT 10.5 Modes of Foreign Market Entry
Market Entry along the Investment and Control Continuum
10–17
7-31Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.
Entry Modes of International ExpansionE
xte
nt o
f In
vest
men
t R
isk
High
LowLow High
Degree of Ownership and ControlAdapted from Exhibit 7.7 Entry Modes for International Expansion
Exporting
Licensing
Franchising
Strategic Alliance
Joint Venture
Wholly OwnedSubsidiary
Strategy around the World: Cost Reduction vs. Local
Responsiveness• Local responsiveness:
Tailor product and service offerings to fit local consumer preferences and host-country requirements
Higher cost Example: McDonald’s uses mutton in India
•Cost reduction:
MNEs enter global marketplace with the intention to reduce operation cost
Example: Toyota Prius
10–19
EXHIBIT 10.6 The Integration-Responsiveness Framework
Four Global Strategies
• International strategy Leveraging home-based core competencies Selling the same products or services in both domestic
and foreign markets Example: Selling Starbucks coffee internationally
• Localization (product differentiation) strategy Maximize local responsiveness via a
multi-domestic strategy Consumers will perceive them to be domestic
companies Example: Nestlé’s customized product offerings in
international markets
10–21
Four Global Strategies
• Global standardization (cost leadership) strategy Economies of scale and location economies Pursuing a global division of labor based on best-of-class
capabilities reside at the lowest cost Example: Lenovo’s R&D in Beijing, Shanghai, and Raleigh;
production center in Mexico, India, and China
• Transnational strategy Combination of localization strategy (high responsiveness)
with global standardization strategy (lowest cost position attainable)
Example: German multimedia conglomerate Bertelsmann
: Caterpillar’s earth-moving equipment
EXHIBIT 10.7Characteristics, Benefits, and Risks
of Four Types of Global Strategy
Characteristics Benefits Risk • Often the first step in • Leveraging core • No or limited local internationalizing. competence. responsiveness. • Used by MNEs with relatively large • Economies of scale. • Highly affected domestic markets (e.g., MNEs from • Low-cost implementation by exchange rate U.S., Germany, Japan). through: fluctuations.
International • Well-suited for high-end products • Exporting or licensing • IP embedded in product
Strategy (such as machine tools) and luxury (for products) or service could be goods that can be shipped across • Franchising (for services) expropriated. the globe. • Licensing (for trademarks) • Products and services tend to have strong brands. • Main competitive strategy tends to be differentiation since exporting, licensing, and franchising add additional costs. • Used by MNEs to compete in • Highest-possible local • Duplication of key host countries with large and/or responsiveness. business functions lucrative but idiosyncratic domestic • Reduced exchange-rate in multiple countries
Localization markets (e.g., Germany, Japan, exposure. leads to high cost of
(Multidomestic) Saudi Arabia). implementation.
Strategy • Often used in consumer products • Little or no economies of and food industries. scale. • Main competitive strategy is • Little or no learning across differentiation. different regions. • MNE wants to be perceived as local • Higher risk of IP company. Expropriation. 10–23
EXHIBIT 10.7Characteristics, Benefits, and Risks of Four Types of Global
Strategy Characteristics Benefits Risk
Global- • Used by MNEs that are offering • Location economies: • No local responsiveness.
Standardization standardized products and services global division of labor • Little or no product
Strategy (e.g., computer hardware or based on wherever best-of- differentiation.
business process outsourcing). class capabilities • Some exchange-rate
• Main competitive strategy is price. reside at lowest cost. exposure.
• Economies of scale. • “Race to the bottom” as
wages increase.
• Some risk of IP
expropriation.
Transnational • Used by MNEs that pursue an • Attempts to combine • Global matrix structure
(Glocalization) integration strategy at the business benefits of localization and is costly and difficult to
Strategy level by simultaneously focusing on standardization strategies implement, leading to high
product differentiation and low cost. simultaneously by creating failure rate.
• Mantra: Think globally, act locally. a global matrix structure. • Some exchange-rate
• Economies of scale, exposure.
location, and learning. • Higher risk of IP expropriation.
