Ch08.Ppt -Strategy in Global Environment

Copyright © 2001 Houghton Mifflin Company. All rights reserved.

Chapter 8Chapter 8

Strategy in the Global EnvironmentStrategy in the Global Environment

StrategicStrategic Charles W. L. HillCharles W. L. Hill

ManagementManagement Gareth R. JonesGareth R. Jones

Fifth EditionFifth Edition

PowerPoint Presentation PowerPoint Presentation by Charlie Cookby Charlie Cook

An Integrated ApproachAn Integrated Approach

Copyright © 2001 Houghton Mifflin Company. All rights reserved. 8-2

Profiting From Global ExpansionProfiting From Global Expansion

Earning high returns from transferring distinctive Earning high returns from transferring distinctive competencies to foreign markets.competencies to foreign markets.

Realizing location economiesRealizing location economies Using lower-cost locations reduces overall costs and fosters Using lower-cost locations reduces overall costs and fosters

product differentiation for premium pricing.product differentiation for premium pricing.

Moving down the experience curveMoving down the experience curve Larger global markets = more accumulated volume.Larger global markets = more accumulated volume.

Global expansion and business-level strategiesGlobal expansion and business-level strategies Linked by cost reductions and value creation.Linked by cost reductions and value creation.


Pressures for Cost Reduction and Pressures for Cost Reduction and Local ResponsivenessLocal Responsiveness

Pressures for cost reductionsPressures for cost reductions Global competitors seek to minimize unit costs through Global competitors seek to minimize unit costs through

location economies and attain low-cost competitor status.location economies and attain low-cost competitor status. In commodity-type product industries, intense price In commodity-type product industries, intense price

competition predominates strategic concerns.competition predominates strategic concerns.

Pressures for local responsiveness arise from:Pressures for local responsiveness arise from: Differences in local consumer tastes and preferences.Differences in local consumer tastes and preferences. Differences in infrastructure and traditional practices.Differences in infrastructure and traditional practices. Differences in distribution channels among countries.Differences in distribution channels among countries. Host government economic and political demands.Host government economic and political demands.


Pressures for Cost Reduction and Pressures for Cost Reduction and Local ResponsivenessLocal Responsiveness

FIGURE 8.1


Strategic ChoiceStrategic Choice

International strategyInternational strategy Create value by transferring skills Create value by transferring skills

and products abroad. and products abroad.

Multidomestic strategyMultidomestic strategy Maximize local responsiveness by Maximize local responsiveness by

customizing products and marketing customizing products and marketing strategy for local markets.strategy for local markets.

Global strategyGlobal strategy Pursue low-cost status, offer standardized global products.Pursue low-cost status, offer standardized global products.

Transnational strategyTransnational strategy Use global learning to achieve low-cost status, differentiation, Use global learning to achieve low-cost status, differentiation,

and local responsiveness simultaneously.and local responsiveness simultaneously.


Four Basic StrategiesFour Basic Strategies

FIGURE 8.2


Cost Pressures and Pressures for Cost Pressures and Pressures for Local Responsiveness Facing Local Responsiveness Facing CaterpillarCaterpillar

FIGURE 8.3


The Advantages and Disadvantages of Different The Advantages and Disadvantages of Different Strategies for Competing GloballyStrategies for Competing Globally

StrategyStrategy AdvantagesAdvantages DisadvantagesDisadvantages

InternationalInternational • Transfer of distinctive competencies Transfer of distinctive competencies to foreign marketsto foreign markets

• Lack of local responsivenessLack of local responsiveness• Inability to realize location economiesInability to realize location economies• Failure to exploit experience-curve Failure to exploit experience-curve

effectseffects

MultidomesticMultidomestic • Ability to customize product offerings Ability to customize product offerings and marketing in accordance with and marketing in accordance with local responsivenesslocal responsiveness

• Inability to realize location economiesInability to realize location economies• Failure to exploit experience-curve Failure to exploit experience-curve

effectseffects• Failure to transfer distinctive Failure to transfer distinctive

competencies to foreign marketscompetencies to foreign markets

GlobalGlobal • Ability to exploit experience-curve Ability to exploit experience-curve effectseffects

• Ability to exploit location economiesAbility to exploit location economies

• Lack of local responsivenessLack of local responsiveness

TransnationalTransnational • Ability to exploit experience-curve Ability to exploit experience-curve effectseffects

• Ability to exploit location economiesAbility to exploit location economies• Ability to customize product offerings Ability to customize product offerings

and marketing in accordance with and marketing in accordance with local responsivenesslocal responsiveness

• Reaping benefits of global learningReaping benefits of global learning

• Difficulties in implementation because Difficulties in implementation because of organizational problemsof organizational problems

TABLE 8.1


Basic Entry DecisionsBasic Entry Decisions

Which foreign markets?Which foreign markets? Politically and financially stablePolitically and financially stable Developed and developing nationsDeveloped and developing nations Free market systemsFree market systems

Timing of entryTiming of entry Pioneering costs versus Pioneering costs versus

first-mover advantages.first-mover advantages.

