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Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-1
Global Strategy:
Harnessing New Markets
by Robert Pitts
& David Lei
Slides prepared by
John P. Orr
Webster University
Chapter 7
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-2
What you will learn…
• Why companies need to develop
strategies to expand across national
borders
• The key environmental factors that
promote the need to expand into
overseas markets
• The two basic strategies used for
expanding overseas:
– Global
– Multidomestic
Slide 1 of 2
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-3
What you will learn…
• Balancing the benefits and costs
of overseas expansion
• How companies can continue
to grow by becoming
global players
Slide 2 of 2
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-4
Global Strategy: Introduction
• Globalization
– Viewing the world as a single market for the
firm;
– The process by which the firm expands
across different regions and national
markets.
• Industry-Level View of Globalization
– Changes in economic factors, such as
economies of scale, experience, and R&D,
which make competing on a worldwide basis
a necessity.
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-5
Building Global
Capabilities at Nokia
• Digital, wireless and
broadband
• Strategy: Low-cost producer
• Narrowing of product lines
• Partnership plant in China
• Digital innovation and 3G
• Globalized R&D efforts
Strategic
Snapshot
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-6
Factors Promoting
the Globalization of Markets
• Narrowing of demand characteristics
• Escalating costs of R&D
• Cost reduction pressures and R&D
• Government industrial policies
• Reduction of factor costs (e.g., labor, capital)
• Rise of new distribution channels
• Reduction of transportation, communication,
and storage costs
• Internet access
• Reduction of tariffs worldwide
Exhibit 7-1
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-7
Examples of
Growing Homogeneity of Demand
• Communications equipment
• Cellular phones
• Sony Walkmans
• Levi’s jeans
• Commercial banking
• Financial services
• Color televisions and VCRs
• Semiconductors
Exhibit 7-2A
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-8
Examples of
Growing Homogeneity of Demand
• Machine tools
• Computers
• Pharmaceuticals
• Construction equipment
• Commercial aircraft
• Hollywood films
• Television shows
• Data and computer networks
Exhibit 7-2B
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-9
Examples of R&D Intensive Industries
• Semiconductors
• Software
• Biotechnology
• Communications systems
• Pharmaceuticals
• Commercial aircraft
• Electronics
• Composite materials
Exhibit 7-3A
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-10
Examples of R&D Intensive Industries
• Advanced imaging systems
• Medical equipment
• Fiber optics
Exhibit 7-3B
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-11
Rising Economies
of Scale/ Cost Pressures
• Steel
• Automobile engines
• Color television tubes
• Semiconductors
• Fiber optics
• Office equipment
• Telecommunications
• Aircraft
• Chemicals
Exhibit 7-4
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-12
Strategic
Competency in action
Creating Distinctive Value:
China’s TCL
• Shifting to top-tier products
• Purchasing Thomson’s plants
• Manufacturing capability +
economics of scale
• Chairman Li pushes free-market model
• Overcoming value-chain gaps
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-13
Government Initiatives
to Promote Industrial Development
Sematech
(semiconductors)
Steel, Computers, Autos,
Artificial Intelligence,
Advanced Materials,
Aerospace
Semiconductors, Aerospace,
Automobiles, Advanced
Lasers, Optics
US
Japan
EU
Exhibit 7-5
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-14
Examples of Declining Costs
Transport Costs
• Containerization
• Intermodal shipping/rail
• Air freight
Communication Costs
• More global long distance carriers
• Better ways to transmit voice, video data
• Internet access
Exhibit 7-6A
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-15
Examples of Declining Costs
Storage Costs
• Refrigeration
• Just-in-time inventory
• Reduction of perishability
• Supply chain management
• Virtual production/design
Exhibit 7-6B
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-16
Global Strategy of Expansion
• Systemwide approach to competing worldwide
• Mutually interdependent subsidiaries
• Centralized control and reporting of activities
• Facilitates cross-subsidization policies across markets
Exhibit 7-7
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-17
Characteristics of a Global Strategy
• Standard products
• Global economies of scale in key
components and activities
• Leverage technology across many
markets
• Global coordination of marketing and
sales systemwide
• Cross-subsidization policies to
respond to competitive moves by other
global strategy firms
Exhibit 7-8
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-18
Multidomestic Strategy of Expansion
• Competitive advantage is built in each separate national or regional market.
