Class 1
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Transcript of Class 1
Globalization
How do firms grow?
Basis presumption-A firm needs to be competitive in its core business before it can choose the direction of its diversification
Your responses……pliz
• What is globalization, and why is it important, even to domestic firms?
What is Globalization?
• Value of world exports in 2000 tripled between 1980 and 2000.
• Foreign investment grow more than twenty-fold.
• Firms without international goals may find their domestic markets under threat from foreign competition.
What is Globalization?
• Standardization of products & services• Zaha na jaye bhelgari, woha jai marwari
– Go to place where there is a market but inaccessible area
– Comes with a cost—Why go there?
ACCRA
What does Globalization Mean for You?
• More choices• Lower prices• Blurred national identity for products
and services• Career choices and progression
What does Globalization Mean for You?
The global top 20 countries
Who benefits from globalization?Globalization index rankings
Who Benefits from Globalization?Globalization and social expenditure
Does globalization makes people happy?
Your responses…pliz
Does globalization makes people happy?
Globalization is the interplay of two forces
• Homogeneous civilization• Standard products and services• Barriers to entry & exit should be
minimum
• World is heterogeneous• Non-standard products and services• Interaction between cultures, products
and different systems (legal, political economic etc)
The Distinctive Content ofInternational Strategy
Finally…..
International strategy is challenging and interesting and offers degrees of freedom…………..at intermediate levels of cross-border integration.
Can’t ignore barriers. Can’t ignore linkages.
Agenda…for next class
• What is Global strategy? • How does global strategy create value
relative to the alternative of country-specific strategies?
• Does broad global scope actually live up to its promise?
What is Global strategy?
• Configuration: What do we do where?
• Coordination: How tightly do we tie together activities in different locales?
What is Global strategy?
• A viable global strategy configures and coordinates better than available alternative means for accomplishing comparable ends.
CONFIGURATION AND COORDINATION
NokiaR&D Units FinlandGermanyU.S.HungaryChinaMalaysiaS. KoreaAustraliaU.K. JapanItalyCanadaSwedenDenmark
Production FinlandGermanyU.S. Hungary SwedenChina MalaysiaU.K.FranceS. KoreaAustralia BrazilU.K. Mexico
Stock Exchange ListingsFinlandGermanyU.S. Hungary SwedenChina U.K.Malaysia France
When Do YouCentralize an Activity?
Economiesversus
Diseconomies of Scale
When Do YouCentralize an Activity?
• When there is a compelling advantage to carrying out an activity in a particular location
• When the costs of customizing the activity to different locations are not too high
• Home country’s institutions determine whether centralizing at home is advantageous or not
An essence of global strategy is not be restricted by your home country limitations but it is a non-trivial decision.
The Localization Dilemma:Morgan Stanley Japan
• Activity Localization• Research Information dissemination styles and ways of
assimilating /communicating analysis differ.• New Products Using experience in U.S./Europe to
introduce new products. Change Japan rather than change to Japan.
• Marketing Exceedingly difficult to penetrate local relations
• HR U.S. firm trying to create a local face• IT Rely on local firms for local-local IT and on
China/India contractors for other software
The Localization Dilemma:Morgan Stanley Japan
• “One group says that this office is Morgan Stanley, applied to Japan. The other says this is Morgan Stanley Japan; that is, keeping New York off our backs is important. There is a healthy tension between the two views.”
The Localization Dilemma:Notable Failures
• Microsoft’s misreading of its PC software in China in 1993
• Kellogg’s overestimation of the demand for breakfast cereal in India
• McDonald’s overestimation of taste homogeneity in the Philippines
• STAR TV’s overestimation of demand for recycled Western TV content in south and Southeast Asia
General Electric Medical Systems
Why not have outsourcing?
Challenges of globalization?
• Standardized products and services• Co-ordination of a globally distributed
supply chain• Globalization =f(industry)
Tradeoffs in Alternative ConfigurationsCitibank HSBC
Organizational Line of business World’s local bankemphasis Geographic focusLocal Single B\L Local B\L sheetsCommitment Large bets Conservative
Hedged local positions Unhedged local positions
Easy entry/exit Never leave a countryvoluntarily
Talent Centralized Local talentResults Most profits from U.S Even distribution of
profitFaster and volatile Slower and steadierstock price stock price appreciation appreciation
Does Globalization help the natrual environment?
• Common complaint that globalization hurts the environment
• Argued that firms relocate to escape tough pollution rules at home
• Many firms adhere to strict codes of environmental protection, and engage in cleanup of locations
• Environment is just one factor in location decision
Does globalization helps countries to become competitive?
•Institutions•Infrastructure•Macroeconomic Environment•Health & Primary education
Efficiency Enhancers• Higher education•Market efficiency•Technological readiness•Market size
Innovation & sophistication factors• Business Sophistication•Innovation
Factor Driven economies
Efficiency Driven
economies
Innovation Driven
economies
Basic requirements
What motivates a firm to go international?
Your responses…pliz
What motivates a firm to go international?
• Traditional Motivations• Secure supplies• Market seeking behaviour• Low factor cost of production
• Changes in economic, technological & social developments
• Shortening product life cycle• Ballooning R&D costs
International Product Life Cycle Raymond Vernon
International versus Domestic Business
• International business is the outgrowth of domestic business.
• Most major corporations started their operations in the domestic market.
• International entrepreneurs– Individuals or companies that invest and
operate in another country without a home base
International versus Domestic Business
• Significantly different due to differences in:– Environmental Dynamics
• Currency, inflation, interest rates, accounting practices, cultures, social customs, laws, political stability
– Operational Nature• Communication, coordination, motivation,
differences in organizational principles and management philosophies
Test for International Strategy
• The “Better Off” Test– Some extra value needs to be created in the new country– How can this extra value be created?
STATIC
ARBITRAGE
Test for International Strategy
• The “Ownership Test”– Why can’t a firm just sell or license its
products or buy resources than being rather than being international?
What is different about international strategy?
• Heterogeneity across markets• The scale and complexity of global
operations• The Unpredictability of economic
conditions across nations
Heterogeneity?
What is it? What sort of problems ?
Decisions-
Scale
Does scale result in CA?What sort of organizational structure is appropriate
Decisions
Volatility
What is it? Can volatility results in CA?