Chapter 7
Global Strategy:
Harnessing New Markets
by Robert Pitts
& David Lei
Slides prepared by
John P. Orr
Webster University
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 7-1
What you will learn…
Slide 1 of 2
• Why companies need to develop
strategies to expand across national
borders
• The key environmental factors that
promote the need to expand into
overseas markets
• The two basic strategies used for
expanding overseas:
– Global
– Multidomestic
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 7-2
What you will learn…
Slide 2 of 2
• Balancing the benefits and costs
of overseas expansion
• How companies can continue
to grow by becoming
global players
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 7-3
Global Strategy: Introduction
• Globalization
– Viewing the world as a single market for the
firm;
– The process by which the firm expands
across different regions and national
markets.
• Industry-Level View of Globalization
– Changes in economic factors, such as
economies of scale, experience, and R&D,
which make competing on a worldwide basis
a necessity.
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 7-4
Strategic
Snapshot
Building Global
Capabilities at Nokia
• Digital, wireless and
broadband
• Strategy: Low-cost producer
• Narrowing of product lines
• Partnership plant in China
• Digital innovation and 3G
• Globalized R&D efforts
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 7-5
Exhibit 7-1
Factors Promoting
the Globalization of Markets
•
•
•
•
•
•
•
Narrowing of demand characteristics
Escalating costs of R&D
Cost reduction pressures and R&D
Government industrial policies
Reduction of factor costs (e.g., labor, capital)
Rise of new distribution channels
Reduction of transportation, communication,
and storage costs
• Internet access
• Reduction of tariffs worldwide
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 7-6
Exhibit 7-2A
Examples of
Growing Homogeneity of Demand
•
•
•
•
•
•
•
•
Communications equipment
Cellular phones
Sony Walkmans
Levi’s jeans
Commercial banking
Financial services
Color televisions and VCRs
Semiconductors
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 7-7
Exhibit 7-2B
Examples of
Growing Homogeneity of Demand
•
•
•
•
•
•
•
•
Machine tools
Computers
Pharmaceuticals
Construction equipment
Commercial aircraft
Hollywood films
Television shows
Data and computer networks
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 7-8
Exhibit 7-3A
Examples of R&D Intensive Industries
•
•
•
•
•
•
•
•
Semiconductors
Software
Biotechnology
Communications systems
Pharmaceuticals
Commercial aircraft
Electronics
Composite materials
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 7-9
Exhibit 7-3B
Examples of R&D Intensive Industries
• Advanced imaging systems
• Medical equipment
• Fiber optics
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 7-10
Exhibit 7-4
•
•
•
•
•
•
•
•
•
Rising Economies
of Scale/ Cost Pressures
Steel
Automobile engines
Color television tubes
Semiconductors
Fiber optics
Office equipment
Telecommunications
Aircraft
Chemicals
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 7-11
Strategic
Competency in action
Creating Distinctive Value:
China’s TCL
• Shifting to top-tier products
• Purchasing Thomson’s plants
• Manufacturing capability +
economics of scale
• Chairman Li pushes free-market model
• Overcoming value-chain gaps
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 7-12
Exhibit 7-5
Government Initiatives
to Promote Industrial Development
Sematech
(semiconductors)
US
Japan
EU
Steel, Computers, Autos,
Artificial Intelligence,
Advanced Materials,
Aerospace
Semiconductors, Aerospace,
Automobiles, Advanced
Lasers, Optics
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 7-13
Exhibit 7-6A
Examples of Declining Costs
Transport Costs
• Containerization
• Intermodal shipping/rail
• Air freight
Communication Costs
• More global long distance carriers
• Better ways to transmit voice, video data
• Internet access
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 7-14
Exhibit 7-6B
Examples of Declining Costs
Storage Costs
• Refrigeration
• Just-in-time inventory
• Reduction of perishability
• Supply chain management
• Virtual production/design
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 7-15
Exhibit 7-7
Global Strategy of Expansion
• Systemwide approach to competing worldwide
• Mutually interdependent subsidiaries
• Centralized control and reporting of activities
• Facilitates cross-subsidization policies across markets
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 7-16
Exhibit 7-8
Characteristics of a Global Strategy
• Standard products
• Global economies of scale in key
components and activities
• Leverage technology across many
markets
• Global coordination of marketing and
sales systemwide
• Cross-subsidization policies to
respond to competitive moves by other
global strategy firms
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 7-17
Exhibit 7-9
Multidomestic Strategy of Expansion
• Competitive advantage is built in each separate national or regional market.
• Markets and subunits are treated independently from one another.
• Decentralized controls of activities, reporting back to headquarters.
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 7-18
Exhibit 7-10
Characteristics
of a Multidomestic Strategy
• Customization or frequent adaptation
of products for each separate market
• Few systemwide opportunities for
economies of scale
• Value-adding activities performed and
duplicated in each market
• Coordination of marketing and sales
within each market
• Quality and image across markets are
important sources of competitive
advantage
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 7-19
Exhibit 7-11
Benefits of Global Expansion
• Market growth and expansion
opportunities
• Recovery of R&D and investment costs
• Creation of a distinct image
• Accelerated learning and
transfer of new skills
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 7-20
Exhibit 7-12A
Costs
Associated with Global Expansion
Costs of Strategic Leverage
• Sustained investment required
• Preserving and extending image
Costs of Flexibility
• High interdependence of subsidiaries
(and businesses)
• Change or development affecting all
markets
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 7-21
Exhibit 7-12B
Costs
Associated with Global Expansion
Costs of Cooperation
• Compromise
• Accountability
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 7-22
Balancing Global & Multidomestic
Ford 2000 global
product teams
•
•
•
•
•
Small car
Midsized car
Luxury car
SUV
Commercial truck
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 7-23
Balancing Global & Multidomestic
Personal care products
• P&G uses blended strategy
• Bausch & Lomb pursues
regional gains
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 7-24
Ethics: Global Concerns
Scandals with global reach
• Lloyd’s of London embezzlement
• French, German stock market
fraud
• Japanese business, political
scandals
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 7-25
Ethics: Global Concerns
Varying approaches to ethics
• Individual views strongly shape
ethics of U.S. workers
• Asian workers seen as ‘industrial
soldiers’
• U.S. enacts Foreign
Corrupt Practices Act
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 7-26