class 8-WEBCT

8/7/2019 class 8-WEBCT

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Today’s Objectives

• How globalization has become a keystrategic choice

• What are the benefits and costs relatedto globalization?

• Twin challenges of cost reductions and

local responsiveness• Different globalization strategies

• Competing internationally• Key globalization decisions

• Where, when, how, and to what degree



Global Strategies

• Why go global?

• Greater earning potential

• Access markets where local competitorslack firm’s distinct competencies

• Driven by macro forces:

• Global industry scope• Decline of “national border”

• Shift from national to international markets

• Reduction in trade & investment barriers

• WWW brings products to global audiences



Determinants of National Advantage:

Porter’s Diamond Model



4

Benefits of Global Strategies1. Increased market size

• Domestic market may lack the size to support efficient scale

manufacturing facilities

2. Return on investment (ROI)

• Large investment projects may require global markets to justifythe capital outlays

• Weak patent protection in some countries implies that firmsshould expand overseas rapidly in order to preempt imitators

3. Economies of scale and learning (e.g., Honda & GM)

4. Location advantages• Achieve better access to critical resources (i.e., raw materials,

lower cost labor, key customers, energy)



4 Globalization Strategies

• Requires a fine balance between benefits ofglobal integration & national differentiation

1. Standard Globalization

• Pursuit of cost reduction – economies of scale & locationeconomies

• High cost pressures, minimal differentiation

2. Localization Strategy

• Customizing firm’s products/processes to match nationalmarkets tastes

• Substantial differences across nations, cost pressures minimal



4 Globalization Strategies (cont’d)

3. International• Products serve universal needs, minimal

differentiation required

• Lack of significant local competitors, low costpressures

• HO retains tight control over operations

4. Transnational• Requires both low costs and differentiation

across markets

• Requires high level of information andknowledge sharing between subsidiaries

• Conflicting demand strategy



Risks in International Environment

1. Political risks

• Government instability

• Conflict or war

• Government regulations

• Conflicting and diverse legal authorities

• Potential nationalization of private assets

• Government corruption

• Changes in government policies



Risks in International Environment (Cont’d)

2. Economic risks

• Differences and fluctuations in currency values

• Investment losses due to political risks

3. Management problems

• Geographic dispersion• Logistical costs

• Cultural diversity

• Other differences by country

• Relationship between organization and host country



Power distance

Uncertainty avoidance

KoreaIsrael

USA

France

National cultures: “power difference” &“uncertainty avoidance”

National cultures: “power difference” &“uncertainty avoidance”

Denmark

Mexico

Malaysia

PhilippinesIndia

Japan



Individualist

KoreaIsrael

USA France

National cultures: individualism/collectivismNational cultures: individualism/collectivism

Denmark

MexicoPhilippinesIndia

Japan

Collectivist

UK

Aust.

Germany

Malaysia Guatemala

Venezuela

Italy



Market Entry Decisions

• Which markets to enter?• Long run profit potential

• Balance of cost benefits and profit risks

• When to enter the market?• First-mover advantage: pre-emptive, build

market share

• Disadvantages: pioneering costs, uncertainalliances

• Enter on what scale?• Large scale: difficult to reverse, financial

outlay

• Small scale: market research, low costs



Types of Entry Modes

1. Exporting• Beginning globalization strategy, pure export

Usually manufacturers

• High trade and transport costs2. Licensing

• Selling the rights to have a firm’s productsproduced overseas

• Low financial costs, market expansion

3. Franchising• Similar to licensing, includes intellectual

property, intangibles, operations guidelines

• Usually services industry

• High risk of product or brand degradation



Types of Entry Modes

4. Joint Ventures (e.g., GM & SAIC)• Firm establishes partnership with local firm

• Shared costs and risk benefits

• Local market and consumer expertise

• Often political requirement in developingmarkets

5. Wholly-Owned Subsidiaries• Parent firm owns 100% of firm‘s stock

• Gain local economies of scale and

experience curve• High costs and high risks involved

6. Cross-border Acquisitions• Incompatible culture: corporate and national



Normal Serious Extreme

Good

Satisfactory

Poor

Fully-OwnedSubsidiary

Majority

Partnership

Sales Branch

Licensee with SmallParticipation

Pure Licensing

Indirect Exports

Political & Economic Risk

Strategic Fit

Strategic Fit & Risks of Market Entry

Strategies

MajorityControlled

MinorityInterest

Joint Venture



Resource commitment

TRANSACTIONS DIRECT INVESTMENT

Spotsales

Exporting

Foreignagent /

distributor

Licensing

Franchising

Joint venture

Marketing &Distribution

only

Long-term

contract

Licensingpatents &other IP

Fullyintegrated

Wholly ownedsubsidiary

Marketing&Distribution

only

Fullyintegrated

Low High

Alternative Modes of Overseas Market EntryAlternative Modes of Overseas Market Entry



Today’s Objectives

• How globalization has become a keystrategic choice

• What are the benefits and costs relatedto globalization?

• Twin challenges of cost reductions and

local responsiveness• Different globalization strategies

• Competing internationally

• Key globalization decisions

class 8-WEBCT

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