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Chapter 8: Strategy in the Global Environment
The global environment is the environment in which international businesses operate.
Michael Porter identified 4 attributes of a country-specific environment that have an important impact on companies located within that nation:
A nation’s position in factors of production such as skilled labor or the infra-structure necessary to compete in a given industry.
The nature of home demand for the industry’s product or service.
The presence or absence in a nation of supplier industries and related industries that are internationally competitive.
The conditions in the nation governing how companies are created, organized, and managed, and the nature of domestic rivalry.
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.
Companies that compete in the global marketplace typically face two types of Competitive pressures:
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 emerge when customer tastes and preferences differ significantly between countries.
It includes:
Emerge when customer tastes and preferences differ significantly between countries.
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.
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.
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.
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.
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.
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.
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.
Advantages:
Drawbacks :
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.
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.
A wholly-owned subsidiary is one in which the parent company owns 100% of the subsidiary’s stock.
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.
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.
Trying to develop a business model that simultaneously:
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.