Scale of entry and strategic commitmentsScale of entry and strategic commitments Scale of entry affects the nature of competition in the national Scale of entry affects the nature of competition in the national

market. Implications of risks and benefits must be weighed market. Implications of risks and benefits must be weighed carefully.carefully.


The Choice of Entry ModeThe Choice of Entry Mode

ExportingExporting

LicensingLicensing

FranchisingFranchising

Joint VenturesJoint Ventures

Wholly Owned SubsidiariesWholly Owned Subsidiaries

Distinctive Competencies and Entry ModeDistinctive Competencies and Entry Mode

Pressures for Cost Reduction and Entry ModePressures for Cost Reduction and Entry Mode


The Advantages and Disadvantages of Different The Advantages and Disadvantages of Different Entry ModesEntry Modes

Entry ModeEntry Mode AdvantagesAdvantages DisadvantagesDisadvantages

ExportingExporting • Ability to realize location and Ability to realize location and experience-curve economiesexperience-curve economies

• High transport costsHigh transport costs• Trade barriersTrade barriers• Problems with local marketing agentsProblems with local marketing agents

LicensingLicensing • Low development costs and risksLow development costs and risks • Inability to realize location and Inability to realize location and experience-curve economiesexperience-curve economies

• Inability to engage in global strategic Inability to engage in global strategic coordinationcoordination

• Lack of control over technologyLack of control over technology

FranchisingFranchising • Low development costs and risksLow development costs and risks • Inability to engage in global strategic Inability to engage in global strategic coordinationcoordination

• Lack of control over qualityLack of control over quality

Joint Joint venturesventures

• Access to local partner’s knowledgeAccess to local partner’s knowledge• Shared development costs and risksShared development costs and risks• Political dependencyPolitical dependency

• Inability to engage in global strategic Inability to engage in global strategic coordinationcoordination

• Inability to realize location and Inability to realize location and experience-curve economiesexperience-curve economies

• Lack of control over technologyLack of control over technology

Wholly owned Wholly owned subsidiariessubsidiaries

• Protection of technologyProtection of technology• Ability to engage in global strategic Ability to engage in global strategic

coordinationcoordination• Ability to realize location and Ability to realize location and

experience-curve economiesexperience-curve economies

• High costs and risksHigh costs and risks

TABLE 8.2


Global Strategic AlliancesGlobal Strategic Alliances

AdvantagesAdvantages Facilitate entry into foreign Facilitate entry into foreign

markets.markets. Enable partners to share Enable partners to share

fixed costs and risks fixed costs and risks associated with new associated with new products and processes.products and processes.

Facilitate transfer of Facilitate transfer of complementary skills complementary skills between companies.between companies.

Help establish Help establish technological standards.technological standards.

DisadvantagesDisadvantages Risk of giving away Risk of giving away

technological know-how.technological know-how. Risk of opening local Risk of opening local

market access to foreign market access to foreign alliance partner.alliance partner.

Risk of not getting Risk of not getting anything in return.anything in return.


Making Strategic Alliances WorkMaking Strategic Alliances Work

Partner selection when done well:Partner selection when done well: Helps the firm achieve Helps the firm achieve

its strategic goals.its strategic goals. Results in a commonly Results in a commonly

shared vision for the alliance.shared vision for the alliance. Reduces opportunistic Reduces opportunistic

behaviors by the partners.behaviors by the partners.


Structuring Alliances to Reduce Structuring Alliances to Reduce OpportunismOpportunism

FIGURE 8.4

“Walling off”


Managing the AllianceManaging the Alliance

Maximizing the benefits of an alliance:Maximizing the benefits of an alliance: Develop a sensitivity to cultural differences.Develop a sensitivity to cultural differences. Build interpersonal relationships and networks among Build interpersonal relationships and networks among

managers from different companies.managers from different companies. Learn from alliance Learn from alliance

partners and put the partners and put the knowledge to use in knowledge to use in the organization.the organization.

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Ch08.Ppt -Strategy in Global Environment