Global Economy
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Globalization and how it helps achieve competitive advantage
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Global Economy
- 1. What will we learn today? What is Globalization? Factors affecting a nation’s competitiveness Motivations and risks for international expansion Achieving Competitive Advantage in global markets Entry modes of international expansion
- 4. Globalization Increase in international exchange such as goods and services, money, ideas and information. Growing similarity of laws, rules, norms, values and ideas across countries.
- 6. Growth of global trading blocks
- 9. Increased mobility of labor
- 10. Why do some countries and their citizens enjoy the fruits of global capitalism while others are mired in poverty?
- 11. Why do some governments make the best use of inflows of foreign investment and know-how and others do not?
- 12. Factors affecting a Nation’s Competitiveness Factor endowments Land Labor Capital
- 13. Factors affecting a Nation’s Competitiveness Demand Conditions
- 14. Factors affecting a Nation’s Competitiveness Related and Supporting Industries
- 15. Factors affecting a Nation’s Competitiveness Firm Strategy, Structure and Rivalry Strong consumer demand Strong supplier bases High new entrant potential
- 16. Firms that have experienced intense domestic competition are more likely to have designed strategies and structures that allow them to successfully compete in world markets.
- 17. Motivations for International Expansion Increase market size
- 18. Motivations for International Expansion Take advantage of arbitrage opportunities
- 19. Motivations for International Expansion Extend a product’s life cycle.
- 20. Motivations for International Expansion Optimize the location of value-chain activities Performance Enhancement Cost Reduction Risk Reduction
- 21. Motivations for International Expansion Explore reverse innovation
- 22. Potential Risks of International Expansion Political risks Economic risks Currency risks Management risks
- 23. Achieving Competitive Advantage in Global Markets Cost Reduction vs. Adaptation to Local Markets
- 24. Achieving Competitive Advantage in Global Markets Pressures to lower costs Pressures for local adaptation Low Low High High Internationa l Strategy Global Strategy Transnation al Strategy Multidomestic Strategy
- 25. Entry Modes of International Expansion Exporting Joint Venture Strategic Alliance Franchising Licensing Wholly owned Subsidiaries
- 26. Entry Modes of International Expansion Exporting-producing goods in one country to sell to residents of another country.
- 27. Entry Modes of International Expansion Licensing-a contractual arrangement in which a company receives a royalty or fee in exchange for the right to use its trademark, patent, trade secret, or other valuable intellectual property.
- 28. Entry Modes of International Expansion Franchising-a contractual arrangement in which a company receives a royalty or fee in exchange for the right to use its intellectual property; it usually involves a longer time period than licensing and includes other factors, such as monitoring of operations, training, and advertising.
- 29. Entry Modes of International Expansion Strategic Alliances and Joint Ventures
- 30. Entry Modes of International Expansion Wholly Owned Subsidiary-a business in which a multinational company owns 100% of the stock.
- 31. Thank you!
Editor's Notes
- The internet is the global system of interconnected computer networks that use the Internet protocol suite (TCP/IP) to link devices worldwide. Who’s in charge of the internet? No one, but everyone. Unlike the telephone network, which for years in most countries, was run by a single company, the global Internet consists of tens of thousands of interconnected networks run by service providers, individual companies, universities, governments, and others.
- The rise of globalization—meaning the rise of market capitalism around the world—has undeniably contributed to the economic boom in the overall global economy, where knowledge is the key source of competitive advantage and value creation.
- reduced national barriers / tariff barriers
- Countries are increasingly interconnected. Economic growth is global in nature.
- Financial system increasingly global in nature. When US banks suffered losses due to sub-prime mortgage crisis, it affected all major banks in other countries who had bought financial derivatives from US banks and mortgage companies.
- People are more willing to move between different countries in search for work. Global trade remittances now play a large role in transfers from developed countries to developing countries.rk.
- There have been extremes in the effect of global capitalism on national economies and poverty levels around the world.
- There are many explanations.
- he nation’s position in factors of production, such as skilled labor or infrastructure, necessary to compete in a given industry.
- The nature of home-market demand for the industry’s product or service. Consumers who demand highly specific and sophisticated products force firms to create innovative and advanced products. Ex: Denmark for its environmental awareness
- Presence, absence and quality in the nation of supplier industries and other related industries -Enable firms to manage inputs more effectively.
- The conditions in the nation governing how companies are created, organized and managed, as well as the nature of domestic rivalry. Intense rivalry forces firms to look outside their national boundaries for new markets. Domestic rivalry is perhaps the strongest indicator of global competitive success.
- Example: Boeing/ Filmmaking such as Harry Potter
- Buying something from where it is cheap and selling it somewhere where it commands a higher price.
- Four stages of a product: introduction, growth, maturity and decline. Example: Korean mobile phones such as Samsung and LG
- All firms must make critical decisions as to where each activity will take place. Advantages::: 1/ Where are the best talents? 2/ Costs
- Creating products for emerging markets
- Political Risk-potential threat to a firm’s operations in a country due to ineffectiveness of the domestic political system. Another source of political risk in many countries is the absence of the rule of law. It is a characteristic of legal systems where behavior is governed by rules that are uniformly enforced. Economic Risk-potential threat to a firm’s operations in a country due to economic policies and conditions, including property rights laws and enforcement of those laws. Currency Risk-potential threat to a firm’s operations in a country due to fluctuations in local currency’s exchange rate. Management Risk-potential threat to a firm’s operations in a country due to the problems that managers have making decisions in the context of foreign markets.
- Two opposing pressures
- International Strategy-orphan drug industry where only a small number of people are affected/ McDonalds-limited local adaptations. Global Strategy-a strategy based on the firm’s centralization and control by the corporate office, with the primary emphasis on controlling costs. Products are standardized. Multidomestic Strategy-a strategy based on firms differentiating their products and services to adapt to local markets. Ex: Honda motorcycles Transnational Strategy-a strategy based on firms optimizing the trade-offs associated with efficiency, local adaptation and learning.