Chapter The Global Environment © 2015 by McGraw-Hill Education This is proprietary material solely for authorized instructor use Not authorized for sale or distribution in any manner This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part Learning Objectives The importance of a company’s decision to globalize The four main strategic orientations of global firms The complexity of the global environment and the control problems that are faced by global firms Major issues in global strategic planning, including the differences for multinational and global firms The market requirements and product characteristics in global competition The competitive strategies for firms in foreign markets Globalization • Globalization refers to the strategy of pursuing opportunities anywhere in the world that enable a firm to optimize its business functions in the countries in which it operates Globalization (contd.) • • Awareness of the strategic opportunities faced by global corporations and of the threats posed to them is important to planners in almost every domestic U.S industry Understanding the nuances of competing in global markets is rapidly becoming a required competence of strategic managers Development of a Global Corporation Four Levels Level – export/import activity has minimal effect on the existing management orientation or on existing product lines Level – foreign licensing and technology transfer requires little change in management or operation Development of a Global Corporation (contd.) Level – direct investment in overseas operations –is characterized by large capital outlays and the development of global management skills Level – substantial increase in foreign investment – the firm begins to emerge as a global enterprise with foreign assets comprising a significant portion of total assets Why Firms Globalize? • U.S firms can reap benefits from industries and technologies developed abroad • Direct penetration of foreign markets can drain vital cash flows from a foreign competitor’s domestic operations • The resulting lost opportunities, reduced income, and limited production can impair the competitor’s ability to invade U.S markets Question: Should firms be proactive or reactive? Reasons for Going Global • • • • • • • • • • PROACTIVE Additional resources Lowered costs Incentives New, expanded markets Exploitation of firm-specific advantages Taxes Economies of scale Synergy Power and prestige Protect home market Reasons for Going Global (contd.) • • • • • REACTIVE Trade barriers International customers International competition Regulations Chance Strategic Orientations of Global Firms • Ethnocentric orientation • When the values and priorities of the parent organization guide the strategic decision making of all its international operations 10 Complexity of the Global Environment • Five factors affecting the increasing complexity of global strategic planning: Multiple political, economic, legal, social, and cultural environments as well as various rates of change Interactions between the national and foreign environments are complex Geographic separation, cultural and national differences, and variations in business practices all tend to make communication and control efforts difficult 15 Complexity of the Global Environment (contd.) Globals face extreme competition Globals are restricted in their selection of competitive strategies by various regional blocs and economic integrations 16 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 more problematic Important differences in measurement and control systems often exist These problems can be reduced through more attention to strategic planning 17 Global Strategic Planning: Stakeholder Activism • Demands placed on a global firm by the stakeholders in the environments in which it operates, principally by foreign governments 18 Global Strategic Planning • • Increasingly complex decisions Multidomestic vs Global industries – – – A multidomestic industry is one in which competition is essentially segmented from country to country In a multidomestic industry, a global corporation’s subsidiaries should be managed as distinct entities A global industry is one in which competition crosses national borders 19 Multidomestic Industry • Factors that increase the degree to which an industry is multidomestic include: The need for customized products to meet the tastes or preferences of local customers Fragmentation of the industry, with many competitors in each national market A lack of economies of scale in the functional activities of firms in the industry Distribution channels unique to each country A low technological dependence of subsidiaries on R&D provided by the global firm 20 Global Strategic Planning (contd.) Reasons why strategic 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 21 Global Industry • Factors that make for the creation of a global industry: Economies of scale in the functional activities of firms in the industry A high level of R&D expenditures on products that require more than one market to recover development costs The presence in the industry of predominantly global firms that expect consistency of products and services across markets The presence of homogeneous product needs across markets, which reduces the requirement of customizing the product for each market The presence of a small group of global competitors A low level of trade regulation and of regulation regarding foreign direction investment – – – – – – 22 Competitive Strategies for Firms in Foreign Markets • Strategies for firms that are attempting to move toward globalization can be categorized by the degree of complexity of each foreign market being considered