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.
Porters 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 Porters 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) & dont
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 subsidiarys 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