Global Strategy: Competing Around the World

1. Global Strategy: Competing Around the World Instructor: Dr.Gehan Shanmuganathan

2. LO 10-1 Define globalization, multinational enterprise (MNE), foreign direct investment (FDI), and global strategy. LO 10-2 Explain why companies compete abroad and evaluate advantages and disadvantages. LO 10-3 Explain which countries MNEs target for FDI, and how they enter foreign markets. LO 10-4 Describe the characteristics of and critically evaluate the four different strategies MNEs can pursue when competing globally. LO 10-5 Explain why certain industries are more competitive in specific nations than in others. LO 10-6 Evaluate the relationship between location in a regional cluster and firm-level competitive advantage. 10-2

3. Hollywood Goes Global ChapterCase10 • Hollywood movie: The quintessential American product • However, non-US sales increased: 50% in 2000, • AND 70% in 2010 • Altered global strategic focus • Movies that fit the global market by adapting foreign scripts, hiring international actors/actresses…etc. • Treat emerging markets as focal targets • Not just filmmaking industries, but also the electronics industry (ex: Korea, China), and auto industry (ex: India) • Key questions: How can a company compete effectively in a global market place? 10-3

4. What Is Globalization? • Globalization is a process of closer integration and exchange between different countries and peoples worldwide. • Made possible by: • Falling trade and investment barriers • Advanced telecommunications • Reduced transportation costs • Importance of MNEs and FDIs 10-4

5. Why Global? Gain access to a larger market Capitalize on market potential, such as China, India, and emerging economies Gain access to low-cost input factors Labor, natural resources, technology, logistics Develop new competencies Location economies Unique locational advantages 10-5

6. STRATEGY HIGHLIGHT 10.2 Does GM’s Future Lie in China? • Market opportunity in China • 1.4 billion population, only 1 in 100 people owns a vehicle • GM entered China in 1997 • Joint venture with Shanghai Automotive Industrial Corp • China is 25% of GM’s revenues and GROWING fast • GM China factories are more productive than U.S. plants • GM’s future relies on China and other emerging economies! • $ 250 million on a state-of-the-art R&D center…in Shanghai • Future of GM likely decided in their international HQ…in Shanghai!! 1–6 10-6

7. Global Expansion: Where • How does an MNE decide where to go? • National institutions: • Well-established legal and ethical pillars as well as well- functioning economic institutions such as capital markets, banks, and infrastructures • National culture: "Programming of the mind" • Geert Hofstede’s Cultural Dimensions • Power distance • Individualism • Masculinity/femininity • Uncertainty-avoidance • Long-term orientation 10-7

8. Global Expansion: How Exporting: producing goods in one country to sell in another Acquisition, strategic alliance are also popular vehicles for entry into foreign markets MNEs sometime prefers greenfield operations or wholly owned subsidiaries Greenfield is building new factories/offices from scratch Physically and organizationally building from the "ground up". 10-8

9. Strategy around the World: Cost Reduction vs. Local Responsiveness • Local responsiveness: • Tailor product and service offerings to fit local consumer preferences and host-country requirements • Higher cost • Ex: McDonald’s uses mutton in India • Cost reduction: • MNEs enter global marketplace with the intention to reduce operation cost • Ex: Toyota Prius 10-9

10. The Integration-Responsiveness Framework EXHIBIT 10.6 10-10

11. STRATEGY HIGHLIGHT 10.3 Walmart Retreats from Germany • Walmart entered Germany • Acquisition of 21 stores and 74 hypermarkets • Walmart duplicated its U.S. policies and applied them in Germany • Employees refused to accept those policies • Walmart faced significant cultural differences • Walmart could not develop efficient economies of scale and distribution centers to drive cost down • The result is a defeated Walmart that sold its stores to Metro, Walmart’s key rival in Germany! • ALDI, another of Walmart’s competitors in Germany, is now expanding aggressively in the U.S. 1–11 10-11

12. National Competitive Advantage Framework Factor conditions A nation’s endowments in terms of national, human, and other resources Demand conditions Specific characteristics of demand in a firm’s domestic market Competitive intensity Highly competitive environments tend to stimulate firms to outperform others Related and supporting industry leadership in related and supporting industries can also foster world-class competitors in downstream industry Complementarity 10-12

13. Regional Clusters Regional cluster A group of interconnected companies and institutions in a specific industry, located near each other geographically and linked by common characteristics Knowledge spillover Positive externalities that are regionally constrained Exchange of ideas among firms in a cluster 10-13

14. EXHIBIT 10.9 Mapping a Regional Cluster: Research Triangle 10-14

15. CHAPTERCASE 10/Consider This… Hollywood film industry enters global market to explore new revenue stream! Will we see a decrease in the production of regional and U.S.-centered movies? Or will small independent movie producers pick up a higher share of the domestic U.S. market? Will piracy become a significant concern when Hollywood filmmakers go global? How to combat the piracy? How would you prioritize which nations to expand distribution into if you were working for a major Hollywood movie studio? 10-15