Traditional ways of doing business are rendered irrelevant in todays business environment because of the explosive large scale

globalization. There is need for managers to become global managers with a global mindset that is appropriately supported by relevant skills and knowledge. Globalization1 can be defined as a market situation where political borders are irrelevant, economic interdependencies are heightened and national differences resulting from societal cultures are the central issues of business. Todays global business managers are like the Old World Explorers, Magellan and Cook who navigated the great Pacific Ocean, facing brutal storms of shark-infested waters for days without any reliable chart to guide them. The global managers face the brutal storms of competitors, unknown frontiers of technology, endless seas of change in markets, customers and completely strange cultures. It is their responsibility to face the forces of change and the challenge of leading their business organizations into the new unmapped global marketplace. In order to succeed in the dynamic environment, the global manager needs a global mindset and experience in strategic management. Strategic planning is a management tool, period. As with any management tool, it is used for one purpose only: to help an organization do a better job - to focus its energy, to ensure that members of the organization are working toward the same goals, to assess and adjust the organization's direction in response to a changing environment. When a company adopts the globalization strategy it has to go with strategic planning. By strategic management the company first to analyze its external and internal condition, and then formulates strategy for globalization. After formulating the strategy the company implements it and evaluates the result. If the strategy formulation is appropriate the company gets benefit from globalization by entering new markets. This has the effect of increasing not only brand presence, but potential customers. Numerous are the reasons for going international and the most obvious ones are by far: economies of scales, bigger foreign market, escape from the domestic saturated market. When companies have their reasons for extending their business overseas, they have to determine the right strategy to enter the new foreign market, which is the hardiest work. The rapid globalization of business has resulted in the emergence of a new field, Global Strategic Management which is a blend of Strategic Management and International Business. Strategic Management is identifying and responding to opportunities and threats in the environment2. A global firm is organized and managed to take advantage of the opportunities across various country markets. The global firm has one global strategy, produces and or markets its products in many countries, offers standardized products in all country markets. It manufactures at any site, uses any plant sizes that minimizes delivery cost of products across its markets. It organizes itself in a way that facilitates efficient manufacture, marketing and distribution of its products.

1 2

according to Kedia & Mukherji (1999) (Wortzel, 1991)

18

Strategic Management Strategic Management is the process of determining an organizations basic mission and longterm objectives, then implementing a plan of action for pursuing the mission and attaining objectives. A set of managerial decisions and actions that determines the long-run performance of an organization purposes of Strategic Management. Companies with formal strategic management systems have higher financial returns than companies with no such system. Growing need for strategic management related to increasingly diversified operations in continuously changing international environment. Strategic Management Process Strategic management process has following four steps:
1. Environmental Scanning- Environmental scanning refers to a process of collecting,

scrutinizing and providing information for strategic purposes. It helps in analyzing the internal and external factors influencing an organization. After executing the environmental analysis process, management should evaluate it on a continuous basis and strive to improve it.

Figure 1.1: Strategic Management Process 2. Strategy Formulation- Strategy formulation is the process of deciding best course of action

for accomplishing organizational objectives and hence achieving organizational purpose. After conducting environment scanning, managers formulate corporate, business and functional strategies. Global strategy adopting tendency is lying in this step of Strategic management process
3. Strategy Implementation- Strategy implementation implies making the strategy work as

intended or putting the organizations chosen strategy into action. Strategy implementation includes designing the organizations structure, distributing resources, developing decision making process, and managing human resources.
4. Strategy Evaluation- The key strategy evaluation activities are: appraising internal and

external factors that are the root of present strategies, measuring performance, and taking

18

remedial/corrective actions. Evaluation makes sure that the organizational strategy as well as its implementation meets the organizational objectives. The Global and National Environments Global integration: Global integration is a strategy for production and distribution of products and services of a homogenous type and quality on a worldwide basis. National responsiveness: National responsiveness means need to understand different consumer tastes in segmented regional markets and responds to different national standards and regulations imposed by autonomous governments and agencies.

Figure: 2.13

The trend toward globalization has many implications:

global.

