MGMT 352 Chapter 10- Global Strategy

global standardization strategy

-attempts to reap significant: *economies of scale & location economies *through global division of labor where capabilities are at the lowest cost - arises out of the combination of: *high pressure for cost reductions *low pressure for local responsiveness - price becomes the main competitive weapon Commodity products or BPO

advantages of going global

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

stages of globalization

1. Globalization 1.0 (1900-1941): all important business functions in home country and only sales/distribution take place overseas 2. Globalization 2.0 (1945-2000): new focus on growing business to meet needs unfulfilled in war years but also to reconstruct from damage (MNE's created smaller self contained copies of themselves) 3. Globalization 3.0 (21st century): MNE's are important and companies freely locate business functions where there will be an optimal mix of costs, capabilities and PESTEL factors

disadvantages of going global

1. Liability of foreignness 2. Loss of reputation 3. Loss of intellectual property

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.

loss of reputation

A firm's reputation can have several dimensions, including a reputation for innovation, customer service, or brand reputation side effects of globalization (considerable risks) corrupt local govs can cause the search for low cost labor to have tragic effects Directly concerns CSR (corporate social responsibility)

administrative and political distance

Captured in factors such as: -Shared monetary or political associations -Political hostilities -Weak or strong legal and financial institutions Political and administrative barriers include: -Tariffs -Trade quotas -FDI restrictions Colony-colonizer relationships have a strong effect on bilateral trade between countries Strong legal and ethical pillars and well-functioning economic institutions reduce distance

How to enter foreign markets?

Contract Based, Strategic Alliances, or Subsidiaries Low investment/control to high investment/control

porter's diamond framework

Explains national competitive advantage -Factor conditions -Demand conditions -Competitive intensity in focal industry -Related and supporting industries/complementors

polycentric innovation strategy

MNE's draw on multiple, equally important innovation hubs globally

globalization

The process of closer integration and exchange between different countries and peoples worldwide, made possible by falling trade and investment barriers, advances in telecommunications, and reductions in transportation costs. engine behind this is a multinational enterprise (MNE)

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

factor conditions

a country's endowment with resources capital markets, supportive institutional frameworks, research universities, and public infrastructure

Liability of foreigness

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

gain access to low cost input factors

appealing for MNE's with a low cost-leadership strategy Business Process Outsourcing (BPO) for low cost labor

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 high performing firms in certain industries ARE sometimes concentrated in specific countries

multidomestic strategy

attempts to maximize local responsiveness hoping local consumers will perceive their products/services as local high pressure for local responsiveness and low pressure for cost reductions Frequently used when entering host countries with large markets Common in consumer products and food industries Reduced exchange rate exposure Costly and inefficient

develop new competencies

attractive for firms with a differentiation strategy communities of learning location economies polycentric innovation strategy

location economies

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

related and supporting industries/complementors

can foster world class competition in downstream industries top-notch complementors

Transnational strategy

combine benefits of localization (high local responsiveness) with those of globalization-standardization (lowest cost position possible) high pressure for local responsiveness AND cost reductions Blue ocean strategy Harnesses economies of scale and location and benefits from global learning Think globally, act locally Organizational complexities

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

globalization hypothesis

consumer needs and preferences throughout the world are converging and thus becoming increasingly homogenous based primarily on cost reduction (key competitive weapon and MNE's attempt to reap significant cost reductions from leveraging economies of scale and managing global supply chains)

cultural distance

cultural disparity between an internationally expanding firm's home country and its targeted host country national culture: collective mental & emotional "programming" of the mind that differentiates human groups culture is made up of a collection of social norms, beliefs, and values power distance, individualism, masculinity-feminity, and uncertainty avoidance Hofstede's analysis yields scores from 0-100 Greater distance --> greater liability of foreigness

gain access to a larger market

economies of scale/scope --> companies that base competitive advantage on these have an incentive to gain access Allows MNE's to outcompete local rivals

Integration-responsiveness framework

juxtaposes the opposing pressures for cost reductions and local responsiveness to derive four different strategic positions to gain and sustain competitive advantage when competing globally

foreign direct investment (FDI)

making investments in the value chain abroad

global strategy

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

loss of intellectual property

protecting IP in foreign markets copyright infringements companies may find their IP to be reverse engineered

demand conditions

specific characteristics of demand in a firm's domestic market a home market made up of sophisticated customers who hold companies to a high standard of value creation and cost containment leads to national competitive advantage demanding customers can clue firms to developments

international strategy

strategy that involves leveraging home-based core competencies by selling the same products/services in both domestic and foreign markets Low local responsiveness and low pressure for cost reductions used by MNE's with relatively large domestic markets and with strong brand names/reputations Differentiation is preferred strategy Highly affected by exchange rate fluctations

geographic distance

the costs to cross-border trade rise with geographic distance other factors such as a country's physical size, within-country distance between borders, topography, time zones, and contiguous countries or not Infrastructure (road, power, telecommunications)

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 consumers is the most important determinant of this distance wealthy countries engage in more cross-border trade rich countries trade with other rich countries and poor countries trade more with rich countries wealthy countries benefit from cross-border trading with other wealthy countries because of economies of experience, scale, scope, and standardization

national competitive advantage

world leadership in specific industries