Chapter 8
Internationalization
and
Globalization
Chapter Outline
Introduction: Internationalization and
Globalization
Drivers of Corporate Internationalization and
Globalization: Why Firms Go Abroad
Preparing the Company for Internationalization
and Globalization
Effects of Globalization
Financing International and Global Operations
Internationalization and
Globalization
 Internationalization Defined:
Internationalization: firms extend products and
services in overseas markets, usually from their
home country. Internationalization is the first
stage in the globalization process
Internationalization and
Globalization
 Globalization Defined
 Globalization: the process by which businesses
create value by leveraging their resources and
capabilities across borders, and includes the
coordination of cross-border manufacturing and
marketing strategies
Internationalization and
Globalization
Measuring Internationalization and
Globalization

Objective measures: United Nations Conference
on Trade and Development (UNCTAD) has
developed an index to show international
corporate involvement called Transnationality
Index.
Internationalization and
Globalization
Measuring Internationalization and
Globalization

Objective measures: United Nations Conference on Trade and Development
(UNCTAD) has developed an index to show international corporate involvement called
Transnationality Index.

It is based on:
Foreign assets to total assets.
Internationalization and
Globalization
Measuring Internationalization and
Globalization

Objective measures: United Nations Conference on Trade and Development
(UNCTAD) has developed an index to show international corporate involvement called
Transnationality Index. It is based on:
 Foreign assets to total assets.

Foreign sales to total sales
Internationalization and
Globalization
Measuring Internationalization and
Globalization

Objective measures: United Nations Conference on Trade and
Development (UNCTAD) has developed an index to show international corporate
involvement called Transnationality Index. It is based on:
 Foreign assets to total assets.
 Foreign sales to total sales

Foreign employment to total employment
Internationalization and
Globalization
Measuring Internationalization and
Globalization

Objective measures:

Corporate measures:

Governance and responsibility: who are controlling
to corporation
Internationalization and
Globalization
Measuring Internationalization and
Globalization

Objective measures:

Corporate measures:

Governance and responsibility: who are controlling to corporation

Strategy and planning: of global corporations that
•
•
Produce standardize products could be ventrally planed,
must meet local needs should be decentralized
Internationalization and
Globalization
Measuring Internationalization and
Globalization

Objective measures:

Corporate measures:



Governance and responsibility: who are controlling to corporation
Strategy and planning: of global corporations that
•
Produce standardize products could be ventrally planed,
•
must meet local needs should be decentralized
Market orientation also depends on the orientation
of the countries where the company is active. If they
are similar, a unified marketing strategy will be use.
Otherwise, each country requires its own strategy.
Internationalization and
Globalization
Measuring Internationalization and Globalization

Objective measures:

Corporate measures:




Governance and responsibility: who are controlling to corporation
Strategy and planning: of global corporations that
•
Produce standardize products could be ventrally planed,
•
must meet local needs should be decentralized
Market orientation also depends on the orientation of the countries where the company is active. If they
are similar, a unified marketing strategy will be use. Otherwise, each country requires its own strategy.
Manufacturing operations and technology. Customers, country
conditions, and competition determine where resources should
be allocated. Whether economies of scale could be exploited;
whether low cost factors could be utilized;
Internationalization and
Globalization
Measuring Internationalization and Globalization

Objective measures:

Corporate measures:




Governance and responsibility: who are controlling to corporation
Strategy and planning: of global corporations that
•
Produce standardize products could be ventrally planed,
•
must meet local needs should be decentralized
Market orientation also depends on the orientation of the countries where the company is active. If they
are similar, a unified marketing strategy will be use. Otherwise, each country requires its own strategy.
Manufacturing operations and technology. Customers, country conditions, and competition determine
where resources should be allocated. Whether economies of scale could be exploited; whether low cost
factors could be utilized;

R & D intensive industries must balance their activities across
borders when possible and advantageous and safe. R&D are
usually centralized due to secrecy as well as need for specific
knowledge and resources.
Internationalization and
Globalization
Measuring Internationalization and Globalization

Objective measures:

Corporate measures:






