Transcript The Global Environment - Winthrop University: College of

The Global Environment
Chapter 5
Globalization
• Globalization is the strategy of approaching
worldwide markets with standard products
• The strategic operations and threats posed by
globalization affect almost every U. S. industry
• Understanding the nuances of competing in
global markets is becoming a required
competence of strategic managers
Why Firms Globalize
• To reap benefits from industries and
technologies developed abroad
• Direct penetration of foreign markets can
drain vital cash flows from a foreign
competitor’s domestic operations
– Reduces the competitor’s ability to invade U. S.
markets
• Question: should firms be proactive or
reactive? (Exhibit 5.3)
Complexity of the Global Environment
•
•
•
•
•
Differences in political, legal, social, and cultural environments
Demands of foreign governments
Widely differing economic and social conditions
Business practices and negotiating styles are different
Communication with, and control of, overseas affiliates is
difficult
• Extreme competition
• Restrictions imposed by the European Union, Association of
Southeast Asian Nations (ASEAN), and Latin American Free
Trade Area, among others
Pressures for Cost Reductions
•
•
•
•
•
•
•
The product is a commodity
Differentiation on non-price factors is difficult.
Price is the main competitive weapon
Competitors are based in low-cost locations
There is persistent excess capacity
Customers are powerful, and switching costs are low.
Global competition, global trade, and global
investment opportunities.
Pressures for National Responsiveness
•
•
•
•
•
•
•
Differences in distribution channels
Host government demands
Different product standards
Different customer needs and tastes
Businesses or consumers prefer locally made products
Managing details in a global organization is difficult and
complex.
Subsidiaries know local market needs and management
practices better than headquarters.
Global Strategy
• Produce standard products efficiently in large
facilities, and use a standard marketing strategy
• Little or no national responsiveness
• This strategy seeks to benefit from economies of
scale in production, distribution, marketing, and
purchasing
– Requires close coordination with headquarters
• Production facilities are located where total costs of
production, transportation, and tariffs are low
(location economies)
Global Strategy (2)
• Used when
– The need for cost reduction is high AND
– The need for national responsiveness is low
• This strategy is used to compete on low prices.
• Some firms that use global strategies: Canon, Fuji,
Texas Instruments
• Firms that make commodity products (industrial
chemicals, paper, etc.) often use global strategies
International Strategy
• This strategy used by firms with products or core
competencies that international competitors cannot
match.
– The objective is to increase earnings by utilizing core
competencies in foreign markets
– These firms usually compete on differentiation
• Used when
– The need for cost reduction is low AND
– The need for national responsiveness is low
International Strategy (2)
• Home office controls product development and marketing
strategy.
• Limited customization of products and marketing strategy
if necessary
– Limited national responsiveness
• Production and a marketing department in each major
country  more expensive than global strategy
– This strategy does not take advantage of economies of scale and
location economies
• Some firms that use this strategy: IBM, Wal-Mart
Multidomestic Strategy
• A strategy that attempts to maximize national
responsiveness
• Firm usually has product development, production, and
marketing in each country
– This strategy does not take advantage of economies of scale and
location economies
• Often used by companies that serve niche markets
– National responsiveness is more important than cost pressures.
• Often, distinctive competencies are not transferred from
one market to another.
Multidomestic Strategy (2)
• Used when
– The need for cost reduction is low AND
– The need for national responsiveness is high
• Problems
– Lack of coordination among subsidiaries in different
countries
– Decisions made by a subsidiary may not be in the best
interest of the company as a whole
– High costs
Transnational Strategy
• A strategy that seeks to
– Achieve low costs by using economies of scale and location
economies
– Transfer core competencies within the firm
– Achieve a high degree of national responsiveness
• Used when
– The need for cost reduction is high AND
– The need for national responsiveness is high
• Some firms that use this strategy: Toyota, Honda, Caterpillar,
AT & T
Transnational Strategy (2)
• Requirements for success:
– Transfer of knowledge throughout the company (global
learning)
– Coordination of production, purchasing, and marketing
throughout the company
– A corporate culture that encourages mutual trust,
coordination, and knowledge sharing
• Hardest strategy to implement
Comparison of the 4 Strategies
National responsiveness
Global integration
Low
High
High
Global
strategy
Transnational
strategy
Low
International
strategy
Multi-domestic
strategy