Today’s Objectives

• How globalization has become a key

strategic choice
• What are the benefits and costs related
to globalization?
• Twin challenges of cost reductions and
local responsiveness
• Different globalization strategies
• Competing internationally
• Key globalization decisions
• Where, when, how, and to what degree
 Global Strategies
• Why go global?
• Greater earning potential
• Access markets where local competitors
lack firm’s distinct competencies
• Driven by macro forces:
• Global industry scope
• Decline of “national border”
• Shift from national to international markets
• Reduction in trade & investment barriers
• WWW brings products to global audiences
Determinants of National Advantage:
Porter’s Diamond Model
 Benefits of Global Strategies
1. Increased market size
• Domestic market may lack the size to support efficient scale
manufacturing facilities

2. Return on investment (ROI)

• Large investment projects may require global markets to justify
the capital outlays
• Weak patent protection in some countries implies that firms
should expand overseas rapidly in order to preempt imitators
3. Economies of scale and learning (e.g., Honda & GM)
4. Location advantages
• Achieve better access to critical resources (i.e., raw materials,
lower cost labor, key customers, energy)

4
 4 Globalization Strategies
• Requires a fine balance between benefits of
global integration & national differentiation
1. Standard Globalization
• Pursuit of cost reduction – economies of scale & location
economies
• High cost pressures, minimal differentiation
2. Localization Strategy
• Customizing firm’s products/processes to match national
markets tastes
• Substantial differences across nations, cost pressures minimal
4 Globalization Strategies (cont’d)
3. International
• Products serve universal needs, minimal
differentiation required
• Lack of significant local competitors, low cost
pressures
• HO retains tight control over operations
4. Transnational
• Requires both low costs and differentiation
across markets
• Requires high level of information and
knowledge sharing between subsidiaries
• Conflicting demand strategy
 Risks in International Environment

1. Political risks
• Government instability
• Conflict or war
• Government regulations
• Conflicting and diverse legal authorities
• Potential nationalization of private assets
• Government corruption
• Changes in government policies
 Risks in International Environment (Cont’d)

2. Economic risks
• Differences and fluctuations in currency values
• Investment losses due to political risks
3. Management problems
• Geographic dispersion
• Logistical costs
• Cultural diversity
• Other differences by country
• Relationship between organization and host country
 National
Nationalcultures:
cultures:“power
“powerdifference”
difference”&&
“uncertainty
“uncertaintyavoidance”
avoidance”

Japan
Korea France
Israel

Uncertainty Mexico
avoidance

USA

India Malaysia
Philippines
Denmark

Power distance
 National
Nationalcultures:
cultures:individualism/collectivism
individualism/collectivism

Japan Mexico
Germany India Philippines
UK Denmark Israel Korea Venezuela
USA Aust. France Malaysia Guatemala
Italy

Individualist Collectivist
 Market Entry Decisions
• Which markets to enter?
• Long run profit potential
• Balance of cost benefits and profit risks
• When to enter the market?
• First-mover advantage: pre-emptive, build
market share
• Disadvantages: pioneering costs, uncertain
alliances
• Enter on what scale?
• Large scale: difficult to reverse, financial
outlay
• Small scale: market research, low costs
 Types of Entry Modes
1. Exporting
• Beginning globalization strategy, pure export
Usually manufacturers
• High trade and transport costs
2. Licensing
• Selling the rights to have a firm’s products
produced overseas
• Low financial costs, market expansion
3. Franchising
• Similar to licensing, includes intellectual
property, intangibles, operations guidelines
• Usually services industry
• High risk of product or brand degradation
 Types of Entry Modes
4. Joint Ventures (e.g., GM & SAIC)
• Firm establishes partnership with local firm
• Shared costs and risk benefits
• Local market and consumer expertise
• Often political requirement in developing
markets
5. Wholly-Owned Subsidiaries
• Parent firm owns 100% of firm‘s stock
• Gain local economies of scale and
experience curve
• High costs and high risks involved
6. Cross-border Acquisitions
• Incompatible culture: corporate and national
 Strategic Fit & Risks of Market Entry
Strategies
Political & Economic Risk

Normal Serious Extreme

Good

Joint Venture
Fully-Owned
Majority Minority
Subsidiary
Controlled Interest
Strategic Fit

Satisfactory

Sales Branch
Majority
Partnership
Pure Licensing
Poor

Licensee with Small

Indirect Exports
Participation
 Alternative
Alternative Modes
Modes of
of Overseas
Overseas Market
Market Entry
Entry

TRANSACTIONS DIRECT INVESTMENT

Exporting Licensing Joint venture Wholly owned

subsidiary
Marketing & Fully
Spot Foreign Distribution integrated
sales agent / only
distributor

Long- Licensing Franchising Marketing& Fully

term patents & Distribution integrated
contract other IP only

Low Resource commitment High

 Today’s Objectives
• How globalization has become a key
strategic choice
• What are the benefits and costs related
to globalization?
• Twin challenges of cost reductions and
local responsiveness
• Different globalization strategies
• Competing internationally
• Key globalization decisions