Transcript Global Business - Pace University Webspace

Global
Business
Drivers of Globalization
1.
2.
3.
Business Needs
Lower cost factors of
production (labor,
natural resources)
Larger market size to
support efficient scale
and justify large
investment in R&D
and product
development
Extended product life
cycle
Opportunities
1. Growth of emerging
nations
2. Declining trade and
investment barriers
3. Common customer
requirements
4. Increasing demand for
universal products
DIVERSIFYING FOREIGN OPERATIONS
Organic Growth
No excess capacity
Full control
No cultural barriers
New markets and high tech markets
Exporting
 Allows scale and experience curve economies
But
 High transportation costs
 Trade barriers
 Problems with local marketing agents
Licensing
 Low development costs
 Low risks
But
 Lack of control over technology
 No scale and experience curve economies
 Can’t engage in global strategic coordination
Franchising
 Low development costs
 Low risks
But
 Lack of control over quality
 Can’t engage in global strategic coordination
Joint Ventures
 Access to local partner’s knowledge
 Shared development costs
 Shared risks
But
 Lack of control over technology
 Can’t engage in global strategic coordination
Wholly Owned Subsidiaries
 Control over operations
 Protection of technology
 Ability to engage in global strategic coordination
 Ability to realize scale and experience economies
But
 High costs and risks
Mergers and Acquisitions
Speed of entry
Access to technology
Speed of building market share
Bypass regulatory barriers
But
Risk of overcapacity
WHOLLY OWNED SUBSIDIARIES
Trade Off:
Local Responsiveness vs. Economies of Scale
Local Responsiveness necessary when
1. Products are different across countries
2. Distribution channels require local presence
3. Government requirements demand local presence
Scale Economies necessary when
1. Competitive pressure requires cost reduction
2. Economic logic requires cost reduction
High
Low
Pressure for Cost Reduction
Wholly Owned Subsidiaries:
4 Strategies for Globalization
Global
standardization
strategy
International
strategy
Transnational
strategy
Localization
strategy
Pressure for Local Responsiveness
High
Global Standardization Strategy
High pressure for cost and local responsiveness
Standardized product worldwide
Production, marketing, and R&D concentrated in a
few favorable locations
Cost reductions from
 Economies of scale
 Learning curve efficiencies
 Location economies
Ikea
International Strategy
Low pressure for cost and local responsiveness
Product serves universal needs, but few competitors
to create cost pressure (e.g., Xerox in 60s, patent)
Centralized product development (R&D)
Decentralized manufacturing and marketing with
minimal local customization
Duplication expensive; no scale advantages
Tight home office control
Toys R Us, IBM, Kellogg
Localization Strategy
Customize products and marketing strategies to
match national tastes and conditions
Full set of functions (production, marketing, R&D,
etc.) in each national market
High cost structure
Maximum local responsiveness at expense of scale
economies
Aka Multinational or Multidomestic strategy
Proctor and Gamble
Transnational Strategy
Pressure for cost reduction and local responsiveness
Low costs through location economies, economies
of scale and learning effects
Differentiate across markets
Foster flow of skills among subsidiaries in global
network
Conflict: differentiation raises costs
Ford tried and found it difficult to implement
Caterpillar more successful
Future of Globalization
MNEs in Japan, North America and Europe control >
85% of world’s foreign investment
Emerging economies (China, India, South Korea,
Mexico, Brazil) developing transnational capabilities
Importance of international business is rising
M&A is preferred market entry strategy for MNEs
 45% of M&A transactions are cross-border
 US and Europe each account for 40% of global
M&A volume