Globalization

1
Globalization

• Session 17

2
Carrefour v/s WalMart

• Battle in Argentina
• WalMarts miscalculations
• Merchandise mix
• Store design
• Learning from experience in La Plata

Source NY Times and Carrefour WalMart web sites
3
Why globalize
Source Prahalad
4
Purchasing power
Source Prahalad, 1998
5
Why globalize?

• Leverage distinctive competencies
• Realize location economies
• Moving down experience curve

6
Pitfalls of venturing overseas

• Coca Cola in China
• Bite the wax tadpole
• GM in Puerto Rico
• Chevy Nova - Wont go
• EMU airlines in Australia, Colonel Sanders in
  Germany
• Latin America
• Manana
• Late movers MNCs from third world countries

7
Lincoln Electrics international expansion
Source Hastings, 1999
8
Competitive pressures

• Cost reduction
• Standardized products
• External environment 5 Forces model
• Liberalized foreign trade and investment

• Local responsiveness
• Consumer tastes
• Infrastructure
• Distribution channels
• Host Government

9
Local responsiveness
Source, Prahalad, 1998
10
Strategies to compete internationally

• International
• Centralized product development, standardized
  products, duplication of manufacturing facilities
• Multidomestic
• Decentralization, duplication of facilities,
  customized products
• Global
• Centralization, few plants, standardized product
• Transnational
• Regional plants, local assembly and adaptation

11
Globalization and Industry Structure

• Globalization
• Marketing, Production and RD
• Implications of globalization
• Foreign competitors
• Increased competition
• Accelerated rate of innovation
• Opportunity for growth (removal of trade and
  investment barriers)
• Backlash employment, human rights,
  environment, intellectual property

12
EU Customs debate Is Mr. Spock human?

• EU quota on imports of toys representing
  animals/non human creatures from China 1994
• Should the quota apply to toys representing Mr.
  Spock?

Source HBS case, Star trek web site
13
Entry modes

• Exporting
• Centralized with global sales
• Location and experience economies
• High transport and trade costs
• Licensing/ Franchising
• Sell rights to manufacture/ use brand name
• Low capital requirements
• Lack of control and co-ordination
• Joint ventures / Strategic alliances
• Access to partners capabilities
• Lack of control and co-ordination

14
Entry mode

• Wholly owned subsidiaries
• 100 ownership
• Control, global co-ordination
• High costs and risks