Chapters 1 and 2

1
CHAPTER 10 Global Strategic Management and the
Future
2
Learning Objectives

• Appreciate the major trends in global strategic
  management and why internationalization is
  important
• Recognize the stage of global development of a
  particular firm
• Understand how to create a global mindset
• Understand the roles of foreign subsidiaries
• Select an appropriate international expansion
  tactic
• Analyze a foreign country to determine its
  attractiveness for investment

3
Primary Reasons Firms Make Foreign Investments

• New Markets
• Better Resources
• Efficiency
• Risk Reduction
• Competitive Countermove

4
Global Orientation

• International expansion is the process of
  building an expanding operational presence
• Global integration is the process through which a
  multi-national organization integrates its
  worldwide activities into a single world strategy

5
Four Stages of International Development

• Domestic Stage
• Focus on domestic operations
• Some exporting
• International Stage
• Exporting important international divisions to
  handle marketing functions
• Multinational Stage
• Marketing and production facilities throughout
  the world
• More than a third of sales overseas
• Access to world capital markets
• Global Stage
• Organization no longer associated with any one
  country
• Operate in as many as 40 or more countries

6
Cross-Cultural Human Resource Differences

• Percentage of people who agreed with this
  statement
• It is important for a manager to have, at hand,
  precise answers to most of the questions that his
  or her subordinates may raise about their work
• High percentage countries
• Japan 77
• Indonesia 67
• Italy and France 59
• Low percentage countries
• USA and Sweden 13
• Netherlands 18
• Denmark 27
• Great Britain 30

7
Factors that Lead to Competitive Advantages of
Nations
Firm Strategy, Structure and Rivalry
Factor Conditions
Demand Conditions
Related and Supporting Industries
Source Adapted with the permission of the Free
Press, an imprint of Simon Schuster Adult
Publishing Group (see text for complete reference)
8
Management of Foreign Subsidiaries

• Three levels of subsidiary responsibility
• Local Implementation
• Very well defined roles to play
• Very little independence
• Specialized Contribution
• An interdependent network of subsidiaries, with
  each subsidiary making a unique contribution
• Often in a production role
• Global Mandate
• Have responsibility for and entire global
  business
• Activities integrated by the subsidiary itself,
  not the corporate office

9
Product/Market Approach

• Multidomestic Product/Market Strategy
• Handle product design, assembly and marketing on
  a country-by-country basis
• Custom tailored products and services for
  particular markets (local responsiveness)
• Global Product/Market Strategy
• One product design
• Marketing in the same fashion throughout the
  world
• Emphasis on efficiency
• Transnational Product/Market Strategy
• Entails seeking both global efficiency and local
  responsiveness
• Integrated network that fosters shared vision and
  resources while allowing for individual decisions

10
International Expansion Tactics

• Exporting
• Contractual Arrangements
• Licensing
• Franchising
• Foreign Direct Investment
• Joint Venture
• Wholly Owned Subsidiary
• Acquisition
• In general, moving down the list (above) is
  associated with greater cost, financial risk,
  profit potential and control

11
Global Business-Level Strategy

• Improve Competitive Position Through Cost
  Leadership
• Foreign assembly or manufacturing
• Branding of finished products that are
  subcontracted to foreign firms
• Global sourcing
• Expanding markets leading to economies of scale
• Transfer of technological know-how through joint
  ventures
• Improve Competitive Position Through
  Differentiation
• Distribution of elite foreign product in the U.S.
• Sale of U.S. product in foreign markets
• Superior quality through joint ventures
• Licensing of product technology from abroad
• Promoting an open, learning mindset

12
Global Corporate-Level Strategy

• Merger and acquisition wave is a global trend
• Many cross-country acquisitions
• Much consolidation of global industries
• Creates enormous, diversified global companies
• Some companies are focusing on related
  acquisitions in pursuit of economies of scope
  based on shared resources
• Many global firms are downscoping
• Probably helpful to performance of firms with big
  investments in industrialized nations
• May be damaging to the economies of developing
  nations if big firms withdraw their capital
• Big firms channel capital to promising businesses
  in nations with poorly developed financial markets

