Globalization

Mode of Entry & Strategies

1 Surana college P G centre 12/08/21

1. Globalization
Globalization
Globalization is the process of international integration of
Products
Technology
Human Resources
Capital
Information and
Culture

3 Surana college P G centre 12/08/21

Globalization – definition
 Globalization refers to the process of integration of
the world into one huge market.
 Characteristics
1. It’s a conglomerate of gathering multiple units
(located in different parts of the globe) but all linked
by common ownership.
2. Multiple units draw a common pool of resources
such as money, information's, trade names etc
3. Common strategy
 Why Globalization?
• Trade and investment barriers are disappearing
• Perceived distances are shrinking due to advances
in transportation and telecommunications
• Material culture is beginning to look similar
• National economies merging into an
interdependent global economic system
 What is “Globalization”?

Markets
The shift toward
a more integrated
and
interdependent
world economy Production
 Approaches to International Business
Ethnocentric approach – home country is superior –
export the surplus of domestic markets – policies &
procedures employed at home country are followed at
for other countries too – home country people manage
the affairs.
Polycentric approach – each host country is unique and
adopt different strategies – company establishes a
foreign subsidiary and delegates all the responsibilities
– people from host country manage their affairs.
 Approaches to International Business
Reginocentric approach – country after the success in
the host country starts exporting to near by countries –
formulates policies keeping the host nations regional
environment into consideration – people from different
regions manage the affairs.
Geocentric approach – entire globe as one –
employees across the globe represent the company –
each country has a subsidiary & the headquarter co-
ordinates the activities – policies & strategies are made
independently.
Globalization – In India
Primarily with the announcement of the New
Economic Policy in July 1991
Liberalization of rules for FDI’s and for MNC’s
Allowing FII’s to participate in country’s capital
markets
Allowing Indian companies to raise capital abroad
Liberalizing Industrial policies
Strengthening of foreign trade infrastructure
Foreign Market Entry Strategies
1.Exporting
 Most traditional way of entering a market.
 Sometimes goods are manufactured at a different
location and then exported to other countries using this
mode. (using cheaper FOP)
 Exporting is preferred when,
a) The volume of business is not large enough to justify
production in the foreign market
b) Cost or factor of production is high in the foreign market
c) Foreign market is characterized by production problems
like infrastructure problems and lack of resources
d) No company is ready is to start a business in that
particular country
Exporting contd.,
 Disadvantages :
1. Policies of some foreign countries does not
permit exports. So production in the foreign
country is the only option.
2. Cost factor may force a company to start
production or assembly in a foreign nation.
3. Exporting needs a constant change in strategies
to sustain in the international market.
4. Bulk items cannot be exported due to cost factor.
Under these circumstances they are
manufactured regionally. Ex Chemicals
Types of Exports
Direct Exporting

Indirect Exporting : Exporting through a third party

Intra- corporate Transfers : Selling of a product by a

company to its affiliated company
Ex HUL to Unilever
Where is trading easy? where not?
 Easiest  Most difficult
1. Singapore 174 Uzbekistan
2. Hong Kong 175 Burundi
3. Estonia 176 Burkina Faso
4. Finland 177 Azerbaijan
5. UAE 178 Congo rep
6. Denmark 179 Tajikistan
7. Sweden 180 Iraq
8. Korea 181 Central African republic
9. Norway 182 Kazakhstan
10. Panama 183 Afghanistan
Trade Barriers – case study

