International Strategy
Motives for Globalization
Changes in the External Environment
Multidomestic/Global Competition
Types of International Strategy
Entry Strategies
Globalization
The shift toward a more integrated and interdependent world
economy.
(Hill, 2006)
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 Resources
Capital
Capital (Technology)
(Facilities)
Entrepreneur
Natural Resources
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
Starbucks
Citicorp
McDonalds
Industrial Products
Oil
Wheat
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-domestic
Competition
Global
Competition
Multidomestic Competition
Competition is essentially segmented from country to country.
Competition in one country is independent of competition in
other countries.
Think in terms of the competitive forces (Porter’s 5 Forces)
Examples: Grocery, healthcare
****In a multidomestic industry, a global corporation’s
subsidiaries 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
Pressure for Cost Reductions
Consumer’s Tastes and
Preferences
Commodity-type product
Differences in Infrastructure or
Traditional Practices
Differences in Distribution
Channels
Demands of Host Governments
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?
Global Strategy
Focus: Cost Reduction
Same basic strategy worldwide (minor variations where essential) (e.g., Intel)
Takes advantage of location economies
Locate subunits near high-quality raw material
Locate subunits near sources of high-quality or low cost labor
Seek low cost financing anywhere in the world
Much more worldwide coordination
All major strategic decisions are closely coordinated at global
headquarters. Structure is designed to unify subsidiaries.
Impact on value chain?
High
Global
Strategy
Transnational
Strategy
Pressures
for Cost
Reduction
International
Strategy
Multidomestic
Strategy
Low
Low
Pressures for Local Responsiveness
High
International Strategy
Low Pressures for Local Responsiveness and Cost Reduction
Skills and products are transferred to foreign markets were
local 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 capabilities
are 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
Entry Strategies
Licensing
Exporting
Franchising
Contract
Manufacturing
JV
and
Strategic
Alliances
Least
Foreign
Direct
Investment
Most
Amount of Commitment, Control, Risk and Profit Potential
Strategic Alliance
A
B
Joint Venture
A
B
C
Can be leveraged internationally by linking
value chain activities
Motivations for Partnerships
1. Generate scale economies: Toyota/GM joint venture (Toyota could
spread fixed investment over more units)
2. Gain access to strategic markets: Japanese firm, JVC, provided design
technology to partner in exchange for access to European market.
3. Overcoming trade barriers: Inland Steel and Nippon Steel built cold
steel plant in Indiana (Nippon supplied technology, capital and
access 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 sourcing
microwaves from Korea.