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Global Strategy

MOR-492 Global Strategy

Five reasons why going global is imperative for medium to large companies (the stronger these are, the higher the potential returns are). 1. Growth 2. Efficiency 3. Knowledge 4. Globalization of Customers 5. Globalization of Competitors
Global expansion requires three capabilities. 1. Learning about foreign markets 2. Learning how to manage people in foreign locations 3. Learning how to manage foreign subsidiaries
Choice of strategic markets: two dimensions determine strategic importance. 1. Market potential: current market size and growth expectations 2. Learning potential
Ability to exploit a market depends on two factors 1. Height of entry barriers (lowest when it is similar to domestic markets and when there are no regulatory constraints on trade and investments) 2. The intensity of competition in the market
What is a beachhead market? A market that closely resembles the targeted strategic market but provides a safer opportunity to learn how to enter and succeed there
Mode of entry depends on two things 1. Extent to which the firm will export or produce locally 2. Extent of ownership control over activities that will be performed locally in the target market
Greater reliance of local production is appropriate under the following four conditions 1. Size of market is larger than minimum efficient scale of production 2. Shipping and tariff costs associated with target market are high 3. Need for local customization of product design are high 4. Local content requirements are strong
Alliance Based Entry is appropriate when (5) 1. Physical, linguistic cultural diffs are high 2. Subsidiary would have low oper. integration w/ rest of the multinational operations 3. Low Risk of asymmetrical learning by partner 4. Comp short of capital 5. Gov't regs req local equity participatio
If a company decides to enter and use local production, they must either (2) 1. Set up Greenfield operation (can develop their own mgmt policies, culture, and mode of operations) 2. Cross-border acquisition: more difficult cultural transformation but faster and less competitive than Greenfield
What is Global Strategy? Diversifying some or all of company's activities across national borders
What is Corporate Strategy? Diversifying across industrial borders
Three A's of Global Strategy: have inherent trade-offs but are not mutually exclusive, possibly to do multiple strategies, but many will focus on one 1. Adaptation 2. Aggregation 3. Arbitrage
What is Adaptation? Transferring a business model. Modify existing business strategy to foster success in foreign environment (transplant central elements of a company's strategy)
What is Aggregation? Collecting smaller amounts of demand across markets to achieve critical mass (minimum efficient scale)
What is Arbitrage? Buying cheap and selling high. Recognizing market failures occur when different regional markets are connected - locate activities where costs are lowest and sell where output valuation is highest
H in HVC Dimensions Heterogeneity: historical, social, economic, and political differences (the differences in institutions that support business)
V in HVC Dimensions Volatility and Risk: Exchange rate fluctuations ; also inflations and factor prices
C in HVC Dimensions Complexity and Scale: Multiple national locations, customers, and employees
C in CAGE Framework Cultural Distance: Understanding the differences in the firm's and country's cultural factors (including language, religions, ethnicities, social norms)
A in CAGE Framework Administrative Distance: understanding the country's gov't in relation to the firm (including common free trade agreement). Administrative attributes encompass laws, policies and institutions that emerge from the political process
G in CAGE Framework Geographic Distance: understanding the geographic distance between the firm and the country. Geographic attributes include natural constraints and physical differences
E in CAGE Framework Economic Distance: understanding the differences in the firm's and country's economic factors (including currencies)
Gravity Theory of trade flows Positive relationship between economic size and trade; Negative relationship between distance and trade
W in the Radio Model Why: Why go global? 5 Growth Imperatives
B in the Radio Model Bring / Build: To bring success, what can I bring and what do I need to build?
M in the Radio Model Meet: What will they meet when they get there? What is similar, what is different, and what is different within the similarities and differences. Complete the analyses (regional, country, etc.)
H in the Radio Model How: How should they enter the global market and which of the strategies should they use? Use the generic global strategy matrix. Choice of global strategy, entry mode, and organizational structure.
Porter’s model outlines four broad attributes (+2 additional factors) of a nation that shape the environment in which local firms compete that promote or impede the creation of competitive advantage: 1. Factor Conditions 2. Demand Conditions 3. Related and Supporting Industries 4. Firm Strategy, Structure, and Rivalry 5. Chance 6. Government
Factor Conditions in Porter's Diamond The nation’s position in factors of production, such as skilled labor or infrastr, nec. to compete in a given industry will affect the resources avail to create competitive adv, created by nation's human, physical, knowledge, capital resources + infrastr
Demand Conditions in Porter's Diamond The nature of home demand for the industry’s product or service. Influence is dynamic - shaping the rate and character of improvement by a nation’s firms. Quality more important than quantity.
