Chapter 7 Global strategy
- 1. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-1 Global Strategy: Harnessing New Markets by Robert Pitts & David Lei Slides prepared by John P. Orr Webster University Chapter 7
- 2. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-2 What you will learn… • Why companies need to develop strategies to expand across national borders • The key environmental factors that promote the need to expand into overseas markets • The two basic strategies used for expanding overseas: – Global – Multidomestic Slide 1 of 2
- 3. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-3 What you will learn… • Balancing the benefits and costs of overseas expansion • How companies can continue to grow by becoming global players Slide 2 of 2
- 4. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-4 Global Strategy: Introduction • Globalization – Viewing the world as a single market for the firm; – The process by which the firm expands across different regions and national markets. • Industry-Level View of Globalization – Changes in economic factors, such as economies of scale, experience, and R&D, which make competing on a worldwide basis a necessity.
- 5. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-5 Building Global Capabilities at Nokia • Digital, wireless and broadband • Strategy: Low-cost producer • Narrowing of product lines • Partnership plant in China • Digital innovation and 3G • Globalized R&D efforts Strategic Snapshot
- 6. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-6 Factors Promoting the Globalization of Markets • Narrowing of demand characteristics • Escalating costs of R&D • Cost reduction pressures and R&D • Government industrial policies • Reduction of factor costs (e.g., labor, capital) • Rise of new distribution channels • Reduction of transportation, communication, and storage costs • Internet access • Reduction of tariffs worldwide Exhibit 7-1
- 7. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-7 Examples of Growing Homogeneity of Demand • Communications equipment • Cellular phones • Sony Walkmans • Levi’s jeans • Commercial banking • Financial services • Color televisions and VCRs • Semiconductors Exhibit 7-2A
- 8. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-8 Examples of Growing Homogeneity of Demand • Machine tools • Computers • Pharmaceuticals • Construction equipment • Commercial aircraft • Hollywood films • Television shows • Data and computer networks Exhibit 7-2B
- 9. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-9 Examples of R&D Intensive Industries • Semiconductors • Software • Biotechnology • Communications systems • Pharmaceuticals • Commercial aircraft • Electronics • Composite materials Exhibit 7-3A
- 10. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-10 Examples of R&D Intensive Industries • Advanced imaging systems • Medical equipment • Fiber optics Exhibit 7-3B
- 11. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-11 Rising Economies of Scale/ Cost Pressures • Steel • Automobile engines • Color television tubes • Semiconductors • Fiber optics • Office equipment • Telecommunications • Aircraft • Chemicals Exhibit 7-4
- 12. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-12 Strategic Competency in action Creating Distinctive Value: China’s TCL • Shifting to top-tier products • Purchasing Thomson’s plants • Manufacturing capability + economics of scale • Chairman Li pushes free-market model • Overcoming value-chain gaps
- 13. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-13 Government Initiatives to Promote Industrial Development Sematech (semiconductors) Steel, Computers, Autos, Artificial Intelligence, Advanced Materials, Aerospace Semiconductors, Aerospace, Automobiles, Advanced Lasers, Optics US Japan EU Exhibit 7-5
- 14. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-14 Examples of Declining Costs Transport Costs • Containerization • Intermodal shipping/rail • Air freight Communication Costs • More global long distance carriers • Better ways to transmit voice, video data • Internet access Exhibit 7-6A
- 15. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-15 Examples of Declining Costs Storage Costs • Refrigeration • Just-in-time inventory • Reduction of perishability • Supply chain management • Virtual production/design Exhibit 7-6B
- 16. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-16 Global Strategy of Expansion • Systemwide approach to competing worldwide • Mutually interdependent subsidiaries • Centralized control and reporting of activities • Facilitates cross-subsidization policies across markets Exhibit 7-7
- 17. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-17 Characteristics of a Global Strategy • Standard products • Global economies of scale in key components and activities • Leverage technology across many markets • Global coordination of marketing and sales systemwide • Cross-subsidization policies to respond to competitive moves by other global strategy firms Exhibit 7-8
- 18. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-18 Multidomestic Strategy of Expansion • Competitive advantage is built in each separate national or regional market. • Markets and subunits are treated independently from one another. • Decentralized controls of activities, reporting back to headquarters. Exhibit 7-9
- 19. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-19 Characteristics of a Multidomestic Strategy • Customization or frequent adaptation of products for each separate market • Few systemwide opportunities for economies of scale • Value-adding activities performed and duplicated in each market • Coordination of marketing and sales within each market • Quality and image across markets are important sources of competitive advantage Exhibit 7-10
- 20. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-20 Benefits of Global Expansion • Market growth and expansion opportunities • Recovery of R&D and investment costs • Creation of a distinct image • Accelerated learning and transfer of new skills Exhibit 7-11
- 21. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-21 Costs Associated with Global Expansion Costs of Strategic Leverage • Sustained investment required • Preserving and extending image Costs of Flexibility • High interdependence of subsidiaries (and businesses) • Change or development affecting all markets Exhibit 7-12A
- 22. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-22 Costs Associated with Global Expansion Costs of Cooperation • Compromise • Accountability Exhibit 7-12B
- 23. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-23 Balancing Global & Multidomestic Ford 2000 global product teams • Small car • Midsized car • Luxury car • SUV • Commercial truck
- 24. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-24 Balancing Global & Multidomestic Personal care products • P&G uses blended strategy • Bausch & Lomb pursues regional gains
- 25. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-25 Ethics: Global Concerns Scandals with global reach • Lloyd’s of London embezzlement • French, German stock market fraud • Japanese business, political scandals
- 26. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-26 Ethics: Global Concerns Varying approaches to ethics • Individual views strongly shape ethics of U.S. workers • Asian workers seen as ‘industrial soldiers’ • U.S. enacts Foreign Corrupt Practices Act