1. Chapter 4
The Global Environment: Strategic Considerations for Multinational Firms

2. Chapter Topics Development of a Global Corporation Why Firms Globalize
At the Start of Globalization
Complexity of the Global Environment
Control Problems of the Global Firm
Global Strategic Planning
Competitive Strategies for Firms in Foreign Markets

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

4. Development of a Global Corporation
1. Export-import activity
Evolution of
a global firm
entails progressively
involved strategy levels
2. Foreign licensing and
technology transfer
3. Direct investment in overseas
operations
4. Substantial increase in foreign
investment

5. Ex. 4-4: Reasons for Going Global – Proactive Approach
Additional resources
Lowered costs
Incentives
New, expanded markets
Exploitation of firm-specific advantages
Taxes
Economies of scale
Synergy
Power and prestige
Protect home market via offense in competitor’s home

6. Ex. 4-4: Reasons for Going Global – Reactive Approach
Trade barriers
International customers
International competition
Regulation
Chance

7. 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

8. Ex. 4-5: Orientation of a Global Firm
Ethnocentric
Polycentric
Mission
Profitability (viability)
Public acceptance (legitimacy)
Governance
Top-down
Bottom-up
Strategy
Global integration
National responsiveness
Structure
Hierarchical product divisions
Hierarchical area divisions, with autonomous national divisions
Culture
Home country
Host country
Technology
Mass production
Batch production

9. Ex. 4-5 (contd.)
Marketing
Product development determined by needs of home-country customers
Local product development based on local needs
Finance
Repatriation of profits to home country
Retention of profits in host country
Personnel practices
People of home country developed for key positions everywhere
Local people developed for key positions in their country

10. Ex. 4-5: Orientation of a Global Firm
Regiocentric
Geocentric
Mission
Both profitability and public acceptance
Same as regiocentric
Governance
Mutually negotiated between region and its subsidiaries
Mutually negotiated at all levels of the corporation
Strategy
Regional integration and national responsiveness
Global integration and national responsiveness
Structure
Product and regional organization tied through a matrix
Network of organization (includes stakeholders and competitors)
Culture
Regional
Global

11. Ex. 4-5 (contd.) Technology Flexible manufacturing Marketing
Standardize within region, but not across regions
Global product, with local variations
Finance
Redistribution within region
Redistribution globally
Personnel practices
Regional people developed for key positions anywhere in region
Best people everywhere developed for key positions everywhere

12. 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

13. Factors Contributing to Complexity of Global Strategic Planning
Globals face multiple political, economic, legal, social, and cultural environment as well as various rates of changes within each of them
Interactions between national and foreign environments are complex because of national sovereignty issues and widely differing economic and social conditions
Geographic separation, cultural and national differences, and variations in business practices tend to complicate communication and control efforts between headquarters and overseas affiliates
Globals face extreme competition due to differences in industry structure
Globals are restricted in selecting competitive strategies by various regional blocs and economic integrations

14. Control Problems of the Global Firm
Financial policies typically are designed to further the goals of the parent company and pay minimal attention to the goals of the host countries
Different financial environments make normal standards of company behavior concerning concerning the disposition of earnings, sources of finance, and structure of capital more problematic
Important differences in measurement and control systems exist
Differences exist in national attitudes toward work measurement and in government requirements about disclosure of information

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

16. Multidomestic and 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

17. 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 of firms in industry
Distribution channels unique to each country
Low technological dependence of subsidiaries on R&D provided by global firm

18. Reasons Why Strategic Management Planning Must be Global
The increased scope of the global management task
The increased globalization of firms
The information explosion
The increase in global competition
The rapid development of technology
Strategic management planning breeds managerial confidence

19. Factors Making for the Creation of a Global Industry
Economies of scale in functional activities of firms in industry
High level of R&D expenditures on products requiring more than one market to recover development costs
Presence in industry of predominantly global firms expecting consistency of products across markets
Presence of homogeneous product needs across markets, reducing requirement of customizing products
Low level of trade regulation and regulations regarding foreign direct investment

20. Ex. 4-8: Factors That Drive Global Companies
Global Management Team
Possesses global vision and culture
Includes foreign nationals
Leaves management of subsidiaries to foreign nationals
Frequently travels internationally
Has cross-cultural training
Global Strategy
Implement strategy as opposed to independent country strategies
Develop cross-country alliances
Select country targets strategically
Perform business function where most efficient
Emphasize participation in the triad

21. Ex. 4-8 (contd.) Global Financing Global Marketing
Finance globally to obtain lower cost
Hedge when necessary to protect currency risk
Price in local currencies
List shares on foreign exchanges
Global Marketing
Market global products but provide regional discretion if economies of scale are not affected
Develop global brands
Use core global marketing practices and themes
Simultaneously introduce new global products worldwide

22. Ex. 4-8 (contd.) Global Technology/R&D Global Operations/Products
Design global products, designing regional differences into account
Manage development work centrally but carry out globally
Do not duplicate R&D and product development; gain economies of scale
Global Operations/Products
Use common core operating processes worldwide to ensure quantity and uniformity
Produce globally to obtain best cost and market advantage

23. 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

24. Ex. 4-9: Location and Coordination Issues of Functional Activities
Functional Activity
Location Issues
Coordination issues
Operations
Location of production facilities for components
Networking of international plants
Marketing
Product line selection; country market selection
Commonality of brand name; coordination of sales; similarity of channels and product positioning; coordination of pricing
Service
Location of service organization
Similarity of service standards and procedures worldwide
Research and Development
Number and location of R&D centers
Interchange among dispersed R&D centers
Purchasing
Location of the purchasing function
Manage suppliers located in different countries

25. Ex. 4-10: Market Requirements and Product Characteristics – The Model
Rate of Change of Product
Fast
Maintain differentiation
Operate an ever-changing “global warehouse”
Standardized in
all markets
Customized market-by-market
Minimize delivered cost
Practice opportunistic niche exploration
Slow

26. Ex. 4-11: International Strategy Options
High foreign
investment with
extensive coordination
among subsidiaries
Global strategy
High
Coordination of
activities
Country-centered
strategy by multinationals
with a number of domestic
firms operating in only
one country
Export-based
strategy with
decentralized
marketing
Low
Geographically
dispersed
Geographically
concentrated
Location of activities

27. Ex. 4-12: 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