Introduction to Global Strategy

It is important to examine, identify and manage global issues in formulating, implementing, and evaluating strategies. Managers must understand competitors, markets, prices, suppliers, distributors, governments, creditors,and stakeholders worldwide. The price and quality of a firm’s products and services must be globally competitive.

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Special topics include business culture, business climate, labor unions, protectionism, tax rate variation, and management style variation across countries. Markets are converging in tastes, trends and prices.

Globalization is the trend toward greater economic, cultural, political, and technological interdependence among national institutions and economies. Global strategy includes designing, producing and marketing products with global trends in mind.Some of the risks associated with multinational organizations include: expropriation of assets, currency losses through exchange rate fluctuations, unfavorable foreign court interpretations, social and political disturbances, import and export restrictions, tariffs and trade barriers.

There are also many advantages of international operations: gaining new customers, spreading excess capacity over a broader geographic footprint, reducing unit costs through economies of scope and scale and spreading economic risks over a wider number of markets. Firms can establish low-cost production facilities in locations closer to raw materials and lower cost labor. Joint ventures can help firms learn language,cultural and business practices around the world. Many cultures value modesty, team spirit, collectivism and patience.

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Check out my Globalization Pinterest board and then watch this video about McDonaldization:

A.        Globalization of Markets

  1. Convergence in buyer preferences in markets around the world
    1. Reduces marketing costs by standardizing activities
    2. Creates market opportunities abroad if home is small or saturated
    3. Levels uneven income streams for global seasonal products
    4. Yet companies must not overlook buyers’ needs
    5. Need for global sustainability—development that meets the needs of the present without compromising the ability of future generations to meet their own needs.

2.         The world’s 7 billion people live in three types of markets, yet all require companies to act in a sustainable manner:

a.         Developed markets are solidly middle class and people can consume almost any product desired. A firm may use the latest technologies to develop sustainable products in a sustainable manner.

b.         Emerging markets are racing to catch up to rich nations and are overloading infrastructures. Resource constraints can force companies to develop sustainable production methods.

c.         Traditional markets have mostly rural populations for whom poverty and corruption prevail. Here, sustainability means teaching safe farming practices, environmental stewardship, and disease awareness.

B.         Globalization of Production

  1. Dispersal of production activities to locations that help a company to minimize costs or maximize quality
    1. Access lower-cost workers to cut overall production costs
    2. Access technical expertise
    3. Access production inputs unavailable or more costly at home
  2. A supply chain is a system of organizations, people, activities, information, and resources involved in moving a product or service from supplier to customer. Supply chain activities involve the transformation of natural resources, raw materials, and components into a finished product that is delivered to the end customer. In sophisticated supply chain systems, used products may re-enter the supply chain at any point where residual value is recyclable. Supply chains link value chains.
  3. In business, outsourcing involves the contracting out of a business process to another party and may involve business process outsourcing. Outsourcing sometimes involves transferring employees and assets from one firm to another.Outsourcing includes both foreign and domestic contracting,[5] and sometimes includes offshoring (relocating a business function to another country).[6] Financial savings from lower international labor rates can provide a major motivation for outsourcing or offshoring.
  4. The opposite of outsourcing, insourcing, entails bringing processes handled by third-party firms in-house, and is sometimes accomplished via vertical integration.Outsourcing is a very important tool for reducing cost and improving quality.
  5. Logistics is the management of the flow of things between the point of origin and the point of consumption in order to meet requirements of customers or corporations. The resources managed in logistics can include physical items, such as food, materials, animals, equipment and liquids, as well as abstract items, such as time, information, particles, and energy. The logistics of physical items usually involves the integration of information flow, which is material handling, production, packaging, inventory, transportation, warehousing, and often security. The complexity of logistics can be modeled, analyzed, visualized, and optimized by dedicated simulation software. The minimization of the use of resources is a common motivation in logistics for import and export.
  6. The term production system may refer to:
    • In operations management and industrial engineering, a production system comprises both the technological elements (machines and tools) and organizational behavior (division of labor and information flow) needed to produce something.
    • In computer science, a production system (or production rule system) is a computer program typically used to provide some form of artificial intelligence.
    • Toyota Production System, organizes manufacturing and logistics at Toyota
    • The Computer Animation Production System (CAPS) is a proprietary collection of software, scanning camera systems, servers, networked computer workstations, and custom desks developed by The Walt Disney Company together with Pixar in the late-1980s.

There are many FORCES DRIVING GLOBALIZATION: forces increase competition among nations by leveling the global business playing field.

