Global Strategy: Harnessing New Markets to Extend Advantage Chapter 8 Global Strategy: Harnessing New Markets to Extend Advantage by Robert Pitts & David Lei Slides prepared by John P. Orr Cameron University Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved.

What you will learn… Slide 1 of 2 Why companies need to develop strategies to expand across national borders The key environmental factors that promote the need to expand into overseas markets The two basic strategies used for expanding overseas: global and multidomestic Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved.

What you will learn… Slide 2 of 2 Balancing the benefits and costs of overseas expansion How companies can continue to grow by becoming global players Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved.

Boeing’s Global Strategy Advanced research and development (R&D) Manufacturing efficiencies and process improvements Global marketing Continuous product improvement and investment Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved.

Coca Cola’s Global Strategy A unifying message Global distribution and business systems New products and new variations Community involvement Recent initiatives Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved.

Global Strategy: Introduction Globalization Viewing the world as a single market for the firm; The process by which the firm expands across different regions and national markets. Industry-Level View of Globalization Changes in economic factors, such as economies of scale, experience, and R&D, which make competing on a worldwide basis a necessity. Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved.

Ex. 8-1. Factors Promoting the Globalization of Markets Narrowing of demand characteristics Escalating costs of R& D Cost reduction pressures and economies of scale Government industrial policies Reduction of factor costs (e.g., labor, capital) Rise of new distribution channels Reduction of transportation, communication, & storage costs Internet access Reduction of tariffs worldwide Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. 4

Ex. 8-2. Examples of Growing Homogeneity of Demand Slide 1 of 2 Communications equipment Cellular phones Sony Walkmans Levi’s jeans Commercial banking Financial services Color televisions and VCRs Semiconductors Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. 6

Ex. 8-2. Examples of Growing Homogeneity of Demand Slide 2 of 2 Machine tools Computers Pharmaceuticals Construction equipment Commercial aircraft Hollywood films Television shows Data and computer networks Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. 7

Ex. 8-3: Examples of R&D Intensive Industries Slide 1 of 2 Semiconductors Software Biotechnology Communications systems Pharmaceuticals Commercial aircraft Electronics Composite materials Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. 8

Ex. 8-3: Examples of Growing Homogeneity of Demand Slide 2 of 2 Advanced imaging systems Medical equipment Fiber optics Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. 9

Ex. 8-4. Examples of Rising Economies of Scale/Cost Pressures Steel Automobile engines Color television tubes Semiconductors Fiber optics Office equipment Telecommunications Aircraft Chemicals Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. 10

Ex. 8-5: Government Initiatives to Promote Industrial Development Sematech (semiconductors) US Steel, Computers, Autos, Artificial Intelligence, Advanced Materials, Aerospace Japan Semiconductors, Aerospace, Automobiles, Advanced Lasers, Optics EU Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. 12

Ex. 8-6. Examples of Declining Costs Slide 1 of 2 Transport Costs Containerization Intermodal shipping/rail Air freight Communication Costs More global long distance carriers Better ways to transmit voice, video data Internet access Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved.

Ex. 8-6. Examples of Declining Costs Slide 2 of 2 Storage Costs Refrigeration Just-in-time inventory Reduction of perishability Supply chain management Virtual production/design Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved.

Ex. 8-7. Global Strategy of Expansion HQ Systemwide approach to competing worldwide Mutually interdependent subsidiaries Centralized control and reporting of activities Facilitates cross-subsidization policies across markets Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. 13

Ex. 8-8: Key Characteristics of a Global Strategy Standard products Global economies of scale in key components and activities Leverage technology across many markets Global coordination of marketing and sales systemwide Cross-subsidization policies to respond to competitive moves by other global strategy firms Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. 14

Ex. 8-9: Multidomestic Strategy of Expansion HQ Competitive advantage is built in each separate national or regional market. Markets and subunits are treated independently from one another. Decentralized controls of activities, reporting back to headquarters. Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. 15

Ex. 8-10: Key Characteristics of a Multidomestic Strategy Customization or frequent adaptation of products for each separate market Few systemwide opportunities for economies of scale Value-adding activities performed and duplicated in each market Coordination of marketing and sales within each market Quality and image across markets are important sources of competitive advantage Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. 16

Ex. 8-11: Benefits of Global Expansion Market growth and expansion opportunities Recovery of R&D and investment costs Creation of a distinct image Accelerated learning and transfer of new skills Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. 17

Ex. 8-12: Costs Associated with Global Expansion Slide 1 of 2 Costs of Strategic Leverage Sustained investment required Preserving and extending image Costs of Flexibility High interdependence of subsidiaries (and businesses) Change or development affecting all markets Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. 18

Ex. 8-12. Costs Associated with Global Expansion Slide 2 of 2 Costs of Cooperation Compromise Accountability Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. 19

Ethics: Global Concerns Scandals with global reach Lloyd’s of London embezzlement French, German stock market fraud Japanese business, political scandals Varying approaches to ethics Individual views strongly shape ethics of U.S. workers Asian workers seen as “industrial soldiers” U.S. enacts Foreign Corrupt Practices Act Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved.