Strategy in Global Environment

8/12/2019 Strategy in Global Environment

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1Strategy in the Global Environment


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International expansion represents a way of earning

offerings derived from distinctive competencies tomarkets where indigenous competitors lack these skills.

Thetrendtowardglobalizationhasmanyimplications:

1. Industriesare

becoming

global

in

scope

:

Industry.

2. Shiftfromnationaltoglobalmarkets:This hasintensifiedcom etitioninindustr afterindustr .

3. Steadydeclineinbarrierstocrossbordertradeandinvestment:Thishasopenedupmanyonceprotectedmarketstocompaniesbasedoutsideofthem.



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IncreasingProfitabilityandProfitGrowth

ThroughGlobalExpansion Expandingthemarketbyleveragingproducts

Takinggoodsorservicesdevelopedathomeandsellingtheminternationally

Utilizingthedistinctivecompetenciesthatunderlietheproductionandmarketing

Costeconomiesfromglobalvolume

Economiesof

scale

from

additional

sales

volume

Locationeconomies Economicbenefitsfrom erformin avaluecreationactivit intheo timal

location

Leveragingtheskillsofglobalsubsidiaries

Applyingtheseskillstootheroperationswithinfirmsglobalnetwork

Mustalsoconsidertransportationcosts,tradebarriers,as

wellas

the

political

and

economic

risks. 3Strategy in the Global Environment


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PressuresforCostReductionsand

LocalResponsiveness

Thebeststrategyfora

dependonthekindsofpressuresitmustcopewith:

CostReductions

or

LocalResponsiveness



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Pressures for cost reductions are greatest in-

where price is the main competit ive weapon:

.

Wherecompetitorsarebasedinlowcostlocation.

switchingcosts.

.

Theliberalizationoftheworldtradeandinvestment

.



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The greatest pressures for local responsiveness

Differencesincustomertastesandpreferences.

ar se rom:

Differencesininfrastructureandtraditionalpractices.

channels.

Hostgovernmentdemands.

Dealingwith

these

contradictory

pressures

is

adifficult

strategicchallenge,primarilybecausebeinglocallyresponsivetendstoraisecosts.



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StandardGlobalizationStrate

Reapingthecostreductionsthatcomefromeconomiesofscaleandlocationeconomies. Businessmodelbasedon ursuin alowcoststrate ona lobal

scale.

Makesthemostsensewhentherearestrongpressuresforcostreduction

andthe

demand

for

local

responsiveness

is

minimal.

LocalizationStrategy Customizingthecompanysgoodsorservicessothatthyprovidea

Mostappropriatewhentherearesubstantialdifferencesacrossnationswithregardtoconsumertastesandpreferencesandwherecostpressuresarenottoointense.



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TransnationalStrategy Difficulttopursueduetoitsconflictingdemands. Businessmodelthatsimultaneously:

Achieveslowcosts Differentiatesacrossmarkets. Fostersaflowofskillsbetweensubsidiaries.

Buildinganorganizationcapableofsupportingatransnationalstrategyisa

complexand

challenging

task.

InternationalStrategy

(minimalneed

to

differentiate)

and

do

not

face

significant

competitors

(lowcostpressure).

Inmostinternationalcompaniestheheadofficeretainstightcontrolovermarketingandproductstrategy.



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1. Whichoverseasmarketstoenter u

Afunction

of

the

size

of

the

market,

purchasing

power

of

consumers,

the

likelyfuturepurchasingpowerofconsumers.

Balancin thebenefits,costs,andrisksassociatewithdoin businessinacountry

Afunctionofeconomicdevelopmentandpoliticalstability.

2. Timingof

entry

Firstmoveradvantages:preemptandbuildshare Firstmoverdisadvantages:pioneeringcosts

.

Enteringonalargescaleisa majorstrategiccommitment Withlongtermimpactsthatmaybedifficulttoreverse.



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When and how to enter a new national market raise the

uestion of how to determine the best mode or vehicle for

1. Exporting

Mostmanufacturingcompaniesbegintheirglobalexpansionasexportersandlater

entry. The optimal one depends on the companys strategy:

w oo o o o .

2. Licensing

Aforeign

licensee

buys

the

rights

to

produce

acompanys

product

for

anegotiated

fee;

licensee

puts

up

most

of

the

overseas

capital.

3. FranchisingFranchisingisaspecializedformoflicensing. Thefranchisernotonlysells

intangibleproperty,butalsoinsiststhatfranchiseeagreestofollowstrictrulesastohowitdoesbusiness.

4. JointVentures

Typicallya50/50venture afavoredmodeforenteringanewmarket.

5. WhollyOwnedSubsidiariesParentcompanyowns100%ofsubsidiarysstock setuporacquire.



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AdvantagesandDisadvantages of

DifferentEntry

Modes



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DistinctiveCompetenciesandEntryMode

products,

the

optimal

mode

of

entry

depends

on

the

nature

of

the

companys

distinctive

competency:

Technologicalknowhow

Whollyownedsubsidiaryispreferredoverlicensingandjointventurestominimizeriskoflosingcontrol.

Management

know

how

, ,managementknowhow.

PressuresforCostReductionandEntryModeThegreaterthecostpressure,themorelikelyacompanywillwanttopursuesome

combinationof

exporting

and

wholly

owned

subsidiary:

Exportfinishedgoodsfromwhollyownedsubsidiary

Marketingsubsidiariesforoverseeingdistribution

g tcontro over oca operat onsa owscompanytousepro tsgenerate nonemarkettoimprovepositioninothermarkets.



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Global Strategic Alliances are cooperative agreements between

competitors. They range from short-term contractual cooperativearrangements to formal joint ventures with equity participation.

Facilitateentryintoaforeignmarket Sharefixedcostsandassociatedrisks Brin to ethercom lementar skillsandassets

Settechnologicalstandardsforitsindustry

Disadvantages

access

Somealliancesbenefitthecompany.,

accesswithverylittlegainedinreturn.13Strategy in the Global Environment


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The failure rate for international strategic all iances is quitehi h. Success seems to be a function of three main factors:

1. Partner selectionA good partner: Helps the company achieve strategic goals Is unlikely to try to exploit the alliance to its own ends Conduct research on potential partners

. Risk of giving too much away is at an acceptable level Guard against opportunism by partner in alliance agreement

. Sensit ivity to cultural differences Build relationship capital through interpersonal relationships

ratherthanpurelyasacostorrisksharingdevice.



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StructuringAlliancestoReduce

OpportunismOpportunism includes

e expropr a on o

technology or markets


Strategy in Global Environment

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