Chapter 6 Strategy in the Global Environment The Global Environment • Managers need to consider: – How globalization is impacting the environment in which their company competes – What strategies they should adopt to exploit opportunities – How to counter competitive threats The Global Environment • Industry boundaries do not stop at national borders • The shift to global markets has intensified competitive rivalry in industries • Global markets created enormous opportunities Increasing Profitability Through Globalization • The success of many multinational companies is based not just on the goods and services they sell, but upon the distinctive competencies that underlie their production and marketing • Globalization increases profits by: – Expanding the market – Realizing economies of scale – Realizing location economies – Leveraging the skills of global subsidiaries Competitive Pressures • Two main pressures: – Pressure for cost reduction – Pressure to be locally responsive • These pressures place conflicting demands on a company Cost Reductions • Cost reductions are common in: – Industries where price is the main competitive weapon – Industries with universal need products – Universal Need: When consumer preference is similar or identical in different nations • Companies may achieve cost reduction by basing production in a low-cost location or by offering a standardized product. Figure 6.1: Pressures for Cost Reduction and Local Responsiveness Local Responsiveness Pressures • These arise from differences in: – Consumer taste and preferences – Infrastructure or traditional practices – Distribution channels – Host government demands • The more that customer preferences vary, the more local responsiveness is required Choosing a Strategy Basic four strategies: 1. Global Standardization Strategy 2. Localization Strategy 3. Transnational Strategy 4. International Strategy Figure 6.2: Four Basic Strategies [...]... purchase the rights to produce a product in their country – The cost of development is low, as well as the risk involved Choices of Entry Mode (cont’d) • Franchising – A specialized form of licensing where the franchiser sells intangible property (usually a brand or trademark) – The franchisee agrees to follow the strict rules and business plans of the company Choices of Entry Mode (cont’d) • Joint Venture... choose to become global The market chooses for you,it forces your hand.” Choices of Entry Mode • Exporting – Many companies begin global expansion through exporting production – Exporting allows companies to bypass the cost of establishing manufacturing facilities – Exporting may be consistent with scale economies and location economies Choices of Entry Mode (cont’d) • Licensing – A licensee in a foreign... Subsidiaries Advantages • Protection of technology • Engage in global strategic coordination • Realize location and scale economies Disadvantages • Higher costs and risks Figure 6.3: Changes Over Time “Remember the finish line is at the end of the race Don’t use up all of your energy before reaching it.” - Jack Daniels “There is no finish line.” - Phil Knight, CEO, Nike © RoyaltyFree/PhotoDisc Collection/... responsible for all of the financing Choices of Entry Mode Entry Mode Exporting Licensing Advantages Disadvantages • Ability to realize localization and scale based economies • High transport costs • Trade barriers • Problems with local marketing agents • Low development costs and risks • Inability to realize location and scale based economies • Inability to engage in global strategic coordination • Lack of... of Entry Mode (cont’d) Entry Mode Franchising Joint Ventures Advantages Disadvantages • Low development costs and risks • Inability to engage in global strategic coordination • Lack of control over quality • Access to local partners’ knowledge • Shared development costs and risks • Political dependency • Inability to engage in global strategic coordination • Inability to realize location/scale economies.. .Global Standardization Strategy • Focuses on increasing profitability by pursuing a low-cost strategy on a global scale • Works best if there is: – Strong pressure for cost reduction – Low pressure for local responsiveness Localization Strategy • Customizes goods or services to provide a good match to tastes and preferences in different national markets • Works best if there is: – Low... corporations come together to form a new corporate entity – Two or more companies have an ownership stake, but combine resources for mutual benefit – Sharing knowledge can be dangerous for the companies involved Choices of Entry Mode (cont’d) • Wholly Owned Subsidiaries – A parent company owns 100% of a smaller self-contained business unit – This can be a very costly approach, since the parent company... by nation Transnational Strategy • Attempts to achieve low-cost, differentiated products across markets and to foster a flow of skills between different subsidiaries • Works best if there is simultaneous : – High cost pressures – High local responsiveness pressures International Strategy • Centralizes product development, but manufactures and markets globally • Works best if there is: – Low cost pressure . Chapter 6 Strategy in the Global Environment The Global Environment • Managers need to consider: – How globalization is impacting the environment in. borders • The shift to global markets has intensified competitive rivalry in industries • Global markets created enormous opportunities Increasing Profitability