The Global Environment

continuing. Armed with these factors that make strategic planning and

the global environment much more complex, global companies face multiple

political, economic, legal, social cultural environments as well as various

rates of changes within each of these environments.

Sometimes we see foreign governments working in conjunction with their

military to advance economic aims, even at the expense of

human rights.

I find it interesting.

I live on an acreage and we had some industrial

wind turbines constructed near our home.

And in doing research on this, I learned that the

owner of these wind turbines is the Chinese Shipbuilding Incorporated,

which is the largest naval defense contractor to the Chinese

navy. And this ship builder incorporated company in China is

actually owned by the Central Communist government of China.

So these ties between government and industry in some countries

be make doing business very complex.

Likewise, international companies have to resist the temptation to benefit

financially when there's immoral opportunities, things like child labor.

Uh, you know, inhumane working conditions for adults.

There's all sorts of stories in the news.

He seemed to happen quite frequently where companies are profiting

off of these immoral activities.

Now, the Internet interactions between national informed environments are complex.

Also because national sovereignty issues, uh, and there's widely different

economic and social conditions as well as social aims.

So some in some countries, you know they don't have

the same capitalistic approach to business.

In some regions, like in Europe, their workplaces are much

more employee friendly.

The Europeans enjoy many advantages, much greater extent of holidays

and vacations.

I had some students I had taken to Spain, and

we visit a company there, and we learned that the

first day on the job with that company, an employee

is given six weeks of vacation every year, day one,

and that also that doesn't include an additional 13 national

holidays. So you can imagine in the United States, where

some workplaces, you know, for for your first year of

working you may only get a week of paid vacation.

Likewise, geographic separation and cultural and national differences.

Uh, these variations can make communication as well as control

of your units operating in foreign markets very difficult.

It's also worth noting that global companies face extreme competition

that once you step into this, this global marketplace, uh,

you know, you're also you're receiving competition from other global

competitors as well as regional and local competitors.

This makes it very difficult when you're dealing with domestic

competitors. They have an inherent advantage of this being their

home territory.

So these can make strategies very sophisticated in terms of

what you can do.

They can be restricted due to various alliances throughout different

regions, such as the European UH, economic community, the European

Free Trade Area, the Latin American Free Trade Area, etcetera.

Okay, show you an example of how this can be

difficult. This is a K F D restaurant in China.

KFT. You'll find many restaurants, chains like this In other

countries, I've seen variations of McDonald's.

I've seen a Starbucks.

They use the exact same Starbucks logo.

But instead of saying Starbucks, it says Bucks star coffee

sharp. I remember when I was in Ireland, I saw

a local retail chain on their truck.

Was this tag line that said, Expect more pay less,

which that's actually the motto of Target retail stores in

America. But in Ireland, they decided to borrow this because

Target does not have a store in Ireland, so they're

not competing against them there.

But this is just a good example of how competitive

it can be and when you're competing on the global

stage. So when we think about stakeholder activism, um, this

is another concern that can make it much more difficult

for global competition.

But also it's something we have to be aware of

when it comes to creating our strategy and different stakeholders.

And different host countries, of course, have different aims and

and things that they're they're interested in.

So the stakeholder, an easy one in the United States,

is when you see, like child rights or when we

had our case study on the orangutans and the chain

saws, you know, people standing up for the environment and

these stakeholders can add another layer of complexity to the

global competition.

So when we think about multi domestic versus global industries

multi domestic, they're really dealing with issues from country to

country. Uh, so in a multi domestic, the subsidiaries tend

to operate on their own, so you have centralist control

but decentralized execution.

Whereas a global industry is one where it's going across

different boundaries and with the global industry, the company's strategic

moves in one country can be significantly affected by its

competitive position in another country.

Quickly expanding list of global industries includes things like commercial

aircraft, automobiles, computers, other electronic equipment and many authorities are

convinced that almost all product oriented industries will soon be

global. So you can imagine that when you're a global

company like Boeing Airline, that if you have an aircraft

that crashes in Indonesia, this instantly is going to effect.

Uh, you know what's happening with your competition across the

world. So arrow, bus, bones, uh, one of Boeing's key

competitors. The moment of Boeing aircraft has issues now.

Aero Bus can start to make moves because if Boeing

is going to have to stop production, or they're going

to have to, um, you know, not fly certain models

of aircraft until the investigation's done.

This is something that their competitors can take advantage of

across the globe, not just in Indonesia but across the

globe. So strategic management planning has to be global for

six key reasons.

One is the increased scope of the global management task.

The increased globalization of companies is to the information explosion

is three for, because there's increased global competition.

So, as we noted before, even if you're not competing

globally, you may soon have someone come into your market

that's a global competitor that you're going to have to

deal with.

Number five is the rapid development of technology, and six

is the fact that strategic management is going to help

your company become more managerially confident in the sense that

you can compete.

Gold Boy.

So a global industry is also in an industry where

a firm has to maximize its capabilities through a global

strategy. This means high degree of centralized decision making at

the corporate level to allow for trade off decisions at

the lower levels of the firm.

And there's several factors that make for the creation of

a global industry things like economies of scale in functional

activities. So you can have one central HR department or

one central financial department, instead of having every subsidiary have

its own high level of research and development expenditures on

products that require more than one market to recover the

developmental cost.

So think about automobiles.

All the technology they're putting in automobiles today is expensive

to do the R and D to ensure that they're

safe, like self driving cars or crash avoidance systems, and

so being able to spread that cost of all that

research and development across many different markets throughout the world

makes up more tenable.

Another factor that makes for the creation of a global

industry is the presence in the industry of predominantly global

firms that are expecting consistency of products and markets are

products and services across markets.

1/4 reason is the presence of homogeneous product needs across

markets, and this is going to reduce the requirement of

customizing the product for each market and the presence of

a small group of global competitors.

So a good example of this is we're seeing companies

such as Toyota and Volkswagen they're going to They're using

standardized frames on their cars.

So the frame for a Toyota Camry is a similar

frame that they're using for the Toyota Highlander.

Uh, and and Volkswagen's doing this as well, and they're

also using, you know, identical bolts, identical washers.

I mean, all the the pieces and parts that go

into that car there, making those much more standardized in

order to realize the benefit of using these pieces and

parts across different markets.

And finally, a final factor.

Fifth factor to consider for the creation of a global

industry is a low level of trade regulation and regulation

regarding foreign direct investment.

And so we're starting to see more free trade agreements,

and in these agreements it makes it easier to promote

doing business in a global industry.

The challenge of doing global business is that each firm

has to decide which of its functional activities should be

performed, where and to what level of coordination should exist

among the various functional activities.

So the normal functional activities of a company include things

like the purchases of input resources operations, R and D,

marketing and sales and after sales service.

A multinational corporation has a wide range of possible location

options for each of these different types of activities, and

they'll have to decide which set of activities will be

performed and how many and which locations.

So, as I noted earlier, you may have a global

HR headquarters for Walmart and then Walmart likely breaks at

by regions which then is further broken down into sub

regions. But this is far more efficient than Walmart having

you know, an HR department for 10,000 different each store

having its own HR department, and now they're paying for

10,000 sets of HR departments.

A multinational corporation also has to determine the degree to

which functional activities are to be coordinated, and this a

coordination can be extremely low, which allows each location to

perform its activities autonomously.

Or it could be extremely high, tightly linking the functional

activities of different locations, and it's likely a combination of

these. So in the next lecture, we'll take a look

at location and coordination issues as well as how going

global impacts every part of the business.

The Global Environment_part3

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