SWOT

1. Chapter
Eight
Strategy
in the Global
Environment

2. Objectives
Understand the process of globalization
and how it impacts a company’s strategy
Discuss the motives for expanding
internationally
Review the different strategies that
companies use to compete in the global
market place
Explain the pros and cons of different
modes for entering foreign markets
Copyright © Houghton Mifflin Company. All rights reserved. 8 | 2

3. Ford Case Study
Localization Strategy
Global Standardization Strategy
Market globalization strategy
Copyright © Houghton Mifflin Company. All rights reserved. 8 | 3

4. Copyright © Houghton Mifflin Company. All rights reserved. 8 | 4

5. Copyright © Houghton Mifflin Company. All rights reserved. 8 | 5
The Global and National
Environments
International expansion represents a way of earning
greater returns by transferring the skills and product
offerings derived from distinctive competencies to
markets where indigenous competitors lack these skills.
The trend toward globalization has many implications:
1. Industries are becoming global in scope
Industry boundaries no longer stop at national borders.
2. Shift from national to global markets
This has intensified competition in industry after industry.
3. Steady decline in barriers to cross-border
trade and investment
This has opened up many once protected markets to
companies based outside of them.

6. Copyright © Houghton Mifflin Company. All rights reserved. 8 | 6

7. Copyright © Houghton Mifflin Company. All rights reserved. 8 | 7
Increasing Profitability and Profit
Growth Through Global Expansion
 Expanding the market by leveraging products
• Taking goods or services developed at home and
selling them internationally
• Utilizing the distinctive competencies that underlie
the production and marketing
 Cost economies from global volume
• Economies of scale from additional sales volume
• Lower unit costs and spreading of fixed costs
 Location economies
• Economic benefits from performing a value
creation activity in the optimal location
• Leveraging the skills of global subsidiaries
• Applying these skills to other operations within firm’s global network
Must also consider transportation costs, trade
barriers, as well as the political and economic risks.

8. Copyright © Houghton Mifflin Company. All rights reserved. 8 | 8
Choosing a Global Strategy
 Standard Globalization Strategy
• Reaping the cost reductions that come from economies
of scale and location economies
• Business model based on pursuing a low-cost strategy
on a global scale ( Standardized product – Dell)
Makes the most sense when there are strong pressures for
cost reduction and the demand for local responsiveness is
minimal
 Localization Strategy
• Customizing the company’s goods or services so that
thy provide a good match to tastes and preferences in
different national markets
Most appropriate when there are substantial differences
across nations with regard to consumer tastes and
preferences and where cost pressures are not too intense

9. Copyright © Houghton Mifflin Company. All rights reserved. 8 | 9
Choosing a Global Strategy
 Transnational Strategy
• Difficult to pursue due to its conflicting demands
• Business model that simultaneously:
» Achieves low costs » Differentiates across markets
» Fosters a flow of skills between subsidiaries
Building an organization capable of supporting a
transnational strategy is a complex and challenging task.
 International Strategy
• Multinational companies that sell products that serve
universal needs (minimal need to differentiate) and do not
face significant competitors (low cost pressure).
In most international companies the head office retains tight
control over marketing and product strategy.

10. Copyright © Houghton Mifflin Company. All rights reserved. 8 | 10

11. Copyright © Houghton Mifflin Company. All rights reserved. 8 | 11
The Choice of Entry Mode
1. Exporting
Most manufacturing companies begin their global expansion as
exporters and later switch to one of the other modes.
2. Licensing
A foreign licensee buys the rights to produce a company’s product for
a negotiated fee; licensee puts up most of the overseas capital.
3. Franchising
Franchising is a specialized form of licensing. The franchiser not
only sells intangible property, but also insists that franchisee agrees
to follow strict rules as to how it does business.
4. Joint Ventures
Typically a 50/50 venture – a favored mode for entering a new market
5. Wholly-Owned Subsidiaries
Parent company owns 100% of subsidiary’s stock – setup or acquire
When and how to enter a new national market raise the
question of how to determine the best mode or vehicle for
entry. The optimal one depends on the company’s strategy:

12. Copyright © Houghton Mifflin Company. All rights reserved. 8 | 12
Advantages and Disadvantages
of Different Entry Modes
Table 8.1

13. Copyright © Houghton Mifflin Company. All rights reserved. 8 | 13
Global Strategic Alliances
 Advantages
• Facilitate entry into a foreign market
• Share fixed costs and associated risks
• Bring together complementary skills and assets
• Set technological standards for its industry
 Disadvantages
• Give competitors a low-cost route to gain new
technology and market access
Global Strategic Alliances are cooperative agreements between
companies from different countries that are actual or potential
competitors. They range from short-term contractual cooperative
arrangements to formal joint ventures with equity participation.
Some alliances benefit the company.
Beware, alliances can end up giving away technology
and market access with very little gained in return.