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STRATEGY IN THE GLOBAL ENVIRONMENT

STRATEGY IN THE GLOBAL ENVIRONMENT. BUS 189, Chapter 8 Spring 2014 DR. MARK FRUIN. LANGUAGE OF GLOBALIZATION. NATIONAL FIRM INTERNATIONAL FIRM MULTINATIONAL FIRM TRANSNATIONAL FIRM METANATIONAL FIRM GLOBAL FIRM. WESTERN ORIENTATION.

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STRATEGY IN THE GLOBAL ENVIRONMENT

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  1. STRATEGY IN THE GLOBAL ENVIRONMENT BUS 189, Chapter 8 Spring 2014 DR. MARK FRUIN

  2. LANGUAGE OF GLOBALIZATION • NATIONAL FIRM • INTERNATIONAL FIRM • MULTINATIONAL FIRM • TRANSNATIONAL FIRM • METANATIONAL FIRM • GLOBAL FIRM

  3. WESTERN ORIENTATION • LANGUAGE OF GLOBALIZATION (OR INTER-NATIONAL BUSINESS/IB) IS BASED ON A WESTERN HEMISPERICAL POINT OF VIEW • HBS MULTINATIONAL RESEARCH PROJECT BEGINS IN ‘50S • THE YARDSTICK IS LARGE, AMERICAN FIRMS THAT WERE DOMINANT AT THE TIME WHEN • EUROPE & ASIA DEVASTATED • AT THE TIME, INTERNATIONAL MEANS FOREIGN/FAR AWAY FROM AMERICA/AMERICAN POINT OF VIEW • IN HOW MANY COUNTRIES DID FIRMS OPERATE IN ORDER TO BE CALLED “MULTINATIONALS”?

  4. NEW POINT OF VIEW • THOMAS FRIEDMAN’S, LEXUS AND THE OLIVE TREE, THE WORLD IS FLAT & FLAT, HOT & CROWDED • SUGGESTS THAT • BOTH THE NUMERATOR & DENOMINATOR OF INTERNATIONAL BUSINESS SHOULD BE RECONSIDERED • NUMERATOR, ABOVE THE LINE, IS NO LONGER LARGE, AMERICAN OR WESTERN FIRMS • THAT IS, AMERICAN FIRMS ARE NO LONGER THE STANDARD BY WHICH NON-AMERICAN FIRMS SHOULD BE JUDGED • DENOMINATOR, BELOW THE LINE, IS NO LONGER WESTERN ECONOMIES • THREE OUT OF FIVE LARGEST ECONOMIES IN WORLD IN ASIA • SIX OUT OF TEN MOST POPULOUS COUNTRIES IN ASIA, REPRESENTING 50% OF THE WORLD’S POPULATION • “THE WORLD” HAS CHANGED A LOT

  5. ALTHO THERE ARE PROBLEMS • FRIEDMAN TALKS A LOT ABOUT INFORMATION EQUALITY (INTERNET) AND MARKET ACCESS • NEW RELATIONSHIPS BETWEEN INDIV & INDIV, INDIV & STATE, STATES & STATES • BUT FREE TRADE LESS BENEFICIAL TO DEVELOPING THAN DEVELOPED COUNTRIES • THE WORLD IS NOT REALLY FLAT, BUT SPIKEY • WHERE YOU ARE STILL MAKES A BIG DIFFERENCE, PERHAPS MORE DIFFERENCE THAN EVER; S.V. FOR EXAMPLE • HARD TO KNOW WHAT BIG MULTINATIONALS ARE DOING & HOW THEY BENEFIT WORLD ECONOMY

  6. WHY FIRMS GO ABROAD • LOCATION ECONOMIES • TO ACCESS MARKETS & TAKE ADVANTAGE OF LOW FACTOR INPUTS • TO TAKE ADVANTAGE OF SUBSIDIARY CAPABILITIES & COMPETENCIES • TO BE MORE LOCALLY RESPONSIVE • TO TAKE ADVANTAGE OF MARKET LEADING OPPORTUNITIES & CAPABILITIES FOUND OVERSEAS • PRODUCT LIFE-CYCLE MODEL • FIRST-MOVER & FAST-TO-MARKET

