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Global Environment

Strategic Consideration for Firms to go Globalize

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Why do firms Globalize

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Coverage in the module• Whether to customize the offerings in each

different market to match the taste and preferences of local buyers OR to offer standardize product all over.

• Whether to employ essentially the same strategy all over or modify one by one.

• Where to locate company’s production facilities, distribution centers and customer operations to realize greatest locational advantages.

• How to efficiently transfer company’s resources, assets from one company to another in order to secure competitive advantage.

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Why Companies Globalize/Expand

• To gain access to new customers• To achieve lower cost and enhance firm’s

competitive - Sales volume from one country is not enough to fully capture manufacturing economies of scale.

• To capitalize on its core competencies-company with a competitively valuable competency or capability might be able to leverage themselves and make this competency work in a foreign market, too.

• To spread its business risk across a wider base.

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Why companies go Global

CONCERN: Should we customize our offerings indifferent countries market to match the tastes and preferences of local buyers or whether to offer a mostly standardized product worldwide?

• This is one of the biggest strategic issues of competing in foreign markets.

• "shorter production runs vs. achieving economies of scale”

• The Potential for Locational Advantages Stemming from Country-to-Country Cost Variations

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Why companies go global

The quality of a country’s business environment

• Perks by Govt.• clustering of suppliers of components

and capital equipment, infrastructure suppliers, trade associations and makers of complementary products in the geographic area.

• Fluctuating Exchange rates

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Factors to go Global

• Push Factors• Saturation in

Domestic Market• Spreading of Risk• Consolidation of

buying power• Public Policy

Constraints• Economic

Conditions• Maturity of Format

Pull Factors• Unexploited

markets• Pre-emption

of rivals• High Profit

Margins• Access to

new markets

FacilitatorsUse of surplus Capital•Entrepreneurial vision

•encouragement from supplier to enter new market

•Removal of barriers of entry•Low tariffs

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Two Primary Patterns of International Competition

Multicountry Competition

Global Competition

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Difference Competing internationally Vs Competing Globally

Competing internationally

• International competing means presence may be even in 2-3 countries with products

• Market presence of products

• Strategy changes from market to market

Competing Globally• Establish Operations,

racing against rivals for better products

• Operations in the host country is vital component

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Multicountry Competition

• Multicountry competition is , self-contained Competition in one country market is independent of competition in other country markets

• Rivals competing in one country market differ from set of rivals competing in another country market• Rivals compete for national market leadership No “international”- Industry conditions vary from market to markete.g.- Banking , Insurance, apparel, food products,

metal fabrication

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Multicountry examples

• Microsoft in PC Software

• Localizes PC software to reflect local languages• Products localized into more than 30 languages

• Nestle in Instant Coffee

• Produces 200 types of coffees• From light blend for the US market to dark roast for the Latin

American market

• McDonald’s in Fast Food

• Different hamburgers for different markets

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Global Competition• Prices and competitive conditions across country markets are

strongly linked together.

• The term international or global market has true meaning.

• A company’s competitive position in one country both affects and is affected by its position in other countries.

• The firm’s overall competitive advantage grows out of its entire worldwide operations.

• A global competitor’s strength is directly proportional to its portfolio of country based competitive advantages.

• Global competition exists in automobiles, television sets, tires, telecommunications equipment, copiers, watches and commercial aircraft.

• Individual industries can have segments that are globally competitive and segments where competition is country by country.

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Features of global Competition

• firm’s competitive advantage comes from its entire worldwide operations. 

• capability to serve customers who also have operations in multiple countries. (Reduces logistics)

• ability to set up plants in low-wage countries. • transfer expertise from country to country • Global competition tends to exist in industries that are not affected

by differences in consumer taste.  Examples of these industries include motor vehicles, televisions, cell phones, tires, and bicycles.

• Food Products- Taste changes but Chains compete globally to adapt menu

• Industry can have both segment- Hotel Industry-low cost, International Brands- Marriot, Hyat Compete globally

• Transition from Multicountry to Global ( By acquiring local brands)