CHAPTER 8

STRATEGY IN THE GLOBAL ENVIRONMENT

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GLOBALIZATION OF PRODUCTION AND
MARKETS
 Globalization of production and markets
 Increased as companies took advantage of lower
barriers to international trade and investment
 National markets started merging into one global
marketplace
 Implications
 Companies are finding home markets inundated by
foreign competitors
 Critical to maximize efficiency, quality, customer
responsiveness, and innovative ability

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NATIONAL COMPETITIVE ADVANTAGE

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ATTRIBUTES THAT DETERMINE THE NATIONAL
COMPETITIVE ADVANTAGE IN A GLOBAL
MARKET
1.Factor endowments: Factor endowments refer to a nation's position in
factors of production necessary to compete in an industry. This can include
factors such as natural resources, skilled labor, and capital.
2.Local demand conditions: Local demand conditions refer to the nature of
home demand for the industry's product or service. This can include factors
such as consumer preferences, market size, and the level of sophistication
of local customers.
3.Related and supporting industries: The presence or absence of supplier
and related industries that are internationally competitive can also impact a
nation's competitive advantage. A strong ecosystem of related industries
can help to support and strengthen a particular industry, while a lack of
supporting industries can be a significant barrier to entry.
4.Firm strategy, structure, and rivalry: Conditions in the nation governing
how companies are created, organized, and managed, as well as the nature
of domestic rivalry, can also impact a nation's competitive advantage. A
strong and competitive domestic environment can help to spur innovation
and improve the overall quality of products and services.

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EXPANDING THE MARKET:
LEVERAGING PRODUCTS
 A company can sell goods, developed at home, internationally to increase its
growth rate
 Multinational company: Does business in two or more national markets
 Success depends on the distinctive competencies that underlie its production
and marketing process
Expanding into international markets is one way for companies to leverage their
products and increase their growth rate. Multinational companies are those that
do business in two or more national markets, and their success depends on their
distinctive competencies that underlie their production and marketing
processes. These competencies can include factors such as technology,
marketing expertise, or specialized knowledge of a particular industry. By
leveraging these competencies, multinational companies can enter new markets
and compete effectively against local competitors. However, they must also be
mindful of the unique challenges associated with doing business in different
cultures and regulatory environments, and adapt their strategies accordingly.
Overall, expanding into international markets can be a key driver of growth and
success for companies with the right competencies and strategies.

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REALIZING COST ECONOMIES FROM
GLOBAL VOLUME
 A company can realize cost savings from economies of scale by:
 Spreading the fixed costs and setting up production facilities over its global sales
volume
 Serving a global market, a company utilizes its production facilities more
intensively
 Bargaining down the cost of key inputs with suppliers
 Increasing its sales volume more rapidly
A company can realize cost savings from economies of scale by spreading fixed
costs and setting up production facilities over its global sales volume. By serving
a global market, a company can also utilize its production facilities more
intensively, which can help to further reduce costs. Additionally, companies can
bargain down the cost of key inputs with suppliers and increase their sales volume
more rapidly, which can help to further drive down costs and increase profitability.
However, it's important for companies to carefully balance the benefits of global
volume with the unique challenges and risks associated with doing business in
different markets around the world. By carefully managing these factors,
companies can maximize their cost savings and drive long-term growth and
profitability. 7
LOCATION ECONOMIES
 Economic benefits that arise from performing a value creation activity in an optimal location
 Help a company:
 Achieve a low-cost position
 To differentiate its product offering
 To gain competitive advantage over rivals who base all their value creation activities at a
single location
 Transportation costs and trade barriers complicate the process of realizing location
economies
Location economies refer to the economic benefits that arise from performing a value
creation activity in an optimal location. By leveraging location economies, companies can
achieve a low-cost position, differentiate their product offering, and gain a competitive
advantage over rivals who base all their value creation activities at a single location.
However, realizing location economies can be complicated by factors such as transportation
costs and trade barriers. For example, if a company needs to transport goods or materials
across long distances, it may face higher costs and logistical challenges that can limit its
ability to realize location economies. Similarly, trade barriers such as tariffs or quotas can
make it more difficult for companies to operate in certain locations, which can limit their
ability to leverage location economies. Overall, location economies can be a powerful driver
of growth and competitiveness for companies, but must be carefully managed and balanced
against other factors such as logistics, supply chain management, and regulatory compliance.

