session 8 - joel Flashcards
(17 cards)
What Is Globalization?
Globalization is a process of closer integration and exchange between different countries, businesses, and peoples worldwide.
Made possible by:
* Falling trade and investment barriers,
* Advances in telecommunications
* Reductions in transportation costs.
What are the Stages of Globalization?
Globalization 1.0: 1900 to 1941:
* Sales, operations, and some procurement.
* Strategy flowed from headquarters to international sites.
Globalization 2.0: 1945 to 2000:
To reconstruct damage from the war.
* Focus on European countries, Japan, and Australia.
* Greater local responsiveness.
* Headquarters set goals and international sites influenced tactics.
Globalization 3.0: Early 21st Century:
* Business function locations based on costs, capabilities, and PESTEL factors.
* Companies can operate 24/7, 365 days a year
What is The Current State of Globalization?
The world only semi-globalized:
* The level of globalization is at 10-25% total.
* In addition, there has been a rise in nationalism
* Rise in Systematic Rivalry and Techno Cold War: USA and China are beginning to view each other as strategic rivals. A techno cold war is also likely and can contribute to nationalism.
What is Global Strategy?
Part of a firm’s corporate strategy to:
* Gain and sustain a competitive advantage.
* Compete against foreign and domestic companies.
Includes Foreign direct investment:
* Investments in value chain activities abroad.
Essentially these firms are called, Multinational enterprise:
* Deploys resources and capabilities in two countries or more.
Advantages of
International Expansion
1. Gain access to a larger market.
✓ Helps multinational enterprises with economies of scale and scope.
✓ These economies can reinforce the basis of their competitive advantage
✓ In turn, allowing MNEs to outcompete local rivals.
2. Gain access to low-cost input factors.
✓ Good for MNEs pursuing a pursue a low cost leadership strategy
✓ Example, access to low-cost raw materials like lumber, iron ore, oil, and coal, NOW, LOWER LABOUR COSTS (e.g. in India, China)
3. Develop new competencies
✓ Good for MNEs pursuing a pursue a differentiation strategy
✓ Globalizaton offers access to:
* New communities of learning in specific geographic regions
* Location economies — benefits from locating value chain activities in optimal geographies for a specific activity.
Disadvantages of
International Expansion
1. Liability of foreignness.
* Unfamiliar cultural environment.
* Unfamiliar economic environment.
* Coordinating across geographic distances.
* Can result in additional costs.
2. Loss of reputation.
* Reputation is one of the most valuable resources.
* International expansion can cause loss of reputation and diminish competitiveness, if:
* Low wages, long hours, and poor conditions.
* Local government may be corrupt.
* Safety standards may not be enforceable.
3. Loss of intellectual property.
* It can be difficult to protect IP in foreign markets.
* Particularly in the software, movie, and music industries.
* Copyright infringements can occur.
* IP exosure: some countries are known for partnering initially, but then reverse-engineering capabilities.
What is the CAGE Framework?
CAGE Framework helps MNEs decide where in the world to compete.
Distance is the main cost and risk of expansion. CAGE is an acronym for different types of distance:
* Cultural
* Administrative and political
* Geographic
* Economic
CAGE: Cultural Distance
Disparity between a firm’s home and host country,
in social norms and morals, beliefs, and values.
Made up of:
* Power distance
* Individualism
* Masculinity–femininity (the masculinity-feminity dimension here is not so much about gender equality, but rather the stature/perception. in which case, even a 100% female parliment can be masculine. e.g. the parliment, while embracing female in parliment, is masculine bc mascluline perceptions that work > homemaking)
* Uncertainty avoidance
* Long-term orientation
* Indulgence
CAGE: Administrative and Political Distance
Distance between 2 countries increases with…
* Absence of a trading block a.k.a presence of tariffs, quotas and restrictions
* Absence of monetary association (i.e. shared currency) or political association
* Absence of colonial ties
* Political hostilities
* Weak legal and financial institutions
CAGE: Geographic
More than just physical distance…
Distance between 2 countries increases with…
* Lack of common border, waterway access, infrastructure like adequate transportation, or communication links
* Physical remoteness
* Different climates
* Different time zones
* Physical size (e.g. Canada vs SG)
CAGE: Economic
Not just monetary/income
Distance between 2 countries increases with…
* Different consumer incomes (wealth and per capita income)
* Different costs and quality of natural, financial, and human resources
* Different information or knowledge (economies of experience, scale, scope, standardisation)
How do MNEs enter foreign markets?
