Globalization - Texas Tech University

Globalization - Texas Tech University

Strategy: A View From the Top Chapter 8: Global Strategy Formulation TEAM 1 JT Lehotsky Tara Ferguson Taylor Skidmore Sunny To Todays Discussion 1. Globalization and Clustering Macroeconomic perspective 2.

Global Strategy Formulation Microeconomic level 3. Global Strategy and Risk Globalization Some countries or regions of the world are more efficient than others in producing particular goods. Examples

Australian mining US agriculture Clustering In the absence of natural comparative advantages industrial clustering occurs. If transportation costs are not too high and there is economy of scale a large area can be served from a single location.

Porters National Diamond Factor Conditions The degree to which a countrys endowments match those needed by the industry. When a particular industry is highly profitable and barriers to entry are low the industry will spread to international borders.

Japanese compete in industries that orginated in the United States. Demand Conditions Demand in the home country. When a large home market develops before it takes hold elsewhere in the world firms have ample incentives to look for business abroad when saturation

at home begins to set in. Japanese motorcycle industry. Related and Supporting Industries The presence of related and supporting industries. Hollywood has a host of suppliers and service providers.

Competitiveness Five The forces of Chapter 4 more vigorous the domestic competition, the more successful firms are likely to be in competing on a global scale. Government and Chance Governments can change or make policies to nurture global industries

but these policies arent always effective. Chance deals with random events or sheer luck. US is the leader in photography industry is because Kodak and Polaroid creators were born in America. Industry Globalization Drivers Market Drivers Evolution of customer needs Global Channels

Transferability Economic Drivers Nature of industry Economies of scale/location Differences in country costs Industry Globalization Potential Competitive Drivers Interdependence between countries/regions Globalization of

competitors Government Drivers Trade barriers Regulatory climate Technology/standards Market Drivers Have to meet changing customer expectations. Hamburgers in India

Cost Drivers In a growing number of industries, the minimum sales volume required for cost efficiency is simply no longer available in a single country or region. Economies of scale and scope; experience effects; and exploiting differences in factor costs for product development, manufacturing, and sourcing in different parts of the world have become critical to global success. This creates the need for critical mass in different parts of the value chain. Competitive Drivers

The globalization potential of an industry is influenced by competitive drivers such as: 1. The degree to which total industry sales are made up by export or import volume. 2. The diversity of competitors in terms of their national origin. 3. The extent to which major players have globalized their operations and created an interdependence between their competitive strategies in different parts of the world. Government Drivers Certain

industries are more regulated then others, having a direct influence on a companys global strategic options. Steel Industry: Trade policies, technical standards, policies and regulations, and government subsidies. Google in China Global Strategy Formulation

Multinational- applicable when customer needs and industry conditions vary considerably from country to country and a high degree of localization is required International- the importance of managing the international product life cycle through the transfer of technologies to foreign markets. Global or Transnational- when some degree

of standardization in products and services is possible. Global Strategy Dimensions Global strategy formulation requires analysis of at least five additional dimensions: 1. 2. 3. 4. 5.

Market Participation Standardization/Positioning Activity Concentration Coordination of Decision Making Non-market Factors 1. Market Participation Few companies can afford to enter all markets open to them. They must weigh the relative advantages of a direct or indirect presence in different regions of the world. A global view requires a multidimensional perspective. Many industries need to distinguish between must markets and

nice to be in markets. Example: Motorola Developing a global presence also takes time and requires substantial resources. 2. Standardization/Positionin g As globalization advances, many companies are seeking opportunities to standardize core products and services. Reducing cost and enhancing quality are primary motivations for standardization. Adopting a more global market positioning is a another form of standardization By applying a global, cost-benefit approach to formulating marketing strategy, companies

seek to balance flexibility with uniformity. The Global Branding Matrix Message Standardiz ed Standardiz ed Tailored Global Mix Global Offer

Global Message Global Change Offer Tailored The Global Branding Matrix Global Mix Strategies- both the offer and the message are the same. 1. A products usage patterns and brand

potential are homogeneous on a global scale. 2. Scale and scope cost advantages substantially outweigh the benefits of partial or full adaptation. 3. Competitive circumstances are such that a long-term, sustainable advantage can be secured using a standardized approach. Global Offer Strategies- apply when the same offer can beneficially be positioned differently in different parts of the world Holiday Inn Global

Message Strategies- use the same message worldwide but allow for local adaptation of the offer. McDonalds Global Change Strategies- both the offer and the message are adapted to local market circumstances. 3. Activity Concentration To enhance global competitiveness, continuously reexamine:

1. Which parts of value-creation process they should perform themselves & which to outsource 2. Whether they can eliminate duplicate operations in different parts of the world & reduce manufacturing sites 3. Whether they can relocate value-added activities to more cost-effective locations 3. Activity Concentration Selecting

the right level of participation and location: Factor conditions Presence of supporting industrial activity Nature and location of the demand for the product Industry rivalry Tax consequences Currency and political risks Ability to manage different locations

Other elements of overall strategy Eli Lilly R&D and clinical trails in India & China Rising development costs - $1.1 billion per drug Phase III test costs - $50 million a year But not all outsourcing Patients might not be able to afford them Patent protection Risks of Activity Concentration Organization problems Staffing problems Increase performance risk at a time when the dependence of one unit on

others is increased Does not necessarily preclude being responsive to local demands Rather, decide which value-creation process should be standardized or concentrated 4. Coordination of Decision Making The degree to which decision making is coordinated on a global scale defines the extent to which globalization has been implemented successfully Decisions to be made:

Which markets to participate in How to allocate resources How to compete 5. Nonmarket Dimensions Global corporate success is influenced by nonmarket factors that are governed by social, political, and legal arrangements Different countries have different Political systems

Economic systems Legal systems Cultures Educational levels Skill levels Have profound implications for the rules that shape global competition and, consequently, crafting a global strategy India Independence logo Mission

Statement To organize the worlds information and make it universally accessible and useful. 95+% worldwide revenue comes from online ads when a Google search is performed India more people are offline; mobile devices outnumber internet connections

http://www.news-relay.com/latest-news/googlecom-has-tweaked-its-global-s trategy-for-india / International Entry Strategies Ownershi p Acquisition / StartUp Alliances / Joint Ventures Entry Mode Licensing Exports

Low Entry Cost High Region/Country Analysis 5 dimension framework to map a particular country/regions institutional contexts 1. 2. 3. 4. 5.

