Why do firms go global?
Gain access to a larger market
-New market for revenue
-Opportunities for achieving economies of scale and scope
Also gain access to low-cost input factors
Low-cost raw materials
Lower labor cost in manufacturing and services
Lastly to develop new competencies
Location and geography specific knowledge
Location economies: Benefits from locating in optimal geographies (Cisco’s Asian
headquarter in Bangalore, India)
Challenges to Going Global
1. Liability of Foreignness
a. Working in an unfamiliar cultural and economic environment can result in
additional costs ( Walmart in Korea)
2. Loss of Reputation
a. Activities in a foreign market sometimes negatively influence firms’ reputation
(poor working conditions, lack on minimum safety standards)
3. Loss of intellectual property
a. Can be siphoned off or reverse engineered
Modes of Entry
Contract based – exporting using market transaction
(LOW CONTROL AND SMALLEST INVESTMENT/HIGH FLEXIBILITY)
Strategic alliances-
-Long term contracts
- Licensing or Franchising
-Equity alliances
-Joint Venture
Subsidiary- (MOST INVESTMENT AND CONTROL)
-Acquisition
-Greenfield- internal development
WPC 480 10-1 Global Strategy
The Integration Responsiveness Framework
Pressure for Cost Reductions
High
Global Standardization Transnational
Infosys Bertelsmann
Lenovo P&G
Siemens Energy
Electronics or IT software Blue Ocean strategy
-Price becomes the main -difficult to imitate
Competitive weapon
-Need economies of scale
Pressure for local responsiveness
Low
High
International Multidomestic
Rolex Nestle
(Luxury) Phillips
Use the same products Need to differentiate products but price doesn’t
Strong brand matter as much.
(GOOD!)
Low
Cross border expansion- involves replication of successful business practices and local
adaptation.
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