Source: Adapted from information in Christopher A. Bartlell and Sumantra Ghosal, Managing Across Border: The Transnational Solution, 2nd ed (Boston: Harvard Business School Press, 1998 )

18

2. The shift from national to global markets. This has intensified competition in industry after

industry.
3. Steady decline in barriers to cross-border trade and investment. This has opened up many

once protected markets to companies based outside of them.

18

National Competitive Advantage The nation-state within which a company is based may have an important bearing on the competitive position of that company in the global marketplace. Michhale Poter identified four attributes of a national or country-specific environment that have an important impact on the global competitiveness of companies located within that nation. Porters diamond: 1. Companies from a given nation are most likely to succeed in industries in which the four attributes are favorable. 2. The attributes form a mutually reinforcing system in which the affect of one attribute is dependent on the state of the others.

Figure: 2.24

The attributes of Porters diamond:

The cost and quality of factors of production are prime determinates of the competitive advantages that certain countries might have in certain industries. Basic factors of production are land, labor, capital, and raw material and advanced factors are technological, managerial, infrastructure
4

Source: Adapted from M.E. Porter, The Competitive Advantage of Nations, Harvard Business Review, March-April, 1990, p. 77.

18

2. Local Demand Conditions Home demand plays an important role in the impetus for upgrading competitive advantage. Companies are most sensitive to the needs of their closest customers. 3. Competitiveness of Related and Supporting Industries The spill-over benefits from investments by supporting industries 4. Intensity of Rivalry Different nations characterized by different management ideologies. Strong association between vigorous domestic rivalry and the creation and persistence of competitive advantage in an industry

18

Increasing Profitability and Profit Growth through Global Expansion Global expansion increases the size of the market that a company is addressing thereby boosting profit growth. Global expansion offer opportunities for reducing the cost structure of the enterprise or adding value through differentiation, thereby potentially boosting profitability. Expanding the market by leveraging products A company can increase its growth by taking goods or services developed at home and selling them internationally. For example- Microsoft has always focused on selling its software around the world. Automobile companies like Ford, Volkswagen and Toyota also grew by developing products at home and then selling them in international market. Utilizing the distinctive competencies that underlie the production and marketing. Thus Toyota's success is based on its distinctive competency in manufacturing automobiles and expanding internationally can be seen as a way of generating greater returns from this competency.
Cost economies from global volume

Economies of scale from additional sales volume can help a company realize cost savings. Economies of scale come from several sources-1. By spreading the fixed cost associated with developing a product and setting up production facilities over its global sales volume. 2. By serving a global market, a company can potentially utilize its production facilities more intensively, which leads to higher productivity, lower costs, and greater profitability. 3. Its bargaining power with suppliers increases, which may allow it to bargain down the cost of key inputs and boost profitability. In addition to the saving that comes from economies of scale, companies that sell to a global as opposed to a local marketplace may be able to realize further cost savings from learning effects.
Location economies

Economic benefits from performing a value creation activity in the optimal location. Locating a value creation activity in the optimal location has one of two effects: It can lower the value creation costs It can enable to differentiate product offering, which give the option of charging a premium price.

18

Thus, efforts to realize location economies are consistent with the business-level strategies of low cost and differentiation. At the same time, Clear vision is looking for opportunities to invest in foreign eyewear firms with reputations for fashionable design and high quality. Its objective is to launch a line of highquality, differentiated, designer eyewear. Some caveats introducing transportation costs and trade barriers. Factoring transportation costs and trade barriers into the cost equation helps to explain why many companies have been shifting their production To make location decisions, assessing political and economic risks are importance. Leveraging the skills of global subsidiaries Skills can be created anywhere within a multinational's global network of operations, where people have the opportunity and incentive to try new ways of doing things. The creation of skills that help to lower costs of production or to enhance perceived value and support higher product pricing is not the monopoly of the corporate center. Leveraging the skills created within subsidiaries and applying these skills to other operations within firms global network may create value. For the managers of a multinational enterprise, this phenomenon creates important new challenges1. They must have the humility to recognize that valuable skills can arise anywhere within the firm's global network, not just at the corporate center. 2. They must establish an incentive system that encourages local employees to acquire new competencies. The management must encourage employees to take the necessary risk and reward them for successes and not sanction them unnecessarily for taking risk. 3. Manager must have a process for identifying when valuable new skills have been created in a subsidiary. 4. They need to act as facilitators, helping to transfer valuable skills within the firm.