A.        Falling Barriers to Trade and Investment

1947 General Agreement on Tariffs and Trade (GATT) was designed to promote free trade by reducing tariffs and non-tariff barriers. 1994 GATT revision (1) reduced tariffs and lowered subsidies for agricultural products; (2) defined and protected intellectual property rights; and (3) created the WTO.

1.         World Trade Organization

a.         World Trade Organization (WTO) is the international organization that enforces the rules of international trade.

b.         WTO goals: (1) to help the free flow of trade, (2) help negotiate the further opening of markets, and (3) settle trade disputes.

c.         WTO agreements are contracts committing members to fair and open trade policies. WTO dispute settlement system is the spine of the global trading system.

2.         Regional Trade Agreements

a.         Smaller groups of nations also are integrating their economies (e.g., NAFTA, European Union).

3.         Trade and National Output

a.         Effect of the WTO and regional trade pacts is greater global trade and cross-border investing

  1. Trade growth has been faster than world output.
  2. Gross Domestic Product (GDP) is the value of all goods and services produced by a domestic economy over a one-year period. Gross national product (GNP) adds income from international activities.

B.         Technological Innovation

Technology accelerates globalization by making it easier, faster, and less costly to move data, goods, and equipment around the world.

  1. E-mail and Videoconferencing

a.         Speed information flows and ease the tasks of coordination and control, which are complicated by operating across borders.

b.         Driving growth in videoconferencing are lower-cost bandwidth and equipment, and decreased travel for cost or safety reasons.

  1. The Internet

a.         Helps firms sharpen forecasting, lower inventories, improve communication with suppliers, and communicate quickly and cheaply with distant managers

b.         Reduces the cost of reaching an international customer base, which is essential for the competitiveness of small firms

  1. Company Intranets and Extranets

a.         Intranets are private networks of company Web sites and other information sources that allow employee access to information from distant locations.

b.         Extranets are computer networks that give distributors and suppliers access to a company’s database so they can place orders or restock inventories electronically and automatically.

  1. Advancements in Transportation Technologies

a.         Make global shipping more efficient and dependable (e.g., GPS)

  1. Measuring Globalization

 

1.         The KOF Swiss Economic Institute’s Globalization Index ranks nations on their economic, social, and political engagement.

2.         Richest nations are the most global, with many in Europe. The United States ranked 35th

3.         The least global nations are found in Africa, East Asia, South Asia, Latin America, and the Middle East. Low technological connectivity slows global integration.

5.         UNTANGLING THE GLOBALIZATION DEBATE

People can view globalization from vastly different perspectives.

A.        Today’s Globalization in Context

1.         First age of globalization extended from the mid-1800s to the 1920s. Migration levels reached record highs, domestic workers faced competition from cheaper labor abroad, and trade and capital flowed more freely than ever before.

2.         Drivers of that first age of globalization were the steamship, telegraph, railroad, telephone, and airplane.

3.         World War I, the Russian Revolution, and the Great Depression abruptly ended that first age of globalization. A globalization backlash led to high tariffs and other barriers.

4.         Geographic divide between East and West became an ideological divide between communism and capitalism. International capital flows regained their prior pace but not until the 1990s.

5.         Drivers of this second age of globalization are communication satellites, fiber optics, microchips, and the Internet.

B.         Introduction to the Debate

1.         The World Bank is an agency created to provide financing for national economic development efforts.

2.         The International Monetary Fund (IMF) is an agency created to regulate fixed exchange rates and enforce the rules of the international monetary system.

C.         Globalization’s Impact on Jobs and Wages

  1. Against Globalization

a.         Eliminates jobs in developed nations as good-paying manufacturing jobs go abroad to developing countries. Low-priced goods are not worth lost jobs.

  1. Lowers wages in developed nations by causing worker dislocation that gradually lowers wages. New jobs that replace lost manufacturing jobs often pay less.
  2. Exploits workers in developing nations who work cheaply servicing western consumers.
  3. Summary: Although globalization eliminates jobs in some economic sectors, it creates jobs in other sectors.
  4. Globalization Gains:

a.         Increases wealth and efficiency in all nations because trade openness raises output. Firms grow more efficient and pass savings on to consumers.

b.         Generates labor market flexibility in developed nations that allows an economy to rapidly deploy labor where demand is relatively great.

c.         Advances the economies of developing nations by injecting capital that creates higher-paying jobs, which expands the middle class and raises standards of living.

d.         Summary: Gains to national economies are worth lost livelihoods that individuals may suffer.

D.        Globalization’s Impact on Labor, the Environment, and Markets

1.         Labor Standards

a.         Trade unions claim that firms continually move to nations with low labor standards, which reduces labor’s bargaining power and forces overall labor standards lower.

b.         But studies of developing nations’ export processing zones instead find evidence that contradicts such claims.

