Chapter 10: Competing Around the World

Globalization 1.0

(1900-1941) important business functions were located in the home country only sales and distribution operations took place overseas blossoming of the idea of MNEs

Three Stages of Globalizaton

1. globalization 1.0 (1990-1941) 2. globalization 2.0 (1945-2000) 3. globalization 3.0 (21st century)

CAGE Distance Framework

a decision framework based on the relative distance between home and a foreign target country along four dimensions: cultural distance, administrative and political distance, geographic distance, and economic distance

Foreign Direct Investment (FDI)

a firm's investment in value chain activities

Administrative and Political Distance

captured in factors such as the absence or presence of shared monetary or political associations, political hostilities, and weak or strong legal and financial institutions colony-colonizer relationships also have a strong positive effect on bilateral trade between countries also erect other political and administrative barriers, such as tariffs, trade quotas, FDI restrictions, etc. strong legal and ethical pillars as well as well-functioning economic institutions such as capital markets and an independent central bank reduces distance strong institutions, both formal and informal, reduce uncertainty and thus reduce transaction costs

Factor Conditions

describe a country's endowments in terms of natural, human, and other resources. other important factors include capital markets, a supportive institutional framework, research universities, and public infrastructure (airports, roads, schools, health care system), among others

Gain Access to a Larger Market

economies of scope and economies of scale benefits can be reaped

Complementors

firms that provide a good or service that leads customers to value the focal firm's offering more when the two are combined

Gain Access to Low-Cost Input Factors

low-cost strategy businesses are attracted to go overseas to gain access to low-cost input factors access to low-cost raw materials and labor costs

Global Strategy

part of a firm's corporate strategy to gain and sustain a competitive advantage when competing against other foreign an domestic companies around the world

Exporting

producing goods in one country to sell in another often used to test whether a foreign market is ready for a firm's products

Global-Standardization Strategy

strategy attempting 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

International Strategy

strategy that involves leveraging home-based core competencies by selling the same products or services in both domestic and foreign markets

Globalization

the process of closer integration and exchange between different countries and people worldwide, made possible by falling trade and investment barriers, advances in telecommunications, and reductions in transportation costs

Economic Distance Increases Between Two Countries When...(3)

1. different consumer incomes 2. different costs and quality of natural, financial, and human resources 3. different information or knowledge

3 Disadvantages to Going Global

1. liability of foreignness 2. loss of reputation 3. loss of intellectual property

Benefits of Global-Standardization Strategy (2)

1. location economies: global division of labor based on wherever best-of-class capabilities reside at lowest cost 2. economies of scale and standardization

2 Particular Downsides of Global Business Reduced by Foreign-Entry Modes with a High Level of Control

1. loss of reputation 2. loss of intellectual property

Costs of Global-Standardization Strategy (5)

1. no local responsiveness 2. little or no product differentiation 3. some exchange-rate exposure 4. "race to the bottom" as wages increase 5. some risk of IP expropriation

Risks of International Strategy (3)

1. no or limited local responsiveness 2. highly affected by exchange-rate fluctuations 3. IP embedded in product or service could be expropriated

Characteristics of International Strategy (5)

1. often the first step in internationalizing 2. used by MNEs with relatively large domestic markets or strong exporters 3. well-suited for high-end products with high value-to-weight ratios such as machine tools and luxury goods that can be shipped across the globe 4. products and services tend to have strong brands 5. main business-level strategy tends to be differentiation because exporting, licensing, and franchising add additional costs

Geert Hoftstede's 6 Dimensions of Cultural Emergence

1. power distance 2. individualism 3. masculinity-femininity 4. uncertainty avoidance 5. long-term orientation 6. indulgence

Characteristics of Global-Standardization Strategy (2)

1. used by MNEs that are offering standardized products and services 2. main business-level strategy is cost leadership

Liability of Foreignness

additional costs of doing business in an unfamiliar cultural and economic environment, and of coordinating across geographic distances

Develop New Competencies

attractive to firms that base their competitive advantage on differentiation strategy take part in communities of learning

Location Economies

benefits from locating value chain activities in the world's optimal geographies for a specific activity, wherever that may be

Integration-Responsiveness Framework

strategy framework that juxtaposes the pressures an MNE faces for cost reductions and local responsiveness to derive four different strategies to gain and sustain competitive advantages when competing globally

National Culture

the collective mental and emotional "programming of the mind" that differentiates human groups

Local Responsiveness

the need to tailor product and service offerings to fit local consumer preferences and host-country requirements

Economic Distance

wealth and per capita income of consumer companies from wealthy countries benefit in cross-border trade with other wealthy countries when their competitive advantage is based on economies of experience, scale, scope, and standardization companies from wealthy countries also trade with companies from poor countries to benefit from economic arbitrage

Globalization 2.0

(1945-2000) not only to meet the needs that went unfulfilled during the war years but also to reconstruct the damage from the war MNEs began to create smaller, self-contained copies of themselves required significant amounts of foreign direct investment knowledge flow back to U.S. headquarters, however, remained limited in most instances

Globalization 3.0

(21st century) currently in this stage now freely locate business functions anywhere in the world based on an optimal mix of costs, capabilities, and PESTEL factors MNE reorganizes from a multinational company with self-contained operations in a few selected countries to a more seamless global enterprise with centers of expertise each of these centers of expertise is a hub within a global network for delivering products and services to increase the rate of low-cost innovation that can be sued to disrupt existing markets trend toward global collaboration networks during this stage raising the interesting question "What defines a U.S. company?"