13
International Markets

• Triad regions include North America, Europe and
  the Pacific Rim
• Difficult management challenges common in other
  developing nations
• Unstable governments
• Inadequately trained workers
• Low levels of supporting technology
• Shortages of supplies
• Weak transportation systems
• Unstable currencies

14
Japan After the Economic Bubble Burst

• Business Environment
• Remains a tough, highly competitive environment
• Price destruction
• Distribution becoming more concentrated
• Increasing expectations of fast retailer response
• Consumers
• Increased balance between work and family
• Some convergence with international values
• Heritage
• Luxury designer products hold strong, but
  consumers are more price/value conscious,
• Luxury products sold through discount outlets

15
Japan After the Economic Bubble Burst

• Consumer Interest
• More focus on home
• More value-for-money-driven behavior
• Increased emphasis on functional performance,
  less brand devotion
• Product Churning
• Reduction in product emulation activity
• Insider Strategy
• May still be true, but foreign owned companies
  attempting insider strategies are struggling
• Marketing Skills
• Marketers in Japan still maintain dedicated
  dialogue with consumers

16
Selecting a Foreign Market

• A foreign market should be selected only after
  thorough evaluation of
• Social Forces
• The Economy
• Political / Legal Environment
• The State of Technology
• Industry Specific Factors

17
Institutional Differences Across Countries
Emerging economies Russia, China,India
Group- centered economies Korea
Family-centered economies Sweden, France, Italy
Bank-centered economies Japan, Germany
Market- centered economies U.S., U.K.
Less-developed economic and transaction environmen
ts
Well developed economic and transaction environmen
ts
Source R.E. Hoskisson, R.A. Johnson, D. Yiu and
W.P. Wan, Restructuring Strategies of
Diversified Business Groups Difference
Associated with Country Institutional
Environments, in M.A. Hitt, R.E. Freeman and
J.S. Harrison, The Blackwell Handbook of
Strategic Management (Oxford Blackwell
Publishers LTD, 2001), p. 444, used with
permission.
18
Strategic Management for the 21st Century

• Increasing Levels of Global Trade and Global
  Awareness
• Global and Domestic Social Turbulence
• Increased Terrorism and a World-Wide Effort to
  Eliminate It
• Increased Sensitivity to Ethical Issues and
  Environmental Concerns
• Rapidly Advancing Technology, Especially in
  Communications

19
Strategic Management for the 21st Century

• Continued Erosion of Buying Power in the U.S. and
  Other Economies
• Continued Development of Third World Economies
• Increases in U.S. and Global Strategic Alliances
• Revolution in the U.S. Healthcare Industry
• Greater Emphasis on Security and Crisis Management

20
Major Concepts in Chapter 10

• Firms make foreign investments for a variety of
  reasons, including seeking new markets, better
  resources, efficiency, risk reduction or as a
  competitive countermove
• Global strategic management provides challenges
  and opportunities not found in domestic markets
  and strategies
• International expansion involves building an
  expanding operational presence, while global
  integration is the process through which a
  multinational organization integrates its
  worldwide activities into a single global strategy

21
Major Concepts in Chapter 10

• Organizations seem to evolve through four stages
  of international development, which are domestic,
  international, multinational and global
• The role of foreign subsidiaries is changing from
  being simply branch locations to a full role in
  the development of new competencies,
  capabilities, resources and products
• A multidomestic product/market strategy entails
  custom tailoring products and services by
  country, whereas a global product/market strategy
  offers one approach throughout the world. A
  transnational product/market strategy is a
  compromise between the two approaches

22
Major Concepts in Chapter 10

• Common international expansion tactics include
  exporting, licensing, franchising, joint
  ventures, wholly-owned subsidiaries and
  acquisitions
• A global merger and acquisition wave has created
  enormous, diversified global companies however,
  refocusing is also evident as firms pursue
  related acquisitions and discard unrelated
  businesses
• Foreign markets should be carefully evaluated
  before investments are made. Factors that should
  be evaluated include the social environment,
  economy, political/legal environment, the state
  of technology and other factors specific to each
  industry