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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
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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
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Determinants of National Advantage:
Porter’s Diamond Model
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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)
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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
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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
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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
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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
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Power distance
Uncertainty avoidance
KoreaIsrael
USA
France
National cultures: “power difference” &“uncertainty avoidance”
National cultures: “power difference” &“uncertainty avoidance”
Denmark
Mexico
Malaysia
PhilippinesIndia
Japan
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Individualist
KoreaIsrael
USA France
National cultures: individualism/collectivismNational cultures: individualism/collectivism
Denmark
MexicoPhilippinesIndia
Japan
Collectivist
UK
Aust.
Germany
Malaysia Guatemala
Venezuela
Italy
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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
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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
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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
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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
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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
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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