Strategy in the Global Environment Lecture 8 1 Major Strategic Issues Why go global What are the strategic choices Market selection Market entry mode Global alliances 2 Benefiting From Global Expansion Moving down the experience curve Improve capacity utilization in some cases Larger global markets more accumulated volume For example ship building industry ocean shipping industry Earning high returns from transferring distinctive competencies to foreign markets Realizing location economies Using lower cost locations reduces overall costs and fosters product differentiation for premium pricing 3 Pressures for Cost Reduction and Local Responsiveness Pressures for cost reductions Global competitors seek to minimize unit costs through location economies and attain low cost competitor status In commodity type product industries intense price competition predominates strategic concerns Pressures for local responsiveness arise from Differences in local consumer tastes and preferences Differences in infrastructure and traditional practices Differences in distribution channels among countries Host government economic and political demands 4 Four Basic Strategic Choices 5 Characteristics of four strategies Multi domestic International Configuration Decentralized Global scale of assets and and nationally Located in capabilities self sufficient home country Role of Full value chain Typically overseas sales service operations Development and diffusion of knowledge Examples Global Transnational Global scale Dispersed Location interdependent and economies specialized Typically Differentiated sales service contributions by unless providing national units to local economies integrated worldwide operations Knowledge Knowledge Knowledge Knowledge developed and developed at the developed and development jointly retained within center and retained at the and shared each unit transferred to center worldwide overseas units Diner s Club McDonalds Coca Cola Texas Instruments Telecom Svcs Boeing IKEA Ericcson Where does MTV fit 6 The Advantages and Disadvantages of Different Strategies for Competing Globally 7 Basic Entry Decisions Which foreign markets Timing of entry Politically and financially stable Developed vs developing nations Free market systems Pioneering costs versus first mover advantages Scale of entry and strategic commitments Scale of entry affects the nature of competition in the national market Implications of risks and benefits must be weighed carefully 8 The Choice of Entry Mode Exporting Licensing Franchising Joint Ventures Wholly Owned Subsidiaries 9 The Advantages and Disadvantages of Different Entry Modes 10 Choosing Among Entry Modes Distinctive competencies and entry mode Technological competency Wholly owned subsidiary is preferred over licensing and joint ventures Management competency Franchising joint ventures subsidiaries Pressures for cost reduction in entry mode Great pressure for cost reductions Exporting and wholly owned subsidiaries 11 Global Strategic Alliances Advantages Facilitate entry into foreign markets Enable partners to share fixed costs and risks associated with new products and processes Facilitate transfer of complementary skills between companies Help establish technological standards Disadvantages Risk of giving away technological knowhow Risk of opening local market access to foreign alliance partner Risk of not getting anything in return 12 Making Strategic Alliances Work Partner selection when done well Helps the firm achieve its strategic goals Results in a commonly shared vision for the alliance Reduces opportunistic behaviors by the partners 13 Structuring Alliances to Reduce Opportunism 14 Managing the Alliance Maximizing the benefits of an alliance Develop a sensitivity to cultural differences Build interpersonal relationships and networks among managers from different companies Learn from alliance partners and put the knowledge to use in the organization 15 Exercises Global Soft Drink Industry GM Case TI Problem 16