Governance and responsibility: who are controlling to corporation
Strategy and planning: of global corporations that
•
Produce standardize products could be ventrally planed,
•
must meet local needs should be decentralized
Market orientation also depends on the orientation of the countries where the company is active. If they
are similar, a unified marketing strategy will be use. Otherwise, each country requires its own strategy.
Manufacturing operations and technology. Customers, country conditions, and competition determine
where resources should be allocated. Whether economies of scale could be exploited; whether low cost
factors could be utilized;
R & D intensive industries must balance their activities across borders when possible and advantageous
and safe. R&D are usually centralized due to secrecy as well as need for specific knowledge and
resources.
Organization and human resource management the challenge
has been to train and retain managers with local market
knowledge as well as with global understanding.
Advantages of Internationalization and
Globalization
 Extension and expansion of market
Advantages of Internationalization and
Globalization

Extension and expansion of market
 Exploitation of resources overseas
Advantages of Internationalization and
Globalization


Extension and expansion of market
Exploitation of resources overseas
 Taking advantage of economies of scale
Advantages of Internationalization and
Globalization



Extension and expansion of market
Exploitation of resources overseas
Taking advantage of economies of scale
 Acquiring economies of scope: building
and using foreign market expertise in
against their rivals
Disadvantages of Internationalization and
Globalization
 Divert resources from dometic to
international markets
Disadvantages of Internationalization and
Globalization

Divert resources from dometic to international markets
 Going overseas is a permanent learning
process. You need to constantly adapt
to new and changing environment
Internationalization, Globalization, and
industry strategy
High
Global Integration Strategy
(cross border branding and
supply chain)
Global/Local
Pressures
for global
integration
Internationalization Strategy
(Export /Import)
Low
Low
Multinational Strategy
(localized marketing
with supply chain)
Pressures for local responsiveness High
Drivers of Corporate Internationalization and
Globalization
 Market Drivers
 Cost Drivers
 Competitive Drivers
 Government Drivers
 Globalization and
Information
Technologies
Drivers of Corporate Internationalization
and Globalization
 Market Drivers
 Common customer needs: products and technology
is transferred with its cultural baggage to other
countries with similar needs. Some products such
as Coca-Cola, McDonalds, KFC, etc. have been
palatable to many cultures
Drivers of Corporate Internationalization
and Globalization
 Market Drivers

Common customer needs: Coca-Cola, McDonalds
 Global channels: global channels have emerged
with free trade as free trade enabled companies to
distribute goods and provide services
internationally. Carrefour, Toys R Us, Wal-Mart
have developed global channels to distribute
products.
Drivers of Corporate Internationalization
and Globalization
 Market Drivers

Common customer needs: Coca-Cola, McDonalds

Global channels: Carrefour, Toys R Us, Wal-Mart
 Marketing Transfers and Global Branding: IBM,
Toyota, Bic, Kodak have become household names
throughout the world
Drivers of Corporate Internationalization
and Globalization
 Market Drivers



Common customer needs: Coca-Cola, McDonalds
Global channels: Carrefour, Toys R Us, Wal-Mart
Marketing Transfers and Global Branding: IBM, Toyota, Bic, Kodak
 Lead Countries: Made in xxxx. Countries have
developed a name for some products, e.g., Japan
for consumer electronics, Switzerland for watches,
USA for computer software, etc.
Drivers of Corporate Internationalization and
Globalization
 Cost Drivers
 Economies of scale: expensive to set up
production but they could service any
market such as steel and microprocessors
Drivers of Corporate Internationalization and
Globalization
 Cost Drivers

Economies of scale: steel and microprocessors
 Steep Experience Curves: knowledge and
technology intensive sectors: aircraft
Drivers of Corporate Internationalization and
Globalization
 Cost Drivers


Economies of scale: steel and microprocessors
Steep Experience Curves: knowledge and technology intensive sectors: aircraft
 Low Cost Production: low cost labor
(textiles)
Drivers of Corporate Internationalization and
Globalization
 Cost Drivers



Economies of scale: steel and microprocessors
Steep Experience Curves: knowledge and technology intensive sectors: aircraft
Low Cost Production: textiles
 Favorable Logistics: transportation costs
important as we decide where to produce:
lumber, non-specialty chemicals
Drivers of Corporate Internationalization and
Globalization
 Cost Drivers




