Chapter 8 Internationalization and Globalization

1. Chapter 8Internationalization and Globalization John S. Hill

2. Internationalization and Globalization Processes Definition & Measurement Drivers and Facilitators • Corporate Preparation for Globalization • Focusing and restructuring the organization • Management Development • Corporate Culture Globalization • Globalization Effects on: • Industry Structure • Organizational Structure • Corporate Culture • Financing Foreign Operations • Capital Structure • Internal or External Financing Figure 8-1 Internationalization and Globalization topics

3. Chapter Outline • Introduction: Internationalization and Globalization • Drivers of Corporate Internationalization and Globalization: Why Firms Go Abroad • Preparing the Company for Internationalization and Globalization • Effects of Globalization • Financing International and Global Operations

4. Internationalization and Globalization • Internationalization and Globalization Defined • Internationalization: firms extend products and services in overseas markets, usually from their home country • Globalization: the process by which businesses create value by leveraging their resources and capabilities across borders, and includes the coordination of cross-border manufacturing and marketing strategies • Internationalization is the first stage in the globalization process

5. Internationalization and Globalization • Measuring Internationalization and Globalization • Objective measures • Corporate measures

6. Internationalization and Globalization • Internationalization, Globalization and Industry High Pressures for global integration Low LowPressures for local responsiveness High Figure 8-2: Industry Success Factors and Strategy Global Integration Global/Local Strategy Strategy  Internationalization Multinational Strategy Strategy

7. Internationalization and Globalization • Measuring Globalization • Objective Measures (UNCTAD) : • Foreign assets to total assets • Foreign sales to total sales • Foreign employment to total employment • Combination of all three gives us a Transnationality Index Tables 8.1 and 8.2

8. Internationalization and Globalization • Measuring Globalization • Corporate Measures of Globalization : • Governance and Responsibility: management boards; centralized environmental and ethicalpolicies • Strategy and Planning: global missions, visions & strategies • Marketing orientation: globally/locally conceived • Manufacturing Operations and Technology: centralized/integrated vs. country by country • Research and Development: global vs. local needs • Organization and Human Resource Management: standardized HR and global leader development

9. Internationalization and Globalization • Advantages of Internationalization and Globalization • Extending successful home market products and strategies • Taking advantage of factor resources available in the worldwide marketplace • Building scale economies • Acquiring economies of scope: build-up of global expertise and contacts

10. Internationalization and Globalization • Disadvantages of Internationalization and Globalization • Significant resource allocations are necessary • Internationalization and globalization are learning processes: ‘learning by doing’ • Internationalization, Globalization, and Industry Strategies: internationalization, multinational, globally integrated and global-local strategies

11. Drivers of Corporate Internationalization and Globalization • Market Drivers • Cost Drivers • Competitive Drivers • Government Drivers • Globalization and Information Technologies

12. Drivers of Corporate Internationalization and Globalization • Market Drivers • Common customer needs: Coca-Cola, McDonalds • Global channels: Carrefour, Toys R Us, Wal-Mart • Marketing Transfers and Global Branding: IBM, Toyota, Bic, Kodak • Lead Countries: Japan for consumer electronics, Switzerland for watches, USA for computer software

13. Drivers of Corporate Internationalization and Globalization • Cost Drivers • Economies of scale: steel and microprocessors • Steep Experience Curves: knowledge and technology intensive sectors: aircraft • Low Cost Production: textiles • Favorable Logistics: transportation costs important) lumber, chemicals • New Product Development Costs: airlines, telecommunications, chips, pharmaceuticals

14. Drivers of Corporate Internationalization and Globalization • Competitive Drivers • Competing with imports and other global rivals have placed increasing pressures on both domestic and international companies to be competitive in national and international markets. • Government Drivers • United Nations, and its agencies like the IMF, World Bank and WTO: free trade, privatization (but can retard also)

15. Drivers of Corporate Internationalization and Globalization

16. Preparing the Company for Internationalization & Globalization • Focusing the Organization: Corporate Competencies • Focusing the Organization: Supply Chain Restructuring • Developing Leadership and Management Capabilities • Globalizing the Corporate Culture

17. Preparing the Company for Globalization • Focusing the Organization • Corporate Competencies • – those activities that have proven international potential • – hard decisions must be made on activities that do not add value to the globalization move

18. Preparing the Company for Globalization • Focusing the Organization • Supply Chain Restructuring • Delayer corporate hierarchies for quicker decisions • Rethink manufacturing systems to close unproductive plants and consolidate production • Reevaluate supplier relationships to focus on a few, well-positioned providers • Reassess distributor capabilities for the global arena

19. Preparing the Company for Globalization • Developing Leadership and Management Capabilities • Global Leadership Characteristics • Unbridled Inquisitiveness :the desire to learn and the ability to enjoy the constant stimulation and challenges • Personal characteristics: The ability to connect socially and emotionally with wide varieties of individuals • Duality: senior management’s ability to balance global and local considerations in making • Savvy: Management leaders have instinctive recognitions of strategic tradeoffs

