1. Strategy in the Global Environment8
Strategy in the Global Environment

2. Increasing Profitability Through Global Expansion
Location economies
Economic benefits from performing a value creation activity in the optimal location
Effects
Can lower costs
Can enable differentiation
Caveats
Transportation costs and trade barriers
Political and economic risks
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3. Increasing Profitability Through Global Expansion (cont’d)
The experience curve
Serving a global market from one or a few plants is consistent with moving down the experience curve and establishing a low-cost position
Transferring distinctive competencies
Companies with distinctive competencies can realize large returns by expanding to global markets where competitors lack similar competencies and products
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4. Increasing Profitability Through Global Expansion (cont’d)
Leveraging the skills of global subsidiaries
Competencies can be created anywhere within a multinational’s global network of operations
Managers must establish an incentive system to encourage local employees to acquire new competencies
Managers must have processes in place to identify valuable new competencies and help transfer them within the company
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5. Pressures for Cost Reductions and Local Responsiveness
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6. Pressures for Cost Reductions
When companies produce commodity products
Where differentiation on nonprice factors is difficult and price is the main competitive weapon
Where competitors are based in low-cost locations
Where there is persistent excess capacity
Where consumers are powerful and face low switching costs
The liberalization of the world trade and investment environment
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7. Pressures for Local Responsiveness
Differences in customer tastes and preferences
Differences in infrastructure and traditional practices
Differences in distribution channels
Host government demands
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8. Four Basic Strategies
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9. Choosing a Global Strategy
International strategy
Creating value by transferring competencies and products to foreign markets where indigenous competitors lack those competencies and products
Makes sense if a company has a valuable competence that indigenous competitors in foreign markets lack and if it faces weak pressure for local responsiveness and cost reductions
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10. Choosing a Global Strategy (cont’d)
Multidomestic strategy
Developing a business model that allows a company to achieve maximum local responsiveness
Makes sense when there are high pressures for local responsiveness and low pressures for cost reductions
Companies may become too decentralized and lose the ability to transfer skills and products
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11. Choosing a Global Strategy (cont’d)
Focusing on increasing profitability by reaping cost reductions that come from experience curve effects and location economies; pursuing a low-cost strategy on a global scale
Makes sense when there are strong pressures for cost reductions and demand for local responsiveness is minimal
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12. Choosing a Global Strategy (cont’d)
Transnational strategy
Simultaneously seeking to lower costs, be locally responsive, and transfer competencies in a way consistent with global learning
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13. Cost Pressures and Pressures for Local Responsiveness Facing Caterpillar
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14. Advantages and Disadvantages of Different Strategies for Competing Globally
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15. Basic Entry Decisions Which overseas markets to enter
Assessment of long-run profit potential
A function of the size of the market, purchasing power of consumers, the likely future purchasing power of consumers
Balancing the benefits, costs, and risks associate with doing business in a country
A function of economic development and political stability
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16. Basic Entry Decisions (cont’d)
Timing of entry
First-mover advantages
First-mover disadvantages
Scale of entry and strategic commitments
Entering on a large scale is a strategic commitment, both positive and negative
Benefits and drawbacks of small-scale entry
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17. The Choice of Entry Mode
Exporting
Licensing
Franchising
Joint ventures
Wholly-owned subsidiaries
Choosing Among Entry Modes
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18. The Advantages and Disadvantages of Different Entry Modes
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19. Choosing Among Entry Modes
Distinctive competencies and entry mode
Technological competency
Wholly-owned subsidiary is preferred over licensing and joint ventures
Management competency
Franchising, joint ventures, subsidiaries
Pressures for cost reduction in entry mode
Great pressure for cost reductions
Exporting and wholly-owned subsidiaries
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20. Global Strategic Alliances
Advantages
Facilitate entry into a foreign market
Share fixed costs and associated risks
Bring together complementary skills and assets
Set technological standards to the industry
Disadvantages
Give competitors a low-cost route to gain new technology and market access
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21. Making Strategic Alliances Work: Partner Selection
A good partner:
Helps the company achieve strategic goals
Shares the firm’s vision for the purpose of the alliance
Is unlikely to try to exploit the alliance to its own ends
Conduct research on potential partners
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22. Structuring Alliances to Reduce Opportunism
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23. Making Strategic Alliances Work: Managing the Alliance
Sensitivity to cultural differences and their effects on management style
Building interpersonal relationships among managers from different companies
Ability to learn from alliance partners and put the knowledge to good use
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