1–25
STRATEGY HIGHLIGHT 10.3STRATEGY HIGHLIGHT 10.3Wal-mart Retreats
from Germany
• Wal-mart entered Germany Acquisition of 21 stores and 74 hypermarkets
• Wal-mart duplicated its U.S. policies and applied them in Germany Employees refused to accept those policies
• Wal-mart faced significant cultural differences
• Wal-mart could not develop efficient economies of scale and distribution centers to drive cost down
• The result is a defeated Wal-mart that sold its stores to Metro, Wal-mart’s key rival in Germany
• ALDI, another of Wal-mart’s competitors in Germany, is now expanding aggressively in the U.S.
LO 10-1 Define globalization, multinational enterprise (MNE), foreign direct investment (FDI), and global strategy.
LO 10-2 Explain why companies compete abroad and evaluate advantages and disadvantages.
LO 10-3 Explain which countries MNEs target for FDI, and how they enter foreign markets.
LO 10-4 Describe the characteristics of and critically evaluate the four different strategies MNEs can pursue when
competing globally.
LO 10-5 Explain why certain industries are more competitive in specific nations than in others.
LO 10-6 Evaluate the relationship between location in a regional cluster and firm-level competitive advantage.
10–26
National Competitive Advantage
• Death-of-distance hypothesis Geographic location alone should not lead to firm-level
competitive advantage because firms are now more able to source inputs globally (ex: capital, commodities, etc.) Labor markets also have become more global.
Computer manufacturers – China & Taiwan Consumer electronics – Japan & South Korea Mining companies – Australia
• Why are certain industries in some countries more competitive than in others? Answer: National Competitive Advantage
10–27
EXHIBIT 10.8Porter’s Diamond Model of National
Competitive Advantage
Porter American Future Video 10–28
National Competitive Advantage Framework
• Factor conditions A nation’s endowments in terms of national, human, and other resources
as well as supportive infrastructure and institutions.
• Demand conditions Specific characteristics of demand in a firm’s domestic market
• Competitive intensity Highly competitive environments tend to stimulate
firms to outperform others (e.g., German car industry)
• Related and supporting industry Leadership in related and supporting industries can also foster world-
class competitors in downstream industry
Complementarity
10–29
Regional Clusters
• Regional clusterA group of interconnected companies and
institutions in a specific industry, located near each other geographically and linked by common characteristics
Knowledge spillover
Positive externalities that are regionally constrained
Exchange of ideas among firms in a cluster
10–30
EXHIBIT 10.9 Mapping a Regional Cluster: Research Triangle
10–31
OmahaTelemarketingHotel ReservationsCredit Card Processing
Wisconsin / Iowa / IllinoisAgricultural Equipment
DetroitAuto Equipmentand Parts
RochesterImaging Equipment
Western MassachusettsPolymers
BostonMutual FundsMedical DevicesMgmt. ConsultingBiotechnologySoftware and NetworkingVenture CapitalHartfordInsurance
ProvidenceJewelryMarine Equipment
New York CityFinancial ServicesAdvertisingPublishingMultimedia
Pennsylvania / New JerseyPharmaceuticals
North CarolinaHousehold FurnitureSynthetic FibersHosiery
Dalton, GeorgiaCarpets
South FloridaHealth Technology Computers
Nashville / LouisvilleHospital Management
Baton Rouge / New OrleansSpecialty Foods
Southeast Texas / LouisianaChemicals
DallasReal Estate Development
WichitaLight AircraftFarm Equipment
Los Angeles AreaDefense AerospaceEntertainment
Silicon ValleyMicroelectronicsBiotechnologyVenture Capital
Cleveland / LouisvillePaints & Coatings
PittsburghAdvanced MaterialsEnergy
West MichiganOffice and Institutional Furniture
MichiganClocks
San DiegoGolf EquipmentBiotech/Pharma
MinneapolisCardio-vascularEquipmentand Services
Warsaw, IndianaOrthopedic Devices
ColoradoComputer Integrated Systems / ProgrammingEngineering ServicesMining / Oil and Gas Exploration
Las VegasAmusement / CasinosSmall Airlines
OregonElectrical Measuring EquipmentWoodworking EquipmentLogging / Lumber Supplies
SeattleAircraft Equipment and DesignSoftwareCoffee Retailers
BoiseInformation TechFarm Machinery
Geographical Distribution of Clusters
Source: Adapted from Professor Michael E. Porter, Harvard Business School10–32