10CHAPTER

McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

Global Strategy: Global Strategy: Competing Around Competing Around the Worldthe World

Instructor:Dr.Gehan Shanmuganathan

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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.

ChapterCase 10 ChapterCase 10 Hollywood Goes Global Hollywood Goes Global

• Hollywood movie: The quintessential American productHollywood movie: The quintessential American product However, non-US sales increased: 50% in 2000, However, non-US sales increased: 50% in 2000,

AND 70% in 2010AND 70% in 2010

Altered global strategic focus Altered global strategic focus Movies that fit the global market by adapting foreign scripts, Movies that fit the global market by adapting foreign scripts,

hiring international actors/actresses…etc.hiring international actors/actresses…etc.

• Treat emerging markets as focal targetsTreat emerging markets as focal targets Not just Not just filmmakingfilmmaking industries, but also the industries, but also the electronicselectronics industry industry

(ex: Korea, China), and (ex: Korea, China), and autoauto industry (ex: India) industry (ex: India)

Key questions: How can a company compete effectively in a Key questions: How can a company compete effectively in a global market place?global market place?

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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 barriersFalling trade and investment barriers

Advanced telecommunicationsAdvanced telecommunications

Reduced transportation costsReduced transportation costs

Importance of Importance of MNEs MNEs and and FDIsFDIs

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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

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STRATEGY HIGHLIGHT 10.2STRATEGY HIGHLIGHT 10.2 Does GM’s Future Lie in China?

• Market opportunity in ChinaMarket opportunity in China

1.4 billion population, only 1 in 100 people owns a vehicle1.4 billion population, only 1 in 100 people owns a vehicle

• GM entered China in 1997GM entered China in 1997

Joint venture with Shanghai Automotive Industrial CorpJoint venture with Shanghai Automotive Industrial Corp

China is 25% of GM’s revenues and GROWING fastChina is 25% of GM’s revenues and GROWING fast

GM China factories are more productive than U.S. plantsGM China factories are more productive than U.S. plants

• GM’s future relies on China and other emerging economies!GM’s future relies on China and other emerging economies!

$ 250 million on a state-of-the-art R&D center…in Shanghai$ 250 million on a state-of-the-art R&D center…in Shanghai

Future of GM likely decided in their international HQ…in Shanghai!!Future of GM likely decided in their international HQ…in Shanghai!!

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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

1. Power distance

2. Individualism

3. Masculinity/femininity

4. Uncertainty-avoidance

5. Long-term orientation

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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".

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Strategy around the World: Cost Reduction vs. Local Responsiveness

• Local responsivenessLocal responsiveness: : Tailor product and service offerings to fit local Tailor product and service offerings to fit local

consumer preferences and host-country consumer preferences and host-country requirementsrequirements

Higher costHigher cost Ex: McDonald’s uses mutton in IndiaEx: McDonald’s uses mutton in India

• Cost reductionCost reduction: : MNEs enter global marketplace with the MNEs enter global marketplace with the

intention to reduce operation costintention to reduce operation cost Ex: Toyota Prius Ex: Toyota Prius

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EXHIBIT 10.6 The Integration-Responsiveness Framework

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STRATEGY HIGHLIGHT 10.3STRATEGY HIGHLIGHT 10.3 Walmart Retreats from Germany

• Walmart entered GermanyWalmart entered Germany

Acquisition of 21 stores and 74 hypermarketsAcquisition of 21 stores and 74 hypermarkets

• Walmart duplicated its U.S. policies and applied them in GermanyWalmart duplicated its U.S. policies and applied them in Germany

Employees refused to accept those policies Employees refused to accept those policies

• Walmart faced significant cultural differencesWalmart faced significant cultural differences

• Walmart could not develop efficient economies of scale and Walmart could not develop efficient economies of scale and

distribution centers to drive cost downdistribution centers to drive cost down

• The result is a defeated Walmart that sold its stores to Metro, The result is a defeated Walmart that sold its stores to Metro,

Walmart’s key rival in Germany!Walmart’s key rival in Germany!

• ALDI, another of Walmart’s competitors in Germany, is now expanding ALDI, another of Walmart’s competitors in Germany, is now expanding

aggressively in the U.S.aggressively in the U.S.10-11

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

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Regional Clusters

• Regional clusterA 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

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EXHIBIT 10.9 Mapping a Regional Cluster: Research Triangle

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CHAPTERCASE 10/Consider This…

• Hollywood film industry enters Hollywood film industry enters global marketglobal market to explore to explore new revenue stream! new revenue stream!

• Will we see a decrease in the production of regional and Will we see a decrease in the production of regional and U.S.-centered movies? Or will small independent movie U.S.-centered movies? Or will small independent movie producers pick up a higher share of the domestic U.S. producers pick up a higher share of the domestic U.S. market?market?

• Will piracy become a significant concern when Hollywood Will piracy become a significant concern when Hollywood filmmakers go global? How to combat the piracy?filmmakers go global? How to combat the piracy?

• How would you prioritize which nations to expand How would you prioritize which nations to expand distribution into if you were working for a major distribution into if you were working for a major Hollywood movie studio?Hollywood movie studio?

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