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LEVERAGING THE SKILLS OF GLOBAL SUBSIDIARIES

 Leveraging the skills of global subsidiaries can be a powerful way for companies to enhance
their competitive advantage and drive growth. However, it requires a proactive and strategic
approach from managers, who must:
1. Recognize the value of skills across the entire organization: Managers must recognize that
valuable skills can arise anywhere within a firm's global network, and should be open to
exploring new ideas and insights from subsidiaries and other units.
2. Establish an incentive system that encourages local employees to acquire new competencies:
In order to encourage employees to acquire new skills and competencies, managers must
establish an incentive system that rewards learning and development. This might include
offering training opportunities, promoting from within, or providing other forms of
recognition and support.
3. Have a process for identifying valuable new skills created in a subsidiary: Managers must
have a process for identifying and evaluating new skills and competencies that emerge in
subsidiaries and other parts of the organization. This might involve regular performance
reviews, feedback sessions, or other forms of evaluation.
4. Help transfer valuable skills within the firm: Finally, managers must be proactive in helping
to transfer valuable skills and competencies throughout the organization. This might involve
providing training and development opportunities, fostering cross-functional collaboration, or
establishing knowledge-sharing platforms and systems.
 By leveraging the skills of global subsidiaries, companies can enhance their overall
competitiveness and drive growth in new markets and industries. However, it requires a
strategic and collaborative approach from managers and employees across the organization. 9
PRESSURES FOR COST REDUCTIONS
 To respond to them, a firm must try to lower the costs of value creation
 Pressures are intense:
 In industries producing commodity-type products
 For products that serve universal needs
1. When major competitors are based in low-cost locations, there is excess capacity, and
consumers face low switching costs
Competition from low-cost producers: Companies may face intense pressure to reduce costs
if they are competing against low-cost producers in other parts of the world. This can be
particularly challenging in industries with excess capacity and low barriers to entry, where
competitors may be able to undercut prices and win market share.
2. Consumer demand for low prices: In industries producing commodity-type products or
products that serve universal needs, consumers may be highly price-sensitive and demand
low prices. This can put pressure on companies to reduce costs in order to remain
competitive.
3. Technological advances: Advances in technology can sometimes enable companies to
produce goods more efficiently and at a lower cost. However, this can also create pressure for
companies to adopt new technologies and production methods in order to remain
competitive.

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PRESSURES FOR LOCAL RESPONSIVENESS
 To respond to them, a firm must differentiate its products and marketing strategy from country to country
 Raises a company’s cost structure
 Occurs as a result of:
 Differences in customer tastes and preferences
 Differences in distribution channels
1. Host government demands
Differences in customer tastes and preferences: Customers in different regions of the world may have
different preferences and expectations when it comes to product design, features, and functionality.
Companies may need to customize their products and marketing strategies in order to appeal to local
customers and stay competitive.
2. Differences in distribution channels: Distribution channels can vary significantly from country to country,
and companies may need to adapt their sales and distribution strategies in order to effectively reach local
customers.
3. Host government demands: Governments in different countries may have different regulations, standards,
and requirements that can impact how companies operate in local markets. Companies may need to adapt
their products, marketing strategies, or business practices in order to comply with local regulations and
meet customer expectations.
 In order to respond to these pressures for local responsiveness, companies may need to differentiate their
products and marketing strategies from country to country. This can involve customizing products,
developing targeted marketing campaigns, or adapting distribution channels to local market conditions.
However, these strategies can also raise a company's cost structure, as it may require additional
investments in research and development, marketing, or local operations. As a result, companies need to
carefully balance the need for local responsiveness with the need to maintain cost competitiveness in
global markets.
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FOUR BASIC STRATEGIES