  7. PORTER’S NATIONAL COMPETITIVE ADVANTAGE MODEL • FIVE FORCES WITH A TWIST • THE TWIST IS THE DIFFERENCES THAT COUNTRIES MAKE • FACTOR ENDOWMENTS • LOCAL DEMAND CONDITIONS • COMPETITIVENESS OF RELATED & SUPPORTING INDUSTRIES • INTENSITY OF RIVALRY • (GOVERNMENT REGULATION & POLICIES)

  8. GENERAL PROPOSITION • COMPETING INTERNATIONALLY IS OFTEN SEEN AS BALANCING PRESSURES FOR • COST REDUCTIONS VERSUS LOCAL RESPONSIVENESS • COST REDUCTION: ADDED TO 4Ss (What are these?) • RAW & INTERMEDIATE PRODUCTS • LABOR (LOW WAGE VS. SKILLED; BOTH OVERSEAS) • TRANSPORT; LOCAL CONTENT RULES • LOCAL RESPONSIVENESS • DIFFERENCES IN CONSUMER PURCHASING POWER & TASTES • DIFFERENCES IN INFRASTRUCTURE: POWER, ROADS, ETC. • DIFFERENCES IN DISTRIBUTION CHANNELS • DIFFERENCES IN HOST GOVERNMENT REQUIREMENTS

  9. 4 BASIC STRATEGIES, p. 280 BASED ON WESTERN ORIENTED RESEARCH • NOT NECESSARILY WRONG, BUT NOT NECESSARILY UP-TO-DATE EITHER IN THE 21ST CENTURY • A 2 X 2 WITH COST REDUCTIONS & LOCAL RESPONSIVENESS AS THE AXES; LO-HI x LO-HI • INTERNATIONAL STRATEGY • LOW COST REDUCTIONS & LOW LOCAL RESPONSIVENESS • LOCALIZATION (MULTIDOMESTIC) STRATEGY • LOW COST REDUCTIONS & HIGH LOCAL RESPONSIVENESS • GLOBAL STRATEGY • HIGH COST REDUCTIONS & LOW LOCAL RESPONSIVENESS • TRANSNATIONAL STRATEGY • HIGH COST REDUCTIONS & HIGH LOCAL RESPONSIVENESS

  10. A NEW MODEL NOT MENTIONED • METANATIONAL FIRM • YVES DOZ, JORGE SANTOS & PETER WILLIAMSON • WHAT DOES META INDICATE? • BEYOND, TRANSCENDING • BUT THE SUFFIX IS STILL THE SAME, NATIONAL • HOW DOES METANATIONAL DIFFER FROM OTHER “--NATIONALS”? • BEYOND NATION STATE AS UNITS OF ANALYSIS; SOME TRUTH TO THIS ASSERTION • LESS PUSH & MORE PULL • SENSING, MOBILIZING & OPERATIONALIZING DIFFER TO THE EXTENT THAT THERE ARE LESS PUSH & MORE PULL

  11. BASIC ENTRY DECISIONS • WHICH PRODUCTS GOING TO • WHICH MARKETS? • TARGETING WHAT GROUPS OF CONSUMERS? • BASIC PRODUCT/MARKET SEGMENTATION ISSUES • TIMING OF ENTRY; WHEN? • SCALE OF ENTRY; HOW BIG WHEN ENTER? • HOW BIG IN 1-3 YEARS? • HOW BIG IN 3-5 YEARS? • MODE OF ENTRY; HOW TO STRUCTURE ENTRY? • EXPORT • LICENSE • FRANCHISE (specialized form of licensing) • JOINT VENTURE • STRATEGIC ALLIANCE • WHOLLY OWNED SUBSIDIARY

