Transcript Globalization in Competition - School of Business Administration

Competing in Global Markets
Key Ideas
Absolute Advantage
Comparative Advantage
Free Trade
Measuring Trade
Economic Institutions
Macro Factors
Multi-domestic and Global (Competition/Strategy)
Entry Strategies
Partnerships
Why Trade?
No country is self-sufficient
Countries need products that other countries produce.
Natural Resources, technological skills and other factors of
production are not distributed evenly or
“efficiently” around the world.
Example: Weekly Business Project
Pretend that Each Week the Following Activities Need to be
Completed for a Business Project:
Gathering Data through Interviews
Statistical Analysis
Report Writing
Report Editing
Putting together a PowerPoint Presentation
Standing up before the audience and presenting the report
How many hours would it take you to complete each task? How
do you value your time?
Absolute Advantage
Exists when a country can produce a product
more efficiently than any other country.
Theory of Comparative Advantage
Countries should sell to other countries those products
that it produces most efficiently and buy from countries
those products it cannot produce as effectively or
efficiently.
In other words, comparative advantage is the ability of a country to produce
a good at a lower opportunity cost than another country.
Free Trade
The movement of good and services
among nations without political or
economic trade barriers.
Examples of Barriers: Tariffs, Quotas, Embargo, Exchange Controls
Measuring Global Trade
Balance of Payments
Balance of Trade
Trade Deficit
Exchange Rates
Important Economic Institutions
World Trade Organization
World Bank
International Monetary Fund
International Macro Environment Factors
Economic
Social/Cultural
Political/Legal
Technological
Economic Factors
Help us to measure the state of the macroeconomic environment
and determine the general health and well being of an economy.
Examples: GDP trends, interest rates, money supply, inflation
unemployment levels, wage/price controls, energy availability
and costs, disposable and discretionary income, exchange rates.
Barbados
Land Mass: 166 square miles
Oakland County, MI: 873 square miles
US land mass: 3,794,083 sq mi
Economic Data
Source: CIA Factbook and Country Commercial Guides
GDP
$5.1 Billion (2006)
(United States$12.37 trillion)
GDP Growth Rate
4%
Per Capita Income
$18,200
GDP by Sector
Agriculture – 6%
Industry – 16%
Services – 78%
Unemployment Rate
10%
Exports
$209 million (Main exports: sugar and
molasses, rum, other food and beverages,
chemicals, electrical components)
Imports
$1.47 billion
Exchange Rates
$1 US = $2 Barbadian
Inflation
2.4% (US 3.2% for 2005)
Haiti
Source: CIA Factbook
Land mass: 10,714 sq mi
Economic Data
Source: CIA Factbook and World Bank
GDP
$14.56 billion (2006)
GDP Growth Rate
1.8%
Per Capita Income
$1,800
(80% live in abject poverty)
GDP by Sector
Agriculture – 30%, Industry – 20%
Services - 50%
GDP by Labor
Agriculture – 66%, Industry – 9%
Services - 25%
Unemployment Rate
66%
Exports
$443.7 million (main exports: light manufactures,
coffee, mangoes)
Imports
$1.7 billion
Exchange Rates
1$ US = 45.19 gourdes
Inflation
14.4%
Social/Cultural Factors
This category of factors describe the beliefs, values, attitudes,
opinions, and lifestyles of persons in the firm’s external
environment as developed from cultural, demographic, religious,
educational and ethnic conditioning.
Examples: Lifestyle changes, career expectations, age distribution,
regional shifts in population, birth rates, life expectancies,
growth rate in population, consumer activism, rate of family
formation, literacy levels, language, social institutions, skill level of
the workforce
Social/Cultural Factors
Source: CIA Factbook
Total Population: 279,912 (Oakland County, MI: 1,213,339)
Fertility rate: 1.65 children/woman
Ethnic Groups: Black (90%), White (4%), Asian and Mixed (6%)
Language: English
Years of Compulsory Schooling: 12 years
Literacy Rates: 99% (United States: 97%)
Religious Affiliations: Christian (71%), None (17%), Other (12%)
Other Info: Life Expectancy = 71 (m) and 75 (f)
Social/Cultural Factors
Source: CIA Factbook and World Bank
Total Population: 8.3 million (2006)
Fertility rate: 4.9 children/woman
Ethic Groups: Black (95%), White and Mixed (5%)
Language: French and Creole
Years of Compulsory Schooling: 6 years
Literacy Rates: 52.9%
Religious Affiliations: Christian (96%), None (1%), Other (3%)
Other Info: Doctors per 100,000 people = 25, Life expectancy = 53.23years
Political/Legal Factors
These factors define the legal and regulatory parameters within
which a firm must operate.
