STRATEGY IN THE
GLOBAL ENVIRONMENT
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• Understand process of globalization and its impacts on company strategy
• Discuss motives for expanding internationally
• Review different strategies used to compete in global marketplace
• Explain pros/cons of modes for entering foreign markets

“No war should be begun until it is first determined what is to be achieved and how it will be conducted.”
- Carl von Clausewitz
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Implications of trend toward globalization:
1.
Industries becoming global in scopeindustry boundaries no longer stop at borders.
2.
Shift from national to global markets has intensified competition.
3.
Steady decline in barriers to crossborder trade & investment has opened once protected markets to companies based elsewhere.
2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
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National Competitive Advantage
Figure 8.1
Porter’s Diamond:
1. Companies from given nation likely to succeed in industries with four favorable attributes.
2. Attributes form a mutually reinforcing system with the effect of one attribute dependent on state of others.
Source: Adapted from M.E. Porter, “The Competitive Advantage of Nations,” Harvard Business
Review, March-April, 1990, p. 77.
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National Competitive Advantage
(Attributes of Porter’s Diamond)
1) Factor Endowments- cost/quality of factors of production
2) Local Demand Conditions- most sensitive to needs of closest customers
3) Competitiveness of Related &
Supporting Industries- benefits from investments
4) Intensity of Rivalry- competitive advantage
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$ Expand leveraging products- goods/services developed at home & selling internationally
$ Economies from global volume- economies of scale
$ Location economies- economic benefits from performing value creation in optimal location
$ Leveraging skills of global subsidiariesapplied elsewhere
Must also consider transportation costs, trade barriers, as well as political and economic risks.
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Pressures for Cost
Reduction & Local Responsiveness
Figure 8.2
Strategy depends on pressures:
• Cost
Reductions or
• Local
Responsiveness
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Pressures for Cost Reductions
Greatest in industries producing commoditytype products where price is the competitive weapon: o Differentiation on non-price factors difficult o Competitors are based in low-cost location o Consumers are powerful & face low switching costs o Persistent excess capacity o Liberalization of world trade & investment
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Pressures for Local Responsiveness
Differences In: o Customer tastes & preferences o Infrastructure & traditional practices o Distribution channels o Host government demands
Dealing with these contradictory pressures is a difficult strategic challenge, primarily because being locally responsive tends to raise costs.
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Figure 8.3
 
 
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1) Globalization StandardReaping cost reductions from economies of scale & location
2) LocalizationCustomizing goods
& services to provide good match to tastes & preferences in different national markets
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3) Transnationalbusiness model that simultaneously:

Achieves low costs

Differentiates across markets

Fosters a flow of skills between subsidiaries
4) Internationalmultinational companies sell products serving universal needs
(minimal need to differentiate) & don’t face significant competitors (low cost pressure).
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Changes in
Strategy over Time
Figure 8.4
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 Exportingm ost use to begin expansion but later switch to another mode.
 Licensingl icensee buys rights to produce product & puts up most of overseas capital.
 Franchisingfranchiser sells intangible property & insists franchisee follow rules on doing business.
 Joint Venturestypically a 50/50 venture & favored mode for entering new market
 Wholly-Owned Subsidiariesparent company owns 100% of subsidiary’s stock
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Advantages &
Disadvantages of Entry Modes
Table 8.1
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o Distinctive Competencies & Entry Mode
• Technological know-howwholly-owned subsidiary preferred over licensing & joint ventures to minimize risk of losing control.
• Management know-howfranchising, joint ventures, or subsidiaries preferred as risk is low of losing management know-how. o Pressures for Cost Reduction & Entry Mode
• Export finished goods from wholly-owned subsidiary
• Marketing subsidiaries oversee distribution- tight control over local operations allows company to use profits generated in one market to improve position in other markets.
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Cooperative agreements between companies… that are actual/potential competitors… range from short-term contractual… to formal joint ventures with equity participation.
o Advantages
• Facilitate entry
• Share fixed costs & associated risks
• Bring together complementary skills & assets
• Set technological standards for industry o Disadvantages
• Give competitors low-cost route to gain technology & market access
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Some alliances benefit the company.
Beware, alliances can end up giving away technology and market access with very little gained in return.
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Making Strategic Alliances Work
Success Factors:
1.
Partner selection
• Helps achieve strategic goals
• Shares vision of alliance
• Unlikely to exploit alliance to own ends
2.
Alliance structure
• Risk of giving too much away at acceptable level
• Guard against opportunism by partner
3.
Manner in which alliance is managed
• Sensitivity to cultural differences
• Build relationship with interpersonal relationships
Successful partners view alliance as opportunity to learn rather than purely as cost- or risk-sharing device.
2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
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