Post on 16-Dec-2015
transcript
The Global Environment
Chapter 5
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Learning Objectives1. The importance of a company’s decision to globalize2. The four main strategic orientations of global firms3. The complexity of the global environment and the
control problems that are faced by global firms4. Major issues in global strategic planning, including the
differences for multinational and global firms5. The market requirements and product characteristics
in global competition6. The competitive strategies for firms in foreign markets
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Globalization• Globalization refers to the strategy of
pursuing opportunities anywhere in the world that enable a firm to optimize its business functions in the countries in which it operates.
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Globalization (contd.)
• Awareness of the strategic opportunities faced by global corporations and of the threats posed to them is important to planners in almost every domestic U.S. industry
• Understanding the nuances of competing in global markets is rapidly becoming a required competence of strategic managers
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Development of a Global Corporation
Four Levels1. Level 1 – export/import activity has minimal effect
on the existing management orientation or on existing product lines
2. Level 2 – foreign licensing and technology transfer requires little change in management or operation
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Development of a Global Corporation (contd.)
3. Level 3 – direct investment in overseas operations –is characterized by large capital outlays and the development of global management skills
4. Level 4 – substantial increase in foreign investment – the firm begins to emerge as a global enterprise with foreign assets comprising a significant portion of total assets
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Why Firms Globalize?
•U.S. firms can reap benefits from industries and technologies developed abroad.•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.
Question: Should firms be proactive or reactive?
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Reasons for Going Global
PROACTIVE• Additional resources• Lowered costs• Incentives• New, expanded markets• Exploitation of firm-specific advantages• Taxes• Economies of scale• Synergy• Power and prestige• Protect home market
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Reasons for Going Global (contd.)
REACTIVE• Trade barriers• International customers• International competition• Regulations• Chance
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4 Strategic Orientations of Global Firms
• Ethnocentric orientation • When the values and priorities of the parent
organization guide the strategic decision making of all its international operations
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4 Strategic Orientations of Global Firms (contd.)
• Polycentric orientation• When the culture of the country in which the
strategy is to be implemented is allowed to dominate a company’s international decision making process
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4 Strategic Orientations of Global Firms (contd.)
• Regiocentric orientation• When a parent company blends its own
predisposition with those of its international units to develop region-sensitive strategies.
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4 Strategic Orientations of Global Firms (contd.)
• Geocentric orientation• When an international firm adopts a systems
approach to strategic decision making that emphasizes global integration.
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At the Start of Globalization• External and internal assessments are conducted
before a firm enters global markets• External assessment involves careful examination
of critical features of the global environment• Internal assessment involves identification of the
basic strengths of a firm’s operations
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Complexity of the Global Environment
• Five factors affecting the increasing complexity of global strategic planning: Multiple political, economic, legal, social, and
cultural environments as well as various rates of change
Interactions between the national and foreign environments are complex
Geographic separation, cultural and national differences, and variations in business practices all tend to make communication and control efforts difficult
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Complexity of the Global Environment (contd.)
Globals face extreme competition Globals are restricted in their selection of
competitive strategies by various regional blocs and economic integrations
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Control Problems of the Global Firm
• Financial policies typically are designed to further the goals of the parent company and pay minimal attention to the goals of the host countries
• Different financial environments make normal standards of company behavior more problematic
• Important differences in measurement and control systems often exist
• These problems can be reduced through more attention to strategic planning
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Global Strategic Planning:Stakeholder Activism
• Demands placed on a global firm by the stakeholders in the environments in which it operates, principally by foreign governments.
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Global Strategic Planning• Increasingly complex decisions• Multidomestic vs. Global industries– A multidomestic industry is one in which competition is
essentially segmented from country to country– In a multidomestic industry, a global corporation’s
subsidiaries should be managed as distinct entities – A global industry is one in which competition crosses
national borders
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Multidomestic Industry• Factors that increase the degree to which an
industry is multidomestic include: The need for customized products to meet the tastes or
preferences of local customers Fragmentation of the industry, with many competitors in
each national market A lack of economies of scale in the functional activities of
firms in the industry Distribution channels unique to each country A low technological dependence of subsidiaries on R&D
provided by the global firm
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Global Strategic Planning (contd.)
Reasons why strategic planning must be global:•The increased scope of the global management
task•The increased globalization of firms•The information explosion•The increase in global competition•The rapid development of technology• Strategic management planning breeds
managerial confidence 21
Global Industry• Factors that make for the creation of a global industry:– Economies of scale in the functional activities of firms in
the industry– A high level of R&D expenditures on products that
require more than one market to recover development costs
– The presence in the industry of predominantly global firms that expect consistency of products and services across markets
– The presence of homogeneous product needs across markets, which reduces the requirement of customizing the product for each market
– The presence of a small group of global competitors– A low level of trade regulation and of regulation
regarding foreign direction investment 22
Competitive Strategies for Firms in Foreign Markets
• Strategies for firms that are attempting to move toward globalization can be categorized by the degree of complexity of each foreign market being considered and by the diversity in a company’s product line
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Competitive Strategies for Firms in Foreign Markets (contd.)
• Complexity refers to the number of critical success factors that are required to prosper in a given competitive arena When a firm must consider many such factors, the
requirements of success increase in complexity
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Competitive Strategies for Firms in Foreign Markets (contd.)
• Diversity, the second variable, refers to the breadth of a firm’s business lines When a company offers many product lines,
diversity is high
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Ex. 5.8 Escalating Commitments to International Markets
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Competitive Strategies for Firms in Foreign Markets
Niche Market Exporting The primary niche market approach for the
company that wants to export is to modify select product performance or measurement characteristics to meet special foreign demands
Licensing and Contract Manufacturing Licensing involves the transfer of industrial
property right from the home market (e.g., the U.S.)
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Competitive Strategies for Firms in Foreign Markets (contd.)
Franchising Franchising is a special form of licensing which allows the
franchisee to sell a highly publicized product or service, using the parent’s brand name or trademark, carefully developed procedures, and marketing strategies
Joint Ventures JVs begin with a mutually agreeable pooling of capital, etc.
Consequently, they offer more permanent cooperative relationships than export or contract manufacturing.
Wholly Owned Subsidiary This involves making the highest investment commitment to the
foreign market. These can be started either from scratch or by acquiring established firms in the host country.
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Key Terms
• Ethnocentric orientation
• Geocentric orientation• Global industry• Globalization
• Multidomestic industry• Polycentric orientation• Regiocentric orientation• Stakeholder activism
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