18

Pressures for Cost Reductions and Local Responsiveness Companies that compete in the global marketplace face competitive pressures for cost reductions and pressures to be locally responsive. These competitive pressures place conflicting demands on a company. 1. Responding to pressures for cost reductions demands that a company try to minimize its unit costs. To accomplish this, a company must base its activities at the most favorable low-cost location, wherever in the world that might be. It must also offer a standardized product to the global marketplace in order to ride down the experience curve as quickly as possible. 2. Reacting to pressures to be locally responsive requires a company to differentiate its product offering and marketing strategy from country to country. It must try to accommodate the diverse demands arising from national differences, which can lead to significant duplication and a lack of standardization, raising costs.

Figure: 2.3 (Pressures for Cost Reductions and Local Responsiveness)

Pressures for cost reductions arise from several sources Pressures for cost reductions are intense in industries producing commodity-type products that serve universal needs. For these products, differentiation on non-price factors is difficult and price is the main competitive weapon. Pressures for cost reductions are also strong in industries where major competitors are based in low-cost locations, where there is persistent excess capacity, and where consumers are powerful and face low switching costs.

18

Liberalization of the world trade and investment environment in recent decades has generally increased cost pressures by facilitating greater international competition. Pressures for local responsiveness arise from several sources 0One source of strong pressures for local responsiveness emerges when consumer tastes and preferences differ significantly between countries, for historic or cultural reasons. Products and marketing messages have to be customized for local tastes and preferences, leading to the delegation of production and marketing functions to national subsidiaries. Some observation are

Some observers claim that consumer demands for local customization are on the decline worldwide, because modern communications and transportation technologies have led to a convergence of tastes and preferences. The result is the emergence of enormous global markets for standardized consumer products. Other commentators have observed that in some industries, consumers have reacted to an overdose of standardized global products by showing a renewed preference for products that are differentiated to local conditions.

0Another source of pressures for local responsiveness emerges when there are differences in infrastructure and traditional practices between countries, creating a need to customize the product. This may necessitate the delegation of manufacturing and production functions to foreign subsidiaries. 0Pressures for local responsiveness may arise when a companys marketing strategies have to be responsive to differences in distribution channels between countries. This may necessitate the delegation of marketing functions to national subsidiaries. 0Economic and political demands imposed by host country governments may require a degree of local responsiveness.

18

Global Business Strategy A well-designed global strategy can help a firm to gain a competitive advantage. Global Business Strategy can be defined as the business strategies engaged by the businesses, companies or firms operating in a global business environment and serving consumers throughout the world. Global business strategies are closely related to the business developing strategies adopted by businesses to meet their short and long term objectives. Another way, Global Business strategies are a field of study effectively addressed by the interdisciplinary issues of marketing, organization theory, business strategy and international management and concentrates on maximizing the firm performance. It depends on choosing a global strategy that is apt for the set of circumstances facing each business. Reasons for Global Strategy Companys business strategy is balance the cost and differentiation (value). A Company can increase profitability through Global Expansion and can balance the cost. Expanding globally lets both large and small companies increase their profitability in a number of ways not available to purely domestic enterprises. By using global strategy firms produce standard products efficiently in large facilities, and use a standard marketing strategy. It has little or no national responsiveness. This strategy seeks to benefit from economies of scale in production, distribution, marketing, and purchasing. It also requires close coordination with headquarters. By this strategy production facilities are located where total costs of production, transportation, and tariffs are low (location economies). Global Strategy used when The need for cost reduction is high The need for national responsiveness is low

This strategy is used to compete on low prices. Firms that make commodity products (industrial chemicals, paper, etc.) often use global strategies. Basic Business Strategies: Companies typically choose among four main strategic postures when competing internationally. These four basic strategies are1. Global Strategy
2. International Strategy 3. Transnational Strategy 4. Multi-domestic/ Localization Strategy

