CHAPTER 10 Global Strategy Competing Around the World
CHAPTER 10 Global Strategy: Competing Around the World Instructor: Dr. Gehan Shanmuganathan Mc. Graw-Hill/Irwin Copyright © 2013 by The Mc. Graw-Hill Companies, Inc. All rights reserved.
LO 10 -1 Define globalization, multinational enterprise (MNE), foreign direct investment (FDI), and global strategy. LO 10 -2 Explain why companies compete abroad and evaluate advantages and disadvantages. LO 10 -3 Explain which countries MNEs target for FDI, and how they enter foreign markets. LO 10 -4 Describe the characteristics of and critically evaluate the four different strategies MNEs can pursue when competing globally. LO 10 -5 Explain why certain industries are more competitive in specific nations than in others. LO 10 -6 Evaluate the relationship between location in a regional cluster and firm-level competitive advantage. 10 -2
Chapter. Case 10 Hollywood Goes Global • Hollywood movie: The quintessential American product Ø However, non-US sales increased: 50% in 2000, AND 70% in 2010 Ø Altered global strategic focus v Movies that fit the global market by adapting foreign scripts, hiring international actors/actresses…etc. • Treat emerging markets as focal targets Ø Not just filmmaking industries, but also the electronics industry (ex: Korea, China), and auto industry (ex: India) Ø Key questions: How can a company compete effectively in a global market place? 10 -3
What Is Globalization? • • Globalization is a process of closer integration and exchange between different countries and peoples worldwide. Made possible by: Ø Falling trade and investment barriers Ø Advanced telecommunications Ø Reduced transportation costs Ø Importance of MNEs and FDIs 10 -4
Why Global? • Gain access to a larger market Ø Capitalize on market potential, such as China, India, and emerging economies • Gain access to low-cost input factors Ø Labor, natural resources, technology, logistics • Develop new competencies Ø Location economies Ø Unique locational advantages 10 -5
STRATEGY HIGHLIGHT 10. 2 Does GM’s Future Lie in China? • Market opportunity in China Ø 1. 4 billion population, only 1 in 100 people owns a vehicle • GM entered China in 1997 Ø Joint venture with Shanghai Automotive Industrial Corp Ø China is 25% of GM’s revenues and GROWING fast Ø GM China factories are more productive than U. S. plants • GM’s future relies on China and other emerging economies! Ø $ 250 million on a state-of-the-art R&D center…in Shanghai Ø Future of GM likely decided in their international HQ…in Shanghai!! 1– 6 10 -6
Global Expansion: Where • How does an MNE decide where to go? Ø National institutions: v Well-established legal and ethical pillars as wellfunctioning economic institutions such as capital markets, banks, and infrastructures Ø National culture: "Programming of the mind" v Geert Hofstede’s Cultural Dimensions 1. Power distance 2. Individualism 3. Masculinity/femininity 4. Uncertainty-avoidance 5. Long-term orientation 10 -7
Global Expansion: How • Exporting: producing goods in one country to sell in another • Acquisition, strategic alliance are also popular vehicles for entry into foreign markets • MNEs sometime prefers greenfield operations or wholly owned subsidiaries Ø Greenfield is building new factories/offices from scratch v Physically and organizationally building from the "ground up". 10 -8
Strategy around the World: Cost Reduction vs. Local Responsiveness • Local responsiveness: Ø Tailor product and service offerings to fit local consumer preferences and host-country requirements Ø Higher cost v Ex: Mc. Donald’s uses mutton in India • Cost reduction: Ø MNEs enter global marketplace with the intention to reduce operation cost v Ex: Toyota Prius 10 -9
EXHIBIT 10. 6 The Integration-Responsiveness Framework 10 -10
STRATEGY HIGHLIGHT 10. 3 Walmart Retreats from Germany • Walmart entered Germany Ø Acquisition of 21 stores and 74 hypermarkets • Walmart duplicated its U. S. policies and applied them in Germany Ø Employees refused to accept those policies • Walmart faced significant cultural differences • Walmart could not develop efficient economies of scale and distribution centers to drive cost down • The result is a defeated Walmart that sold its stores to Metro, Walmart’s key rival in Germany! • ALDI, another of Walmart’s competitors in Germany, is now expanding aggressively in the U. S. 1– 11 10 -11
National Competitive Advantage Framework • Factor conditions Ø A nation’s endowments in terms of national, human, and other resources • Demand conditions Ø Specific characteristics of demand in a firm’s domestic market • Competitive intensity Ø Highly competitive environments tend to stimulate firms to outperform others • Related and supporting industry Ø leadership in related and supporting industries can also foster world-class competitors in downstream industry Ø Complementarity 10 -12
Regional Clusters • Regional cluster Ø A group of interconnected companies and institutions in a specific industry, located near each other geographically and linked by common characteristics Ø Knowledge spillover v Positive externalities that are regionally constrained v Exchange of ideas among firms in a cluster 10 -13
EXHIBIT 10. 9 Mapping a Regional Cluster: Research Triangle 10 -14
CHAPTERCASE 10/Consider This… • Hollywood film industry enters global market to explore new revenue stream! • Will we see a decrease in the production of regional and U. S. -centered movies? Or will small independent movie producers pick up a higher share of the domestic U. S. market? • Will piracy become a significant concern when Hollywood filmmakers go global? How to combat the piracy? • How would you prioritize which nations to expand distribution into if you were working for a major Hollywood movie studio? 10 -15
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