Topic 5 The Global Environment: Strategic Considerations for Multinational Firms

What is Globalization? The strategy of approaching worldwide markets with standardized products

Some Reasons for Going Global – Proactive Approach Economies of scale Power and prestige Protect home market via offense in competitor’s home Additional resources Lowered costs Taxes / Incentives

Some Reasons for Going Global – Reactive Approach Trade barriers International competition Regulations

Strategic Orientation of Global Firms Ethnocentric Values and priorities of parent organization should guide strategic decision making of all operations Polycentric Culture of country in which strategy is implemented dominates decision making Regiocentric Parent firm attempts to blend its own predispositions with those of region under consideration Geocentric Parent firm adopts global systems approach to decision making, emphasizing global integration

Beginning to Globalize: Key Steps External assessment Careful examination of critical features of the global environment, particularly to host nation’s status in Economic progress Political control Nationalism Internal assessment Identification of resources in … technical and managerial skills, capital, labor, raw materials Identification of capabilities in … product delivery, financial management systems

Factor U.S. Operations Int’l Operations Obvious … but important … differences in Factors that Affect Strategic Management in the U.S. and Internationally Factor U.S. Operations Int’l Operations Language English used almost universally Use of local language required in many situations Culture Relatively homogeneous Quite diverse, both between countries and within countries Politics Stable and relatively unimportant Often volatile and of decisive importance Economy Relatively uniform Wide variations among countries and among regions within countries

Differences (contd.) Labor Skilled labor available Skilled labor “may” be scarce, requiring training or redesign of production methods Financing Well-developed financial markets Poorly developed markets; capital flows subject to government control Media research Data easy to collect Data difficult and expensive to collect Advertising Many media available, few restrictions Media limited, many restrictions Money U.S. dollar used universally Different currencies; problems created by changing exchange rates

Stakeholder Activism Refers to demands placed on the global firm by the foreign environments in which it operates, principally by foreign governments

Multidomestic vs. Global Industries A multidomestic industry is one in which competition is essentially segmented from country to country A global industry is one in which competition crosses national borders

Factors Increasing Degree to Which an Industry is Multidomestic Need for customized products to meet tastes or preferences of local customers Fragmentation of industry, with many competitors in each national market Lack of economies of scale in functional activities Distribution channels unique to each country

The Global Challenge Few “pure” cases of either global or multidomestic industries exist The challenge – global firms must Decide what activities should be performed where Determine what degree of coordination should exist among them

International Strategy Options High Wholly owned foreign subsidiary Joint venture Foreign branch Licensing, contract manufacturing, franchising Joint venture Foreign branch Product diversity Licensing, contract manufacturing, franchising Export Joint venture Low High Market complexity