Class 1

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How do firms grow?

Horizontal Diversification





Basis presumption-A firm needs to be competitive in its core


business before it can choose the direction of its diversification diversification

responses……pliz   Your responses……pliz  • What is globalization, and why is it important, even to domestic firms?


What is Globalization? • Value of world exports in 2000 tripled between 1980 and 2000. • Foreign investment grow more than twenty-fold. • Firms without international goals may find their domestic markets under threat from foreign competition.


What is Globalization? • Standardization of products & services • Zaha na jaye bhelgari, woha jai marwari  – Go to place where there is a market but inaccessible area  – Comes with a cost— cost—Why go there?

Globalization is not about products or services multiple countriesinbut about


What does Globalization Mean for You? • More choices • Lower prices • Blurred national identity for products and services • Career choices and progression


What does Globalization Mean for You? The global top 20 countries


Who benefits from globalization? Globalization index rankings


Who Benefits from Globalization? Globalization and social expenditure


Does globalization makes people happy?

Your responses…pliz responses…pliz


Does globalization makes people happy?


Globalization is the interplay of two forces • Homogeneous civilization • Standard products and services • Barriers to entry & exit should be minimum

• World is heterogeneous • Non-standard products and services • Interaction between cultures, products and different systems (legal, political


economic etc)

The Distinctive Content of International Strategy


Finally…..   Finally….. International strategy is challenging and interesting and offers degrees of freedom…………..att intermedia freedom…………..a intermediate te levels of cross-border integration. Can’t ignore barriers. Can’t ignore linkages.  linkages. 


class  Agenda…for next class  • What is Global strategy? • How does global strategy create value relative to the alternative of countryspecific strategies? • Does broad global scope actually live up to its promise?


What is Global strategy? • Configuration: What do we do where? •  Coordination: Coordination: How tightly do we tie together activities in different locales?


What is Global strategy?

•  A viable global global strategy configures  configures and coordinates coordinates better  better than available alternative means for accomplishing comparable ends.




Nokia R&D Units Finland Germany U.S. Hungary China Malaysia S. Korea  Australia

Production Finland Germany U.S. Hungary Sweden China Malaysia  U.K.

U.K. Japan Italy Canada Sweden Denmark

France S. Korea  Australia Brazil U.K. Mexico

Stock Exchange Listings Finland Germany U.S. Hungary Sweden China U.K. Malaysia France


When Do You Centralize an Activity? Economies versus Diseconomies of Scale


When Do You Centralize an Activity? • When there is a compelling compelling advantage to carrying out an activity in a particular location • When the costs of customizing the activity to different locations are not too high • Home country’s country’s institut institutions ions determine determine whether whether centralizing centralizin g at home is advantageous or not

essence of global strategy is not be restricted  An essence restricted by your your home

country limitation limitations s but it is a non-trivial decision. decision.  

The Localization Dilemma: Morgan Stanley Japan  Japan  •  Activity • Research

Localization Localization Information dissemination dissemination styles and ways of assimilating assimilating /communicating /communicatin g analysis differ.

• New Products

Using experience in U.S./Europe to introduce new products. Change Japan rather than change to Japan.

• Marketing

Exceeding Exceedingly ly difficult to penetrate local relations

• HR

U.S. firm trying to create a local face

• IT

Rely on local firms for local-local IT and on China/India contractors for

other software  

The Localization Dilemma: Morgan Stanley Japan  Japan  • ―One group says that this office is Morgan Stanley, applied to Japan. The other says this is Morgan Stanley Japan; that is, keeping New York off our backs is important. There is a healthy tension between the two views.”  


The Localization Dilemma: Notable Failures • Micr Micros osof oft’ t’s s mis misre read adin ing g of of its its PC software in China in 1993 • Kello Kellogg’ gg’s s over overest estima imatio tion n of the deman demand d for breakfast cereal in India • McDo McDona nald ld’s ’s ove overe rest stim imat atio ion n of tas taste te homogeneity in the Philippines • STAR STAR TV’ TV’s s over overes esti tima mati tion on of dem deman and d for recycled Western TV content in south and Southeast Asia


General Electric Medical Systems Why not have outsourcing?


Challenges of globalization? • Standardized products and services • Co-ordination of a globally distributed supply chain • Globalization =f(industry)


Tradeoffs in Alternative Configurations Organizational emphasis Local Commitment

Citibank Line of business Single B\L Large bets

HSBC World’s local bank Geographic focus Local B\L sheets Conservative

Hedged local positions Unhedged local positions Easy entry/exit Never leave a country voluntarily Talent Results

Centralized Local distribution talent Most profits from U.S Even of profit Faster and volatile Slower and steadier stock price stock price appreciation appreciation


Does Globalization help the natrual environment? • Common complaint that globalization globalization hurts the environment •  Argued that firms firms relocate to escape tough pollution rules at home • Many firms adhere to strict codes of environmentall protection, and engage in environmenta cleanup of locations • Environment is just one factor in location decision


Does globalization helps countries to become competitive? Basic requirements •Institutions •Infrastructure •Macroeconomic Environment

Factor Driven economies

•Health & Primary education Efficiency Enhancers • Higher education •Market efficiency •Technological readiness

Efficiency Driven economies

•Market size Innovation &


sophistication factors • Business Sophistication

Driven economies


What motivates a firm to go international?

Your responses…pliz responses…pliz  

What motivates a firm to go international? • Traditional Motivations • Secure supplies • Market seeking behaviour • Low factor cost of production

• Changes in economic, technological & social developments • Shortening product life cycle • Ballooning R&D costs


International Product Life Cycle Raymond Vernon


International versus Domestic Business • International business is the outgrowth of domestic business. • Most major corporations started their operations in the domestic market. • International entrepreneurs  – Individuals or companies investa and operate in another countrythat without home base


International versus Domestic Business • Significantly different due to differences in:  – Environmental Dynamics • Currency, inflation, interest rates, accounting practices, cultures, social customs, laws, political stability

 – Operational Nature • Communicati Communication, on, coordination, motivation, differences in organizational principles and management philosophies


Test for International Strategy • The ―Bett Bette er Off Off‖‖ Test Test    – Some extra value needs to be created in the new country  – How can this extra value be created?


Test for International Strategy • The The ―O ―Own wne ershi rship p Test‖ est‖    – Why can’t a firm just sel selll or license its products or buy resources than being rather than being international?


What is different about international strategy? • Heterogeneity across markets • The scale and complexity of global operations • The Unpredictability of economic conditions across nations


Heterogeneity? What is it?

What sort of problems ?


Scale Does scale result in CA?

What sort of organizational structure is appropriate


Volatility What is it?

Can volatility results in CA?

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