global strategy hw

MGT 272 GLOBAL STRATEGY &

MANAGEMENT Session 2

Professor Haibo LIU

WHAT IS GLOBALIZATION

BUILDING GLOBAL PRESENCE

The Disadvantages of “foreignness”

The Disadvantages of “foreignness”

•Distance •Difference •Distrust •Discrimination

The Imperatives to Globalize

•What are the drivers for firms to pursue global expansion? oUber oMicrosoft

The Imperatives to Globalize

•What are the drivers for firms to pursue global expansion oNew markets (N ↑) oImprove competencies (P ↑) oLower cost (C ↓) oReduce risk (σ↓)

The Imperatives to Globalize

• The growth imperative o New market, create demand

• The efficiency imperative o Strategize different value chain activities in different locations

• The knowledge imperative o Local adaptation, local know-how o Local learning may create global competitive advantage

• Globalization of customers o Customers who are global corporations, globally mobile individuals

• Globalization of competitors o First threat: first mover advantage, ability to serve global customers o Second threat: use multimarket presence to cross-subsidize

Key Issues for Global Presence

•How should a company approach the challenges of going global?

•What questions should they ask themselves?

6 Key Issues for Global Presence

•Choice of products •Choice of markets •Mode of entry •Transplanting the corporate DNA •Winning the local battle •Speed of global expansion

Choice of Products

•Multiproduct firms must decide which product lines should serve as the starting point

•Entire portfolio or a subset of product lines? oKnowledge about foreign markets oSkills at managing people in foreign locations oSkills at managing foreign subsidiaries

Choice of Products

• Multiproduct firms must decide which product lines should serve as the starting point

• Eg. Marriott in the early 1990s Global expansion Lodging sector Contract service sector

Full-service hotels and resorts (Marriott brand)

Marriot senior living services (retirement communities)

Target customers

Economy of scale/scope

Degree of localization required

Breakout Room

Choice of Products

Potential Returns

Potential Risks

Choice of Strategic Markets

•Which markets to enter and in what sequence?

Choice of Strategic Markets

• Strategic importance of a market oSize of market: demand  total population, demographic characteristics, per capita income,

geographic climate, population density, cultural norms and preferences, and stage of economic development  not just in terms of markets for existing products, but in terms of

innovative new products that you can offer

Choice of Strategic Markets

• Strategic importance of a market oLearning opportunities: populated by sophisticated and

demanding customers  quality, cost, cycle time  even better to be transferrable experience

Choice of Strategic Markets

•Ability to exploit a market oEntry barriers:  no regulatory constraints; markets are geographically, culturally, and

linguistically proximate to the domestic market  Telefónica’s expansion into Latin America

oIntense competition can hinder a company’s potential for exploiting a market  Marks & Spencer’s failure in U.S.

Timeline of Ikea Expansion

• Germany

• Demark

• U.S.

• Canada

• France

• China

• Norway

• Hong Kong

Breakout Room

Timeline of Ikea Expansion

• Norway (1963)

• Demark (1969)

• Germany (1974)

• France (1981)

• Canada (1976)

• U.S. (1985)

• Hong Kong (1975)

• China (1998)

Mode of Entry

• Two fundamental issues: oThe extent to which it will rely on exports to versus local

production oThe extent of ownership control over activities

Mode of Entry

• Greater reliance on local production is appropriate when: oCosts reduction:  local demand > minimum efficient scale of production  Excessive transportation and tariff costs

oLocal customization: enhance the firm’s ability to respond to local market needs o Local policy: the local government requires significant

local content

Mode of Entry

Ownership Moe of Entry Local Knowledge

Required Full Fully owned greenfield,

acquisition Partial Joint venture, affiliates Minimal Licensing, franchising

Mode of Entry

• Alliance-based entry modes can be more appropriate when: oLack of local know-how and networks: significant physical,

linguistic, and cultural distance between the host and the home country

oShort of capital needed to enter the market without a partner oIndependent subsidiary: the subsidiary’s activities are unlikely

to affect the rest of the network oGovernment regulations require local equity participation oThere is a low risk of asymmetric learning by the partner (what

if Firm A learns faster than Firm B?)

Transplanting the Corporate DNA

Transplanting the Corporate DNA

• Firms must differentiate between core versus peripheral beliefs and practices.

• Challenges: o(what to transfer) be absolutely clear about core beliefs and

practices o(how to transfer) construct mechanisms to transfer core beliefs

and practices o(how to internalize) the new beliefs and practices have become

internalized at the subsidiary

Winning the Local Battle

• Business model: understand the uniqueness of the local market  which aspects of the company’s business model require little change, which require local adaptation, and which need to be reinvented

• Competition: local competitors and other multinationals already operating in that market

• Government: persistence and constructive dialogue with the local government

Speed of Global Expansion

• Expanding quickly oPros: solidify its global market position rapidly oCons: deplete managerial, organizational, and financial

resources oAccelerated global expansion is appropriate when o(To deter competition) it is easy for competitors to replicate a

firm’s recipe for success o(To reduce cost) scale economies are extremely important o(Sufficient capability) management’s capacity to manage

global operations is high