Global Business Influences: Connecting Chains and Global Companies

1. Chapter 7Global Business Influences

2. Global Industries • An industry: A set of firms that supply products and services that satisfy a human need. • The features that make for a global industry affect all firms that operate in the industry. • Homogenization of customer tastes • Economies of scale • Technological innovations • Pressures from local government or regulatory authorities

3. Connecting Chains • Value chain: Activities in a firm that add value to its conversion of inputs to outputs. • Supply chain: The flow of goods and services from raw materials to the point of consumption. • Any or all links in the chain can lend themselves to be global.

4. Levels of Integration • Integration across many countries can be of different intensity in four areas: • Product standardization • Manufacturing/operations • Similar players competing in different markets • Ownership of enterprises

5. From Canadian Vehicle Manufacturers Association. Vehicles and components move back and forth between the countries.

6. Range of Integration • Multi-domestic industry * Lowest form of global integration (eg. paint and lacquers, soaps, cosmetics). * All value-added activities take place within a country. • Integrated global industry * Majority of activities are integrated across countries (eg. aircraft, specialized industrial machinery). These may be seen as a continuum along which many industries lie.

7. Global Companies • Global company: A high level of integration and sharing between its operations along its value chain in several countries. Paths to International Growth • The four reasons for going abroad include: • Assets • Resources • Markets • Efficiencies

8. Many are globally recognizable; only Volkswagen and Airbus are in the top 10 TNCs.

9. Paths to International Growth • The three factors that determine how firms internationalize: • Ownership (or firm-specific) advantages: Owned and controlled by the firm. • Eg. proprietary information, brand name, and managerial expertise. • Rather than acquiring these skills, owning them gives advantages. • Internalization advantages: Firm’s ability to transfer the ownership advantages across borders. • Eg. Know-how or technology. • Exploit within the firm rather than sell it to an indigenous firm in the other market. • Location advantages: Country specific advantages. • Eg. Access to raw materials and markets.

10. Companies in the same industry may have diverse strategies Global Strategy Multi-domestic Strategy

11. Globalizing Trends • Cross-border expansion of major corporations • Mergers/acquisitions versus Greenfield investments • Global supply chains • Outsourcing for cost, time to market, or quality reasons • Facilitated by technology, ease of communication and travel, liberalization of trade and investment • Born Global • Facilitated by the world wide web

12. Walmart’s Internationalization • Germany • A failed entry • Transferred the US model • Did not understand local conditions • Mexico • A success • Decentralized decision making • Adapted to local needs

13. Taking a System Perspective • Economic growth and social trends interact to produce local and global companies. • Businesses evolve strategies as they match competitive advantage with comparative advantage. • State capitalism provides a tantalizing alternative while compromising other domains. • Technology trends drive many business decisions.