International Strategy

Motives for Globalization

Changes in the External Environment

Multidomestic/Global Competition

Types of International Strategy

Entry Strategies

The shift toward a more integrated and interdependent world economy.

(Hill, 2006)

Globalization

Globalization of Production

The sourcing of goods and services from locations around the globe to take advantage of national differences in the cost and quality of factors of production (Hill, 2006).

Human ResourcesCapital (Technology)

Capital(Facilities)

Natural ResourcesEntrepreneur

Globalization of Markets

Moving away from an economic system in which national markets are distinct entities, isolated by trade barriers and barriers of distance, time, and culture (Hill, 2006).

Consumer Products

StarbucksCiticorp

McDonalds Industrial Products

OilWheat

Commercial Aircraft

Why might there be opposition to globalization?

Why do firms globalize their operations?

Who here has been involved in International Operations?

Who has traveled internationally?

Who is from another country?

What happens to the firm’s external environment as they move overseas?

MACRO

INDUSTRY

OPERATING

Economic Factors: Monetary and Fiscal policies, ,exchange rates, economic development, type of economic system. Etc.

Technological Factors: Regulations on technology transfer, information flow, infrastructure, patent and trademark protection, etc.

Political/Legal Factors: Form of government, tariffs, protectionist sentiment, terrorist activity, legal system, government’s attitude toward foreign firms, employment laws, etc.

Social/Cultural Factors: beliefs, values, attitudes, opinions, lifestyles, human rights, literacy levels, language, social institutions, skill level of the workforce, etc.

Balancing Macro Factors is Key

Do low wages in developing countries translate into lower manufacturing costs?

Globalization in Competition

Multi-domesticCompetition

GlobalCompetition

Multidomestic Competition

Competition is essentially segmented from country to country.

Competition in one country is independent of competition inother countries.

Think in terms of the competitive forces (Porter’s 5 Forces)

Examples: Grocery, healthcare

****In a multidomestic industry, a global corporation’ssubsidiaries should be managed as distinct entities.

Global Competition

Global competition occurs when competition crosses national borders.

A firm’s strategic moves in one country can be significantly affected by it’s competitive position in another country.

Once again think about the competitive forces.

Examples: Automobiles, Consumer electronics, Petroleum

How do firms position themselves to compete in the global marketplace?

Competing Pressures

Pressure for Local Responsiveness

Consumer’s Tastes and Preferences

Differences in Infrastructure or Traditional Practices

Differences in Distribution Channels

Demands of Host Governments

Pressure for Cost Reductions

Commodity-type product

Universal needs of customers

Competitors use a low cost position

Multidomestic Strategy

Focus: Local Responsiveness

Customize the strategy to fit the circumstances of each host country

Little to no coordination of strategy across countries

Form subsidiary companies to handle operations in each host country; each subsidiary operates more or less autonomously

Impact on value chain?

Focus: Cost Reduction

Same basic strategy worldwide (minor variations where essential) (e.g., Intel)

Takes advantage of location economiesLocate subunits near high-quality raw materialLocate subunits near sources of high-quality or low cost laborSeek low cost financing anywhere in the world

Much more worldwide coordination

All major strategic decisions are closely coordinated at globalheadquarters. Structure is designed to unify subsidiaries.

Impact on value chain?

Global Strategy

GlobalStrategy

InternationalStrategy

MultidomesticStrategy

TransnationalStrategy

Low Pressures for Local Responsiveness High

High

Low

Pressuresfor Cost

Reduction

International Strategy

Low Pressures for Local Responsiveness and Cost Reduction

Skills and products are transferred to foreign markets werelocal competitors lack those skills

Parts of the value chain remain in the home country (e.g., R&D)

Parts of the value chain are duplicated throughout the world (e.g., manufacturing)

Works best when: industry cost pressures are low and local capabilitiesare underdeveloped or non existent.

Boeing: Production and marketing (local), sales force (global)Televisa (Mexico’s largest media firm): Spanish soap operas

Transnational Strategies

High pressures for both local responsiveness and cost reduction

A type “Best cost” strategy wherein companies try to simultaneously achieve advantages from low cost and differentiation.

Competencies are developed world-wide and transferred as appropriate

Experience Curve Effects

Location Economies

Local Responsiveness

Amount of Commitment, Control, Risk and Profit Potential

Licensing Exporting Franchising ContractManufacturing

JVand

StrategicAlliances

ForeignDirect

Investment

Least Most

Entry Strategies

A BA B

C

Strategic Alliance Joint Venture

Can be leveraged internationally by linking

value chain activities

Motivations for Partnerships

1. Generate scale economies: Toyota/GM joint venture (Toyota couldspread fixed investment over more units)

2. Gain access to strategic markets: Japanese firm, JVC, provided designtechnology to partner in exchange for access to European market.

3. Overcoming trade barriers: Inland Steel and Nippon Steel built coldsteel plant in Indiana (Nippon supplied technology, capital andaccess to Japanese firms in the US).

4. Use excess capacity: Toyota/GM joint venture used an idle GM plant

5. Gain access to low-cost manufacturing capabilities: GE sourcingmicrowaves from Korea.