18

Briefly these strategies areGlobal Strategy A global strategy is the strategy, which focuses on increasing profitability by reaping the cost reductions that come from experience-curve effects and location economies. Firms pursuing a global strategy are attempting to be cost leaders. 1. The production, marketing, and R&D activities of companies pursuing a global strategy are concentrated in a few favorable locations. 2. Global companies do not customize their products and marketing strategy to local conditions because customization raises costs. Instead, global companies market a standardized product worldwide so that they can reap the maximum benefits from the economies of scale that underlie the experience curve. 3. Global companies use their cost advantage to support aggressive pricing. 4. A global strategy makes most sense when there are strong pressures for cost reductions, but minimal demands for local responsiveness. These conditions prevail in many industrial goods industries, but are not as common in consumer goods. International Strategy One global strategy is the international strategy, in which a firm tries to create value by transferring valuable skills and products to foreign markets where indigenous competitors lack those skills and products. 1. International companies create value by transferring differentiated product offerings developed at home to new markets overseas. They centralize product development functions at home. 2. However, international companies also establish manufacturing and marketing functions in each major country. They undertake limited local customization of products and marketing strategy, but the head office retains tight control over these.
Pressures for cost reductions

H i g h L o w
Low High

18

Pressures for National reductions

Figure: 2.4 (Four global strategies)

18

Transnational Strategy Every one of the preceding strategies has some serious drawbacks. Increasingly, companies must be both low cost and differentiated in order to compete, especially in the intense rivalry found in industries with many multinational competitors. A transnational strategy allows companies to pursue both goals simultaneously. 1. A transnational strategy allows skills and products to flow in both directions between the home country and the foreign subsidiaries in a process referred to as global learning. 2. The transnational strategy makes sense when a company faces high pressures for cost reductions and high pressures for local responsiveness. However, this 0strategy is not an easy one to pursue, because pressures for local responsiveness and cost reductions place conflicting demands on a company. 3. To deal with cost pressures, companies can redesign their products to use identical components. Another tactic is to invest in a few large-scale manufacturing facilities sited at favorable locations and then augment those with assembly plants in each of its major markets, which allows for tailoring the finished product to local needs. Multi-domestic/ Localization strategy Another global strategy is the Localization strategy, in which a firm orients it-self toward achieving maximum local responsiveness. 1. Multi-domestic/Localization companies transfer skills and products developed at home to foreign markets, however, unlike international companies, they extensively customize both their product offering and their marketing strategy. 2. Multi-domestic/Localization firms also establish a complete set of value-creation activities in each major national market in which they do business. Multidomestic/Localization companies are unable to realize value from experience-curve effects and location economies, and therefore have a high cost structure and are unable to leverage distinctive competencies. 3. A multi-domestic/localization strategy makes sense when there are strong pressures for local responsiveness and weak pressures for cost reductions. 4. Another drawback of this strategy is that many multi-domestic/localization companies develop into decentralized federations in which each national subsidiary functions in a largely autonomous manner. They typically lack the ability to transfer local distinctive competencies to their worldwide subsidiaries. The Advantages and Disadvantages of Different Strategies for Competing Globally A firm contemplating expansion into foreign markets must confront decisions about which markets to enter, when to enter, and on what scale to enter. 1. The choice among different foreign markets must be made on the basis of an assessment of their long-run profit potential, balancing the benefits, costs, and risks associated with doing business in that country.

18

a) The long-run economic benefits of doing business in a country are a function of factors such as the number of buyers in a market, the purchasing power of buyers, and their likely future purchasing power. b) The benefit-cost risk-calculation is complicated by the fact that the potential longrun benefits bear little relationship to a nations current stage of economic development or political stability. Rather, they depend on likely future economic growth rates, which are a function of a free market system and a countrys capacity for growth, which may be greater in less-developed nations. c) One other factor is the value that international business can create in a foreign market, through offering a product that has been unavailable and that satisfies an unmet need.
2.