• Markets and subunits are treated independently from one another.
• Decentralized controls of activities, reporting back to headquarters.
Exhibit 7-9
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-19
Characteristics
of a Multidomestic Strategy
• Customization or frequent adaptation
of products for each separate market
• Few systemwide opportunities for
economies of scale
• Value-adding activities performed and
duplicated in each market
• Coordination of marketing and sales
within each market
• Quality and image across markets are
important sources of competitive
advantage
Exhibit 7-10
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-20
Benefits of Global Expansion
• Market growth and expansion
opportunities
• Recovery of R&D and investment costs
• Creation of a distinct image
• Accelerated learning and
transfer of new skills
Exhibit 7-11
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-21
Costs
Associated with Global Expansion
Costs of Strategic Leverage
• Sustained investment required
• Preserving and extending image
Costs of Flexibility
• High interdependence of subsidiaries
(and businesses)
• Change or development affecting all
markets
Exhibit 7-12A
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-22
Costs
Associated with Global Expansion
Costs of Cooperation
• Compromise
• Accountability
Exhibit 7-12B
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-23
Balancing Global & Multidomestic
Ford 2000 global
product teams
• Small car
• Midsized car
• Luxury car
• SUV
• Commercial truck
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-24
Balancing Global & Multidomestic
Personal care products
• P&G uses blended strategy
• Bausch & Lomb pursues
regional gains
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-25
Ethics: Global Concerns
Scandals with global reach
• Lloyd’s of London embezzlement
• French, German stock market
fraud
• Japanese business, political
scandals
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-26
Ethics: Global Concerns
Varying approaches to ethics
• Individual views strongly shape
ethics of U.S. workers
• Asian workers seen as ‘industrial
soldiers’
• U.S. enacts Foreign
Corrupt Practices Act

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Chapter 7 Global strategy

  • 1. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-1 Global Strategy: Harnessing New Markets by Robert Pitts & David Lei Slides prepared by John P. Orr Webster University Chapter 7
  • 2. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-2 What you will learn… • Why companies need to develop strategies to expand across national borders • The key environmental factors that promote the need to expand into overseas markets • The two basic strategies used for expanding overseas: – Global – Multidomestic Slide 1 of 2
  • 3. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-3 What you will learn… • Balancing the benefits and costs of overseas expansion • How companies can continue to grow by becoming global players Slide 2 of 2
  • 4. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-4 Global Strategy: Introduction • Globalization – Viewing the world as a single market for the firm; – The process by which the firm expands across different regions and national markets. • Industry-Level View of Globalization – Changes in economic factors, such as economies of scale, experience, and R&D, which make competing on a worldwide basis a necessity.
