MGMT 3031

BUSINESS STRATEGY & POLICY

LECTURE 6
Globalisation and International Business
Strategy

Prof. Dwayne Devonish

Objectives of the Lecture

• To identify and assess various global forces and factors
affecting business and their strategic orientations
• To identify different types of international strategies
and their benefits to the firm
• To identify and consider a range of risk factors
associated with going international and implications for
business strategies

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 TRENDS IN GLOBALISATION?

• Previously closed national economies are

opening up their markets to foreign
companies
• Importance of geographic distance is
shrinking due to the Internet
• Growth-minded companies are racing to
stake out positions in the markets of more
and more countries

What is the Motivation

for Competing Internationally?
Gain access to Obtain access to
new customers valuable natural
resources
Help
achieve
lower costs
Capitalize Spread
on resource business risk
strengths and across wider
competencies market base

2
 Cross-Country Differences in
Cultural, Demographic, and Market
Conditions
• Cultures and lifestyles differ among countries
• Differences in market demographics
• Variations in manufacturing and distribution
costs
• Fluctuating exchange rates
• Differences in host government trade policies

International and Global

Strategies
• Exporting • Alliances

• Licensing • Multidomestic

• Franchising • Global

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 Exporting Strategy
• Maintaining facilities within a home
country and transferring goods and services
abroad for sale in foreign markets
• Example: Bananas in St. Lucia to UK.

Licensing Strategy
• A firm (licensor) in one country giving
other domestic or foreign firms (licensees)
the right to use a patent, trademark,
technology, production process, or product
in return for the payment of a royalty or fee
• US and Canadian book publishers allow
translations
• Pepsi and Coca-Cola with bottle companies,
distributors

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 Franchising Strategy
• A parent organization (franchiser) granting
other companies or individuals (franchisees)
the right to use its trademarked name and to
produce and sell its goods or services
• McDonalds, Holiday Inn, Starbucks

Alliance Strategy
• Agreeing with other companies to pool
physical, financial, and human resources to
achieve common goals
• Chinese-foreign joint ventures

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5
 Reasons for Alliances
• Share and lower costs of • Desire to learn another
high risks, technology firms technology, or
advantages, benchmarking

• Lower costs by sharing the • Desire to participate in

large fixed-costs for evolution of competitive
manufacturing plants activity in growing global
industries

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Multidomestic Strategy
• Adjusting products, services, and practices
to individual countries or regions
• Customised offerings tailored to host
market/country
• E.g., Frito Lays and Campbell Foods
• Heinz products offered a different version
of their products that match local
preferences in India (no garlic and onion).

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6
 Global Strategy
• Stressing worldwide consistency,
standardization, and low relative cost
• Global strategies ensure that operations and
primary decisions are made at a central
headquarters in the home country. Its primary
trait is that business-level strategies are
constant across all markets.
• E.g.. Microsoft; Proctor and Gamble;

13

Political-Legal Forces affecting

International Movement and
Expansion
• Political Risk.

• Assessing Political Risk.

• Political Mechanisms.

14

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 Political Risk
• Political risk- the probability that political
decisions or events in a country will
negatively affect the long-term profitability
of an investment

15

Assessing Political Risk

Tools for Assessing

Domestic Foreign Poitical Climate Economic

Instability Conflict Climate

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8
 Domestic Instability
• Amount of subversion, revolution,
assassinations, guerrilla warfare, and
government crisis in a country.

17

Foreign Conflict
• Degree of hostility that one nation expresses
to others

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9
 Political Climate
• Likelihood that a government will swing to
the far left or far right politically

19

Economic Climate
• Reflects the extent of government control of
markets and financial investments, as well
as government support services and
capabilities.

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10
 Political Mechanisms
• Protectionism
• Tariff
• Quota
• Subsidy
• Cartel
• Bribery
• Extortion

21

Protectionism

• Covers the many mechanisms designed to

help a home-based industry or firms avoid
(or reduce) potential/actual competitive or
political threats from abroad.

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 Tariff
• A government tax on goods and services
entering the country

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Quota
• A restriction on the quantity of a country’s
imports (or sometimes on its exports).

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 Subsidy
• A direct or indirect payment by a
government to its country’s firms to make
selling or investing abroad cheaper for
them- thus more profitable.

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Cartel
• An alliance of producers engaged in the
same type of business, formed to limit or
eliminate competition and control
production and prices

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 Bribery
• An improper payment made to induce the
recipient to do something for the payer.

27

Extortion
• Payment made to ensure that the recipient
doesn’t harm the payer in some way.

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14
 Grease Payments
• Small payments- almost gratuities- used to
get lower-level government employees to
speed up required paperwork.

29

How Markets Differ from

Country to Country
• Consumer tastes and preferences
• Consumer buying habits
• Market size and growth potential
• Distribution channels
• Driving forces
• Competitive pressures

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15
 Coordinating Cross-Border Activities to
Build a Global Competitive Advantage

• Aligning activities located in different

countries contributes to competitive advantage
in several ways:
– Choose where and how to challenge rivals
– Shift production from one location to another
– Enhance brand reputation

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What Are Profit Sanctuaries?

• Profit sanctuaries are country markets where
a firm
– Has a strong or protected market position and
– Derives substantial profits
• Generally, a firm’s most strategically crucial
profit sanctuary is its home market

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 GLOBAL STRATEGY
EXAMPLES
• https://www.youtube.com/watch?v=c-KKy-
03O5A
• https://www.youtube.com/watch?v=Uu-
Ol78lCi0

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