Textile Business – India Vs China

Dumping – US trade policy – quantitative barriers
2. Licensing & Franchising
Licensing  Franchising
licensor (one country)  A form of licensing
permits licensee where a parent
(another country) to use company (franchiser)
its intellectual property grants another
rights such as patent, independent entity
trade marks, copyrights, (franchisee) the right
technology, marketing to do business in a
skill etc for a royalty or prescribed manner.
fee. Ex Xerox & Fuji  By service firms
Photo
By manufacturing firms
 Advantages
& Disadvantages
 FRANCHISING
 LICENSING
 All the advantages of
 It doesn’t require capital investment,
knowledge of the foreign market and licensing applies to
marketing strength. franchising, since the
 Licensee takes care of everything. franchisor invests & takes
care of the operations.
 Licensing helps where the host
 One major drawback of
country regulations are very strict
towards imports. franchising is quality control.
 The only disadvantage is that the
The geographical distance
makes difficult to detect
licensee might become a potential
quality defects. Subsidiary –
competitor after the expiry of the
license agmt., Ex Japanese Cars in the best option to keep a check.
US  Ex Mc Donalds
Basic Issues in International Licensing

Boundaries of the agreement – Ex Pepsi Cola

Determination of Royalty – Ex Hero Honda

Determining Rights, privileges & constraints

Dispute settlement mechanism

Agreement Duration
 3. Management Contracting
In a management contract the supplier bring together a
package of skill that will provide an integrated service to
the client without incurring the risk and benefit of
ownership.
One company provides managerial assistance, technical
expertise & specialized service for a certain agreed period
in return for monetary compensation.
Mostly due to Governmental Intervention

Ex Consultancy business

4. Turnkey contracts
It is an agreement by the seller to supply a buyer with
a facility fully equipped and ready to be operated by
the buyer’s personnel, who will be trained by the
seller.
Many turnkey contracts involve government/public
sector as buyer.
Ex BOT model, Oil Exploration etc
Turnkey Projects
Advantages  Disadvantages
Technical know-how is  No significant returns in
an asset. Turkey projects these kind of projects
help in getting rich though they are big ticket
returns from these assignments.
 Turn key projects may
assets.
Advantageous when
lead to potential
competition in the host
FDI’s are not permitted nation due to sharing of
by host nation. technical know-how
5. Contract Manufacturing
Some companies outsource their part of or entire
production and concentrate on Marketing operations.
Also called as Contract Outsourcing
Ex Nike – contracts out to South-east Asia
Ex BPO – long term contracting out of non-core
business processes
Contract Manufacturing
Advantages Disadvantages
International business can Failure due to Quality
focus on the part of the problems, design problems
value chain where it has & adherence to production
distinctive competence standards
Reduced cost of production Host country’s companies
International company gets may take up marketing
the Locational advantages activities also, hindering the
Contributes to the host interest of the international
country’s production units company
Ethical issues – Ex Foxconn,
China – affects the public
image
6. Assembly Operations
It’s a cross between exporting & overseas
manufacturing.
Produce in the domestic market using domestic
components and assemble them at foreign market
using cheap labour.

Ex Automobile Manufacturing, Laptops etc

7. Third Country Location
When there is a political deadlock between two
nations, trade can be made possible by operating from
a third nation.
This is purely used as an entry strategy.

Ex Taiwanese Companies entering china from Hong

Kong ( Base)
8. Joint Ventures
Establishing a firm where two or more independent
firms jointly hold a share.
They jointly share ownership, stake and operating
controls through their team of managers.
Typically the share between the firms vary.
Sometimes firms have sought JV’s where they have
majority share & tighter control.
Advantages & Disadvantages
 Advantages
 Firm benefits from the
local market knowledge &
marketing channel that the
JV partner holds.
 Reduces the burden on
capital investment.
 Political interference will
be less for JV’s since host
nation firm is also
involved.
 Spread the risk between
partners.
 Disadvantages
 Loss of control over
technological competence
to the JV partner.
 Bargaining power of the
partner always leads to the
dissolution of the JV firm.
 Decision making is
slowed down due to the
presence of many parties.
Points to Remember……JV
Protect companies core business through legal means,
such as unassailable patents; If this is not possible, don’t
let the partner learn your methods.
Joint enterprise must fit the corporate strategy of both
parents, if this is not he case, there will inevitably be
conflicts.
Keep the mission of the joint enterprise small and well
defined, ensure that it does not compete with the parents.
Give the JV autonomy to function on its own and set up
mechanisms to monitor its results.
9. Mergers & Acquisitions
Merger = A + B = AB
Acquisition = A(B) = A or C
Very important market strategy as well as expansion
strategy.
It provides instant access to markets and distribution
network.
Main advantage of M&A is distribution and access to
new technology.
M&A
Advantages Disadvantages
The company Complex task –
immediately gets the involving bankers.
ownership & control Lawyers, regulations etc
over the acquired firm’s Adds no capacity to the
assets. industry.
Host country imposes
restrictions on
acquisition of local
companies.
10. Strategic Alliance
Strategy to enhance long-term competitive advantage
Forming alliance with existing or potential competitors
in critical areas, instead of competing with each other.
Goals are market access and technological changes.
Collaboration between competitors is fashionable in
recent decades. Ex Bharti-Idea
Types of Alliance
Production alliances

