1 GLOBALIZATION - THEN AND NOW “The World is a City” Karl Meyer Rothschild (1875) n The Workforce is less mobile today then in the 19th century. Example: There was no need for passports and most people moved freely from one country to another. 60 million Europeans migrated to North and South America, Australia. In 1900, 14% of the American population were immigrants, compared to 8% today. n In the 1860s and 1870s, many goods were traded freely. Example: 95% of German imports were customs free. According to the “Capital Mobility Index” of the IMF, the volume of capital movements in relation to GNP is less today than in the 1880s.

2 YES, BUT... n 19th Century trade was primarily in commodities, today it is primarily in goods and services. n 19th Century capital movements were concentrated in the hands of small groups of wealthy people for long term investment. n Capital movements today are faster, but shorter term.

3 GLOBALIZATION What Is A Global Industry?

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5 THE MULTINATIONAL CORPORATION n A company with significant operations and market interests outside its home country. n Affiliated firms are linked by ties of common ownership. n The MNC draws on a common pool of resources. n Its affiliates are linked by a common strategic vision.

6 TWO INDUSTRIES: TWO STRATEGIES MULTIDOMESTIC INDUSTRY n The MNC pursues separate strategies in each of its foreign markets. n Each overseas subsidiary is strategically independent. n MNC headquarters coordinates financial controls and marketing worldwide. n Each subsidiary is a profit center.

7 GLOBAL INDUSTRY n One MNC’s entire worldwide system of product and market is positioned against a competing MNC(s). n Strategy is centralized. n Response to local market needs where and when necessary.

8 WHY FIRMS BECOME MNCs n To protect themselves from the risks and uncertainties of the domestic business cycle. n To tap the growing world market for goods and services. n In response to increased foreign competition and to protect world market shares. n Internalization to reduce costs and protect knowledge.

9 GLOBAL STRATEGY LEVERS

10 SOME INDUSTRY EXAMPLES: GLOBAL INDUSTRIES n Caterpillar & Komatsu (heavy construction equipment) n Timex, Seiko & Citizen (watches) n GE, Siemens & Mitsubishi (heavy electrical equipment) MULTIDOMESTIC INDUSTRIES n P & G (household products) n Honeywell (controls) n Alcoa (aluminum) n General Foods (branded foods)

11 ORGANIZATION STRUCTURE MANAGEMENT PROCESSES CULTURE PEOPLE ABILITY TO DEVELOP AND IMPLEMENT GLOBAL STRATEGY ELEMENTS OF GLOBAL ORGANIZATION Centralized global authority No international division Strong business dimension Use of foreign nationals Multicountry careers Frequent travel Statements and actions of leaders Global identity Commitment to worldwide (vs.) domestic employment Interdependence (vs. autonomy) of businesses Global strategy information system Cross-country coordination Global strategic planning Global budgeting Global performance review and compensation Source: George Yip (1995), Total Global Strategy.

12 ORGANIZATION FEATURES FOR TYPES OF GEOGRAPHIC BUSINESSES

13 LEVELS OF CROSS-COUNTRY COORDINATION INCREASING COORDINATION INCREASING COERCION SHARING INFORMATION CLEARING PLANS HQ DIRECTING NEGOTIATING PLANS