Chapter 7

Global Strategy:
Harnessing New Markets
by Robert Pitts
& David Lei

Slides prepared by
John P. Orr
Webster University
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-1
 What you will learn…
Slide 1 of 2
• Why companies need to develop
strategies to expand across national
borders
• The key environmental factors that
promote the need to expand into
overseas markets
• The two basic strategies used for
expanding overseas:
– Global
– Multidomestic

Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-2
 What you will learn…
Slide 2 of 2

• Balancing the benefits and costs

of overseas expansion
• How companies can continue
to grow by becoming
global players

Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-3
 Global Strategy: Introduction
• Globalization
– Viewing the world as a single market for the
firm;
– The process by which the firm expands
across different regions and national
markets.
• Industry-Level View of Globalization
– Changes in economic factors, such as
economies of scale, experience, and R&D,
which make competing on a worldwide basis
a necessity.
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-4
 Strategic
Snapshot
Building Global
Capabilities at Nokia
• Digital, wireless and
broadband
• Strategy: Low-cost producer
• Narrowing of product lines
• Partnership plant in China
• Digital innovation and 3G
• Globalized R&D efforts
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-5
Exhibit 7-1
Factors Promoting
the Globalization of Markets
• Narrowing of demand characteristics
• Escalating costs of R&D
• Cost reduction pressures and R&D
• Government industrial policies
• Reduction of factor costs (e.g., labor, capital)
• Rise of new distribution channels
• Reduction of transportation, communication,
and storage costs
• Internet access
• Reduction of tariffs worldwide
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-6
Exhibit 7-2A Examples of
Growing Homogeneity of Demand
• Communications equipment
• Cellular phones
• Sony Walkmans
• Levi’s jeans
• Commercial banking
• Financial services
• Color televisions and VCRs
• Semiconductors

Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-7
Exhibit 7-2B Examples of
Growing Homogeneity of Demand
• Machine tools
• Computers
• Pharmaceuticals
• Construction equipment
• Commercial aircraft
• Hollywood films
• Television shows
• Data and computer networks
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-8
Exhibit 7-3A

Examples of R&D Intensive Industries

• Semiconductors
• Software
• Biotechnology
• Communications systems
• Pharmaceuticals
• Commercial aircraft
• Electronics
• Composite materials
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-9
Exhibit 7-3B

Examples of R&D Intensive Industries

• Advanced imaging systems
• Medical equipment
• Fiber optics

Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-10
Exhibit 7-4
Rising Economies
of Scale/ Cost Pressures
• Steel
• Automobile engines
• Color television tubes
• Semiconductors
• Fiber optics
• Office equipment
• Telecommunications
• Aircraft
• Chemicals
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-11
 Strategic
Competency in action
Creating Distinctive Value:
China’s TCL
• Shifting to top-tier products
• Purchasing Thomson’s plants
• Manufacturing capability +
economics of scale
• Chairman Li pushes free-market model
• Overcoming value-chain gaps

Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-12
Exhibit 7-5
Government Initiatives
to Promote Industrial Development

Sematech
(semiconductors)
US

Steel, Computers, Autos,

Artificial Intelligence,
Advanced Materials,
Japan Aerospace

Semiconductors, Aerospace,
Automobiles, Advanced
Lasers, Optics
EU
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-13
Exhibit 7-6A

Examples of Declining Costs

Transport Costs
• Containerization
• Intermodal shipping/rail
• Air freight
Communication Costs
• More global long distance carriers
• Better ways to transmit voice, video data
• Internet access

Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-14
Exhibit 7-6B

Examples of Declining Costs

Storage Costs
• Refrigeration
• Just-in-time inventory
• Reduction of perishability
• Supply chain management
• Virtual production/design

Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-15
Exhibit 7-7
Global Strategy of Expansion

HQ
HQ

• Systemwide approach to competing worldwide

• Mutually interdependent subsidiaries
• Centralized control and reporting of activities
• Facilitates cross-subsidization policies across markets
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-16
Exhibit 7-8

Characteristics of a Global Strategy

• Standard products
• Global economies of scale in key
components and activities
• Leverage technology across many
markets
• Global coordination of marketing and
sales systemwide
• Cross-subsidization policies to
respond to competitive moves by other
global strategy firms
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-17
 Exhibit 7-9

Multidomestic Strategy of Expansion

HQ
HQ

• Competitive advantage is built in each separate national or regional market.

• Markets and subunits are treated independently from one another.
• Decentralized controls of activities, reporting back to headquarters.

Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-18
Exhibit 7-10
Characteristics
of a Multidomestic Strategy
• Customization or frequent adaptation
of products for each separate market
• Few systemwide opportunities for
economies of scale
• Value-adding activities performed and
duplicated in each market
• Coordination of marketing and sales
within each market
• Quality and image across markets are
important sources of competitive
advantage
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-19
Exhibit 7-11

Benefits of Global Expansion

• Market growth and expansion
opportunities
• Recovery of R&D and investment costs
• Creation of a distinct image
• Accelerated learning and
transfer of new skills

Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-20
Exhibit 7-12A
Costs
Associated with Global Expansion

Costs of Strategic Leverage

• Sustained investment required
• Preserving and extending image
Costs of Flexibility
• High interdependence of subsidiaries
(and businesses)
• Change or development affecting all
markets
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-21
Exhibit 7-12B
Costs
Associated with Global Expansion

Costs of Cooperation
• Compromise
• Accountability

Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-22
 Balancing Global & Multidomestic

Ford 2000 global

product teams
• Small car
• Midsized car
• Luxury car
• SUV
• Commercial truck

Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-23
 Balancing Global & Multidomestic

Personal care products

• P&G uses blended strategy
• Bausch & Lomb pursues
regional gains

Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-24
 Ethics: Global Concerns
Scandals with global reach
• Lloyd’s of London embezzlement
• French, German stock market
fraud
• Japanese business, political
scandals

Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-25
 Ethics: Global Concerns
Varying approaches to ethics
• Individual views strongly shape
ethics of U.S. workers
• Asian workers seen as ‘industrial
soldiers’
• U.S. enacts Foreign
Corrupt Practices Act

Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7-26