Political and social systems Openness Product markets Labor markets Capital markets How Wal-Mart Went Global Evolution from domestic company into a major global player Global Opportunity Target Markets Mode of Entry Global Transfer of Skills Local Adaptation

Local Competition Gains and Setbacks Global Opportunity Decision to go global was driven by need to grow Confining itself meant missing out on 96% of worlds potential customers Key success factor dedicated and committed workforce Leveraged 2 key resources Developed tremendous buying power with giant domestic suppliers Took advantage of domestically developed knowledge and competencies

Target Markets Could not simultaneously enter all options outside US First 5 years Concentrated heavily on Americas European market was less attractive as first point of entry Already mature Competitors would retaliate Reduce competitive advantage Asia markets also unattractive Geographically and culturally distant

Mode of Entry Canada Acquisition Mature market Adding new retail capacity was unattractive Mexico Greenfield Start-Up Significant income and cultural differences Brazil Joint Venture With Lojas Americana

Argentina Wholly owned subsidiary Success in Brazil And only 2 major markets Global Transfer of Skills Wal-Mart acquired Woolco (Canada) Sending a transition team Wal-Mart way of doing business + core competencies Upgrade to Wal-Mart standards + renovate Leverage high brand recognition by introducing everyday low prices strategy

Provide a broad merchandise mix, excellent customer service, and a high in-stock position Implement employee rewards Profitable and leading discount retailer in 3 years Local Adaption Wal-Mart and Chinese market China: regulations and government policies: unpredictable Infrastructure: not well-developed Low levels of disposable income Language difference

Hybrid store: supercenter and a warehouse club (memberships) Smaller satellites stores fit better with local needs Product sourcing and product selection balance the desire of local for high-status U.S.-made consumer goods and domestic goods Local Competition Acquiring a dominant player. Acquiring a weak player. Launching a frontal attack on the incumbent.

Acquiring a dominant player Germany: Wertkauf hypermarket chain (21 stores, one of the most profitable) Reason: Mature European market building new ones not good Strict zoning laws precluded greenfield operations Acquiring a weak player Remember

the Woolco case? Launching a frontal attack on the incumbent Attacking dominant and entrenched local competitors head-on Only feasible when the global company can bring a significant competitive advantage to the host country Brazil 1996: aggressive pricing Backfired when local competitors retaliated and initiated a price war Leading sale category was food local sourcing local competitors advantage Focus on customer service and merchandise

mix Gains and Setbacks Not all of Wal-Marts global moves succeeded 1999, Asda in Britain (acquiring a dominant player). Now behind Tesco and gradually fell behind in profit and market share. 2005, costly exit from the German market, loss of $1 billion: unable to attain the economies of scale to beat rivals prices International activities: 40% of the stores <1/4 of total sales However: only overseas markets offer the worlds biggest retailer the kind of room it needs to grow.

GLOBAL STRATEGY AND RISK Legal Risk Political Risk Financial/ Economic Risk Global StrategyExploiting Similarities and Differences Societal/ Cultural Risk

Political Risk Politically induced actions and policies initiated by a foreign government Assess stability of a countrys current government and its relationships with others 2 subcategories: global and country-specific risk Global risk: all of a companys multinational operations Country-specific: a specific country Macro and micro risk: Macro: how foreign investment in general in a particular country is affected by reviewing the governments past

use of soft and hard policy instruments Micro: particular company or group of companies Legal Risk Multinational companies encounter in the legal arena in a particular country Analyzing the foundations of a countrys legal system law properly enforced? High risk (loss of IP, technology, trademarks): countries with written laws protecting a multinational's rights but rarely

Financial/Economic Risk Analogous to operating and financial risk at home Volatility of a countrys macroeconomic performance and the countrys ability to meet its financial obligations directly affect performance A nations currency competitiveness and fluctuation are important indicators of a countrys stability + willingness for changes and innovations Other factors Societal/Cultural Risk

Associated with operating in a different sociocultural environment Ethnics, Religions, Nationalist movements, Ideologies, Change Adaptability should be analyzed Standard of living, patriotism, religious factors, the presence of charismatic leaders Exploiting Similarities and Differences Wal-Mart: global strategy involves more than taking a superior

business model and rolling it out globally to capture economies of scale. Similarities How much to adapt the business model? Similariti es to answer How much to standardize from country to country?

How much to localize to respond to local differences Differences = obstacles to overcome? Global strategies based on the principle of arbitrage = differences in costs, market structure, or other key variables competitive advantages Best global strategies exploit opportunities to standardize while differentiate CEMEX: Mexican global cement producer Arbitrage cost differences Standardized operational strategy (uniform production to

distribution chains with information technology, innovation) Choose how to raise capital independently from the way it chooses to compete in product markets Differences: make arbitrage valuable: comparative advantages Similarities: create opportunities for scales

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