Scanned by CamScanner Scanned by CamScanner Scanned by CamScanner Scanned by CamScanner Scanned by CamScanner Scanned by CamScanner Scanned by CamScanner Scanned by CamScanner Scanned by CamScanner Scanned by CamScanner Scanned by CamScanner Scanned by CamScanner Scanned by CamScanner Scanned by CamScanner Scanned by CamScanner Scanned by CamScanner Scanned by CamScanner CHAPTER 2 Understanding the International Context: Responding to Conflicting Environmental Forces © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Three Conflicting Sets of External Demands Forces for cross-border integration and coordination Forces for national differentiation and responsiveness Forces for worldwide innovation and learning © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 2-2 Forces for Global Integration & Coordination Economies of Scale Economies of Scope Factor Costs (e.g. labor, raw material) Increasingly Liberalized Environment for Trade Expanding Spiral of Globalization © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 2-3 Global Competitors as Change Agents For industry globalization to take place: Underlying drivers (economies of scale and scope, etc.) have to be in place But always triggered by actions of one or two global “change agents” Examples: British Airways (airlines) Starbucks (premium coffee shops) ISS (cleaning services) © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 2-4 Global Industries To borrow from Shakespeare: Some industries are born global Some are made global Others have global-ness thrust upon them © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 2-5 Forces for Local Responsiveness Cultural differences Consumer tastes and preferences Ways of doing business (Hofstede and Globe studies) National infrastructure Technical standards (e.g. voltage, TV broadcast, etc) Distribution channels (e.g. supermarkets vs bazaars) Government demands National laws and regulations Host country pressures and demands Local competitors Appeal to nationalism © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 2-6 MNC-Host Government Relationship: A Study in Love/Hate MNC Sought for its capital, technology, management MNC Accommodated for its contributions to local social and economic needs MNC Courted for its global efficiency and world market access Host Country Government Feared for its power and independence MNC Disliked for its impact on society MNC Resented for the nation’s dependence on it MNC © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 2-7 Sources of Conflict MNC Motivators Strategic viability: global competitiveness Operational viability: profit Objectives Freedom to integrate operations globally Ability to market and ability to transfer resources freely across borders Measures (primarily financial) Profit ROI Market share Host Government Motivators National independence: social, economic, political International competitiveness Objectives Protect national sovereignty from external influence Capture global benefits of export markets, efficient industrial base, leading edge technology Measures (social/economic/political) Social cost/benefit Political return Industrial policy “fit” © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 2-8 Sources of Power MNC No investment or exit option Access to needed resource (capital, technology, etc…) Willingness and ability to align with national priorities Development of local support (shareholders, suppliers) Position in global economy (market, scale, competitiveness) Home country support Host Government Legislative power: regulate operating and strategic decisions Market power: government as a customer Incentives, supports Attractiveness to competitors Local operations linkage to global position (“hostage”) Shift in power after investment (“obsolescing bargain”) © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 2-9 Recent Backlash against Globalization Early 1990s: Global integration forces dominated Most host governments actively sought investment Free Trade movement gathered pace Late 1990s: Highly visible backlash Anti-globalization movement (Seattle, Genoa, etc…) Many developing countries are highly sceptical of benefits Many MNEs currently rethinking their approach towards globalization Need to better articulate benefits they bring © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 2-10 Political Risk Analysis & Management Among the important forces for local differentiation & responsiveness is country political risk Political risk is broadly defined as the impact of politics on markets. Political risk is influenced by the passage of laws, the foibles of leaders, and the rise of popular movements—in short, all the factors that might politically stabilize or destabilize a country Source: Bremmer, Ian (2005). Managing risk in an unstable world. Harvard Business Review, 83(6): 51-60. © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 2-11 Political Risk Analysis & Management Economic risk analysis tells corporate leaders whether a particular country can pay its debt, whereas political risk analysis tells them whether that country will pay its debt MNEs analyze a country’s political risk by assessing its stability, i.e. assessing: its political leaders’ capacity to implement the policies they want even amidst shocks 2. their ability to avoid generating shocks of their own 1. Source: Bremmer, Ian (2005). Managing risk in an unstable world. Harvard Business Review, 83(6): 51-60. © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 2-12 Political Risk Analysis & Management Techniques MNEs use to manage country political risk include: Recruiting local partners Limiting R&D in nations with leaky intellectual property protection Purchasing insurance against political risks such as the expropriation of property, political violence, currency inconvertibility, and breach of contract Diversifying their FDI across different countries Source: Bremmer, Ian (2005). Managing risk in an unstable world. Harvard Business Review, 83(6): 51-60. © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 2-13 Forces for Worldwide Innovation & Learning Increased need for rapid and coordinated worldwide innovation driven by: Shortening product life-cycles Increased cost of R&D Emergence of global technology standards Competitors’ ability to develop and diffuse innovation globally © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 2-14 Responding to Diverse Forces Simultaneously Responding to the 3 dominant environmental forces led to 3 types of industries: 1. Global industries: responded to economic forces for globalization (e.g. consumer electronics) 2. Multinational industries: responded to national, cultural, social, and political forces of localization (branded packaged goods) 3. International industries: responded to technological forces for developing and diffusing innovations (telecom) © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 2-15 Responding to Diverse Forces Simultaneously Corresponding success strategies for global industries: 1. Global strategies: capitalizing on highly centralized, scale-intensive manufacturing and R&D operations and leveraging them through worldwide exports of standardized global products © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 2-16 Responding to Diverse Forces Simultaneously Corresponding success strategies for multinational industries: 2. Multinational strategies: building strong and resourceful national subsidiaries that are sensitive to local market needs and opportunities and allowing these subsidiaries to manage their local businesses by developing or adapting products and strategies to respond to the powerful localizing forces © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 2-17 Responding to Diverse Forces Simultaneously Corresponding success strategies for international industries: 3. International strategies: exploiting technological forces by creating new products and processes in one’s home market effectively and diffusing these innovations to foreign affiliates sequentially © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 2-18 Global & National Forces: Industry Effect Consumer Electronics Telecom Switching Global Integration Cement Branded Packaged Products National Responsiveness © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 2-19 Transition to Transnationality By 1990s environmental forces undergoing change New bases of competition emerging New competitors rising on the basis of different competitive capabilities Increasingly industries were becoming transnational Transnational strategies: responding to all 3 diverse and competing sets of forces: global integration, national responsiveness, and worldwide learning © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 2-20 A Final Word: Risk of “Globalization Glaucoma” Blindness to everything but global forces Short-sightedness to localizing forces “As the 1990s were drawing to a close, the world had changed course, and Coca-Cola had not. We were operating as a big, slow, insulated, sometimes even insensitive “global” company; and we were doing it in an era when nimbleness, speed, transparency and local sensitivity had become absolutely essential.” Douglas Daft, CEO, Coca-Cola, March 2000 © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 2-21