2.         Environmental Protection

a.         Globalization opponents say it creates a “race to the bottom” in environmental conditions and regulations: countries compete in reducing environmental protection laws.

b.         But evidence shows pollution-intensive U.S. firms tend to invest in countries with stricter environmental standards. Also, closed economies historically are the worst polluters.

3.         Future Markets

a.         Protesters claim international firms pay locals the lowest possible wage and export their goods back to the home country.

b.         Today, firms want to build local markets in developing nations, not simply exploit workers and foment local animosity.

E.         Globalization and Income Inequality

1.         Inequality within Nations

a.         Globalization critics claim that income disparity in rich nations is increasing as firms move factory jobs to poor nations.

b.         Evidence is mixed, but poor people in developing nations seem to benefit from an open economy.

2.         Inequality between Nations

a.         Globalization opponents say it is widening the gap in average incomes between rich and poor nations.

b.         Looking closely at the evidence, we see that open nations are benefiting from trade whereas closed ones are not.

3.         Global Inequality

a.         Opponents of globalization say it is widening income inequality among all people of the world.

b.         Studies tend to agree that global inequality has fallen in recent decades, though they disagree on the extent of the decline.

F.         Globalization’s Influence on Cultures

 

1.         Critics say globalization homogenizes our world and lets MNCs destroy cultural diversity and wipe out small local businesses.

2.         Yet globalization allows nations to: (1) specialize and trade for goods they do not produce, (2) import other peoples’ cultural goods, and (3) still protect deeper moral and cultural norms.

G.        Globalization and National Sovereignty

1.         Globalization: Menace to Democracy?

a.         Supranational institutions with international goals and appointed officials undermine national sovereignty and democracy.

b.         Elected officials undercut democracy and local and regional authority with “international” agreements on citizens’ behalf.

2.         Globalization: Guardian of Democracy?

a.         Globalization has helped spread democracy worldwide (e.g., more democratic nations than ever).

b.         Some losses of sovereignty have had positive social impacts, as in human rights, workers’ rights, and discrimination.

Communication and business practices vary across countries so that strategic planning can be modified to make it more effective.

A global marketing strategy that views the world’s consumers as similar in their tastes and preferences is consistent with the mass production of a standardized output. By mass-producing a standardized output, the firm can realize substantial unit cost reductions from experience curve and other scale economies. But ignoring country differences in consumer tastes and preferences can lead to failure. Thus, an international business’s marketing function needs to determine when product standardization is appropriate and when it is not, and adjust the marketing strategy accordingly. Similarly, the firm’s R&D function needs to develop globally standardized products when appropriate as well as products that are customized to local requirements.

A critical aspect of the marketing function is identifying gaps in the market so that new products can be developed to fill those gaps. Developing new products requires R&D; thus, the linkage between marketing and R&D.  Marketing dictates to R&D whether to produce globally standardized or locally customized products.

Learn about Samsung’s Global Strategy:

Chapter 7 includes::

 

1.         Discuss the nature and implications of labor union membership across Europe.

2.         Discuss income tax rates and practices across countries.

3.         Explain the advantages and disadvantages of entering global markets.

4.         Discuss protectionism as it impacts the world economy.

5.         Explain when and why a firm (or industry) may need to become more or less global in nature to compete.

6.         Discuss the global challenge facing U.S. firms.

7.         Compare and contrast business culture in the United States with many other countries.

8.         Describe how management style varies globally.

9.         Discuss communication differences across countries.

 

 

English: Various Euro bills.

English: Various Euro bills. (Photo credit: Wikipedia)

 

To learn more about culture and how it impacts business in various countries, go to http://www.worldbusinessculture.com/

What are the advantages and disadvantages of initiating export operations in a foreign country?

In conclusion, language, cultural, and value systems differ among countries, as do the number and nature of competitors.  There are also different currencies, tariffs, laws, taxes, regulations, suppliers, distributors, monetary policies, and infrastructure.

Strategic management is more complex in a multinational firm for the following reasons: 1) risk of expropriation of assets, 2) potential for currency losses through exchange rate fluctuations, 3) possibility of unfavorable foreign court interpretations of contracts and agreements, 4) social/political disturbances, 5) import/export restrictions, 6) tariffs, and 7) trade barriers.

 Look at this website to analyze business culture in different countries: http://www.kwintessential.co.uk/tools/resources/country-profiles.html

Social etiquette and customs

  • Meeting and greeting
  • Mixing between genders
  • Names and titles
  • Gift-giving etiquette
  • Dining etiquette

Business etiquette and customs

  • The relationship
  • Business cards
  • What to wear
  • Business meetings
  • Negotiating