Economies of scale: steel and microprocessors
Steep Experience Curves: knowledge and technology intensive sectors: aircraft
Low Cost Production: textiles
Favorable Logistics: transportation costs important) lumber, chemicals
 New Product Development Costs: are rising
due to short life of their products that
require higher return on their investment
(airlines, telecommunications, chips,
pharmaceuticals )
Drivers of Corporate Internationalization and
Globalization
Competitive Drivers
Competing with imports and other global
rivals have placed increasing pressures on
both domestic and international companies
to be competitive in national and
international markets.
Drivers of Corporate Internationalization and
Globalization
Government Drivers
United Nations, and its agencies like the IMF,
World Bank and WTO: free trade,
privatization (but can retard also)
Drivers of Corporate Internationalization and Globalization
 Globalization and Information Technologies
Inter-firm linkages
International new
product
development has
become more
quicker
Customer
responsiveness has been
reduced from 125 days
to about 10 days due to
supply chain
Inter-organizational
systems (IOS) connecting
insurance, banks, customs,
immigrations to minimize
duplication
Internet-based Ecommerce
Extranet: allowing
outside parties limited
access to the company’s
information system
Intranet
Groupware
technology
allowing email,
screen sharing,
and other forms of
global
communications
have allowed
around the clock
Organizational
Memory System that
allows access to past
information and
strategies and therefore
enhances the ability of
the decision-makers to
do a better job
Preparing the Company for
Internationalization & Globalization
 Focusing the
Organization: Corporate
Competencies
 Focusing the
Organization: Supply
Chain Restructuring
 Developing Leadership
and Management
Capabilities
 Globalizing the Corporate
Culture
Preparing the Company for Globalization
 Focusing the Organization
 Corporate Competencies
 – those activities that have proven
international potential
 – hard decisions must be made on activities
that do not add value to the globalization
move
- World Business Analysis & Opinion: What do
you think?
100+ year old essentially family-run Italian firm is an
automobile producer (all types, from basic to luxury—half
the company’s sales). It also produces trucks, agricultural
tractors, construction equipment, trains, and is in
chemicals, publishing and insurance. It needs to
internationalize and globalize its operations. What should its
first steps be?
Preparing the Company for Globalization
 Focusing the Organization
 Supply Chain Restructuring
 De-layer corporate hierarchies for quicker decisions
 Rethink manufacturing systems to close unproductive plants
and consolidate production
 Reevaluate supplier relationships to focus on a few, wellpositioned providers
 Reassess distributor capabilities for the global arena
Preparing the Company for Globalization
 Developing Competent Leadership and Management
Capabilities
 Global Leadership Characteristics
 Unbridled Inquisitiveness : the desire to learn and
the ability to enjoy the constant stimulation and
challenges
 Personal characteristics: The ability to connect
socially and emotionally with wide varieties of
individuals
 Duality: senior management’s ability to balance
global and local considerations in making
 Savvy: Management leaders have instinctive
recognitions of strategic tradeoffs
Preparing the Company for Globalization
 Developing Leadership and Management
Capabilities
 Developing Global Leaders
 International travel to see and learn other cultures
 Global team experiences to see and learn the decision making
process and social interaction at the local level with
 Cross-cultural training
 Overseas assignments
Preparing the Company for
Globalization
 Globalizing the Corporate Culture
 What is Corporate Culture
Authority
structures
Tolerance for
maverick
behaviors
Organizational
focus
Degree of
organizational
formality
Competitive or
cooperative
culture
Organizational
structure
Information
flows
Decisionmaking
apparatus
Gender
orientations
Preparing the Company for
Globalization
Globalizing the Corporate Culture
 Deciding on Corporate Cultures in Foreign
Markets: no ‘right’ or wrong answers
 Global Standardization of Corporate
Cultures is the trend but caution is always
required
Preparing the Company for
Globalization
 Globalizing the Corporate Culture
 Adapting Corporate Cultures to National Culture
Influences depends on:
 Societal competitiveness: the amount of competition within
societies—political, economic, social class systems
 Shareholder-Stakeholder Orientations: the specific
objectives or audiences corporate cultures oriented toward:
spread of capitalism vs. local needs
 National culture influences on corporate cultures
World Business Analysis & Opinion: What do
you think?
8-2: How would you globalize a corporate
culture?
-
Preparing the Company for
Globalization
 National Culture Influences on Corporate Cultures
