Learning Objectives Appreciate the major trends in global strategic management and why internationalization is important Recognize the stage of global development of a particular firm Understand how to create a global mindset Understand the roles of foreign subsidiaries Select an appropriate international expansion tactic Analyze a foreign country to determine its attractiveness for investment Primary Reasons Firms Make Foreign Investments New Markets Better Resources Efficiency Risk Reduction Competitive Countermove Global Orientation International expansion is the process of building an expanding operational presence Global integration is the process through which a multi-national organization integrates its worldwide activities into a single world strategy Four Stages of International Development Domestic Stage International Stage Exporting important; international divisions to handle marketing functions Multinational Stage Focus on domestic operations Some exporting Marketing and production facilities throughout the world More than a third of sales overseas Access to world capital markets Global Stage Organization no longer associated with any one country Operate in as many as 40 or more countries Cross-Cultural Human Resource Differences Percentage of people who agreed with this statement: High percentage countries It is important for a manager to have, at hand, precise answers to most of the questions that his or her subordinates may raise about their work Japan 77% Indonesia 67% Italy and France 59% Low percentage countries USA and Sweden 13% Netherlands 18% Denmark 27% Great Britain 30% Factors that Lead to Competitive Advantages of Nations Firm Strategy, Structure and Rivalry Factor Conditions Demand Conditions Related and Supporting Industries Source: Adapted with the permission of the Free Press, an imprint of Simon & Schuster Adult Publishing Group (see text for complete reference) Management of Foreign Subsidiaries Three levels of subsidiary responsibility Local Implementation • Very well defined roles to play • Very little independence Specialized Contribution • An interdependent network of subsidiaries, with each subsidiary making a unique contribution • Often in a production role Global Mandate • Have responsibility for and entire global business • Activities integrated by the subsidiary itself, not the corporate office Product/Market Approach Multidomestic Product/Market Strategy Global Product/Market Strategy Handle product design, assembly and marketing on a country-by-country basis Custom tailored products and services for particular markets (local responsiveness) One product design Marketing in the same fashion throughout the world Emphasis on efficiency Transnational Product/Market Strategy Entails seeking both global efficiency and local responsiveness Integrated network that fosters shared vision and resources while allowing for individual decisions International Expansion Tactics Exporting Contractual Arrangements Foreign Direct Investment Licensing Franchising Joint Venture Wholly Owned Subsidiary Acquisition In general, moving down the list (above) is associated with greater cost, financial risk, profit potential and control Global Business-Level Strategy Improve Competitive Position Through Cost Leadership Foreign assembly or manufacturing Branding of finished products that are subcontracted to foreign firms Global sourcing Expanding markets leading to economies of scale Transfer of technological know-how through joint ventures Improve Competitive Position Through Differentiation Distribution of elite foreign product in the U.S. Sale of U.S. product in foreign markets Superior quality through joint ventures Licensing of product technology from abroad Promoting an open, learning mindset Global Corporate-Level Strategy Merger and acquisition wave is a global trend Many cross-country acquisitions Much consolidation of global industries Creates enormous, diversified global companies Some companies are focusing on related acquisitions in pursuit of economies of scope based on shared resources Many global firms are downscoping Probably helpful to performance of firms with big investments in industrialized nations May be damaging to the economies of developing nations if big firms withdraw their capital • Big firms channel capital to promising businesses in nations with poorly developed financial markets International Markets Triad regions include North America, Europe and the Pacific Rim Difficult management challenges common in other “developing” nations Unstable governments Inadequately trained workers Low levels of supporting technology Shortages of supplies Weak transportation systems Unstable currencies Japan After the Economic Bubble Burst Business Environment Consumers Remains a tough, highly competitive environment Price destruction Distribution becoming more concentrated Increasing expectations of fast retailer response Increased balance between work and family Some convergence with “international values” Heritage Luxury designer products hold strong, but consumers are more price/value conscious, Luxury products sold through discount outlets Japan After the Economic Bubble Burst Consumer Interest Product Churning Reduction in product emulation activity Insider Strategy More focus on home More value-for-money-driven behavior Increased emphasis on functional performance, less brand devotion May still be true, but foreign owned companies attempting “insider” strategies are struggling Marketing Skills Marketers in Japan still maintain dedicated dialogue with consumers Selecting a Foreign Market A foreign market should be selected only after thorough evaluation of: Social Forces The Economy Political / Legal Environment The State of Technology Industry Specific Factors Institutional Differences Across Countries Emerging economies: Russia, China,India Lessdeveloped economic and transaction environments Group- Family-centered Bank-centered Marketcentered economies: economies: centered economies: Sweden, Japan, economies: Korea France, Italy Germany U.S., U.K. Well developed economic and transaction environments Source: R.E. Hoskisson, R.A. Johnson, D. Yiu and W.P. Wan, “Restructuring Strategies of Diversified Business Groups: Difference Associated with Country Institutional Environments,” in M.A. Hitt, R.E. Freeman and J.S. Harrison, The Blackwell Handbook of Strategic Management (Oxford: Blackwell Publishers LTD, 2001), p. 444, used with permission. Strategic Management for the 21st Century Increasing Levels of Global Trade and Global Awareness Global and Domestic Social Turbulence Increased Terrorism and a World-Wide Effort to Eliminate It Increased Sensitivity to Ethical Issues and Environmental Concerns Rapidly Advancing Technology, Especially in Communications Strategic Management for the 21st Century Continued Erosion of Buying Power in the U.S. and Other Economies Continued Development of Third World Economies Increases in U.S. and Global Strategic Alliances Revolution in the U.S. Healthcare Industry Greater Emphasis on Security and Crisis Management Major Concepts in Chapter 10 Firms make foreign investments for a variety of reasons, including seeking new markets, better resources, efficiency, risk reduction or as a competitive countermove Global strategic management provides challenges and opportunities not found in domestic markets and strategies International expansion involves building an expanding operational presence, while global integration is the process through which a multinational organization integrates its worldwide activities into a single global strategy Major Concepts in Chapter 10 Organizations seem to evolve through four stages of international development, which are domestic, international, multinational and global The role of foreign subsidiaries is changing from being simply branch locations to a full role in the development of new competencies, capabilities, resources and products A multidomestic product/market strategy entails custom tailoring products and services by country, whereas a global product/market strategy offers one approach throughout the world. A transnational product/market strategy is a compromise between the two approaches Major Concepts in Chapter 10 Common international expansion tactics include exporting, licensing, franchising, joint ventures, wholly-owned subsidiaries and acquisitions A global merger and acquisition wave has created enormous, diversified global companies; however, refocusing is also evident as firms pursue related acquisitions and discard unrelated businesses Foreign markets should be carefully evaluated before investments are made. Factors that should be evaluated include the social environment, economy, political/legal environment, the state of technology and other factors specific to each industry