Chapter 8: Strategy in the Global Environment

1. Chapter 8: Strategy in the Global Environment Text by Charles W. L. Hill Gareth R. Jones Multimedia Slides by Milton M. Pressley Univ. of New Orleans

2. Preview • Profiting From Global Expansion • Pressures for Cost Reductions and Local Responsiveness • Strategic Choice • The Choice of Entry Mode • Global Strategic Alliances • Making Strategic Alliances Work

3. Profiting From Global Expansion • Transferring Distinctive Competencies • Realizing Location Economies • Lower Costs • Differentiation and Premium Pricing • Moving Down the Experience Curve • Global Expansion and Business Level Strategy

4. Pressures for Cost Reduction and Local Responsiveness • Pressures for Cost Reductions • Pressures for Local Responsiveness

5. Figure 8.1: Pressures for Cost Reduction and Local Responsiveness High Cost Pressures Low Low High Pressures for Local Responsiveness

6. Figure 8.1: Pressures for Cost Reduction and Local Responsiveness High CompanyA Cost Pressures Low Low High Pressures for Local Responsiveness

7. Figure 8.1: Pressures for Cost Reduction and Local Responsiveness High CompanyA Cost Pressures Company B Low Low High Pressures for Local Responsiveness

8. Figure 8.1: Pressures for Cost Reduction and Local Responsiveness High CompanyA Company C Cost Pressures Company B Low Low High Pressures for Local Responsiveness

9. Pressures for Cost Reduction and Local Responsiveness (Continued) • Pressures for Cost Reductions • Pressures for Local Responsiveness • Differences in Consumer Tastes and Preferences • Differences in Infrastructure and Traditional Practices • Differences in Distribution Channels • Host Government Demands • Implications

10. Strategic Choice • International Strategy • Multidomestic Strategy • Global Strategy • Transnational Strategy

11. Figure 8.2: Four Basic Strategies High Cost Pressures Low Low High Pressures for Local Responsiveness

12. International Strategy Figure 8.2: Four Basic Strategies High Cost Pressures Low Low High Pressures for Local Responsiveness

13. Multi- domestic Strategy Figure 8.2: Four Basic Strategies High Cost Pressures International Strategy Low Low High Pressures for Local Responsiveness

14. Multi- domestic Strategy Figure 8.2: Four Basic Strategies High Global Strategy Cost Pressures International Strategy Low Low High Pressures for Local Responsiveness

15. Figure 8.2: Four Basic Strategies High Trans- national Strategy Global Strategy Cost Pressures Multi- domestic Strategy International Strategy Low Low High Pressures for Local Responsiveness

16. Figure 8.3: Cost Pressures and Pressures for Local Responsiveness Facing Caterpillar High Caterpillar, Inc. Cost Pressures Low Low High Pressures for Local Responsiveness

17. Table 8.1: Advantages and Disadvan-tages of Different Global Strategies Continued . . .

18. Table 8.1: Advantages and Disadvantages of Different Global Strategies (Continued)

19. The Choice of Entry Mode • Exporting • Licensing • Franchising • Joint Ventures • Wholly Owned Subsidiaries • Choosing Among Entry Modes • Advantages and Disadvantages (Table 8.2)

20. Entry Advantages Disadvantages Mode Exporting · Ability to realize location · High transport costs and experience-curve Trade barriers · economies · Problems with local marketing agents Licensing · Low development costs · Lack of control over and risks technology · Inability to realize location and experience-curve economies · Inability to engage in global strategic coordination Franchising · Low development costs · Lack of control over quality and risks · Inability to engage in global strategic coordination Table 8.2: Advantages and Disadvan-tages of Different Entry Modes

21. Entry Advantages Disadvantages Mode Joint · Access to local partner’s · Lack of control over knowledge technology Ventures · Sharing development · Inability to engage in global costs and risks strategic coordination Political acceptability Inability to realize location · · and experience economies Wholly Protection of technology High costs and risks · · · Ability to engage in global Owned strategic coordination Subsidiaries · Ability to realize location and experience economies Table 8.2: Advantages and Disadvantages of Different Entry Modes (Continued)

22. The Choice of Entry Mode (Continued) • Choosing Among Entry Modes • Advantages and Disadvantages (Table 8.2) • Distinctive Competencies and Entry Mode • Pressures for Cost Reduction and Entry Mode

23. Global Strategic Alliances • Advantages

24. Global Strategic Alliances • Advantages • Disadvantages

25. Making Strategic Alliances Work • Partner Selection

26. Making Strategic Alliances Work (Continued) Characteristics of a Good Partner: • Helps Firm Achieve Its Strategic Goals • Shares Firm’s Vision for the Purpose of the Alliance • Unlikely to Opportunistically Exploit the Alliance for Its Own Ends

27. Making Strategic Alliances Work (Continued) • Alliance Structure • Partner Selection

28. Probability of Opportunism by Alliance Partner Reduced by: Figure 8.4: Structuring Alliances to Reduce Opportunism

29. Walling Off Critical Technology Probability of Opportunism by Alliance Partner Reduced by: Figure 8.4: Structuring Alliances to Reduce Opportunism

30. Walling Off Critical Technology Establishing Contractual Safeguards Probability of Opportunism by Alliance Partner Reduced by: Figure 8.4: Structuring Alliances to Reduce Opportunism

31. Walling Off Critical Technology Establishing Contractual Safeguards Probability of Opportunism by Alliance Partner Reduced by: Agreeing to Swap Valuable Skills and Technologies Figure 8.4: Structuring Alliances to Reduce Opportunism

32. Walling Off Critical Technology Establishing Contractual Safeguards Probability of Opportunism by Alliance Partner Reduced by: Agreeing to Swap Valuable Skills and Technologies Seeking Credible Commitments Figure 8.4: Structuring Alliances to Reduce Opportunism

33. Making Strategic Alliances Work (Continued) • Managing theAlliance • Partner Selection • Alliance Structure

34. PROFITING FROM GLOBAL EXPANSION PRESSURES FOR COST REDUCTIONS AND LOCAL RESPONSIVENESS STRATEGIC CHOICE THE CHOICE OF ENTRY MODE GLOBAL STRATEGIC ALLIANCES MAKING STRATEGIC ALLIANCES WORK Chapter Summary