Related and Supporting Industries in Porter's Diamond The presence or absence in the nation of supplier industries and related industries that are internationally competitive is important
Firm Strategy, Structure, and Rivalry in Porter's Diamond The conditions in the nation governing how companies are created, organised, and managed, and the nature of domestic rivalry are all important.
What are institutional voids? Institutional voids are the absence of intermediaries between buyers and sellers
Country Factor Endowments (4) Land, labor, capital markets, political and social systems
"Hard" Institutions (5) 1. Roads, rails, and ports 2. Schools, universities, training 3. Physical and property rights security 4. Banks and Financial Institutions, Regulators 5. Functioning independent legal system
"Soft" Institutions (4) 1. Logistic Intermediaries 2. Professions, Credentialing Search Firms 3. Debt and Equity Markets, Venture Capital 4. Specialized Consultants Accountants & Legal System
The Market Pyramid - Tiers 2, 3 T2: Domestically focused but upwardly mobile; domestic MC consumers; have income, not very attracted to intl brands T3: Locally-focused but w/ income; domestic consumer, have income but small discretionary, only capable of buying small amounts of product
The Market Pyramid - Tiers 1, 4 T1: Global Consumers ; have disposable income, influenced by global marketing T4: Subsistence/marginal consumers; employed but live at or below poverty line; seek only the bare necessities
The Market Pyramid - Tier 5 Consumers outside the formal economy; non-consumers - outside the formal commercial sector and who subsist only in informal market
Business Objective Formula Profit = Q*(R-C)*time
Drivers of Globalization (4) 1. Decline of Communism 2. Adoption of free market economics 3. WTO and Regional Trading Agreements 4. Companies seeking global markets, capital, sources of raw materials, cost-effective manufacturing
Impediments of Globalization (5) 1. Nationalism & Parochialism (Historical animosity) 2. Terrorism 3. Failure of WTO and growing Regionalism 4. Domestic Protectionism 5. Developed – Emerging economy divide
The Hexagon of Competitive Advantage (6) 1. Customer/Market 2. Product/Service 3. Business Product/Value Chain 4. Assets/Resources 5. Competitor/Partner Interaction 6. Scale/Scope
Porter's 5 Forces Analysis 1. Rivalry Among Existing Competitors (middle) 2. Threat of New Entry (Top) 3. Bargaining Powers of Customers (Right) 4. Threat of Substitutes (Bottom) 5. Bargaining Power of Suppliers (Left)
What is a multinational corporation (MNC)? Any business that has made ownership investments in activities in two or more countries, and that is actively engaged in managing the strategy and operations of those activities.
Analyzing the Global Market (6) Regional, Country, Industrial Sector Competitiveness, Industry, Market Potential, Competitor Analyses
Country's Overall Attractiveness 1. Benefits (Size of Market, Growth Rate, Economic System) 2. Costs (Political Factors, Economic Underdevelopment, Legal System) 3. Risks (Political, Economic, Legal)
Entry Strategies (4) 1. Export Entry (Direct and indirect exporting) 2. Contractual Entry (Licensing/franchising, technical agreements; contract manufacturing, turnkey projects) 3. Strategic Alliances 4. Investment Entry (Wholly-owned subsidiaries)
A global industry is one where (1 and 2 out of 4) 1. companies ship output worldwide typically from a small # of locations 2. companies locate activities in several different locations (such as building plants in several locations)
A global industry is one where (3 and 4 out of 4) 3. companies, regardless of how globally their output are disseminated, rely on factor inputs from around the world 4. it pays to configure and coordinate activities worldwide
Generic Global Strategy Matrix Global: High agg, low adapt Transnational: high agg, high adapt Multi-Domestic: low agg, high adapt International: low agg, low adapt
Low Cost Leadership Trade low prices for high volume (incr. volume -> create economies of scale -> lower unit costs -> incr margins -> decr price or incr marketing -> incr volume)
Differentiation Won't buy a lot but willing to pay more for some perceived add. value (inc WTP -> inc margins -> invest in uniqueness ->invest in R&D for innovation OR invest in brand loyalty -> incr WTP)
Created by: tcritter28
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