  • 5. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-5 Building Global Capabilities at Nokia • Digital, wireless and broadband • Strategy: Low-cost producer • Narrowing of product lines • Partnership plant in China • Digital innovation and 3G • Globalized R&D efforts Strategic Snapshot
  • 6. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-6 Factors Promoting the Globalization of Markets • Narrowing of demand characteristics • Escalating costs of R&D • Cost reduction pressures and R&D • Government industrial policies • Reduction of factor costs (e.g., labor, capital) • Rise of new distribution channels • Reduction of transportation, communication, and storage costs • Internet access • Reduction of tariffs worldwide Exhibit 7-1
  • 7. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-7 Examples of Growing Homogeneity of Demand • Communications equipment • Cellular phones • Sony Walkmans • Levi’s jeans • Commercial banking • Financial services • Color televisions and VCRs • Semiconductors Exhibit 7-2A
  • 8. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-8 Examples of Growing Homogeneity of Demand • Machine tools • Computers • Pharmaceuticals • Construction equipment • Commercial aircraft • Hollywood films • Television shows • Data and computer networks Exhibit 7-2B
  • 9. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-9 Examples of R&D Intensive Industries • Semiconductors • Software • Biotechnology • Communications systems • Pharmaceuticals • Commercial aircraft • Electronics • Composite materials Exhibit 7-3A
  • 10. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-10 Examples of R&D Intensive Industries • Advanced imaging systems • Medical equipment • Fiber optics Exhibit 7-3B
  • 11. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-11 Rising Economies of Scale/ Cost Pressures • Steel • Automobile engines • Color television tubes • Semiconductors • Fiber optics • Office equipment • Telecommunications • Aircraft • Chemicals Exhibit 7-4
  • 12. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-12 Strategic Competency in action Creating Distinctive Value: China’s TCL • Shifting to top-tier products • Purchasing Thomson’s plants • Manufacturing capability + economics of scale • Chairman Li pushes free-market model • Overcoming value-chain gaps
  • 13. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-13 Government Initiatives to Promote Industrial Development Sematech (semiconductors) Steel, Computers, Autos, Artificial Intelligence, Advanced Materials, Aerospace Semiconductors, Aerospace, Automobiles, Advanced Lasers, Optics US Japan EU Exhibit 7-5
  • 14. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-14 Examples of Declining Costs Transport Costs • Containerization • Intermodal shipping/rail • Air freight Communication Costs • More global long distance carriers • Better ways to transmit voice, video data • Internet access Exhibit 7-6A
  • 15. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-15 Examples of Declining Costs Storage Costs • Refrigeration • Just-in-time inventory • Reduction of perishability • Supply chain management • Virtual production/design Exhibit 7-6B
  • 16. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-16 Global Strategy of Expansion • Systemwide approach to competing worldwide • Mutually interdependent subsidiaries • Centralized control and reporting of activities • Facilitates cross-subsidization policies across markets Exhibit 7-7
  • 17. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-17 Characteristics of a Global Strategy • Standard products • Global economies of scale in key components and activities • Leverage technology across many markets • Global coordination of marketing and sales systemwide • Cross-subsidization policies to respond to competitive moves by other global strategy firms Exhibit 7-8
  • 18. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-18 Multidomestic Strategy of Expansion • Competitive advantage is built in each separate national or regional market. • Markets and subunits are treated independently from one another. • Decentralized controls of activities, reporting back to headquarters. Exhibit 7-9
  • 19. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-19 Characteristics of a Multidomestic Strategy • Customization or frequent adaptation of products for each separate market • Few systemwide opportunities for economies of scale • Value-adding activities performed and duplicated in each market • Coordination of marketing and sales within each market • Quality and image across markets are important sources of competitive advantage Exhibit 7-10
  • 20. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-20 Benefits of Global Expansion • Market growth and expansion opportunities • Recovery of R&D and investment costs • Creation of a distinct image • Accelerated learning and transfer of new skills Exhibit 7-11
  • 21. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-21 Costs Associated with Global Expansion Costs of Strategic Leverage • Sustained investment required • Preserving and extending image Costs of Flexibility • High interdependence of subsidiaries (and businesses) • Change or development affecting all markets Exhibit 7-12A
  • 22. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-22 Costs Associated with Global Expansion Costs of Cooperation • Compromise • Accountability Exhibit 7-12B
  • 23. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-23 Balancing Global & Multidomestic Ford 2000 global product teams • Small car • Midsized car • Luxury car • SUV • Commercial truck
  • 24. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-24 Balancing Global & Multidomestic Personal care products • P&G uses blended strategy • Bausch & Lomb pursues regional gains
  • 25. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-25 Ethics: Global Concerns Scandals with global reach • Lloyd’s of London embezzlement • French, German stock market fraud • Japanese business, political scandals
  • 26. Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-26 Ethics: Global Concerns Varying approaches to ethics • Individual views strongly shape ethics of U.S. workers • Asian workers seen as ‘industrial soldiers’ • U.S. enacts Foreign Corrupt Practices Act