STRATEGY IN THE GLOBAL ENVIRONMENT BUS 189 Fall 2009 DR. MARK FRUIN

LANGUAGE OF GLOBALIZATION NATIONAL FIRM INTERNATIONAL FIRM MULTINATIONAL FIRM TRANSNATIONAL FIRM METANATIONAL FIRM GLOBAL FIRM

WESTERN ORIENTATION LANGUAGE OF GLOBALIZATION (INTERNATIONAL BUSINESS) IS BASED ON A WESTERN POINT OF VIEW HBS MULTINATIONAL RESEARCH PROJECT BEGINS IN ‘50S YARDSTICK IS LARGE, AM FIRMS THAT WERE DOMINANT AT THE TIME WHEN –EUROPE & ASIA DEVASTATED –INTERNATIONAL MEANS FOREIGN/FAR AWAY FROM A WESTERN OR AMERICAN POINT OF VIEW

NEW POINT OF VIEW THOMAS FRIEDMAN’S, LEXUS AND THE OLIVE TREE, THE WORLD IS FLAT, FLAT, HOT & ? SUGGESTS THAT –BOTH THE NUMERATOR & DENOMINATOR OF THE INTERNATIONAL EQUATION SHOULD BE RECONSIDERED –NUMERATOR, ABOVE THE LINE, IS NO LONGER LARGE, AMERICAN OR WESTERN FIRMS THAT IS, AMERICAN FIRMS ARE NO LONGER THE STANDARD BY WHICH NON-AMERICAN FIRMS SHOULD BE JUDGED –DENOMINATOR, BELOW THE LINE, IS NO LONGER WESTERN ECONOMIES THREE OUT OF FIVE LARGEST ECONOMIES IN WORLD IN ASIA SIX OUT OF TEN MOST POPULOUS COUNTRIES IN ASIA, REPRESENTING 50% OF THE WORLD’S POPULATION “THE WORLD” HAS CHANGED A LOT

ALTHO THERE ARE PROBLEMS FRIEDMAN TALKS A LOT ABOUT INFORMATION EQUALITY (INTERNET) AND MARKET ACCESS NEW RELATIONSHIPS BETWEEN INDIV & INDIV, INDIV & STATE, STATES & STATES BUT FREE TRADE LESS BENEFIT TO DEVELOPING THAN DEVELOPED COUNTRIES THE WORLD IS NOT REALLY FLAT, BUT SPIKEY HARD TO KNOW WHAT BIG MULTINATIONALS ARE ACTUALLY DOING & HOW THEY BENEFIT THE WORLD ECONOMY

WHY FIRMS GO ABROAD LOCATION ECONOMIES TO ACCESS MARKETS & TAKE ADVANTAGE OF LOW FACTOR INPUTS TAKE ADVANTAGE OF SUBSIDIARY CAPABILITIES & COMPETENCIES TO BE MORE LOCALLY RESPONSIVE TO TAKE ADVANTAGE OF MARKET LEADING CAPABILITIES FOUND OVERSEAS –PRODUCT LIFE-CYCLE MODEL –FIRST-MOVER & FAST-TO-MARKET

4 BASIC STRATEGIES, p. 271 BASED ON WESTERN ORIENTED RESEARCH –NOT NECESSARILY WRONG, BUT NOT NECESSARILY UP- TO-DATE –A 2 X 2 WITH COST REDUCTIONS & LOCAL RESPONSIVENESS AS THE AXES INTERNATIONAL STRATEGY –COST REDUCE & LOCAL RESPOND: LOW-LOW MULTIDOMESTIC STRATEGY –COST REDUCE & LOCAL RESPOND: LOW-HIGH GLOBAL STRATEGY –COST REDUCE & LOCAL RESPOND: HIGH-LOW TRANSNATIONAL STRATEGY –COST REDUCE & LOCAL RESPOND: HIGH-HIGH

BASIC ENTRY DECISIONS WHICH PRODUCTS GOING TO –WHICH MARKETS –TARGETING WHAT GROUPS OF CONSUMERS TIMING OF ENTRY; WHEN SCALE OF ENTRY; HOW BIG MODE OF ENTRY; HOW STRUCTURE –EXPORT –LICENSE –FRANCHISE (specialized form of licensing) –JOINT VENTURE –STRATEGIC ALLIANCE –WHOLLY OWNED SUBSIDIARY

ADVANTAGES/DISADVANTAGES OF DIFFERENT ENTRY MODES ADVANTAGES –LOCATION ECONOMIES –LOWER DEVELOPMENT/MFG COSTS –SHARE COSTS & RISKS –GET CLOSER TO CUSTOMERS –PROTECT TECH/IP/DISTINCTIVE COMPETENCIES DISADVANTAGES –COSTS (COORDINATION, TRANSACTION) –LACK OF CONTROL –COMPLEXITY –EXPROPRIATION/APPROPRIATION

HOW FIRMS GO ABROAD GENERALLY SUCCESSIVE MODES OF ENTRY OVERSEAS AGENTS; LOCAL REPRESENTATIVES OUR OWN SALES OFFICE SALES & OTHER ADDITIONAL FUNCTIONS OFFICE –TRADITIONALLY PROD, DISTRIB & MKTING –TODAY R&D AND ENGINEERING INTERNATIONAL DIVISION INTERNATIONAL SUBSIDIARY NODE VS. MATRIX CELL OF GLOBAL FIRM

MAKING STRATEGIC ALLIANCES WORK INCREASINGLY COMMMON WAY OF WORKING OVERSEAS; PARTNER UP “WALL OFF” CRITICAL TECHNOLOGY ESTABLISH CONTRACTUAL SAFEGUARDS AGREE TO SWAP VALUABLE SKILLS & TECHNOLOGY (& PEOPLE) SEEK CREDIBLE COMMITMENTS DEVELOP RELATIONAL SKILLS & CAPABILITIES (ESPECIALLY WHEN PARTNERING WITH INTER- FIRM NETWORKS & BUSINESS GROUPS) LEARNING AS OPPOSED TO COST/RISK SHARING AS A PRIMARY OBJECTIVE

MY OWN VIEWS HARD TO GO/BE GLOBAL WITH TRADITIONAL VIEW OF FIRM –LIMITS TO ORGANIZATION, KENNETH ARROW, NOBEL PRIZE WINNING ECONOMISTS –LIMITS TO HOW MUCH COMPLEXITY HIERARCHIES (FIRMS) CAN HANDLE “ALTERNATIVE” ORGANIZATIONAL FORMS OFFER DIFFERENT STRATEGIES THAN PROFIT MAXIMIZING –BUSINESS GROUPS –INTERFIRM NETWORKS YOU CAN’T HAVE YOUR CAKE AND EAT IT TOO –MEANING YOU CAN’T EXPECT TO COVER THE WORLD ON THE BASIS OF HOME GROWN CAPABILITIES –GIVE AND TAKE REQUIRED

GOING FORWARD MORE AND MORE OF THE WORLD’S LARGEST FIRMS MORE AND MORE OF THE WORLD’S LARGEST AND MOST RAPIDLY GROWING ECONOMIES ARE GOING TO BE OUTSIDE THE COMFORT ZONE OF AMERICAN FIRMS –HOW AMERICAN FIRMS ADAPT WILL BE KEY –TWO CHOICES GO IT ALONE & RISK LOSING IT ALL HOOKING UP & GETTING SLICES OF EVER EXPANDING PIES SOMETHING IN BETWEEN, BUT THIS MAY BE THE MOST RISKY STRATEGY OF ALL