Marketing alliances

Financial alliances

R&D alliances
Questions…if any??!!!
Global Strategic Management
Global Corporation
 Global Corporation produces in home country or in a
single country and focuses on marketing these
products globally or produces the products globally
and focuses on marketing these products domestically.
 For example: a USA company produces globally in
various countries and market in the domestic market i.e.,
the USA market.
International Corporation
International Corporation (IC) conducts the operations
(exporting, producing etc.) in one or more foreign
countries, but with domestic orientation.
This company believes that the practices adopted in
domestic business, the people and products of
domestic business are superior to those of other
countries.
This company extends the domestic product, domestic
price, promotion and other business practices to the
foreign markets.
Multinational Corporation
Multinational Corporation responds to the specific
needs of the different country markets regarding
product, price and promotion.
Thus MNC operates in more than one country, but
operates like a domestic company of the country
concerned.
Transnational Corporation
Transnational Corporation produces, markets, invests
and operates across the world.
 Characteristics of MNCs
MNCs should respond to the significant environmental
forces of both home country and host country.
MNCs draw more or less the same resources both at the
home country and host country.
The subsidiaries and headquarters of MNCs are linked by
a common vision and mission. However, each subsidiary
of MNCs formulates their strategies.
MNCs prefer to relocate their operations in various
countries based on low wage rates, low transportation
costs, closeness to suppliers of raw materials.
Why companies becoming Multinationals?
To protect themselves from the uncertainties and risks
of business cycles political policies and social
uncertainties of the domestic country.
To increase market share
To reduce manufacturing costs
To overcome tariffs
To have technological advantage
Factors contributed for the growth of MNCs
Expansion of Market Territory
Market superiorities
Financial Superiorities
Technological Superiorities
Product Innovation
 Advantages of MNCs to The Host Countries
 Increases economic activity
 Increases industrial activity
 Increases employment and
income levels
 Domestic industry gets the
latest technology
 Domestic industry gets
sophisticated management
techniques
 Domestic input suppliers get
more business
 Improves the competitive
ability of domestic business
due to competition
 Domestic business uses
outcome of MNC’s R&D
efforts
 Advantages of foreign culture
through cultural transformation
 Reduction of imports and
favourable effect on balance of
payments.
 Disadvantages of MNCs to The Host
Countries
 Technology developed by the
MNCs may not suit the needs
of host country.
 MNCs may not operate within
national autonomy and
sovereignty.
 Monopolistic practices of
MNCs may kill the domestic
industry.
 MNCs may adopt ethnocentric
in staffing.
 MNCs may use the natural
resources of the host country
indiscriminately.
 MNCs normally concentrate on
consumer goods but not capital
goods and infrastructure in host
country.
 MNCs may distort the economic
structure of the host countries.
 MNCs may interfere in the
political activities of the host
countries.
 MNCs normally provide the out
dated technology to the host
country industry.
 Pollutes the environment of the
host countries.
 Advantages Of MNCs to the Home Countries
 Crete the demand for the home
 Produce the products required
country products.
 Boost up the industrial activity
by the domestic consumers in
foreign countries with foreign
of the home country.
resources.
 Create employment for home
 Saves the domestic country
country people.
 Optimum utilization of natural from environmental pollution.
resources and conservation the  Get the customers / users for
country’s scarce resources the country’s out-dated
technology.
 Disadvantages Of MNCs to the Home
Countries
 Transfer capital to other
countries and cause
unfavourable balance of
payments.
 May neglect the industrial
development of the home
country as the transnational
companies follow the secular
approach.
 May cause erosion of the
domestic culture.
May not create
employment opportunities
to domestic people by
following geocentric or
outsourcing business
operations in various
countries like USA
software companies
outsourcing business
operations in India.
Organization structure of MNCs
Steps in designing organizational structure
The first step in organization design is analysis of the
present and future circumstances and environmental
factors.
The next stage deals with detailed planning and
implementation.
Organization analysis is the basis for organization
design and is the process of defining aims, objectives,
activities and structure of an enterprise.
Organizations of MNCs
MNCs can be designed based on two options
 Vertical / tall organizations
 Horizontal / flat organizations
 Vertical / Tall Organizations
Vertical / tall organizations refer to increase in the length
of the organization’s hierarchy chain of command.
The hierarchical chain of command represents the
company’s authority – accountability relationship between
superiors and subordinates.
Authority and responsibility flow from the top to the
bottom through all the levels of the hierarchy.
Accountability flows from the lowest level to the highest
level.
Authority is more centralized in tall organization.
 Horizontal / Flat Organizations
Horizontal / flat organizations refer to an increase in
breadth of an organization’s structure.
Authority is more decentralized in relatively flat
structures.
Decisions are more likely to be made by the employees
who are at the helm of affairs and more familiar with the
situations and ground realities.
Organizational activities are mostly performed informally.
Approaches to organization structure of
MNCs
 Product organization structure
 Geographical organization structure
 Decentralized business divisions
 Strategic business units
 Matrix organizational structure
 Team organizational structure
 Virtual organizational structure
 Product organization structure

