Introducing 

Prezi AI.

Your new presentation assistant.

Refine, enhance, and tailor your content, source relevant images, and edit visuals quicker than ever before.

Loading…
Transcript

Chapter 8: Strategy in the Global Environment

GLOBAL ENVIRONMENT

The global environment is the environment in which international businesses operate.

Objectives

  • Understand the process of globalization and how that impacts a company’s strategy.
  • Know the motives for expanding internationally.
  • Know the different strategies that companies use to compete in the global marketplace.
  • Understand the pros and cons of different modes of entering foreign markets.

Benefits

  • Increasing Profitability

  • Increasing Profit growth

Michael Porter identified 4 attributes of a country-specific environment that have an important impact on companies located within that nation:

National competitive advantage

A nation’s position in factors of production such as skilled labor or the infra-structure necessary to compete in a given industry.

Factors endowment

The nature of home demand for the industry’s product or service.

Local demand conditions

The presence or absence in a nation of supplier industries and related industries that are internationally competitive.

Related and supporting industries

The conditions in the nation governing how companies are created, organized, and managed, and the nature of domestic rivalry.

Firm strategy, structure, and supporting industries

The Filipino workforce

With higher education priority, the literacy rate in the country is 94.6% - among the highest. English is taught in all schools. Every year, there are some 350,000 graduates enriching the professional pool.

Example

Companies that compete in the global marketplace typically face two types of Competitive pressures:

Competitive pressures

Pressures for cost reductions

The firm must try to lower the costs of value creation.

Particularly intense in industries producing commodity-type products where differentiation on non-price factors is difficult and the price is the main competitive weapon.

One approach to lowering costs is to outsource certain functions to low-cost foreign suppliers.

Pressures for Local Responsiveness

Pressures for local responsiveness emerge when customer tastes and preferences differ significantly between countries.

It includes:

  • Differences in Infrastructure and Traditional Practices
  • Differences in Distribution Channels

Emerge when customer tastes and preferences differ significantly between countries.

Differences in Consumer Tastes and Preferences

Example

Consumers in various car markets appear to have varied interests and preferences. Pickup trucks are in high demand among North American consumers. Pickup trucks, on the other hand, are primarily acquired by businesses rather than individuals in Europe.

As a result, global companies such as GM, Ford, and Toyota need the product mix and marketing message must be customized to account for the differences in demand between North America and Europe.

Pressures for local responsiveness also arise from differences in infrastructure or traditional practices among countries, creating a need to customize products accordingly.

To meet this need, companies may have to delegate manufacturing and production functions to foreign subsidiaries.

Differences in Infrastructure and Traditional Practices

In North America, consumer electrical systems are based on 110 volts, whereas in some European countries 240-volt systems are standard. Thus, domestic electrical appliances have to be customized to take this difference in infrastructure into account.

Example

A company’s marketing strategies may have to be responsive to differences in distribution channels among countries, which may necessitate delegating marketing functions to national subsidiaries.

Differences in Distribution Channels

Example

Poland, Brazil, and Russia all have similar per capita income on a purchasing power parity basis, but there are big differences in distribution systems across the three countries. In Brazil, supermarkets account for 36% of food retailing, in Poland for 18%, and in Russia for less than 1%.These differences in channels require that companies adapt their own distribution and sales strategy

Economic and political demands imposed by host country governments may require local responsiveness.

Differences in Host Government Demands

Pharmaceutical companies are subject to local clinical testing, registration procedures, and pricing restrictions—all of which make it necessary that the manufacturing and marketing of a drug should meet local requirements.

Example

Entry mode

Choosing an Entry mode

There are five primary choices of entry mode

Example

Century 21, a real estate agent franchise company that was founded in the USA back in 1971.

Today, it is present across 80 countries and territories, with over 9,400 independently owned franchise brokers, and a total number of 127,000 employees.

Licensing

International licensing is an arrangement whereby a foreign licensee purchases the rights to produce a company’s product in the licensee’s country for a negotiated fee.

  • Not have to bear the development costs and risks associated with opening up a foreign market.
  • Attractive to companies that lack capital to develop operations overseas.

Advantages

Drawbacks

  • Not give a company the tight control over manufacturing, marketing, and strategic functions in foreign countries.
  • Restricts a company’s ability to coordinate strategy in using profits from one country to support competitive attacks in another.
  • Lose control over its technology.

Advantages:

  • Avoids the cost of establishing manufacturing operations in the host country.
  • Consistent with scale economies and local economies.

Exporting

Drawbacks :

  • Exporting from the company’s home base may not be appropriate if there are lower-cost locations for manufacturing the product abroad.
  • High transportation costs.
  • Tariff barriers or the threat of tariff barriers
  • No guarantee that a local agent will act in the exporter’s interest.

Franchising

A specialized form of licensing in which the franchiser not only sells the intangible property to the franchisee but also insists that the franchisee agree to abide by strict rules on how to do business.

Advantages

  • Not have to bear the development costs and risks associated with opening up a foreign market.

  • Attractive to companies that lack capital to develop operations overseas.

Drawbacks

Inhibit the firm’s ability to take profits out of one country to support competitive attacks in another.

A business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task.

Joint Ventures

Advantages

  • Can benefit from a local partner’s knowledge of a host country’s competitive conditions, culture, language, political system, and business system.

  • When the development costs and risk of opening up a foreign market are high, a company might gain by sharing these costs and risks with a local partner.

Drawbacks

  • Giving up control of technology.

  • Losing tight control over subsidiaries.

A wholly-owned subsidiary is one in which the parent company owns 100% of the subsidiary’s stock.

Wholly Owned Subsidiaries

Advantages

  • Reduces the company’s risk of losing control.
  • Gives a company the kind of tight control over operations in different countries.
  • The best choice if a company wants to realize location and scale economies.

Drawbacks

  • Most costly method of serving a foreign market.
  • The parent company must bear all the costs and risks.
  • There are problems in trying to “marry” divergent corporate cultures, and these problems may more than offset the benefits.

 Choosing a Global strategy

Global strategy

 Global Standardization Strategy

Focus on pursuing a single low-cost strategy on a global scale.

The production, marketing, and R&D activities of companies pursuing a global strategy are concentrated in a few favorable locations.

 Localization Strategy

Focuses on increasing profitability by customizing the company’s goods or services so that the goods provide a favorable match to preferences in different national markets.

This strategy makes sense if the added value associated with local customization brings higher prices.

 Transnational Strategy

Trying to develop a business model that simultaneously:

  • Achieves low costs.
  • Differentiates the product offering across geographic markets.
  • Fosters a flow of skills between different subsidiaries in the company’s global network of operations.

Example

When Starbucks entered the European market, it altered how its cafes are designed. In France, people enjoy long mornings sipping coffee with a friend.

While expanding Starbucks to France, they decided to create spaces with more seats, free Wi-Fi, and a more luxurious design.

Learn more about creating dynamic, engaging presentations with Prezi