Learning ObjectivesLearning Objectives Appreciate the major trends in global strategic Appreciate the major trends in global strategic

management and why internationalization is management and why internationalization is importantimportant

Recognize the stage of global development of a Recognize the stage of global development of a particular firmparticular firm

Understand how to create a global mindsetUnderstand how to create a global mindset Understand the roles of foreign subsidiariesUnderstand the roles of foreign subsidiaries Select an appropriate international expansion Select an appropriate international expansion

tactictactic Analyze a foreign country to determine its Analyze a foreign country to determine its

attractiveness for investmentattractiveness for investment

Primary Reasons Firms Primary Reasons Firms Make Foreign InvestmentsMake Foreign Investments

New Markets New Markets Better ResourcesBetter Resources EfficiencyEfficiency Risk ReductionRisk Reduction Competitive CountermoveCompetitive Countermove

Global OrientationGlobal Orientation

International expansion is the process of International expansion is the process of building an expanding operational building an expanding operational presencepresence

Global integration is the process through Global integration is the process through which a multi-national organization which a multi-national organization integrates its worldwide activities into a integrates its worldwide activities into a single world strategysingle world strategy

Four Stages of International DevelopmentFour Stages of International Development

Domestic StageDomestic Stage Focus on domestic operationsFocus on domestic operations Some exportingSome exporting

International StageInternational Stage Exporting important; international divisions to handle marketing functionsExporting important; international divisions to handle marketing functions

Multinational StageMultinational Stage Marketing and production facilities throughout the worldMarketing and production facilities throughout the world More than a third of sales overseasMore than a third of sales overseas Access to world capital marketsAccess to world capital markets

Global StageGlobal Stage Organization no longer associated with any one countryOrganization no longer associated with any one country Operate in as many as 40 or more countriesOperate in as many as 40 or more countries

Cross-Cultural Human Resource DifferencesCross-Cultural Human Resource Differences Percentage of people who agreed with this statement:Percentage of people who agreed with this statement:

It is important for a manager to have, at hand, precise answers to most of the It is important for a manager to have, at hand, precise answers to most of the questions that his or her subordinates may raise about their workquestions that his or her subordinates may raise about their work

High percentage countriesHigh percentage countries Japan 77%Japan 77% Indonesia 67%Indonesia 67% Italy and France 59%Italy and France 59%

Low percentage countriesLow percentage countries USA and Sweden 13%USA and Sweden 13% Netherlands 18%Netherlands 18% Denmark 27%Denmark 27% Great Britain 30%Great Britain 30%

Factors that Lead to Competitive Factors that Lead to Competitive Advantages of NationsAdvantages of Nations

Firm Strategy,Structure and

Rivalry

Firm Strategy,Structure and

Rivalry

Related andSupportingIndustries

Related andSupportingIndustries

DemandConditions

DemandConditions

FactorConditions

FactorConditions

Source: Adapted with the permission of the Free Press, an imprint of Simon & Schuster Adult Publishing Group (see text for complete reference)

Source: Adapted with the permission of the Free Press, an imprint of Simon & Schuster Adult Publishing Group (see text for complete reference)

Management of Foreign SubsidiariesManagement of Foreign Subsidiaries

Three levels of subsidiary responsibilityThree levels of subsidiary responsibility Local ImplementationLocal Implementation

• Very well defined roles to playVery well defined roles to play• Very little independenceVery little independence

Specialized ContributionSpecialized Contribution• An interdependent network of subsidiaries, with each An interdependent network of subsidiaries, with each

subsidiary making a unique contributionsubsidiary making a unique contribution• Often in a production roleOften in a production role

Global MandateGlobal Mandate• Have responsibility for and entire global businessHave responsibility for and entire global business• Activities integrated by the subsidiary itself, not the Activities integrated by the subsidiary itself, not the

corporate officecorporate office

Product/Market ApproachProduct/Market Approach Multidomestic Product/Market StrategyMultidomestic Product/Market Strategy

Handle product design, assembly and marketing on a country-by-country basisHandle product design, assembly and marketing on a country-by-country basis Custom tailored products and services for particular markets (local Custom tailored products and services for particular markets (local

responsiveness)responsiveness)

Global Product/Market StrategyGlobal Product/Market Strategy One product designOne product design Marketing in the same fashion throughout the worldMarketing in the same fashion throughout the world Emphasis on efficiencyEmphasis on efficiency

Transnational Product/Market StrategyTransnational Product/Market Strategy Entails seeking both global efficiency and local responsivenessEntails seeking both global efficiency and local responsiveness Integrated network that fosters shared vision and resources while allowing for Integrated network that fosters shared vision and resources while allowing for

individual decisionsindividual decisions

International Expansion TacticsInternational Expansion Tactics

ExportingExporting Contractual ArrangementsContractual Arrangements

LicensingLicensing FranchisingFranchising

Foreign Direct InvestmentForeign Direct Investment Joint VentureJoint Venture Wholly Owned SubsidiaryWholly Owned Subsidiary AcquisitionAcquisition