 Power Distance: the extent to which strong social class
distinctions are maintained at societal and corporate levels
 Individualism/Collectivism: the degree to which individual
or group actions are the bases for getting issues resolved
 Masculine and Feminine Societies: the tolerance levels for
aggressive behaviors and their gender orientations
 Uncertainty Avoidance: the extent to which societal
behaviors are risk-oriented or risk-averse
 Long Versus Short Term Orientations: East-West contrasts
8-3:
A large US multinational operating in Malaysia noticed
that US expatriates and local managers were not on the
same cultural page. In particular: (i) Malaysian managers
took fewer initiatives in front of their bosses; (ii) they often
said ‘yes’ when they meant ‘no’; (iii) they were upset when a
lower status US engineer openly disagreed with his boss in
a meeting (iv) Malaysian managers copied everyone in their
e-mails. Why do you think?
-
Effects of Globalization
 Industry Structure
Effects
 Organizational
Structure Effects
 Corporate Culture
Effects
 Relationships Among
Strategies, Structures
and Corporate
Cultures
Effects of Globalization
 Industry Structure Effects
 At the national level, domestic firms must attain
critical mass size to deal with foreign competitors
 At the regional level, firms need to attain regional
market coverage and scale economies to compete
against other global producers
 At the worldwide level, industry structures have
been affected by a series of ‘mega-mergers’ between
large international companies
Effects of Globalization
 Organizational Structure Effects
 International department
 Worldwide functional structure
 Worldwide product structure
 Geographic structures
International Division Structure
Headquarters
Domestic
Division
International Division
Regional Managers
Latin America
Europe
Asia
Worldwide Functional Structure
Headquarters
Vice Presidents – Worldwide Responsibilities
Manufacturing
Marketing
R&D
Markets 1----n
Products 1----n
Finance
Human Resource
Worldwide Product Structure
Headquarters
Product
Division 1
Region 1
Product
Division 2
Product
Division 3
Region 2
Product
Division ‘n’
Region ‘n’
Geographic Structure
Headquarters
Region 1
Region 2
Region 3
etc.
Country 1
Country 2
Country
‘n’
Product 1
Product 2
Product
‘n’
Region ‘n’
Effects of Globalization
 Corporate Culture Adjustments
 Ethnocentric corporate cultures emphasize home-market
orientations in strategic decision making and attitudes:
‘made in’ advantages, alcohol, fashion, food
 Polycentric operations involve complete host country
orientations; competitive advantage based on
responsiveness
 Regiocentric cultures blend national subsidiaries within
regions into cohesive strategy-making units; regional
brands, supply chains
 Geocentric corporate cultures are totally globally-oriented;
no regard for individual national cultures
Effects of Globalization
 Relationships Among Strategies, Structures,
and Corporate Cultures
 Causes of Change: marketplace change and new strategy;
new structure (M & A, JVs); leadership changes
 Relationships among international strategies,
structures, and corporate cultures: ethnocentric and
exporting; polycentric and consumer goods; regional, global
products=regiocentric/geocentric
Financing International
and Global Operations
 Equity Options Using Outside Financing: availability
of national stock exchanges; appear ‘local’
 Equity Options Using Internal Financing: crossholdings of shares among subsidiaries; good control; protection from
takeovers
 Debt Options Using External Financing: local
financial institutions must be sound; low interest rates
 Debt Options and Internal Financing: borrowing
from HQ/subsidiaries; can adjust interest rates according to
subsidiary/market needs
Key Points
 Defining internationalization
 Defining globalization
 Measuring them?
 Globalization drivers
 Preparing for globalization
 Globalizing corporate cultures
 Effects of globalization on industries,
organizations, corporate cultures
 Financing foreign operations
Key Points
 Internationalization occurs as firms extend
products and services into foreign markets.
 As companies globalize, they must balance
pressures to globally integrate their operations
with pressures to localize output.
 Globalization can be measured objectively through
foreign percentages of assets, sales, and
employment.
Key Points
 Globalization drivers can be based on
market, cost, competitor, or government
factors.
 Companies prepare for globalization by
assessing corporate competencies, supply
chains, leadership capabilities, and
corporate cultures.
Key Points
 Globalizing corporate cultures involves defining
and critically examining organizational
relationships, communication patterns, and
employee behaviors.
 Effects of globalization must be assessed for
industry structure, organizational structure, and
corporate culture
 International firms have a number of options in
financing their internationalization and
globalization efforts.