Steps Toward Globalization

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Steps Toward Globalization

• Glen H. Brodowsky Ph.D.

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Stages of International Involvement

• Initial Entry
• Economies of Scale
• Local Market Expansion
• Economies of Scope
• Global Rationalization
• Synergies

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International Product Life Cycle

• Industrialized nation exports high tech products
• Loses its sales to local competitors
• Becomes net importer

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Incremental Information Acquisition

• Lack of knowledge and management risk aversion
• Gain experience in foreign market

• Begin by exporting to neighboring countries
  through independent reps
• Establish subsidiary, begin foreign production
  and manufacturing facilities

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E.P.R.G. Framework

• Ethnocentrism
• Foreign operations viewed as subsidiary to
  domestic
• Polycentrism
• Oriented toward the host country. Emphasizes
  differences between countries
• Regiocentrism
• Regionalized headquarters
• Geocentrism
• World orientation distinction between
  domestic and foreign vanishes

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Triggers to Internationalization

• External
• Environmental
• Industry trends
• Technological
• Competitive Pressure

• Internal
• Sales growth
• Management attitudes

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Strategic Thrust

• The firms direction in international markets
• Defining the geographic scope of the undertaking

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Leveraging the Firms Strengths

• Initial Entry
• Domestic position strong - expand into new
  markets to gain economies of scale
• Local Market Expansion
• Adapt programs in foreign markets to achieve
  economies of scope
• Global Rationalization
• Leverage skills and experience to
  achieve synergies on a global scale

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Pre-Internationalization

• Domestic market is central focus
• Domestic competitors viewed as threats
• Company may have its head in the sand
• Ignores changes in the global environment which
  might impact the domestic market
• Misses out on opportunities
• Doesnt keep up with the times

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Triggers to Initial Market Entry

• Saturation of domestic market
• Movement of customers into global market
• Diversify risk across countries
• New sourcing opportunities
• Retaliation against entry of foreign competition
• Keeping up with technological changes
• Government incentives
• Advances in transportation
  Communication

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Initial Market Entry

• Key Strategic Thrust
• Geographic market extension
• Minimize product and marketing costs
• Leverage the firms domestic position
• Find an opportunity to enter a market with
  conditions as similar as possible to domestic
  market

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Initial Entry What can be Leveraged?

• Innovativeness
• Patent
• Brand Name
• Experience
• Know how
• Quality
• Cost advantages

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Initial Entry Key Decisions

• Choice of country(ies) to enter
• Timing and sequencing of entry
• Mode of entry

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Initial Entry Choice of Country

• Opportunities and perceived threats with respect
  to
• General business climate
• The specific product or service market

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Initial Entry Choice of CountryGeneral
Business Climate

• Political
• Economic
• Technological
• Socio-cultural
• Legal
• Attitudes toward foreign investment

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Initial Entry Choice of CountryProduct/Service
Market

• Market size
• Market growth potential
• Competitive environment

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Initial Entry Choice of Country

• Knowledge and familiarity with a country may
  influence decision to enter that country.
• Tendency is to choose country more similar to the
  home country to reduce uncertainty.

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Timing of Entry

• Enter many countries simultaneously?
• Enter countries sequentially?

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Mode of Entry

• How much risk is the company willing to incur?
• How much control does the company wish to exert?
• Low commitment
• licensing, contract manufacturing, minority joint
  venture
• High commitment
• wholly-owned subsidiary, majority
  joint venture

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Triggers to Local Market Expansion

• Increasing market penetration
• Local competition
• Foster local management initiative and
  motivation.
• Utilization of local market assets
• Constraints imposed by natural market boundaries
  and barriers

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Local Market Expansion

• Having already entered the market, growth and
  expansion of local market opportunities.
• Identify new market opportunities.
• Use local competencies.
• Realize economies of scope.
• Strategic thrust expand markets that have
  already been entered.

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Local Market ExpansionEconomies of Scope

• Leveraging competency across broader range of
  products
• Add product lines and business
• Share across products and businesses
• Marketing expenditures
• Distribution network
• Manufacturing facilities
• Marketing mass merchandising skills
• Brand extensions

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Local Market Expansion Key Decisions

• Which new product line(s) to introduce
• Which marketing strategies to use
• Product adaptation and modification
• Product line expansion
• Brand extension
• Acquisition of new brands
• Adapting distribution, pricing, promotion
  to local market

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Local Market ExpansionSuccess Factors

• Ability to leverage tangible and intangible
  assets
• Foreign markets ability to accept the firms
  strengths
• Development of marketing infrastructure
• Existence and strengths of local competition
• Availability of managers who understand local
  market
• Match core competencies and key industry success
• Government regulations and restrictions

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Triggers to Global Rationalization

• Cost inefficiencies from duplication of effort
• Opportunities for transferring products, brands,
  and other ideas
• Emergence of global customers
• Growth of competition on a global scale
• Improved linkages among national marketing
  infrastructures

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Global Rationalization

• Adoption of a global orientation in strategy
  development and implementation
• Goal is to increase global efficiency without
  losing responsiveness to local market conditions
• Facilitate transfers of ideas, skills, experience
• Coordination of company activities
• Multi-domestic orientation vanishes
• Country and product markets are viewed
  as a set of interdependent entities.

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Global Rationalization

• Capitalize on synergies by operating on global
  scale
• Optimal allocation of company resources across
• Countries
• Businesses
• Market segments
• Search for opportunities on global scale
• Transfer of brands and products
• Transfer marketing ideas and skills

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Global Rationalization

• Economies of scale in logistics, production, and
  employment of skills
• Leverage experience through horizontal transfers
  of knowledge and skills
• Transfer of resources from one country or
  business to another.

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Global Rationalization

• Increasing Efficiency
• R D
• Sourcing
• Logistics
• Regional Integration
• Capital can be borrowed globally, rather
  than locally

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Global Rationalization

• Global strategy development
• Targeting segments on a world-wide basis
• Determining the global product mix
• Development of a system to coordinate flows of
  information, ideas, and resources on a global
  basis.

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Global Rationalization Key Issues

• Requires sophisticated management
• Level of required resources rises
• Do consumer preferences allow for such
  rationalization
• Increased organizational complexity.