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The Process

Welcome to class of International Strategy Formulation by Dr. Satyendra Singh www.uwinnipeg.ca/~ssingh5. The Process. Balancing pressures General pressure Free trade areas, global financial market, advances in communications technology… Industry-specific  Encourage to globalize

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The Process

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  1. Welcome to class ofInternationalStrategy FormulationbyDr. Satyendra Singhwww.uwinnipeg.ca/~ssingh5

  2. The Process • Balancing pressures • General pressure • Free trade areas, global financial market, advances in communications technology… • Industry-specific  Encourage to globalize • Country-specific • Company-specific • International strategy formulation • Mapping of Industries • Mutidomestic, Regional, and Global strategies • Recommendations for managing the process Encourage or discourage

  3. Industry-specific Pressure (+)… • Universal customer needs • People see it, so want it  product or services • Irrespective of country of origin! • Even sports • MNCs do not miss out opportunities • Ex. Watches, jeans, pizza, cell phone, computers… • B2B (Industrial) customers • If GM goes international, so do suppliers • Suppliers are expected to respond • Close working relationship • Otherwise suppliers miss out the opportunity

  4. Industry-specific Pressure (+) • High investment intensity • ↑ investment  recoup  time, $, R&D  standardize  develop universal appeal • Ex. MACH3 razor, Boeing,… • Amortize development cost through rapid globalization • Cost reduction need • Minimum vol. needed for certain unit cost • Economies of scale (30% domestic + 70% intl.) • Ex. Petroleum industry ↑ production for ↓ price • However, newspaper industry, local content and responsiveness is more important than prod. efficiency

  5. Country-specific Pressure (±)… • Trade barrier (Tariff barrier) • Because governments want • Investments (FDI)  jobs, technology, ↑QOL • MNCs to establish autonomous operations • Preserve culture, sovereignty, foreign exchange • In sum, compete thru FDI rather than trade • If a country becomes a trading block • Its competitiveness becomes vital  loss of tariff • So governments begin subsidizing local industry • I.e. ,Government resorts to nontariff barrier • Ex. EU, steel; US Sugar…, Production • Ex. Different industry standards: DVD-RAM (Toshiba, DVD-RW (Sharp), DVD+RW (Sony)

  6. Country-specific Pressure (±)… • Cultural differences • Nationalism may deter globalization • Preserve culture and sovereignty • Tradition and religious beliefs run deep • Ex. McDonald in India  No beef • Ex. Kelloggs in UAE  tested for pork derivatives • Ex. Wrigley’s chewing gum  tested and found ok • Local taste • Ex. KFC vs. tandoori chicken in India • Income disparity • People cannot afford • Imitation and Piracy • Microsoft, AutoCAD, SAP software….

  7. Country-specific Pressure (±) • Anti-globalization activities • It is not globalization; if so, it is very limited • High awareness of issues Mecca Cola • Website and fundraising capabilities • Powerful social networking  uprising • So MNCs beef up public relations • Ex. Coca-Cola in Africa • Internet – may be no need to go abroad • Strategy shift  Intuit income tax software • Competitive advantage vs. core competencies • Cost of maintaining physical structure can be ↑

  8. As per the religion, 10% of profit goes to charity causes

  9. Company-specific Pressure (±)… • Organizational resistance to change • Justification for globalization (from multidomestic) • CM lose control/autonomy • HO is overestimating the impact of globalization • Ex. GM, Philips, IBM, Nestle  all have CM • Union can resist too • Management short supply • Not many cross-culturally competent managers • Personal reason, so no to globalization • Do not wish to travel • Do not wish to be away from families • Region or religion – do not feel safe

  10. Company-specific Pressure (±) • Transportation difficulty • ↓ value-to-weight is not suitable globalization • Ex. Dairy, bread product – short shelf-lives • Ex. Seafood, flowers packaging, refrigeration • Costs may outweigh benefits of globalization • New production technique • JIT  within hours of assemble, ↓ holding cost • Flexible manufacturing system • Low set up time, Multiple LOB in single factory • Customization is efficient • Ex. Custom Levi jeans at $10 premium • Integration: Vertical vs. Horizontal

  11. Vertical vs. Horizontal Integration…

  12. Vertical vs. Horizontal Integration

  13. Mapping Industry for Strategy Formulation Globalization  moving up; ie.↑ integration quadrant Cement: globalization limited by high weigh to value ratio Globalization and Localization vary from industry to industry

  14. International Strategies… • Multidomestic • Technology and skills are intl, and not product  requires adaptation • HO develops product  affiliates replicate • Very popular after WWII High tariff • After 80s ↓ Trade barriers  Globalization • Regional • Maximize economies of scale at regional level • Homogenous market demand, trading blocks • Stepping stone to full blown global strategy • Local staffing, ↓ turnover, ↑ morale, regional decision-making • Ex GM, Safeway

  15. International Strategy • Global • Maximize intl efficiency, locate activities in low cost countries, standardize product, and manufacture world-class products • ↑ market share if production facility same place • MNCs have bargaining power • Bias the financial results  transfer pricing • Control location of technology and skill transfer • Reconfigure value-adding activities between countries • MNCs can move operations elsewhere • Take away jobs, no taxes to governments • So governments want to retain MNCs • Tax break and infra structure support • ↑ investment, ↑ incentive offered

  16. Recommendation for Managing the Process • Invest heavily in data collection • Use multiple data sources, tap external sources and develop internal sources to overcome suspect data • Determine the potential for critical scale economies • Weigh the value of other globalization benefits • Rotate country managers more frequently to help them develop a global vision • Reassess performance measurement system and reward system • Take a balanced approach

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