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SMMC G4 [CS-3] Global Strategy, G4 (Mandy, Wendy, Thalia, Allison, Charlie…
SMMC G4 [CS-3] Global Strategy
Globalization
Causes
Reduced transportation costs
The Internet, email, social media, reduced the cost of conducting business globally
Failing trade and investment barriers
Developing countries have embraced more open trade and investment policies as a pathway to economic growth.
Technological improvements in communication and transportation
Made it much more efficient to conduct business worldwide.
Growth of MNEs and FDI
Multinational Enterprises
Tend to be large and significant firms for the economy
Foreign Direct Investment
Way to clarify-contrast it with foreign portfolio investment
the economic dimension of globalization includes
International trade
International investment flows
The movement of labor across borders
The cross-border integration of companies into multinational firms
Definition
A process of closer integration and exchange between countries and peoples
National Competitive Advantage
Implications
Understand own competitive advantages
Tapping into foreign country advantages
Identifying potential sources of competition
Co-creating a supportive ecosystem
Heavily dependent on intangibles
Consumer electronics
Movies
Automobiles
Software
Diamond Model of
National Competitive Advantage
Competitive intensity
Related and
supporting Industries
Factor conditions
Demand Conditions
MNE strategy
Four MNE(Multinational enterprises) strategy
Transnational
Both localization, high responsiveness, and at the same time low cost.
Benefits
Attempts to combine benefits of localization and standardization strategies simultaneously by creating a global matrix structure
Economies of scale, location, and learning
Risks
Global matrix structure is costly and difficulty to implement, leading to high failure rate
Some exchange-rate exposure
Higher risk or IP expropriation
Features
Used by MNEs that pursue an integration strategy at the business level by simultaneously focusing on product differentiation and low cost
Mantra: Think globally, act locally
Global
A pursuit of global division of labor based on best-in-class capabilities and trying to get them at the lowest cost
Features
Used by MNEs that are offering standardized products and services
Main competitive strategy is price
Benefits
Location economies: global division of labor based on wherever best-of-class capabilities reside at lowest cost
Economies of scale
Risks
No local responsiveness
Little or no product differentiation
Some exchange-rate exposure
"Race to the bottom" as wages increase
Some risk of IP expropriation
Localization
Maximize the local responsiveness via a multi-domestic strategy
Benefits
Highest-possible local responsiveness
Reduce exchange-rate exposure
Risks
Little or no economies of scale
Little or no learning across different regions
Duplication or key business functions in multiple countries lead to high cost of implementation
Higher risk of IP expropriation
Features
Used by MNEs to compete in host countries with large and lucrative but idiosyncratic domestic markets
Often used in consumer products and food industries
Main competitive strategy is differentiation
MNE wants to be perceived as local company
International
Leveraging home-based core competencies and selling the same product and service in both domestic and foreign markets
Benefits
Leveraging core competence
Economies of scale
Low-cost implementation
Exporting or licensing for products
Franchising for services
Licensing for trademarks
Features
Well-suited for high-end products and luxury goods that can be shipped across the globe
Products and services tend to have strong brands
Used by MNEs with relatively large domestic markets
Main competitive strategy tends to be differentiation since exporting, licensing and franchising add additional costs
Often the first in internationalizing
Risks
No limited local responsiveness
Highly affected by exchange rate fluctuations
IP embedded in product or service could be expropriated
Key tension
Cost reduction
Reduce operating costs in international business by using scale and deploying commen resources
Local responsiveness
Grow market share by tailor their offerings to local preferences and host-country requirements
Foreign Market
Alternative to enter foreign market
Strategic Alliances
With a local partner, involve more active coordination
Involves a broader scope of activities
Joint Ventures
Both company contribute resources to create an independent company
Share profits
Licensing or Franchising
A contract to transfer rights within the foreign country to intangibles that are core to the value
Company need to monitor the performance of its local partner
Wholly-owned subsidiary
Establish a 100% owned unit in a foreign country
Exports
The sale of product or services into foreign markets
Direct export or export via agent
Challenges
Institutional differences
Culture and language differences
Trade and investment
Currency differences
New law and regulations
Animosity , politics, anti-foreign bias
Liability of foreignness
Culture and socioeconomic unfamiliarity
Geographic distance
Institutional voids and legal risks
Economic conditions and risks
Currency differences
Political biases and instability
The reasons firms go international
to reduce risk
to leverage the company's core capabilities
to access better or lower cost factors of production abroad
to expand the market (to OECD countries or emerging markets)
to develop new capabilities
Internazionalize
Depends on the ability to cope with liabilities
low-risk (too much risk & liability)
exporting or licensing
form an alliance or joint venture with local firm
Stages model of internationalization
1) Home market
lower risk entry mode
2) Similar nearby market
3) expand into distant and dissimilar market
higher-risk entry mode
"Born Global" Firms
Firms that are ''international from birth''
Overcome foreign entry by
Global communication networks (Internet)
Global flows of talent and entrepreneurs
Local advantages in resources and knowledge
Government policies to overcome barriers
G4
Mandy
Wendy
Thalia
Allison
Charlie
Emily