2– 1

1. Part 2 Strategy Formulation 10-2 2–1

2. EXHIBIT 10.1 Lifetime Revenues - Blockbuster Movies

3. What Is Globalization? • Globalization is a process of closer integration and exchange between different countries and peoples worldwide. • Made possible by: • Falling trade and investment barriers • Advanced telecommunications • Reduced transportation costs • Importance of MNEs and FDIs

4. What Is Globalization (cont'd) Multinational Enterprise (MNE) Deploys resources and capabilities in the procurement, production, and distribution in at least two countries Less than 1% of firms, BUT employ 19% of U.S. workforce 74% of private sector R&D spending Foreign Direct Investment (FDI) Investments in value chain activities abroad Global Strategy To sustain a competitive advantage Competing against foreign and domestic companies around the world 10–4

5. Why Global? Gain access to a larger market Capitalize on market potential, such as China, India, and emerging economies Gain access to low-cost input factors Labor, natural resources, technology, logistics Develop new competencies Location economies Unique locational advantages 10–5

6. EXHIBIT 10.3 International Sales as % of Total Data from 2010

7. Disadvantages of Expanding Internationally Liability of foreignness Additional cost of doing business in an unfamiliar cultural and economic environment Cost of coordinating across geographic distance Economic development may increase the cost of doing business Rising wages with improved living standards Difficulty in protecting intellectual property 10–7

8. Global Expansion: Where • How does an MNE decide where to go? • National institutions: • Well-established legal and ethical pillars as well as well- functioning economic institutions such as capital markets, banks, and infrastructures • National culture: "Programming of the mind" • Geert Hofstede’s Cultural Dimensions • Power distance • Individualism • Masculinity/femininity • Uncertainty-avoidance • Long-term orientation

9. Global Expansion: Where • Hofstede’s Cultural Dimensions • Power distance • How a society deals with inequality among people in terms of physical and intellectual capabilities High = Philippines Low = Austria • Individualism • Relationship between individuals in a society, particularly in regard to the relationship between individual and collective pursuits High = U.S.A. Low = Venezuela • Masculinity/femininity • Relationship between genders and its relation to an individual’s role at work and in society High = Japan Low = Sweden • Uncertainty-avoidance • Societal differences in tolerance toward ambiguity and uncertainty High = Russia Low = Singapore

10. Corporate Tax Rates EXHIBIT 10.4 Institutional Difference Matters

11. Global Expansion: How Exporting: producing goods in one country to sell in another Acquisition, strategic alliance are also popular vehicles for entry into foreign markets MNEs sometime prefers greenfield operations or wholly owned subsidiaries Greenfield is building new factories/offices from scratch Physically and organizationally building from the "ground up". 10–11

12. Modes of Foreign Market Entry EXHIBIT 10.5 Market Entry along the Investment & Control Continuum

13. Strategy around the World: Cost Reduction vs. Local Responsiveness • Local responsiveness: • Tailor product and service offerings to fit local consumer preferences and host-country requirements • Higher cost • Ex: McDonald’s uses mutton in India • Cost reduction: • MNEs enter global marketplace with the intention to reduce operation cost • Ex: Toyota Prius 10–13

14. The Integration-Responsiveness Framework EXHIBIT 10.6

15. Four Global Strategies • International strategy • Leveraging home-based core competencies • Selling the same products or services in both domestic and foreign markets • Ex: Harley-Davidson in Poland • Localization strategy • Maximize local responsiveness • Consumers will perceive them to be domestic companies • Ex: Nestlé’s customized product offerings 10–15

16. Four Global Strategies (cont'd) Global standardization strategy Economies of scale and location economies Pursuing a global division of labor based on best-of-class capabilities reside at the lowest cost Ex: Lenovo’s R&D in Beijing, Shanghai, and Raleigh; production center in Mexico, India, and China Transnational strategy Combination of localization strategy (high responsiveness) with global standardization strategy (lowest cost position attainable) Glocalization Ex: German multimedia conglomerate Bertelsmann 10–16

17. Characteristics, Benefits, and Risks of Four Types of Global Strategy EXHIBIT 10.7

18. Characteristics, Benefits, and Risks of Four Types of Global Strategy (cont’d) EXHIBIT 10.7

19. National Competitive Advantage • Death-of-distance hypothesis • Geographic location alone should not lead to firm-level competitive advantage because firms are now more able to source inputs globally(ex: capital, commodities, etc.) Labor markets also have become more global. • Computer manufacturers – China & Taiwan • Consumer electronics – Japan & South Korea • Mining companies – Australia • Why are certain industries in some countries more competitive than in others? • Answer: National Competitive Advantage 10–19

20. EXHIBIT 10.8 Porter’s Diamond of National Competitive Advantage Porter American Future Video

21. National Competitive Advantage Framework Factor conditions A nation’s endowments in terms of national, human, and other resources Demand conditions Specific characteristics of demand in a firm’s domestic market Competitive intensity Highly competitive environments tend to stimulate firms to outperform others Related and supporting industry leadership in related and supporting industries can also foster world-class competitors in downstream industry Complementarity 10–21

22. Regional Clusters Regional cluster A group of interconnected companies and institutions in a specific industry, located near each other geographically and linked by common characteristics Knowledge spillover Positive externalities that are regionally constrained Exchange of ideas among firms in a cluster 10–22

23. Regional Clusters (cont'd) Some locational characteristics that distant rivals cannot match Knowledge, relationships, reduced proximity, motivation, and complementarity Ex: Research Triangle Park (RTP) in North Carolina Many MNEs are located in RTP cluster BASF, Bayer, Cisco Systems, Ericsson, and IBM Creating about 140,000 jobs Largely improve local economies while firms sustain competitive advantage by co-evolution 10–23