In general, moving down the list (above) is In general, moving down the list (above) is associated with greater cost, financial risk, profit associated with greater cost, financial risk, profit potential and controlpotential and control

Global Business-Level StrategyGlobal Business-Level Strategy Improve Competitive Position Through Cost LeadershipImprove Competitive Position Through Cost Leadership

Foreign assembly or manufacturingForeign assembly or manufacturing Branding of finished products that are subcontracted to foreign firmsBranding of finished products that are subcontracted to foreign firms Global sourcingGlobal sourcing Expanding markets leading to economies of scaleExpanding markets leading to economies of scale Transfer of technological know-how through joint venturesTransfer of technological know-how through joint ventures

Improve Competitive Position Through DifferentiationImprove Competitive Position Through Differentiation Distribution of elite foreign product in the U.S.Distribution of elite foreign product in the U.S. Sale of U.S. product in foreign marketsSale of U.S. product in foreign markets Superior quality through joint venturesSuperior quality through joint ventures Licensing of product technology from abroadLicensing of product technology from abroad Promoting an open, learning mindsetPromoting an open, learning mindset

Global Corporate-Level StrategyGlobal Corporate-Level Strategy Merger and acquisition wave is a global trendMerger and acquisition wave is a global trend

Many cross-country acquisitionsMany cross-country acquisitions Much consolidation of global industriesMuch consolidation of global industries Creates enormous, diversified global companiesCreates enormous, diversified global companies Some companies are focusing on related acquisitions in pursuit of economies of Some companies are focusing on related acquisitions in pursuit of economies of

scope based on shared resourcesscope based on shared resources

Many global firms are downscopingMany global firms are downscoping Probably helpful to performance of firms with big investments in industrialized Probably helpful to performance of firms with big investments in industrialized

nationsnations May be damaging to the economies of developing nations if big firms withdraw May be damaging to the economies of developing nations if big firms withdraw

their capitaltheir capital• Big firms channel capital to promising businesses in nations with poorly developed financial Big firms channel capital to promising businesses in nations with poorly developed financial

marketsmarkets

International MarketsInternational Markets Triad regions include North America, Triad regions include North America,

Europe and the Pacific RimEurope and the Pacific Rim Difficult management challenges common Difficult management challenges common

in other “developing” nationsin other “developing” nations Unstable governmentsUnstable governments Inadequately trained workersInadequately trained workers Low levels of supporting technologyLow levels of supporting technology Shortages of suppliesShortages of supplies Weak transportation systemsWeak transportation systems Unstable currenciesUnstable currencies

Japan After the Economic Bubble BurstJapan After the Economic Bubble Burst Business EnvironmentBusiness Environment

Remains a tough, highly competitive environmentRemains a tough, highly competitive environment Price destructionPrice destruction Distribution becoming more concentratedDistribution becoming more concentrated Increasing expectations of fast retailer responseIncreasing expectations of fast retailer response

ConsumersConsumers Increased balance between work and familyIncreased balance between work and family Some convergence with “international values”Some convergence with “international values”

HeritageHeritage Luxury designer products hold strong, but consumers are more Luxury designer products hold strong, but consumers are more

price/value conscious, price/value conscious, Luxury products sold through discount outletsLuxury products sold through discount outlets

Japan After the Economic Bubble BurstJapan After the Economic Bubble Burst Consumer InterestConsumer Interest

More focus on homeMore focus on home More value-for-money-driven behaviorMore value-for-money-driven behavior Increased emphasis on functional performance, less brand Increased emphasis on functional performance, less brand

devotiondevotion

Product ChurningProduct Churning Reduction in product emulation activityReduction in product emulation activity

Insider StrategyInsider Strategy May still be true, but foreign owned companies attempting May still be true, but foreign owned companies attempting

“insider” strategies are struggling“insider” strategies are struggling

Marketing SkillsMarketing Skills Marketers in Japan still maintain dedicated dialogue with Marketers in Japan still maintain dedicated dialogue with

consumersconsumers

Selecting a Foreign MarketSelecting a Foreign Market

A foreign market should be selected A foreign market should be selected only after thorough evaluation of:only after thorough evaluation of: Social ForcesSocial Forces The EconomyThe Economy Political / Legal EnvironmentPolitical / Legal Environment The State of TechnologyThe State of Technology Industry Specific FactorsIndustry Specific Factors

Institutional Differences Across CountriesInstitutional Differences Across Countries

EmergingEmergingeconomies:economies:

Russia,Russia,China,IndiaChina,India

Group-Group-centeredcentered

economies:economies:KoreaKorea

Family-centeredFamily-centeredeconomies:economies:

Sweden,Sweden,France, ItalyFrance, Italy

Bank-centeredBank-centeredeconomies:economies:

Japan,Japan, GermanyGermany

Market-Market-centeredcentered

economies:economies:U.S., U.K.U.S., U.K.

