management
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5.pptxWhat Is Globalization?
Globalization
A process of closer integration and exchange
Between different countries and peoples worldwide
Made possible by:
Falling trade and investment barriers
Advances in telecommunications
Reductions in transportation costs
Advantages of Going Global
Gain access to a larger market.
Gain access to low-cost input factors.
Develop new competencies.
What are the pros and cons of globalization?
Is Globalization a major goal for a company to achieve in the long run?
Are there more costs than benefits for a company that uses globalization? Or vice versa?
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Liability of Foreignness
Working in an unfamiliar cultural environment
Working in an unfamiliar economic environment
Can result in additional costs
What could walmart had done to overcome the liability of foreignness in Germany? I read that McDonalds is doing well in Germany i wonder what did Mcdonalds do that Walmart didn't?
Globalization is now a global practice, do you think certain aspects of globalization will reverse such as outsourcing oversea given the government incentives?
Loss of Reputation
The most valuable resources that a firm may possess.
Innovation reputation
Customer service reputation
Brand reputation
What are some other companies that lost their reputation by going global?
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Loss of Reputation
Can be due to low wages, long hours, and poor working and living conditions overseas
Local government may be corrupt.
Minimum safety standards may not be enforceable
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WHERE? The CAGE Distance Framework
Guides MNE decisions on which countries to enter
CAGE is an acronym for different types of distance
Cultural
Administrative and political
Geographic
Economic
Let’s review these in detail…
Is any of the CAGE elements more important than the others?
Although absolute metrics such as country wealth or market size matter to some extent—as we know, for example, that a 1 percent increase in country wealth leads to a 0.8 percent increase in international trade—the relative factors captured by the CAGE distance model matter more. For instance, countries that are 5,000 miles apart trade only 20 percent of the amount traded among countries that are 1,000 miles apart. Cultural distance matters even more. A common language increases trade between two countries by 200 percent over country pairs without one.
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The Integration Responsiveness Framework
Local responsiveness: the need to tailor product and service offerings to fit local consumer preferences
May we go over the integration-responsiveness framework please?
Cost reductions vs Local responsiveness
Instructors:
The digital companion to this book McGraw-Hill Connect has a brief case exercise on this section of the textbook. It builds student knowledge on some of the key issues of moving businesses offshore. (LO 10-5).
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International Strategy
Leverages home-based core competencies
Sells the same products or services in both domestic and foreign markets
Advantageous when the MNE faces:
Low pressures for local responsiveness, for cost reductions
Often used successfully by MNEs with:
Large domestic markets, Strong reputations and brand names
A strength of the international strategy—its limited local responsiveness—is also a weakness in many industries. For example, when an MNE sells its products in foreign markets with little or no change, it leaves itself open to the expropriation of intellectual property (IP). Looking at the MNE’s products and services, pirates can reverse-engineer the products to discover the intellectual property embedded in them.
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Global-Standardization Strategy
Attempts to reap significant:
Economies of scale & location economies
Through global division of labor where capabilities are at the lowest cost
Arises out of the combination of:
High pressure for cost reductions
Low pressure for local responsiveness
Price becomes the main competitive weapon
Multidomestic Strategy
Used to try and maximize local responsiveness
MNEs hope that local consumers will perceive their products or services as local ones.
This strategy arises out of the combination of:
High pressure for local responsiveness
Low pressure for cost reductions
Can be costly and inefficient - duplication
Transnational Strategy
Strategy that attempts to combine:
Benefits of a localization strategy
High local responsiveness
With a global-standardization strategy
Lowest-cost position attainable
Arises out of the combination of:
High pressure for local responsiveness
High pressure for cost reductions
Used by MNEs that pursue a blue ocean strategy
Difficult to implement
Exhibit 10.6 Global Strategy Positions and Representative MNEs
Jump to Appendix 3 long image description
Juxtaposes the opposing pressures for cost reductions and local responsiveness to derive 4 different strategic positions
What is different with international strategy and global standardization?
In the international strategy, which of the two markets; global or domestic, bring the most benefit to a firm?