20. Preparing the Company for Globalization • Developing Leadership and Management Capabilities • Developing Global Leaders • International travel • Global team experiences • Cross-cultural training • Overseas assignments

21. Preparing the Company for Globalization

22. Preparing the Company for Globalization • Globalizing the Corporate Culture • Deciding on Corporate Cultures in Foreign Markets: no ‘right’ or wrong answers • Global Standardization of Corporate Cultures is the trend but caution is always required

23. Preparing the Company for Globalization • Globalizing the Corporate Culture • Adapting Corporate Cultures to National Culture Influences depends on: • Societal competitiveness: the amount of competition within societies—political, economic, social class systems • Shareholder-Stakeholder Orientations: the specific objectives or audiences corporate cultures oriented toward: spread of capitalism vs. local needs • National culture influences on corporate cultures

24. Preparing the Company for Globalization • National Culture Influences on Corporate Cultures • Power Distance: the extent to which strong social class distinctions are maintained at societal and corporate levels • Individualism/Collectivism: the degree to which individual or group actions are the bases for getting issues resolved • Masculine and Feminine Societies: the tolerance levels for aggressive behaviors and their gender orientations • Uncertainty Avoidance: the extent to which societal behaviors are risk-oriented or risk-averse • Long Versus Short Term Orientations: East-West contrasts

25. Effects of Globalization • Industry Structure Effects • Organizational Structure Effects • Corporate Culture Effects • Relationships Among Strategies, Structures and Corporate Cultures

26. Effects of Globalization • Industry Structure Effects • At the national level, domestic firms must attain critical mass size to deal with foreign competitors • At the regional level, firms need to attain regional market coverage and scale economies to compete against other global producers • At the worldwide level, industry structures have been affected by a series of ‘mega-mergers’ between large international companies

27. Effects of Globalization • Organizational Structure Effects • International department • Worldwide functional structure • Worldwide product structure • Geographic structures

28. Headquarters Domestic Division International Division Regional Managers Latin America Europe Asia International Division Structure

29. Headquarters Vice Presidents – Worldwide Responsibilities Manufacturing Marketing R & D Finance HumanResource Markets 1----n Products 1----n Worldwide Functional Structure

30. Headquarters Product Division 1 Product Division 2 Product Division 3 Product Division ‘n’ Region 1 Region 2 Region ‘n’ Worldwide Product Structure

31. Headquarters Region 1 Region 2 Region 3 Region ‘n’ Country 1 Country 2 Country ‘n’ etc. Product 1 Product 2 Product ‘n’ Geographic Structure

32. Effects of Globalization • Corporate Culture Adjustments • Ethnocentric corporate cultures emphasize home-market orientations in strategic decision making and attitudes: ‘made in’ advantages, alcohol, fashion, food • Polycentric operations involve complete host country orientations; competitive advantage based on responsiveness • Regiocentric cultures blend national subsidiaries within regions into cohesive strategy-making units; regional brands, supply chains • Geocentric corporate cultures are totally globally-oriented; no regard for individual national cultures

33. Effects of Globalization • Relationships Among Strategies, Structures, and Corporate Cultures • Causes of Change: marketplace change and new strategy; new structure (M & A, JVs); leadership changes • Relationships among international strategies, structures, and corporate cultures: ethnocentric and exporting; polycentric and consumer goods; regional, global products=regiocentric/geocentric

34. Financing International and Global Operations • Equity Options Using Outside Financing: availability of national stock exchanges; appear ‘local’ • Equity Options Using Internal Financing: cross-holdings of shares among subsidiaries; good control; protection from takeovers • Debt Options Using External Financing: local financial institutions must be sound; low interest rates • Debt Options and Internal Financing: borrowing from HQ/subsidiaries; can adjust interest rates according to subsidiary/market needs

35. Key Points • Defining internationalization • Defining globalization • Measuring them? • Globalization drivers • Preparing for globalization • Globalizing corporate cultures • Effects of globalization on industries, organizations, corporate cultures • Financing foreign operations

36. Key Points • Internationalization occurs as firms extend products and services into foreign markets. • As companies globalize, they must balance pressures to globally integrate their operations with pressures to localize output. • Globalization can be measured objectively through foreign percentages of assets, sales, and employment.

37. Key Points • Globalization drivers can be based on market, cost, competitor, or government factors. • Companies prepare for globalization by assessing corporate competencies, supply chains, leadership capabilities, and corporate cultures.

38. Key Points • Globalizing corporate cultures involves defining and critically examining organizational relationships, communication patterns, and employee behaviors. • Effects of globalization must be assessed for industry structure, organizational structure, and corporate culture • International firms have a number of options in financing their internationalization and globalization efforts.