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 GLOBAL STANDARDIZATION STRATEGY
 Business model based on pursuing a low-cost strategy on a global scale
 Companies market a standardized product worldwide to reap maximum benefit from economies of scale
 Most appropriate when:
 Pressures for cost reductions are strong
 Demand for local responsiveness is minimal
 E.g., Intel.
A global standardization strategy involves pursuing a low-cost strategy on a global scale by marketing a standardized
product worldwide to reap maximum benefit from economies of scale. This approach can be most appropriate when
pressures for cost reductions are strong and demand for local responsiveness is minimal.
 Some examples of companies that have successfully implemented a global standardization strategy include Intel, which
produces standardized microprocessors that are used in computers worldwide. By developing a single product that can be
used across different markets, Intel has been able to achieve significant economies of scale and maintain a competitive cost
structure, while still delivering high-quality products to customers around the world.
 However, it's worth noting that a global standardization strategy may not be appropriate for all companies or industries. In
some cases, demand for local responsiveness may be high enough that companies need to customize their products or
marketing strategies in order to effectively compete in local markets. Ultimately, the key is to find a balance between global
standardization and local responsiveness that maximizes value creation and customer satisfaction.

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LOCALIZATION STRATEGY
 Focuses on increasing profitability by customizing a company’s goods
 Most appropriate when:
 Consumer tastes and preferences differ across nations
 Cost pressures are not very strong
 Benefit - Product value raises in the local market
 Limitation - Cost reduction by mass-producing a standardized product is not possible
 E.g., MTV
! A localization strategy involves increasing profitability by customizing a company’s goods
to better match the tastes and preferences of local consumers. This approach can be most
appropriate when consumer tastes and preferences differ across nations and cost pressures are
not very strong.
 The benefit of a localization strategy is that it can help a company to raise the value of its
product in the local market, by tailoring it to better meet the needs of local customers.
However, the limitation is that cost reduction through mass-production of a standardized
product may not be possible.
 MTV is a good example of a company that has successfully implemented a localization
strategy. By tailoring its programming to better meet the needs and preferences of local
audiences, MTV has been able to build a strong global brand while still maintaining a local
focus. This approach has helped MTV to achieve high levels of popularity and profitability in
many different countries around the world.
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TRANSNATIONAL STRATEGY
 Simultaneously:
 Achieves low costs
 Differentiates the product offering across geographic markets
 Fosters a flow of skills between global subsidiaries
 Difficult to pursue as it places conflicting demands on a company
 E.g., Caterpillar
A transnational strategy involves simultaneously achieving low costs, differentiating the product
offering across geographic markets, and fostering a flow of skills between global subsidiaries. This
approach is often seen as the most difficult to pursue, as it places conflicting demands on a
company.
 The benefit of a transnational strategy is that it allows a company to achieve economies of scale and
differentiation across multiple markets, while also promoting cross-border learning and innovation.
However, the challenge is to strike the right balance between global standardization and local
responsiveness, and to effectively manage the conflicts that arise between these two objectives.
 Caterpillar is a good example of a company that has successfully implemented a transnational
strategy. By developing a global brand that is known for both quality and value, Caterpillar has
been able to differentiate itself from competitors while also achieving economies of scale through
standardized manufacturing processes. Additionally, Caterpillar has fostered cross-border learning
and innovation by encouraging the exchange of ideas and best practices between its subsidiaries
around the world.

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
INTERNATIONAL STRATEGY
Occurs when:
 Companies establish manufacturing and marketing functions in each major country they do
business in
 Local customization of product offering and marketing strategy is limited in scope
 Most appropriate when:
 Product serves universal needs
 Companies are not confronted with cost pressures
 E.g., Xerox in the early days
An international strategy involves establishing manufacturing and marketing functions in each major
country a company does business in, with limited customization of product offering and marketing
strategy. This approach is most appropriate when a company's product serves universal needs and
they are not confronted with strong cost pressures.
 The benefit of an international strategy is that it allows a company to establish a global presence
while still maintaining some degree of local responsiveness. By establishing a presence in multiple
countries, companies can benefit from economies of scale and can more easily navigate local
regulations and business practices. However, the limitation is that this approach may not be as
effective in markets where consumer preferences and needs vary significantly.
 Xerox in its early days is a good example of a company that successfully implemented an
international strategy. By establishing manufacturing and marketing functions in major countries
around the world, Xerox was able to build a global brand while still maintaining some degree of local
responsiveness. This approach helped Xerox to establish a dominant position in the global copier
market during the 1960s and 1970s.
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CHANGES OVER TIME

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