Globalization of Strategy - Winthrop University

Globalization of Strategy - Winthrop University

Globalization of Strategy MGMT 480 Dr. Keith Robbins Globalization Process of closer integration and exchange between different countries and peoples world-wide Made possible by: Falling trade and investment barriers Advancements in telecommunications

Reduced transportation costs Why Globalize? Resource-based: resources are the key to a firms superior performance Superior Craftsmanship: better/cheaper labor in different countries Transportation costs: decrease costs by having warehouse in country

Better production efficiency Avoid political, trade, and regulatory rules Gain access to a larger market Why Globalize? Competitive Disadvantage If you are not global in your reach and your rivals are 4 Dominant Multinational Market

Groups The G-7 Nations NAFTA (soon to be AFTA?) Pacific Rim /Asia EU 5 The Group of 7 Nations Formerly the G8 (Russia) These meetings of the leaders of the United States, Britain, Italy, Japan, France, Germany, and Canada are the way the

powerful industrialized nations of the world seek to work out differences between themselves and arrive at policies that can reduce conflict and other problems elsewhere. 6 The European Union Austria, Belgium, Bulgaria, Croatia, Cyprus (Greek part) Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, United Kingdom 7 Evolutionary Development of a Global Corporation 1. Export-import activity Evolution of a

global firm entails progressively involved strategy levels 2. Foreign licensing and technology transfer 3. Direct investment in overseas operations (manufacturing plants and global management skills) 4. Substantial increase in foreign investment (foreign assets comprise significant portion of total assets) 8 Comparative Management Framework Compare and Contrast the Management Models,

Practices, Principles, Strategies, PoliciesAcross Classes of Organizations Could be Profit vs Not-For-Profit, Small vs Large , Private vs Public Most Often Concerned with Comparative Analysis Among Different Regions of World 9 Multi-domestic Strategy Also known as localization strategy

Maximize local responsiveness, hoping that local consumers will perceive them to be domestic Be perceived as local. Multi-domestic Strategy Pros Reduced exchange-rate exposure Value creation in host country Cons Costly and inefficient

Highly autonomous units Multi-domestic Strategy Examples McDonalds China: Rice McWraps Italy: Pizzarotto

Saudi Arabia: Mc Arabia Chicken India: No beef muttonbased and vegetarian burgers Lowered prices based on average income Heinz Always sell ketchup China soy sauce Indonesia chili sauces

Brazil tomato sauces Multi-domestic Strategy Examples Hard Rock Cafe MTV Hawaii fresh fish Retail shops carry location specific items

Feeds for UK and Ireland Feeds for Germany, Austria, and Switzerland Feeds for Scandinavia, Italy, France, Spain, and Holland London: t-shirts with London written on it

Prague: signature pins Global Strategy Attempts to reap significant economies of scale and location economies by pursuing a global division of labor based on wherever best-of-class capabilities reside at the lowest cost Arises due to: High pressure for cost reductions Low pressure for local responsiveness

Lowest costs possible. Global Strategy Pros Obtain the lowest costs Economies of scale Cons If you cant get the lowest costs you wont succeed

No local responsiveness No product differentiation Global Strategy Examples Lenovo Computer Manufacturers; Makers of the ThinkPad Hubs in Beijing, Shanghai, Raleigh, and Japan

Manufacturing in Mexico, India, and China Walmart Tried to enter Germany Wanted door greeters and polite staff Couldnt gain enough

market share and keep their costs low Transnational Strategy Also called glocalization Attempts to combine the benefits of a localization strategy with those of a global strategy High local-responsiveness and lowest cost attainable Think globally, act locally. Transnational Strategy

Pros Economies of scale Location Learning Cons Costly and difficult to implement

Exchange rate exposure Transnational Strategy Examples Unilever Coca-Cola Brand & innovation lead to lower environmental impact Retains the same secret formula in each country

Sustainable growth operations in multiple continents Sells in 200 countries world-wide Bottles will be in local language Create a positive social improvement Drivers of Cost Reductions Globalization

When companies produce commodity products Where differentiation on nonprice factors is difficult and price is the main competitive weapon Where competitors are based in low-cost locations Where there is persistent excess capacity Where consumers are powerful and face low switching

costs The liberalization of the world trade and investment environment 20 Drivers of Local Responsiveness Multidomestic Differences in customer tastes and preferences Differences in infrastructure and traditional practices Differences in distribution channels

Host government demands 21 Four Basic Strategies 22 Choosing a Global Strategy International strategy Creating value by transferring competencies and products to foreign markets where indigenous competitors lack those competencies and products

Makes sense if a company has a valuable competence that indigenous competitors in foreign markets lack and if it faces weak pressure for local responsiveness and cost reductions 23 Choosing a Global Strategy (contd) Multidomestic strategy Developing a business model that allows a company to achieve maximum local responsiveness Makes sense when there are high pressures for local responsiveness and low pressures for cost reductions

Companies may become too decentralized and lose the ability to transfer skills and products 24 Choosing a Global Strategy (contd) Global strategy Focusing on increasing profitability by reaping cost reductions that come from experience curve effects and location economies; pursuing a low-cost strategy on a global scale Makes sense when there are strong pressures for cost reductions and demand for local responsiveness is minimal

25 True Global Strategy The strategy of approaching worldwide markets with standardized products. 26 Choosing a Global Strategy (contd) Transnational strategy/Glocalization (Most Common) Simultaneously seeking to lower costs, be locally responsive, and transfer competencies in a way consistent with global learning 27

Multidomestic and Global Industries AA multidomestic multidomestic industry industry competition competition is is essentially essentially segmented segmented from from country country to to country country (beer, (beer, food food retailing) retailing) AA global global industry industry is

is one one in in which which competition competition crosses crosses national national borders borders (tires, (tires, athletic athletic shoes) shoes) 28 Strategic Management in Global Industries The World as One Battleground More interconnected/similar than ever before


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