Refer to Modes of Foreign-Market Entry along the Investment and Control Continuum
1. Contract-based (Less investment and control)
* Exporting
2. Strategic Alliances (Mid investment and control)
* Long-term contracts (i.e., licensing, franchising)
* Equity Alliances
* Joint Ventures
3. Subsidiary (High investment and control)
* Acquisition
* Greenfield (building new, fully owned plants and facilities from scratch, e.g. Motorola and Tesla did that in China)
The International Expansion Dilemma: Cost Reductions vs. Local Responsiveness?
- MNEs face two opposing forces when competing around the globe: cost reductions versus local responsiveness.
- Cost reductions achieved through a global-standardization strategy often reinforce a cost-leadership strategy at the business level.
- Local responsiveness increases the differentiation of products and services, reinforcing a differentiation strategy at the business level.
- Taken together, however, cost reductions and local responsiveness present strategic trade-offs because higher local responsiveness frequently goes along with higher costs.
HOWEVER, the greater move toward globalization is based on the globalization hypothesis – which states that consumer needs and preferences throughout the world are converging and thus becoming increasingly homogenous. This dissolves the dilemma. (see success of McDonald’s, Hollywood Movies, Sony Televisions, Levi Jeans everywhere)
The Cost-Responsiveness Framework: Global Strategy Positions and Representative MNEs (exhibit 10.8 in textbook, page 428)
International strategy (Low-cost, Low-responsiveness)
* Low pressures for both local responsiveness and cost reductions
* Sell the same products or services in domestic markets and foreign markets
* Enables MNEs to leverage their home-based core competencies in foreign markets
Multidomestic strategy (Low-cost, High-responsiveness)
* Attempt to maximize local responsiveness
* Hoping that local consumers will perceive their products or services as local.
* On the downside, a multidomestic strategy is costly and inefficient because it requires the duplication of key business functions across multiple countries.
* Each country unit tends to be highly autonomous, and the MNE is unable to reap economies of scale or learning across regions.
* Risk of IP appropriation increases
* Common in consumer products and food industry
Global-standardization strategy (High-cost, Low-responsiveness)
* Reap significant economies of scale and location economies by pursuing a global division of labor based on wherever best capabilities reside at the lowest cost.
* Because products are standardized and there is little or no dif
ferentiation or local responsiveness, price becomes the main competitive weapon.
Transnational strategy (High-cost, High-responsiveness)
* Attempt to combine the benefits of a localization strategy (high local responsiveness) with those of a global-standardization strategy (lowest cost position attainable).
* Used by MNEs that pursue a blue ocean strategy at the business level by attempting to reconcile product and service differentiations at low cost.
* Difficult to implement:
* Duplication of efforts.
* Organizational complexity.
What is Dynamic Strategic Positioning?
Recall that effective strategic positions are not constant and are as dynamic as the environment. They can change over time.
Example: Google shifted from international to multidomestic to transnational strategy (see textbook, page 432)
What is the National Competitive Advantage (i.e., the death-of-distance hypothesis)?
Simply that despite an increasingly globalized world, it turns out that high-performing firms in certain industries are geographically concentrated in specific countries.
Examples:
* United States (Silicon Valley): biotechnology, software, internet.
* China and Taiwan: computer and chip manufacturing.
* South Korea and Japan: consumer electronics.
* Australia: mining.
* India: business process outsourcing.
* Germany: engineering and cars.
* Italy: fashion.
* France: wine.
What is Porter’s Diamond Framework of National Competitive Advantage
Michael Porter advanced a framework to explain national competitive advantage—why some nations outperform others in specific industries.
This framework consists of four interrelated factors:
1) Factor conditions
* A country’s endowments in terms of natural, human, and other resources.
* Resource-rich: focus on commerce.
* Resource-lacking: focus on human capital.
* Other important factors include capital markets, a supportive institutional framework, research universities, and public infrastructure (airports, roads, schools, health care system).
2) Demand conditions
* Specific characteristics of demand in a firm’s domestic market
* A home market made up of sophisticated customers who hold companies to a high standard of value creation, cost containment, and even new commercial applications for the market. contributes to national competitive advantage.
3) Competitive intensity in a focal industry
* Competitive environments lead to better performance.
4) Related and supporting industries/complementors
* Leadership in related and supporting industries can also foster world-class competitors in downstream industries (i.e., the availability of top-notch complementors—firms that provide a good or service that leads
customers to value the focal firm’s offering more when the two are combined—further strengthens national competitive advantage.)
* E.g., Switzerland leveraged its early lead in industrial chemicals into pharmaceuticals. A sophisticated health care service industry sprang up as an important complementor, providing further stimulus for growth and continuous improvement and innovation.
