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STRATEGY IN THE

GLOBAL ENVIRONMENT
Global/National Environments
Implications of trend toward globalization:
1. Industries becoming global in scope-
industry boundaries no longer stop at
borders.
2. Shift from national to global markets
has intensified competition.
3. Steady decline in barriers to cross-
border trade & investment has opened
once protected markets to companies
based elsewhere.
National Competitive Advantage
Source: Adapted from M.E. Porter, “The Competitive Advantage of Nations,” Harvard Business
Review, March-April, 1990, p. 77.
Porter’s Diamond:
1.Companies from
given nation likely to
succeed in
industries with four
favorable attributes.
2.Attributes form a
mutually reinforcing
system with the
effect of one
attribute dependent
on state of others.
1) Factor Endowments- cost/quality of
factors of production
2) Local Demand Conditions- most
sensitive to needs of closest customers
3) Competitiveness of Related &
Supporting Industries- benefits from
investments
4) Intensity of Rivalry- competitive
advantage
National Competitive Advantage
(Attributes of Porter’s Diamond)
Increasing Profitability
Through Global Expansion
$ Expand leveraging products- goods/services
developed at home & selling internationally
$ Economies from global volume- economies of
scale
$ Location economies- economic benefits from
performing value creation in optimal location
$ Leveraging skills of global subsidiaries-
applied elsewhere
Must also consider transportation costs, trade
barriers, as well as political and economic risks.
Pressures for Cost
Reduction & Local Responsiveness
Figure 8.2
Strategy depends
on pressures:
• Cost
Reductions or
• Local
Responsiveness
Pressures for Cost Reductions
o Differentiation on non-price factors
difficult
o Competitors are based in
low-cost location
o Consumers are powerful &
face low switching costs
o Persistent excess capacity
o Liberalization of world trade & investment
Greatest in industries producing commodity-
type products where price is the competitive
weapon:
Pressures for Local Responsiveness
Differences In:
o Customer tastes &
preferences
o Infrastructure &
traditional practices
o Distribution channels
o Host government
demands
Dealing with these contradictory pressures is a
difficult strategic challenge, primarily because
being locally responsive tends to raise costs.
Four Basic Strategies
!
"
#
$
Choosing a Global Strategy
1)Globalization Standard- Reaping
cost reductions from economies of
scale & location

2)Localization- Customizing goods &
services to provide good match to
tastes & preferences in different
national markets
Choosing a Global Strategy
3)Transnational- business model that
simultaneously:
! Achieves low costs
! Differentiates across markets
! Fosters a flow of skills between subsidiaries
4)International- multinational companies
sell products serving universal needs
(minimal need to differentiate) & don’t
face significant competitors (low cost
pressure).

Changes in
Strategy over Time
Choice of Entry Mode
! Exporting- most use to begin expansion but
later switch to another mode.
! Licensing- licensee buys rights to produce
product & puts up most of overseas capital.
! Franchising- franchiser sells intangible
property & insists franchisee follow rules on
doing business.
! Joint Ventures- typically a 50/50 venture &
favored mode for entering new market
! Wholly-Owned Subsidiaries- parent company
owns 100% of subsidiary’s stock
Advantages &
Disadvantages of Entry Modes
Table 8.1
Choosing An Entry Strategy
o Distinctive Competencies & Entry Mode
• Technological know-how- wholly-owned subsidiary
preferred over licensing & joint ventures to
minimize risk of losing control.
• Management know-how- franchising, joint ventures,
or subsidiaries preferred as risk is low of losing
management know-how.
o Pressures for Cost Reduction & Entry Mode
• Export finished goods from wholly-owned
subsidiary
• Marketing subsidiaries oversee distribution- tight
control over local operations allows company to
use profits generated in one market to improve
position in other markets.
Global Strategic Alliances
o Advantages
• Facilitate entry
• Share fixed costs & associated risks
• Bring together complementary skills & assets
• Set technological standards for industry
o Disadvantages
• Give competitors low-cost route to gain
technology & market access
Cooperative agreements between companies… that are
actual/potential competitors… range from short-term
contractual… to formal joint ventures with equity
participation.
Making Strategic Alliances Work
Success Factors:
Successful partners view alliance as opportunity to learn
rather than purely as cost- or risk-sharing device.
1. Partner selection
• Helps achieve strategic goals
• Shares vision of alliance
• Unlikely to exploit alliance to own ends
2. Alliance structure
• Risk of giving too much away at acceptable level
• Guard against opportunism by partner
3. Manner in which alliance is managed
• Sensitivity to cultural differences
• Build relationship with interpersonal relationships