Managing Director
Head Office Support
Department
Product Divisions

Product A Product B Product C Product D Product E

Geographical organization structure
Managing Director

Headquarters Managers: Production, Marketing, Finance,

Human Resources and Research and Development

Africa Asia Europe North America South America

Subsidiary Unit Manufacturing Sales

Decentralized business divisions

Managing Director

Headquarters Managers: Production, Marketing, Finance, Human

Resources and Research and Development

Chief Manager Chief Manager Chief Manager

Business X Business Y Business Z

Product A Product B Product C Product D

Marketing Finance Production Human Resources Manager

Manager Manager Manager Manager R& D
Strategic business units
Managing
Director
Marketing
Finance
Headquarters, Production
Human Resource
Level Managers Research & Development

Group Manager Group Manager Group Manager

SBU I SBU II SBU III

Strategically Strategically Strategically

Related Business Related Business Related Business
Unit Unit Unit
Matrix organizational structure
Managing Director

General Manager

Headquarter Headquarter Headquarter Headquarter Headquarter

Manager Manager Manager Manager Manager
Human Finance Production Marketing Research &
Development

Project HR Finance Production Marketing R&D

Manager Specialists Specialists Specialists Specialists Specialists
Country A

HR Finance Production Marketing R&D

Project
Specialists Specialists Specialists Specialists Specialists
Manager
Country B

Project HR Finance Production Marketing R&D

Manager Specialists Specialists Specialists Specialists Specialists
Country C
Team organizational structure
Strategies of business are not always static.
They go on changing depending upon internal and
external environmental factors.
Hence, a single type of organizational structure is not
suitable for all times and all situations.
Team organizational structure
 Team structure taken three forms
 Project Team
 The Task Force Team
 The Venture Team
Strategic Planning
Strategic Planning is Long-term impact of decisions
Strategic Business Planning is a process
Strategic Planning is a philosophy
Strategic Planning gives structure
Strategic Planning
 Levels of Strategic Planning
 Corporate-level Strategic Planning
 Business-level Strategic Planning
 Functional-level Strategic Planning
Questions….if any??!!!