Globalization: Driving Forces of Global Integration and the pressure to Localize ( ch. 2)

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Lecture III

• Globalization Driving Forces of Global
  Integration and the pressure to Localize ( ch. 2)

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Globalization - from 80s to nowIntroduction

• T. Levit 1983
• Globalization of markets
• Global product good quality, low price
• Cultural universal?

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From Simple, Standardized Global Product to
Complex Global Supply Chain

• T. Friedman, FromThe Lexus and The Olive Tree
  1999to the World is Flat 2006
• http//en.wikipedia.org/wiki/The_World_Is_Flat
• Friedman believes the world is flat in the sense
  that the competitive playing fields between
  industrial and emerging market countries are
  leveling. Friedman recounts many examples in
  which companies in India and China are becoming
  part of large global complex supply chains that
  extend across oceans, providing everything from
  service representatives and X-ray interpretation
  to component manufacturing. He also describes how
  these changes are made possible through
  intersecting technologies, particularly the
  Internet. Friedman criticizes those who resist
  these changes, arguing that global change is
  inevitable. He also warns that companies that are
  now part of a supply chain may eventually want to
  build a supply chain of their own. As he puts it,
  "they are racing us to the top." The World is
  Flat is part global reporting, part theory and
  reflection about how the world got here and what
  the ramifications are for education, government
  policy and readers.

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Standardize or differentiate?

• Globalization - Economic Forces
• Local Differentiation - Cultural and Political
  Forces

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Globalization scale, scope, factor costs, and
free trade

• Economies of Scale
• New technologies, capital-intensive products
  Problems of over-capacity go international or
  perish
• Economies of Scope
• Product variety module production, FMS better
  utilization of firms infrastructure

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Globalization (Contd..)

• Factor Costs
• S. Europe Central America Far East ASEAN
  E. Europe
• ( Review Theory of International Trade, Theory
  of DFI, and Theory of IPLC)
• Free Trade

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Localization

• Cultural Differences (pp. 92-93)
• G. Hofstede 1984 Cultural Map, how
  cultural dimensions affect MNCs management and
  structure
• Power Distance
• Uncertainty Avoidance
• Individualism/Collectivism
• Masculinity/Femininity

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Localization (Contd..)

• Conflicts between Host Government and MNC (pp.
  93-95)
• DFI regulations from the host government
• Local content requirement
• Technology transfer
• Voluntary import restrains
• Other NTBs (non-tariff barriers)

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Responding to Conflicting Forces

• MNEs must simultaneously manage
• Efficiency
• Responsiveness (Flexibility)
• Innovation/worldwide learning and innovation
• MNCs must build global efficiency through a
  worldwide infrastructure or distributed but
  specialized assets and capabilities that exploit
  comparative advantages, scale economies, and
  scope economies simultaneously.

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Transnationality?

• Administrative costs of coordinating and
  scheduling demands in various markets vs. the
  efficiency of scale economies -
• Works against the concept of reduced lead-time in
  modern manufacturing?
• Internet and advanced production technologies
  CAD/CAM, CIM,FMS,..etc, made it possible to have
  both efficiency and effectiveness in the
  management of international operation?

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• The End of Corporate Imperialism, by C.K.
  Prahalad and K. Lieberthal, HBR, 8/2003
• MNCs need to rethink their operating,
  marketing and distribution decisions to better
  serve the rising middle class consumers in
  developing countries