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QUICK REVISION GUIDE Chapter 3 – Global Strategies

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CHAPTER 3 - STRATEGIES FOR GOING GLOBAL
STRATEGIES IN GLOBALIZATION (Issues involved in Globalization) 1. 2. 3. 4. 5. 6. 7. Decision to GO global Decide MARKETS to enter Decide HOW to enter Learn to handle DIFFERENCES ADJUST the Management process. Select Management APPROACH Decide Organization STRUCTURE

GO GLOBAL India has decided in 1990 to go global. It has come to stay. There is no going back on it now. However not all companies need to go global. RISKS of globalization involved at Macro level are: Transfer of assets without compensation (Vodofone not paid 12 crore tax after acquiring the Mobile service business from Hutch) Barriers to take back full profits Confiscation of Properties Loss of Technology (china make all world brand products) Campaign against foreign goods. (Don’t eat MacDonald's, KFC, Pepsi) Local labour regulations Inflation / Devaluation Civil Wars Risks at Micro level Terrorism / Kidnappings High taxation Corruption / Dis honesty of officials Prof. Dr. Madhavan Ph.D., Bangalore 0 98860 67232 Email: profmadhavan@yahoo.com

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MARKET ENTRY – Strategies The usual entry strategies are: Exports / Imports Tourism / Transportation Top class Services Use of Assets Direct Investment (Joint Venture / Wholly Owned) FRANCHISING This another route for globalization. This involves granting the rights by the parent company (Franchiser) to another company (Franchisee) to use their name, production, products, services, marketing, business approach, The major forms of franchising are: Manufacturer – Retailer (Benz Car & Car dealers) Manufacturer – Whole saler ( Pepsi, Coke, 7up) Service firm – Retailer (East India Hotel – Hilton) Many parent companies have franchisees all over the world and their presence and brand name has become a global watch word. (Examples: McDonalds, KFC, Pizza Hut, Le Meridian Hotels, Garnier, LaOrealetc) Franchise agreements generally require, payment of a fee upfront and then percentage on sales. It is beneficial to both the groups provided there is not much of a competition among the parent companies ( Example: Pizza corner & Pizza hut & Domino) DIRECT INVESTMENT FDI – Foreign Direct Investment is another entry into the market with controlling interests. It may be either a Joint venture or Wholly owned. JOINT VENTUE It is a shared ownership, may be 50 – 50. Fuji – Xerox is a well proven joint venture across the globe. Roll Royce has more than 25 joint ventures all over the world. Some Indian Joint Ventures: Tata Motors with Marcoplo Brazil for Bus Body Building Air India with Singapore Airport Terminal Ltd. Mahindra with Renault France

Prof. Dr. Madhavan Ph.D., Bangalore 0 98860 67232 Email: profmadhavan@yahoo.com

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WHOLLY OWNED Here the company own 100% equity. The company can set up a new operation or acquire a running company. Starting a whole new operation is called Green field project / investment. Green field takes longer time to start operations than an Acquisition. In acquisition you may end up paying a high price. There are also difficulties arising from host govt. intervening in pricing, financing, employee hiring, nationalism and favoritism. FDI is risky and expensive compared to exporting or licensing. Yet firms prefer to go for FDI, because of Low transport costs (Bulk Items – Steel, Cement) Market Imperfections: (It is not so easy to replicate – Toyoto Technology) Competition ( Exstg. Companies not good enough to meet the market) Product Life cycle (Computers replaced very fast before it stops working) Location advantages ( India is central to the world so it can work 24 hrs with the world) JVs do not last long due to differences in the management and their approach. The host company suffer due to the home country influence. The Direct Investments are unevenly distributed all over the world, is due to the market needs, economies of scale and financial and regulatory conditions.

HANDLING DIFFERENCES The differences are due to: Exchange rate variation; whose fluctuations would affect their profits Political parties with different ideologies Cultural differences (food habits, exchange of courtesies, respecting their values) Strategies for International managers: 1. Mangers to see themselves as World Citizens and not a citizen of a country. 2. Develop innovative and integrative strategies not easy to replicate. 3. Aggressive and effective implementation of strategies 4. Be aware of the potentialities of the country than just what is available. 5. Keep update information on changes in the world that would affect them. 6. Achieve culture strategy fit for their activities. Prof. Dr. Madhavan Ph.D., Bangalore 0 98860 67232 Email: profmadhavan@yahoo.com

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MANAGEMENT PROCESS Management process – Panning, Organizing, Staffing, Leading and Controlling must be different in an MNC. Planning: National market to International market Organization: Structure and authority for global activity Staffing: Source from world wide poolwith geo centric orientation. Leadership and Motivation: suitable for multicultural, with long distance network Communication Controlling: Reporting system to meet many different requirements. SELECTING A MANAGER The approach is different for different country managers. Let us the difference between a Japanese and an American manager approaches. AMERICA JAPAN Life time employment Short term employment Slow promotion Rapid promotion Non specialized career paths Specialized career paths Implicit control Explicit control Collective decision making Individual decision making Team responsibility Individual responsibility Holistic concern Divided concern How Indian managers approach? Decisions by family members and rarely professionals. Top Indian managers are second generation from the family, lack professionalism. Family infighting is more aggressive than for the market. Decisions made by hunch or astrologers or vastu people. ORGANISATION STRUCTURE MNCs can be run by an efficient organization structure. Factors that affect an org. structure are: Corporate Objectives; Management style; External constraints and Internal constarints. Prof. Dr. Madhavan Ph.D., Bangalore 0 98860 67232 Email: profmadhavan@yahoo.com

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SIX FUNDAMENTAL STRUCTURES 1. International Division: Goes by Units of operations 2. Functional Structure: Divides by expert functions (Finance, Market, Manufacturing) 3. Geographic area structure: Countries or geographical locations based. 4. Product organization: Based on the Type or group of products 5. Mixed organization: a mix of the above 6. Matrix organization: This a cross function with sequential operations NEW MODELS FOR MNC 1. Create a chain of network 2. Empower small units to outperform 3. Employees involved in decision making 4. Check board model; Opposite party as the deputy 5. Breeding between the Acquired and the parent company. 6. Clearly stated Authority coupled with Responsibility with Performance Targets. NOTE

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