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Chapter 8: Strategy in the Global Environment
Transcript of Chapter 8: Strategy in the Global Environment
Choice of Entry Mode
Tradeoffs exist within each strategy, each has various advantages and disadvantages
Must acknowledge distinctive competencies
Exercise: Identifying Transnational Strategies
1. Which global strategy does Nike focus on based on the four basic strategies (standardization, localization, transnational, & international)?
2. How does Nike achieve this strategy?
3. Would Nike operate better under a different strategy? Why or why not?
4. How does Nike respond to challenges regarding cost pressures and local responsiveness?
5. Which entry method has Nike utilized (exporting, licensing, franchising, joint ventures, and wholly owned subsidiaries)?
6. How successful have they been at entering new markets? Explain.
7. Which entry method would most benefit Nike? Why?
8. What ethical problems impact Nike's global strategy and perception? Does this affect their competitive standing?
Choosing a Global Strategy
Four Basic Strategies
Varies with extent of pressures for cost reduction and local responsiveness
Even giants such as McDonalds have to give in to local conditions
Focused on increasing profitability through economies of scale and location economies
Little product customization
Administratively concentrated in a few favorable locations
Aggressive pricing in world market
Favorable when pressures for cost reductions are high and local responsiveness is minimal
Focus on increasing profitability by customizing goods and services
Supports higher price model
Most appropriate with large variances in customer needs
Low cost pressure and high pressure for local responsiveness
Goal of achieving low cost as well as product differentiation (customization)
Attractive strategy, but hard to implement in practice
Standardization within the business
Bulk/high volume of inputs
Very rarely achieved, not easily quantifiable
Caterpillar and Apple
Generally pertains to manufacturing
Foreign companies buy rights to produce a product for a negotiated fee
Similar to licensing but involves longer commitments
Partnership with a company already established in a market and industry
Wholly Owned Subsidiaries
An entity fully owned by the parent company
Low cost pressure and low local responsiveness
Focus on universal needs
Limited marketing scope
Little competition in the industry
Microsoft and Xerox
No establishment costs
Economies of scale
High transport costs
Problems with local agents
Low development costs
Inability for economies of scale
No global strategic coordination
Lack of control
Low development costs and risks
Inability to engage in global coordination
Lack of control over quality
Access to local partner's knowledge and experience
Shared development costs and risks
No global coordination
Lack of economies of scale
Minimal control over technology
Protection of technology
Ability to engage in global strategic coordination
Economies of scale
High Costs and risks