Steps Toward Globalization

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Steps Toward Globalization

• Glen H. Brodowsky Ph.D.

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Growth Matrix
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Stages of International Involvement

• Initial Entry
• Economies of Scale
• Local Market Expansion
• Economies of Scope
• Global Rationalization
• Synergies

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International Product Life Cycle

• Industrialized nation exports high tech products
• Loses its sales to local competitors
• Becomes net importer

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Product Life Cycle
Sales and Profits Over the Products Life From
Introduction to Decline
Sales and Profits ()
Sales
Profits
Time
Product Develop- ment
Introduction
Growth
Maturity
Decline
Losses/ Investments ()
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Incremental Information Acquisition
Begin by exporting to neighboring countries
through independent reps Establish
subsidiary, begin foreign production and
manufacturing facilities
Lack of knowledge and management risk
aversion Gain experience in foreign market
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E.P.R.G. Framework

• Ethnocentrism
• Foreign operations viewed as subsidiary to
  domestic
• Polycentrism
• Oriented toward the host country. Emphasizes
  differences between countries
• Regiocentrism
• Regionalized headquarters
• Geocentrism
• World orientation distinction between domestic
  and foreign vanishes

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International Company
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Multi-Domestic Company
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Global Company
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Triggers to Internationalization
Internal Sales growth Management attitudes
External Environmental Industry
trends Technological Competitive Pressure
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Leveraging the Firms Strengths

• Initial Entry
• Domestic position strong - expand into new
  markets to gain economies of scale
• Local Market Expansion
• Adapt programs in foreign markets to achieve
  economies of scope
• Global Rationalization
• Leverage skills and experience to achieve
  synergies on a global scale

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Pre-Internationalization

• Domestic market is central focus
• Domestic competitors viewed as threats
• Company may have its head in the sand
• Ignores changes in the global environment which
  might impact the domestic market
• Misses out on opportunities
• Doesnt keep up with the times

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Triggers to Initial Market Entry

• Saturation of domestic market
• Movement of customers into global market
• Diversify risk across countries
• New sourcing opportunities
• Retaliation against entry of foreign competition
• Keeping up with technological changes
• Government incentives
• Advances in transportation Communication

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Initial Market Entry

• Key Strategic Thrust
• Geographic market extension
• Minimize product and marketing costs
• Leverage the firms domestic position
• Find an opportunity to enter a market with
  conditions as similar as possible to domestic
  market

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Initial Entry What can be Leveraged?

• Innovativeness
• Patent
• Brand Name
• Experience
• Know how
• Quality
• Cost advantages

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Initial Entry Key Decisions

• Choice of country(ies) to enter
• Timing and sequencing of entry
• Mode of entry

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Initial Entry Choice of Country

• Opportunities and perceived threats with respect
  to
• General business climate
• The specific product or service market

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Initial Entry Choice of CountryGeneral
Business Climate

• Political
• Economic
• Technological
• Socio-cultural
• Legal
• Attitudes toward foreign investment

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Initial Entry Choice of CountryProduct/Service
Market

• Market size
• Market growth potential
• Competitive environment

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Initial Entry Choice of Country

• Knowledge and familiarity with a country may
  influence decision to enter that country.
• Tendency is to choose country more similar to the
  home country to reduce uncertainty.

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Timing of Entry

• Enter many countries simultaneously?
• Enter countries sequentially?

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Mode of Entry

• How much risk is the company willing to incur?
• How much control does the company wish to exert?
• Low commitment
• licensing, contract manufacturing, minority joint
  venture
• High commitment
• wholly-owned subsidiary, majority
  joint venture

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Triggers to Local Market Expansion

• Increasing market penetration
• Local competition
• Foster local management initiative and
  motivation.
• Utilization of local market assets
• Constraints imposed by natural market boundaries
  and barriers

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Local Market Expansion

• Having already entered the market, growth and
  expansion of local market opportunities.
• Identify new market opportunities.
• Use local competencies.
• Realize economies of scope.
• Strategic thrust expand markets that have
  already been entered.

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Local Market ExpansionEconomies of Scope

• Leveraging competency across broader range of
  products
• Add product lines and business
• Share across products and businesses
• Marketing expenditures
• Distribution network
• Manufacturing facilities
• Marketing mass merchandising skills
• Brand extensions

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Local Market Expansion Key Decisions

• Which new product line(s) to introduce
• Which marketing strategies to use
• Product adaptation and modification
• Product line expansion
• Brand extension
• Acquisition of new brands
• Adapting distribution, pricing, promotion to
  local market

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Local Market ExpansionSuccess Factors

• Ability to leverage tangible and intangible
  assets
• Foreign markets ability to accept the firms
  strengths
• Development of marketing infrastructure
• Existence and strengths of local competition
• Availability of managers who understand local
  market
• Match core competencies and key industry success
• Government regulations and restrictions

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Triggers to Global Rationalization

• Cost inefficiencies from duplication of effort
• Opportunities for transferring products, brands,
  and other ideas
• Emergence of global customers
• Growth of competition on a global scale
• Improved linkages among national marketing
  infrastructures

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Global Rationalization

• Adoption of a global orientation in strategy
  development and implementation
• Goal is to increase global efficiency without
  losing responsiveness to local market conditions
• Facilitate transfers of ideas, skills, experience
• Coordination of company activities
• Multi-domestic orientation vanishes
• Country and product markets are viewed as a set
  of interdependent entities.

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Global Rationalization

• Capitalize on synergies by operating on global
  scale
• Optimal allocation of company resources across
• Countries
• Businesses
• Market segments
• Search for opportunities on global scale
• Transfer of brands and products
• Transfer marketing ideas and skills

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Global Rationalization

• Economies of scale in logistics, production, and
  employment of skills
• Leverage experience through horizontal transfers
  of knowledge and skills
• Transfer of resources from one country or
  business to another

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Global Rationalization

• Increasing Efficiency
• R D
• Sourcing
• Logistics
• Regional Integration
• Capital can be borrowed globally, rather than
  locally

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Global Rationalization

• Global strategy development
• Targeting segments on a world-wide basis
• Determining the global product mix
• Development of a system to coordinate flows of
  information, ideas, and resources on a global
  basis.

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Global Rationalization Key Issues

• Requires sophisticated management
• Level of required resources rises
• Do consumer preferences allow for such
  rationalization
• Increased organizational complexity.