STRATEGY IN THE GLOBAL

ENVIRONMENT
Strategic Management
Global and national environments
Globalization of production and markets
• Increased as companies took advantage of lower barriers to
international trade and investment
• National markets started merging into one global marketplace

Implications
• Companies finding home markets inundated by foreign competitors
• Critical to maximize efficiency, quality, customer responsiveness, and
innovative ability

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National competitive advantage
Factor endowments – costs, infrastructure,
engg (Biotechnology—USA; Automobile—
Germany, Japan)

Local demand/consumption conditions

(Wine—USA, France)

Competitiveness of related and supporting

industries (German textile and apparel sector
that includes high quality cotton, wool,
synthetic fibres, needles, machinery)

Intensity of rivalry (Retail—USA)

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Market expansion
• A company can sell goods, developed at home, internationally to
increase its growth rate.
• Multinational company is one that does business in two or more
national markets [Unilever]
• Success depends on the distinctive competencies that underlie its
production and marketing process.

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Realizing cost economies
A company can realize cost savings from economies of scale by:
• spreading the fixed costs and setting up production facilities over its
global sales volume (global auto companies)
• serving a global market, a company utilizes its production facilities
more intensively [Foxconn, Wistron, Pegatron]
• bargaining down the cost of key inputs with suppliers.
• increasing its sales volume more rapidly.

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Realizing location economies
Economic benefits that arise from performing a value creation activity
in an optimal location.
Help a company:
• achieve a low-cost position.
• to differentiate its product offering.
• to gain competitive advantage over rivals who base all their value
creation activities at a single location.
Transportation costs and trade barriers complicate the process of
realizing location economies.

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Leveraging global-subsidiary competencies
Managers must:
• realize that valuable skills can arise anywhere within a firm’s global
network.
• establish an incentive system that encourages local employees to
acquire new competencies.
• have a process for identifying valuable new skills created in a
subsidiary.
• help transfer valuable skills within the firm.

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Assignment
Refer to the uploaded PDFs (M&M or ITC) and enumerate the different
global operations of the company and reasons why the company
decided to kick off such operations? What factors contribute to national
competitive advantage?

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Selecting a strategy: Global standardization
• Business model based on pursuing a low-cost strategy on a global
scale.
• Companies market a standardized product worldwide to reap
maximum benefit from economies of scale.
• Most appropriate when:
- pressures for cost reductions are strong.
- demand for local responsiveness is minimal.

[Coca Cola, IKEA]

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Selecting a strategy: Localization
• Focuses on increasing profitability by customizing a company’s goods.
• Most appropriate when:
- consumer tastes and preferences differ across nations.
- cost pressures are not very strong.
• Benefit - Product value raises in the local market
• Limitation - Cost reduction by mass-producing a standardized product
is not possible
[McDonald’s, Starbucks]

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Selecting a strategy: Transnational
• Simultaneously:
- achieves low costs.
- differentiates the product offering across geographic markets.
- fosters a flow of skills between global subsidiaries.
• Difficult to pursue because it places conflicting demands on a
company

• [Caterpillar]

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Selecting a strategy: International
• Occurs when:
- companies establish manufacturing and marketing functions in each
major country they do business in.
- local customization of product offering and marketing strategy is
limited in scope.
• Most appropriate when:
- product serves universal needs.
- companies are not confronted with cost pressures.
[Microsoft]
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Selecting a strategy

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Global strategic alliances: Reasons
Gaining overseas market entry [Mahindra-Renault; Hero-Honda]

Cost reduction [Boeing]

Establishing standards [Microsoft-Nokia]

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Global strategic alliances: Making them work
Low conflict High conflict
Righ partner

Alliance structure High Non- Competitive

interaction competitive Toyota—Maruti Suzuki
Nissin Foods
—Hector
Alliance management Beverages
Low Pro- Pre-competitive
interaction competitive Bharti Airtel—Apollo
Apple and its Hospitals—Cisco
suppliers

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Assignment
An Indian automotive component supplier plans to start global
operations. There is high competition in the global market that has
been aggravated owing to the supply chain crisis. While the labor cost
in India is low, the supplier is heavily dependent on parts such
as semiconductors from other countries. Suggest a suitable strategy for
the company to kick off its global operations.

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Assignment
A health drink manufacturing and marketing company, in its plans to tap
the overseas market, considers its national competitive advantage for
better growth:
- almost 50 percent of the materials required are imported from other
countries.
- it is largely the segment of 40-60 years that has responded positively so
far.
- there are very few competitors in India.

Devise a suitable global strategy for the company.

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Reference
Book
Chapter 8 of ‘Strategic Management: An Integrated Approach’ by Hill, Schilling & Jones, 12 th Edition,
Cengage

Weblinks
https://economictimes.indiatimes.com/how-starbucks-is-localizing-to-crack-the-indian-coffee-ch
ain-market/articleshow/38976431.cms

https://www.livemint.com/companies/news/bharti-airtel-partners-apollo-hospitals-cisco-to-create-
5g-connected-ambulance-11651130840175.html

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