Strategic Management Essentials, 3/e
Gareth R. Jones | Charles W.L. Hill
Chapter 6
Global Strategy
© 2012 South-Western, a part of Cengage Learning
The Global Environment
 Managers need to consider:
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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
© 2012 South-Western, a part of Cengage Learning
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:
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Expanding the market
Realizing economies of scale
Realizing location economies
Leveraging the skills of global subsidiaries
© 2012 South-Western, a part of Cengage Learning
Competitive Pressures
 Two main pressures:
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Pressure for cost reduction
Pressure to be locally responsive
 These pressures place conflicting demands
on a company
© 2012 South-Western, a part of Cengage Learning
Cost Reductions
 Cost reductions are common in:
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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.
© 2012 South-Western, a part of Cengage Learning
Local Responsiveness Pressures
 These arise from differences in:
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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
© 2012 South-Western, a part of Cengage Learning
Choosing a Strategy
Basic four strategies:
 Global Standardization Strategy
 Localization Strategy
 Transnational Strategy
 International Strategy
© 2012 South-Western, a part of Cengage Learning
Global Standardization Strategy
 Focuses on increasing profitability by
pursuing a low-cost strategy on a global scale
 Works best if there is:
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Strong pressure for cost reduction
Low pressure for local responsiveness
© 2012 South-Western, a part of Cengage Learning
Localization Strategy
 Customizes goods or services to provide a
good match to tastes and preferences in
different national markets
 Works best if there is:
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Low cost pressure
Varied taste and preferences by nation
© 2012 South-Western, a part of Cengage Learning
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 :
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High cost pressures
High local responsiveness pressures
© 2012 South-Western, a part of Cengage Learning
International Strategy
 Centralizes product development, but
manufactures and markets globally
 Works best if there is:
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Low cost pressure
Low pressure for local responsiveness
A universal need product
No significant competitors
© 2012 South-Western, a part of Cengage Learning
Choices of Entry Mode
 Exporting
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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
© 2012 South-Western, a part of Cengage Learning
Choices of Entry Mode (cont’d)
 Licensing
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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
© 2012 South-Western, a part of Cengage Learning
Choices of Entry Mode (cont’d)
 Franchising
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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
© 2012 South-Western, a part of Cengage Learning
Choices of Entry Mode (cont’d)
 Joint Venture
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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
© 2012 South-Western, a part of Cengage Learning
Choices of Entry Mode (cont’d)
 Wholly Owned Subsidiaries
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A parent company owns 100% of a smaller
self-contained business unit
This can be a very costly approach, since the
parent company is responsible for all of the
financing
© 2012 South-Western, a part of Cengage Learning