With regard to the timing of entry, we say that entry is early when an international business enters a foreign market before other foreign firms, and late when it enters after other international businesses have already established themselves. a) Several first-mover advantages are frequently associated with entering a market early. 1) One advantage is the ability to preempt rivals and capture demand by establishing a strong brand name. 2) Second advantage is the ability to build up sales volume, revenue, and market share in that country and ride down the experience curve ahead of rivals. 3) Third advantage is the ability of early entrants to create switching costs that tie customers into their products or services.
b)

There can also be disadvantages associated with entering a foreign market before other international businesses.0
1) 2) 3) 4) 5)

One disadvantage is pioneering costs, or costs that an early entrant has to bear but a later entrant can avoid. 0Pioneering costs arise when the business system in a foreign country is very different than in a firms home market. 0Pioneering costs also arise when the company makes strategic mistakes through ignorance. 0Another source of pioneering costs is the cost of educating customers about products with which they may be unfamiliar. 0Research shows evidence that the early mover advantages are outweighed by the disadvantages, in most cases. Therefore, it pays for companies to be late entrants into new foreign markets.

3. An international business also needs to decide on the scale of its entry into foreign market.

18

a)

0Entering a market on a large scale involves the commitment of significant resources to that venture. Smaller companies may not have the resources necessary to enter on a large scale. Even some large enterprises prefer to enter foreign markets on a small scale and then build their presence slowly over time as they become familiar with the foreign market in order to reduce risk.

18

b)

00A strategic commitment is a decision that has a long-term impact and is difficult to reverse. Deciding to enter a foreign market on a significant scale is a major strategic commitment. 0Strategic commitments, such as large-scale market entry, can have an important influence on the nature of competition in a market through signaling to competitors. 2) 0Large companies are more likely to have the resources necessary to successfully implement a strategic commitment to early entry than are small companies. 3) 0Small-scale entry is a way of gathering more information about a foreign market before making a large-scale strategic commitment, and therefore can reduce risk and increase the chances of entry success, although delay will also cause the company to lose any first-mover advantages.
1)

Although a transnational strategy appears to offer the most advantages, it should not be forgotten that implementing it raises difficult organizational issues. The appropriateness of each strategy depends on the relative strength of pressures for cost reductions and pressures for local responsiveness.

18

MTV- A Global Brand Goes Local MTV Networks has become a symbol of globalization. Established in 1981, U.S. based music TV network has been expending outside its North American base since 1987, when it opened MTV Europe. Now owned by media conglomerate Viacom, MTV Networks, which includes siblings Nickelodeon and VHI, the music station for the aging baby boomers, generates more than $2 billion in revenue outside the United States. Since 1987, MTV has become the most ubiquitous cable programmer in the world. By 2006, the network reached a combined total of 443 billion households, some 289 million of which were in 140 other countries. While the United States still leads in number of households, the most rapid growth is elsewhere, particularly in Asia, where nearly two-thirds of the regions 3 billion people are under age 35, the middle class is expending quickly, and TV ownership is spreading rapidly. MTV networks figures that every second of every day, over 2 million people are watching MTV around the world, the majority outside the United States. Despite its international success, MTVs global expansion got off to a weak start, In 1987, it piped a single feed across Europe composed almost entirely of American programming with English-speaking veejays. Naively, the networks U.S. managers thought Europeans would flock to the American programming. But while views in Europe shared a common interest in a handful of global superstars, who at the time included Madonna and Michael Jackson, their tastes turned out to be surprisingly local. What was popular in Germany might not be popular in Great Britain. Many staples of the American music scene left Europeans cold. MTV suffered as a result. Soon local copycat stations were springing up in Europe that focused on the music scene in individual countries. They took viewers and advertisers away from MTV. As explained by Tom Freston, the former chair of MTV Networks, We were going for the shallowest layer of what united viewers and brought them together. It didnt go over too well. In 1995, MTV changed its strategy and broke Europe into regional feeds, of which there are around 25, including feeds for the United Kingdom and Ireland, another for Germany, Austria and Switzerland, one for Italy, one for France, one for Spain, one for Holland, and one for Russia. The network adopted the same localization strategy elsewhere in the world. For example, in Asia, it has ten feeds-an English-Hindi channel for India, separate Mandarin feeds for china and Taiwan, a Korean feeds for South Korea, a Bahasa-language feed for Indonesia, a Japanese foe Japan, and so on. Digital and satellite technology have made the localization of programming chapter and easier. MTV network can now beam half a dozen feeds off one satellite transponder. While MTV Network exercises creative control over these different feeds, and while all the channels have the same familiar frenetic look and feel of MTV in the United States, significant share of the programming and content is now local. When MTV opens a local station now, it begins with expatriates from elsewhere in the world to do a gene transfer of company culture and operating principles. Once these are established, however, the network switches to local employees and the expatriates move on. The idea is to discover the taste of local population and produce programming that matches these tastes. Although many of the programming ideas still originate in the United States, with staples such as the real world having equivalent in different countries, as increasing share of programming is local in conception. In Italy, MTV kitchen