Less-Less-developeddevelopedeconomic economic

andandtransactiontransaction

environmentsenvironments

Well Well developeddeveloped

economic andeconomic andtransactiontransaction

environmentsenvironments

Source: R.E. Hoskisson, R.A. Johnson, D. Yiu and W.P. Wan, “Restructuring Strategies of Diversified Business Groups: Difference Associated with Country Institutional Environments,” in M.A. Hitt, R.E. Freeman and J.S. Harrison, The Blackwell Handbook of Strategic Management (Oxford: Blackwell Publishers LTD, 2001), p. 444, used with permission.

Source: R.E. Hoskisson, R.A. Johnson, D. Yiu and W.P. Wan, “Restructuring Strategies of Diversified Business Groups: Difference Associated with Country Institutional Environments,” in M.A. Hitt, R.E. Freeman and J.S. Harrison, The Blackwell Handbook of Strategic Management (Oxford: Blackwell Publishers LTD, 2001), p. 444, used with permission.

Strategic Management for the 21st CenturyStrategic Management for the 21st Century

Increasing Levels of Global Trade and Increasing Levels of Global Trade and Global AwarenessGlobal Awareness

Global and Domestic Social TurbulenceGlobal and Domestic Social Turbulence Increased Terrorism and a World-Wide Increased Terrorism and a World-Wide

Effort to Eliminate ItEffort to Eliminate It Increased Sensitivity to Ethical Issues and Increased Sensitivity to Ethical Issues and

Environmental ConcernsEnvironmental Concerns Rapidly Advancing Technology, Rapidly Advancing Technology,

Especially in CommunicationsEspecially in Communications

Strategic Management for the 21st CenturyStrategic Management for the 21st Century

Continued Erosion of Buying Power in the Continued Erosion of Buying Power in the U.S. and Other EconomiesU.S. and Other Economies

Continued Development of Third World Continued Development of Third World EconomiesEconomies

Increases in U.S. and Global Strategic Increases in U.S. and Global Strategic AlliancesAlliances

Revolution in the U.S. Healthcare IndustryRevolution in the U.S. Healthcare Industry Greater Emphasis on Security and Crisis Greater Emphasis on Security and Crisis

ManagementManagement

Firms make foreign investments for a variety of Firms make foreign investments for a variety of reasons, including seeking new markets, better reasons, including seeking new markets, better resources, efficiency, risk reduction or as a resources, efficiency, risk reduction or as a competitive countermovecompetitive countermove

Global strategic management provides challenges Global strategic management provides challenges and opportunities not found in domestic markets and opportunities not found in domestic markets and strategiesand strategies

International expansion involves building an International expansion involves building an expanding operational presence, while global expanding operational presence, while global integration is the process through which a integration is the process through which a multinational organization integrates its worldwide multinational organization integrates its worldwide activities into a single global strategyactivities into a single global strategy

Major Concepts in Chapter 10Major Concepts in Chapter 10Major Concepts in Chapter 10Major Concepts in Chapter 10

Organizations seem to evolve through four stages Organizations seem to evolve through four stages of international development, which are domestic, of international development, which are domestic, international, multinational and globalinternational, multinational and global

The role of foreign subsidiaries is changing from The role of foreign subsidiaries is changing from being simply branch locations to a full role in the being simply branch locations to a full role in the development of new competencies, capabilities, development of new competencies, capabilities, resources and productsresources and products

A multidomestic product/market strategy entails A multidomestic product/market strategy entails custom tailoring products and services by country, custom tailoring products and services by country, whereas a global product/market strategy offers whereas a global product/market strategy offers one approach throughout the world. A one approach throughout the world. A transnational product/market strategy is a transnational product/market strategy is a compromise between the two approachescompromise between the two approaches

Major Concepts in Chapter 10Major Concepts in Chapter 10Major Concepts in Chapter 10Major Concepts in Chapter 10

Common international expansion tactics include Common international expansion tactics include exporting, licensing, franchising, joint ventures, exporting, licensing, franchising, joint ventures, wholly-owned subsidiaries and acquisitionswholly-owned subsidiaries and acquisitions

A global merger and acquisition wave has created A global merger and acquisition wave has created enormous, diversified global companies; however, enormous, diversified global companies; however, refocusing is also evident as firms pursue related refocusing is also evident as firms pursue related acquisitions and discard unrelated businessesacquisitions and discard unrelated businesses

Foreign markets should be carefully evaluated Foreign markets should be carefully evaluated before investments are made. Factors that should before investments are made. Factors that should be evaluated include the social environment, be evaluated include the social environment, economy, political/legal environment, the state of economy, political/legal environment, the state of technology and other factors specific to each technology and other factors specific to each industryindustry

Major Concepts in Chapter 10Major Concepts in Chapter 10Major Concepts in Chapter 10Major Concepts in Chapter 10