The Global Environment: Strategic Considerations for Multinational Firms

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
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Development of a GlobalCorporation
1. Export-import activity
2. Foreign licensing and technology transfer
Evolution of a global firm entails
progressively involved strategy levels
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 competitors
  home

6
Ex. 4-4 Reasons for Going Global Reactive
Approach

• Trade barriers
• International customers
• International competition
• Regulation
• Chance

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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

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Ex. 4-6 Orientation of a Global Firm
9
Ex. 4-6 (contd.)
10
Ex. 4-6 Orientation of a Global Firm
11
Ex. 4-6 (contd.)
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Beginning to GlobalizeKey Steps

• External assessment
• Careful examination of critical features of the
  global environment, particularly to host nations
  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 Complexityof 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

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Ex. 4-8 Differences Between Factors that Affect
Strategic Management in the U.S. and
Internationally
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Ex. 4-8 (contd.)
16
Ex. 4-8 (contd.)
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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

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Stakeholder Activism
Refers to demands placed on the global firm by
the foreign environments in which it operates,
principally by foreign governments
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Multidomestic and GlobalIndustries
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
20
Factors Increasing Degree to Whichan 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
  RD provided by global firm

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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

22
Factors Making for the Creationof a Global
Industry

• Economies of scale in functional activities of
  firms in industry
• High level of RD 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

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Ex. 4-9 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

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Ex. 4-9 (contd.)

• Global Financing
• 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

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Ex. 4-9 (contd.)

• Global Technology/RD
• Design global products, designing regional
  differences into account
• Manage development work centrally but carry out
  globally
• Do not duplicate RD 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

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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

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Ex. 4-10 Location and Coordination Issues of
Functional Activities
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Ex. 4-11 Market Requirements and Product
Characteristics The Model
Rate of Change of Product
Fast
Maintain differentiation
Operate an ever-changing global warehouse
Customized market-by-market
Standardized in all markets
Minimize delivered cost
Practice opportunistic niche exploration
Slow
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Ex. 4-13 International Strategy Options
High
Wholly owned foreign subsidiary
Joint venture
Foreign branch
Licensing, contract manufacturing, franchising
Foreign branch
Joint venture
Product diversity
Licensing, contract manufacturing, franchising
Export
Joint venture
Low
High
Market complexity
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Ex. 4-14 Strategies of Asian Competitors

• Professionalizing Management
• Johnson Electric Hong Kong
• Taiwan Semiconductor Taiwan
• Remaining Entrepreneurial
• Acer Taiwan
• San Miguel Corp. Philippines
• Sticking with the Core Business
• Renong Bernard Malaysia
• Indofood - Indonesia

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Ex. 4-14 Strategies of Asian Competitors

• Bracing for More Open Markets
• Chinatrust Taiwan
• Thai Farmers Bank Thailand
• Going Public
• Telkom Indonesia Indonesia
• China Steel Taiwan
• Forging Strategic Partnerships
• Legend China
• Mitac - Taiwan