18

combines cooking with a music countdown. Erotica airs in brazil and features a panel of youngsters discussing sex. The Indian channel produces twenty-one home grown shoes hosted by local veejays who speak Hinglish , a city-bred breed of Hindi and English. Hit shows include MTV cricket in control, appropriate for a land where cricket is a national obsession; MTV houseful, which hones in on Hindi film stars (India has the biggest film industry outside Hollywood), and MTV Bakra, which is modeled after candid camera. This localization push reaped big benefits for MTV, allowing the network to capture viewers back from local imitators. In India, for example, ratings increased by more than 700% between 1996, when the localization helps MTV to capture more of those all-important advertising revenues, even from other multinationals such as Coca-Cola, whose own advertising budgets are often locally determined.

18

Opening Case SummaryMusic Television (MTV) MTV Networks is one of the most successful businesses at globalization. This case illustrates the way in which a firm that experienced success in its home country began the process of globalization. MTVs experience with globalization was hesitant and error-prone at first, but they learned from those experiences. We are now living in the era of Globalization. Now a days electronic media is one of the vital via of Globalization. It has brought the whole world in our drawing room. Now we have a lots of entertainment channel thought out the world. MTV is one of the most popular one. Music television (MTV) first start its January in 1987, north America. But now the network reached to the 443 million household in 140 countries. Statistics shows that every second 2 million people watching MTV around the world. At first the transmission of the channel was confined to the only Americans and some other countries on Europe, it caused a weak start for the channel as the choices, interests or culture varies from country to country. So the MTV Corporation changed their transmission policy. Local stations for individual countries were established. In 1995 MTV again changed its policy and it divides the total Europe into regional feeds. The network adopted the same localization strategy elsewhere in the world, for example Asia and china etc. The principles, values and are technologies are same for local station but the local employees are employed. MTV network can bear half a dozen feeds off one satellite transponder. Now MTV is not only confined its music but also cooking, sports etc. this channel is also a vital source for advertising various local as always multinational companies and striking the right balance between global standardization and local responsiveness let MTV reap big dividends, enabling the network to gain viewers and advertisers at the expense of competitors

18

Globalization presents both challenges and opportunities. Since the news media tends to focus on bad news, the average person only hears about the negative aspects of globalization. Certainly many effects of globalization that help consumers and businesses can be found, and while many scream about losing jobs, they certainly do not mind the cheaper products and services which result from globalization. The main goal of any global business strategy should be to manage the large differences that arise at the borders of markets. Yet executives often fail to exploit market and production discrepancies, focusing instead on the tensions between standardization and localization. The global strategic management is vital as the traditional way of doing business is becoming irrelevant for todays dynamic environment. It discusses the complexity of strategic planning process for MNCs, globalization drivers, and obstacles to progress. In order for firms that engage in global operations to succeed, the global managers need to develop global mindset, and understand global strategic management process. The managers should analyze their firms strengths and weaknesses, the opportunities and threats, the present situation of the firm and the desired situation. The organizational problem should be thoroughly defined. The best strategy should be selected after a thorough evaluation of available alternatives and using effective management control to see that the selected strategy is successfully implemented. Success requires interdependent collaboration, consensus, participative management and effective communication among managers with feedback.

18