© 2012 south-western, a part of cengage learning strategy in the global environment chapter 6...
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© 2012 South-Western, a part of Cengage Learning
Strategy in the Global Environment
Chapter 6
Essentials of Strategic Management, 3/eCharles W.L. Hill | Gareth R. Jones
© 2012 South-Western, a part of Cengage Learning
The Global Environment
Managers need to consider:– How globalization is impacting the
environment in which their company competes
– What strategies they should adopt to exploit opportunities
– How to counter competitive threats
© 2012 South-Western, a part of Cengage Learning
The Global Environment
Industry boundaries do not stop at national borders
The shift to global markets has intensified competitive rivalry in industries
Global markets created enormous opportunities
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Increasing Profitability Through Globalization The success of many multinational
companies is based not just on the goods and services they sell, but upon the distinctive competencies that underlie their production and marketing
Globalization increases profits by:– Expanding the market– Realizing economies of scale– Realizing location economies– Leveraging the skills of global subsidiaries
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Competitive Pressures
Two main pressures: Pressure for cost reduction Pressure to be locally responsive
These pressures place conflicting demands on a company
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Cost Reductions
Cost reductions are common in:– Industries where price is the main competitive
weapon– Industries with universal need products– Universal Need: When consumer preference
is similar or identical in different nations Companies may achieve cost reduction by
basing production in a low-cost location or by offering a standardized product.
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Local Responsiveness Pressures
These arise from differences in:– Consumer taste and preferences– Infrastructure or traditional practices– Distribution channels– Host government demands
The more that customer preferences vary, the more local responsiveness is required
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Choosing a Strategy
Basic four strategies: Global Standardization Strategy Localization Strategy Transnational Strategy International Strategy
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Global Standardization Strategy
Focuses on increasing profitability by pursuing a low-cost strategy on a global scale
Works best if there is:– Strong pressure for cost reduction– Low pressure for local responsiveness
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Localization Strategy
Customizes goods or services to provide a good match to tastes and preferences in different national markets
Works best if there is:– Low cost pressure– Varied taste and preferences by nation
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Transnational Strategy
Attempts to achieve low-cost, differentiated products across markets and to foster a flow of skills between different subsidiaries
Works best if there is simultaneous :– High cost pressures– High local responsiveness pressures
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International Strategy
Centralizes product development, but manufactures and markets globally
Works best if there is:– Low cost pressure– Low pressure for local responsiveness– A universal need product– No significant competitors
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Choices of Entry Mode
Exporting– Many companies begin global expansion
through exporting production– Exporting allows companies to bypass the
cost of establishing manufacturing facilities– Exporting may be consistent with scale
economies and location economies
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Choices of Entry Mode (cont’d)
Licensing– A licensee in a foreign country can purchase
the rights to produce a product in their country– The cost of development is low, as well as the
risk involved
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Choices of Entry Mode (cont’d)
Franchising A specialized form of licensing where the
franchiser sells intangible property (usually a brand or trademark).
The franchisee agrees to follow the strict rules and business plans of the company
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Choices of Entry Mode (cont’d)
Joint Venture– Separate corporations come together to form
a new corporate entity– Two or more companies have an ownership
stake, but combine resources for mutual benefit
– Sharing knowledge can be dangerous for the companies involved