  12. ADVANTAGES/DISADVANTAGES OF DIFFERENT ENTRY MODES • POSSIBLE ADVANTAGES • LOCATION ECONOMIES • LOWER DEVELOPMENT/MFG COSTS • SHARE COSTS & RISKS • GET CLOSER TO CUSTOMERS • PROTECT TECH/IP/DISTINCTIVE COMPETENCIES • LIKELY DISADVANTAGES • COSTS (COORDINATION, TRANSACTION) • LACK OF CONTROL • COMPLEXITY • EXPROPRIATION/APPROPRIATION

  13. HOW FIRMS GO ABROAD • GENERALLY SUCCESSIVE MODES OF ENTRY • 1ST, OVERSEAS AGENTS; LOCAL REPRESENTATIVES • 2ND, FOLLOWED BY OWN SALES OFFICE • 3RD, FOLLOWED BY OTHER FUNCTIONS • TRADITIONALLY PROD, DISTRIB & MKTING • TODAY R&D AND ENGINEERING • 4TH, FOLLOWED BY INTERNATIONAL DIVISION • 5TH, FOLLOWED BY INTERNATIONAL SUBSIDIARY • LAST, FOLLOWED BY NODE VS. MATRIX CELL MODELS OF GLOBAL FIRMS QUESTIONS: HOW LONG TO WORK THROUGH CYCLE? ADVANTAGES TO LEAPFROGGING?

  14. MAKING STRATEGIC ALLIANCES WORK • INCREASINGLY COMMMON WAY OF WORKING OVERSEAS; PARTNER UP • NEED TO “WALL OFF” CRITICAL TECHNOLOGY SO PARTNERS DON’T STEAL FROM YOU • ESTABLISH CONTRACTUAL SAFEGUARDS; CONTRACTS HARD TO ENFORCE INTERNATIONALLY • AGREE TO SWAP VALUABLE SKILLS & TECHNOLOGY (& PEOPLE); THESE ARE THE REASONS WHY YOU PARTNER • SEEK CREDIBLE COMMITMENTS • DEVELOP RELATIONAL SKILLS & CAPABILITIES (ESPECIALLY WHEN PARTNERING WITH INTER- FIRM NETWORKS & BUSINESS GROUPS) • LEARNING AS OPPOSED TO COST/RISK SHARING AS PRIMARY OBJECTIVE; KEY TO CREATING VALUE

  15. MY OWN VIEWS • HARD TO BE GLOBAL WITH TRADITIONAL FIRMS • LIMITS TO ORGANIZATION, KENNETH ARROW, NOBEL PRIZE WINNING ECONOMISTS • LIMITS TO HOW MUCH COMPLEXITY HIERARCHIES (FIRMS) CAN HANDLE • “ALTERNATIVE” ORGANIZATIONAL FORMS OFFER DIFFERENT STRATEGIES THAN PROFIT MAXIMIZING FIRM MODELS • BUSINESS GROUPS • INTERFIRM NETWORKS • FIRM ECOSYSTEMS • YOU CAN’T HAVE YOUR CAKE AND EAT IT TOO • MEANING YOU CAN’T EXPECT TO COVER THE WORLD ON THE BASIS OF HOME GROWN CAPABILITIES • GIVE AND TAKE REQUIRED

  16. GOING FORWARD • MORE & MORE OF THE WORLD’S LARGEST FIRMS • MORE & MORE OF THE WORLD’S LARGEST AND MOST RAPIDLY GROWING ECONOMIES • OUTSIDE THE COMFORT ZONE OF U.S. FIRMS • HOW AMERICAN FIRMS ADAPT WILL BE KEY • TWO CHOICES • GO IT ALONE & RISK LOSING IT ALL • HOOKING UP & GETTING SLICES OF EVER EXPANDING PIES • BUT US SLICE MAY GET SMALLER & SMALLER OVER TIME • SOMETHING IN BETWEEN TWO CHOICES, BUT THIS IS A RISKY STRATEGY • MORE AMERICAN FIRMS ARE LESS AND LESS “AMERICAN”, ESPECIALLY SINCE 2008 FINANCIAL AND REAL ESTATE MELTDOWNS • US MODEL LESS RELEVANT & MORE RESTRICTIVE: ADAPT OR DIE

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