and by the diversity in a company’s product line 23 Competitive Strategies for Firms in Foreign Markets (contd.) • Complexity refers to the number of critical success factors that are required to prosper in a given competitive arena When a firm must consider many such factors, the requirements of success increase in complexity 24 Competitive Strategies for Firms in Foreign Markets (contd.) • Diversity, the second variable, refers to the breadth of a firm’s business lines When a company offers many product lines, diversity is high 25 Ex 5.8 Escalating Commitments to International Markets 26 Competitive Strategies for Firms in Foreign Markets Niche Market Exporting The primary niche market approach for the company that wants to export is to modify select product performance or measurement characteristics to meet special foreign demands Licensing and Contract Manufacturing Licensing involves the transfer of industrial property right from the home market (e.g., the U.S.) 27 Competitive Strategies for Firms in Foreign Markets (contd.) Franchising Joint Ventures Wholly Owned Subsidiary Franchising is a special form of licensing which allows the franchisee to sell a highly publicized product or service, using the parent’s brand name or trademark, carefully developed procedures, and marketing strategies JVs begin with a mutually agreeable pooling of capital, etc Consequently, they offer more permanent cooperative relationships than export or contract manufacturing This involves making the highest investment commitment to the foreign market These can be started either from scratch or by acquiring established firms in the host country 28 Key Terms • • • • Ethnocentric orientation Geocentric orientation Global industry Globalization • • • • Multidomestic industry Polycentric orientation Regiocentric orientation Stakeholder activism 29 [...]... 20 Global Strategic Planning (contd.) Reasons why strategic 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 21 Global Industry • Factors that make for the creation of a global. .. normal standards of company behavior more problematic Important differences in measurement and control systems often exist These problems can be reduced through more attention to strategic planning 17 Global Strategic Planning: Stakeholder Activism • Demands placed on a global firm by the stakeholders in the environments in which it operates, principally by foreign governments 18 Global Strategic Planning. .. make communication and control efforts difficult 15 Complexity of the Global Environment (contd.) Globals face extreme competition Globals are restricted in their selection of competitive strategies by various regional blocs and economic integrations 16 Control Problems of the Global Firm • • • • Financial policies typically are designed to further the goals of the parent company and pay minimal attention... • • Increasingly complex decisions Multidomestic vs Global industries – – – A multidomestic industry is one in which competition is essentially segmented from country to country In a multidomestic industry, a global corporation’s subsidiaries should be managed as distinct entities A global industry is one in which competition crosses national borders 19 Multidomestic Industry • Factors that increase... 12 4 Strategic Orientations of Global Firms (contd.) • Geocentric orientation • When an international firm adopts a systems approach to strategic decision making that emphasizes global integration 13 At the Start of Globalization • • External and internal assessments are conducted before a firm enters global markets External assessment involves careful examination of critical features of the global. .. predominantly global firms that expect consistency of products and services across markets The presence of homogeneous product needs across markets, which reduces the requirement of customizing the product for each market The presence of a small group of global competitors A low level of trade regulation and of regulation regarding foreign direction investment – – – – – – 22 Competitive Strategies for. .. Strategies for Firms in Foreign Markets • Strategies for firms that are attempting to move toward globalization can be categorized by the degree of complexity of each foreign market being considered and by the diversity in a company’s product line 23 Competitive Strategies for Firms in Foreign Markets (contd.) • Complexity refers to the number of critical success factors that are required to prosper in a... operations 14 Complexity of the Global Environment • Five factors affecting the increasing complexity of global strategic planning: Multiple political, economic, legal, social, and cultural environments as well as various rates of change Interactions between the national and foreign environments are complex Geographic separation, cultural and national differences, and variations in business practices... select product performance or measurement characteristics to meet special foreign demands Licensing and Contract Manufacturing Licensing involves the transfer of industrial property right from the home market (e.g., the U.S.) 27 Competitive Strategies for Firms in Foreign Markets (contd.) Franchising Joint Ventures Wholly Owned Subsidiary Franchising is a special form of licensing which... Competitive Strategies for Firms in Foreign Markets (contd.) • Diversity, the second variable, refers to the breadth of a firm’s business lines When a company offers many product lines, diversity is high 25 Ex 5. 8 Escalating Commitments to International Markets 26 Competitive Strategies for Firms in Foreign Markets Niche Market Exporting The primary niche market approach for the company that wants