Examples: Antitrust regulations, environmental protection, tax laws,
employment laws, stability of government, foreign trade protection
Form of government, political ideology, protectionist sentiment,
terrorist activity, legal system, government’s attitude toward foreign
firms, corruption.
Politics in Barbados
CIA Factbook and http://www.transparency.org
Government Type: Parliamentary democracy; independent sovereign
state within the Commonwealth
Legislative Branch: Bicameral Parliament (Senate (appointed by the
Governor General) and House of Assembly (elected by popular vote))
Political Parties: 2
Corruption: Ranked 21 in the world by Transparency International
Politics in Haiti
CIA Factbook and http://www.transparency.org
Government Type: Bicameral National Assembly
Legislative Branch: Senate and Chamber of Duties)/All elected by
popular vote
Political Parties: 24
Corruption: Ranked 145 by Transparency International
Technological Factors
This factor deals with the general technological infrastructure, the
rate of change in technology, and those things impacting the
development and introduction of new technologies.
Examples: Total government spending for R&D, Total industry
spending for R&D, focus of technological efforts, patent protection,
new developments in technology transfer, productivity
improvements through automation, Regulations on technology
transfer, information flow infrastructure, patent and trademark
protection.
Barbados – Technological Factors
Source: World Bank (2000, 2004)
Haiti Technological Factors
Source: World Bank (2000, 2004)
See Handout
Balancing Macro Factors is Key
Do low wages in developing countries translate into
lower manufacturing costs? What about higher profitability?
Globalization in Competition
Multi-domestic
Competition
Global
Competition
Multidomestic Competition
Competition is essentially segmented from country to country.
Competition in one country is independent of competition in
other countries.
Examples: Grocery, healthcare
Global Competition
Global competition occurs when competition crosses
national borders.
A firm’s strategic moves in one country can be significantly
affected by it’s competitive position in another country.
Examples: Automobiles, Consumer electronics, Petroleum
How should firms position themselves
to compete in the global marketplace?
Competing Pressures
Pressure for Local Responsiveness
Pressure for Cost Reductions
Consumer’s Tastes and Preferences
Commodity-type product
Differences in Infrastructure or
Traditional Practices
Universal needs of customers
Competitors use a low cost position
Differences in Distribution
Channels
Demands of Host Governments
Multidomestic Strategy
Focus: Local Responsiveness
Customize the strategy to fit the circumstances of each host country
Little to no coordination of strategy across countries
Form subsidiary companies to handle operations in each host
country; each subsidiary operates more or less autonomously
Global Strategy
Focus: Cost Reduction
Same basic strategy worldwide (minor variations where essential)
Takes advantage of location economies
Locate subunits near high-quality raw material
Locate subunits near sources of high-quality or low cost labor
Seek low cost financing anywhere in the world
Much more worldwide coordination
All major strategic decisions are closely coordinated at global headquarters.
Structure is designed to unify subsidiaries.
Entry Strategies
Licensing
Exporting
Franchising
Contract
Manufacturing
JV
and
Strategic
Alliances
Least
Foreign
Direct
Investment
Most
Amount of Commitment, Control, Risk and Profit Potential
Examples of Partnerships
Strategic Alliance
A
B
Joint Venture
A
B
C
Can be leveraged internationally by linking
value chain activities
Motivations for Partnerships
1. Generate scale economies: Toyota/GM joint venture (Toyota could
spread fixed investment over more units)
2. Gain access to strategic markets: Japanese firm, JVC, provided design
technology to partner in exchange for access to European market.
3. Overcoming trade barriers: Inland Steel and Nippon Steel built cold
steel plant in Indiana (Nippon supplied technology, capital and
access to Japanese firms in the US).
4. Use excess capacity: Toyota/GM joint venture used an idle GM plant
5. Gain access to low-cost manufacturing capabilities: GE sourcing
microwaves from Korea.