Administrative and Political Distance Increases Between Two Countries When... (5)

1. absence of trading bloc 2. absence of shared currency, monetary or political association 3. absence of colonial ties 4. political hostilities 5. weak legal and financial institutions

Benefits of Transnational Strategy (2)

1. attempts to combine benefits of localization and standardization strategies simultaneously by creating a global matrix structure 2. economies of scale, location, experience, and learning

2 Opposing Forces MNEs Face when Competing around the

1. cost reductions 2. local responsiveness

Cultural Distance Increases Between Two Countries When... (3)

1. different languages, ethnicities, religions, social norms, and dispositions 2. lack of connective ethnic and social networks 3. lack of trust and mutual respect

Risks of Multidomestic Strategy (4)

1. duplication of key business functions in multiple countries leads to high cost of implementation 2. little or no economies of scale 3. little or no learning across different regions 4. higher risk of IP expropriation

Porter's Diamond of National Competitive Advantage (4)

1. factor conditions 2. demand conditions 3. competitive intensity in focal industry 4. related and supporting industries/complementors

Economic Distance Most Affects Industries or Products...(2)

1. for which demand varies by income (cars) 2. in which labor and other cost differences matter (textiles)

3 Advantages of Going Global

1. gain access to a larger market 2. gain access to low-cost input factors 3. develop new competencies

Costs of Transnational Strategy (3)

1. global matrix structure is costly and difficult to implement, leading to high failure rate 2. some exchange-rate exposure 3. higher risk of IP expropriation

Benefits of Multidomestic Strategy (3)

1. highest-possible local responsiveness 2. increased differentiation 3. reduced exchange-rate exposure

Four Different Strategic Positions to Gain and Sustain Competitive Advantage when Competing Globally

1. international 2. multidomestic 3. global-standardization 4. transnational

Geographic Distance Increases Between Two Countries When...(3)

1. lack of common border, waterway access, adequate transportation, or communication links 2. physical remoteness 3. different climates and time zones

Benefits of International Strategy (3)

1. leveraging core competencies 2. economies of scale 3. low-cost implementation through: a. exporting or licensing (for products) b. franchising (for services) c. licensing (for trademarks)

2 Consequences for MNES from Continued Economic Development across the Globe

1. rising wages and other costs are likely to negate any benefits of access to low-cost input factors 2. as the standard of living rises in emerging economies, MNEs are hoping that increased purchasing power will enable workers to purchase the products they used to make for export only

Administrative and Political Distance Most Affects Industries or Products...(1)

1. that a foreign government views as staples (electricity), as building national reputations (aerospace), or as vital to national security (telecommunications)

Characteristics of Transnational Strategy (2)

1. used by MNEs that pursue a blue ocean strategy at the business level by simultaneously focusing on product differentiation and low cost 2. mantra: think globally, act locally

Characteristics of Multidomestic Strategy (4)

1. used by MNEs to compete in host countries with large and/or lucrative but idiosyncratic domestic markets 2. often used in consumer products and food industries 3. main business-level strategy is differentiation 4. MNE wants to be perceived as local company

Cultural Distance Most Affects Industries or Products...(3)

1. with high linguistic content (TV) 2. related to national and/or religious identity (foods) 3. carrying country-specific quality associations (wines)

Geographic Distance Most Affects Industries or Products...(3)

1. with low value-to-weight ratio (cement) 2. that are fragile or perishable (glass, meats) 3. in which communications are vital (financial services)

CAGE Framework Acronym

C ultural A dministrative and political G eographic E conomic

Multinational Enterprise (MNE)

a company that deploys resources and capabilities in the procurement, production, and distribution of goods and services in at least two countries

Polycentric Innovation Strategy

a strategy in which MNEs now draw on multiple, equally important innovation hubs through the world characteristic of Globalization 3.0

Natural Resources

are often not needed to generate world-leading companies, because competitive advantage is often based on other factor endowments such as human capital and know-how

Demand Conditions

are the specific characteristics of demand in a firm's domestic market

Globalization Hypothesis

assumption that consumer needs and preferences throughout the world are converging and thus becoming increasingly homogenous

Death-of-Distance Hypothesis

assumption that geographic location alone should not lead to firm-level competitive advantage because firms are now, more than ever, able to source inputs globally

Greenfield Operations

building new, fully owned plants and facilities from scratch

Competitive Intensity in a Focal Industry

companies that face a highly competitive environment at home tend to outperform global competitors that lack such intense domestic competition

Multidomestic Strategy

strategy pursued by MNEs that attempts to maximize local responsiveness, with the intent that local consumers will perceive them to be domestic companies

Transnational Strategy

strategy that attempts to combine the benefits of a localization strategy (high local responsiveness) with those of a global-standardization strategy (lowest-cost position attainable)

Born Global

their founders start them with the intent of running global operations

Geographic Distance

two countries are from each other but also includes additional attributes, such as the country's physical size, the within-country distances to its borders, the country's topography, its time zones, whether the countries are contiguous to one another or have access to waterways and the oceans, and the countries infrastructure

National Competitive Advantage

world leadership in specific industries