Global - Environment Week 5

5-1
Pearce & Robinson, 10th ed.

Chapter 5
The Global Environment
McGraw-Hill/Irwin
Strategic Management, 10/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
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Learning Objectives
1. The importance of a company’s decision to globalize
2. The four main strategic orientations of global firms
3. The complexity of the global environment and the control
problems that are faced by global firms
4. Major issues in global strategic planning, including the
differences for multinational and global firms
5. The market requirements and product characteristics in
global competition
6. The competitive strategies for firms in foreign markets
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Globalization
• Globalization refers to the strategy of
approaching worldwide markets with standardized
products
• Awareness of the strategic opportunities faced by
global corporations and of the threats posed to
them is important to planners in almost every
domestic industry
• Understanding the nuances
of competing in global markets
is rapidly becoming a required
competence of strategic managers
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Development of a Global Corporation

Four Levels:
1. Minimal effect on the existing management
orientation or on existing product lines
2. Requires little change in management or operation
3. Characterized by direct investment in overseas
operations, including manufacturing plants
4. The most involved level is characterized by a
substantial increase in foreign investment, with
foreign assets comprising a significant portion of
total assets
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Why Firms Globalize

1. firms often can reap benefits from
industries and technologies developed
abroad
• Direct penetration of foreign markets
can drain vital cash flows from a
foreign competitor’s domestic
operations
• The resulting lost opportunities,
reduced income, and limited production
can impair the competitor’s ability to
invade local markets
• Question: Should firms be proactive or
reactive?
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Reasons for Going Global

PROACTIVE REACTIVE
• Additional resources • Trade barriers
• Lowered costs • International customers
• Incentives • International competition
• New, expanded markets • Regulations
• Exploitation of firm-specific • Chance
advantages
• Taxes
• Economies of scale
• Synergy
• Power and prestige
• Protect home market
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4 Strategic Orientations
of Global Firms
1. An ethnocentric orientation believes that the values and
priorities of the parent organization should guide the
strategic decision making of all its operations.
2. A polycentric orientation means the culture of the
country in which a strategy is to be implemented is
allowed to dominate the decision-making process.
3. A regiocentric orientation exists when the parent
attempts to blend its own predispositions with those of the
region under consideration, thereby arriving at a region-
sensitive compromise.
4. A corporation with a geocentric orientation adopts a
global systems approach to strategic decision making,
thereby emphasizing global integration.
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At the Start of Globalization

• External and internal assessments are conducted
before a firm enters global markets
• External assessment involves careful examination
of critical features of the global environment
• Internal assessment involves identification of the
basic strengths of a firm’s operations
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Complexity of the Global
Environment
• Five factors affecting the increasing complexity of global
strategic planning:
– Multiple political, economic, legal, social, and cultural
environments as well as various rates of change
– Interactions between the national and foreign environments are
complex
– Geographic separation, cultural and national differences, and
variations in business practices all tend to make communication
and control efforts difficult
– Globals face extreme competition
– Globals are restricted in their selection of competitive strategies
by various regional blocs and economic integrations
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Global Strategic Planning

• Increasingly complex decisions
• Multidomestic vs. Global industries
– A multidomestic industry is one in which competition
is essentially segmented from country to country
– In a multidomestic industry, a global corporation’s
subsidiaries should be managed as distinct entities
– A global industry is one in which competition crosses
national borders
– Strategic management planning must be global
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Global Industry
• Strategic management planning must be global for
at least six reasons:
– The increased scope of the global
management task
– The increased globalization of firms
– The information explosion
– The increase in global competition
– The rapid development of technology
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Market Requirements and Product
Characteristics
• Businesses have discovered that being successful
in foreign markets often demands much more than
simply shipping their well-received domestic
products overseas
• Firms must assess two key dimensions of customer
demand:
– customers’ acceptance of standardized products
– The rate of product innovation desired
• Products can be arrayed along from products that
are not subject to frequent product innovations to
products that are often upgraded
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Competitive Strategies for Firms
in Foreign Markets
• Strategies for firms that are attempting to move toward
globalization can be categorized by the degree of
complexity of each foreign market being considered and
by the diversity in a company’s product line
• Complexity refers to the number of critical success factors
that are required to prosper in a given competitive arena
– When a firm must consider many such factors, the requirements
of success increase in complexity
• Diversity, the second variable, refers to the breadth of a
firm’s business lines
– When a company offers many product lines, diversity is high
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Competitive Strategies for Firms
in Foreign Markets
1. Niche Market Exporting
2. Licensing and Contract Manufacturing
3. Franchising
4. Joint Ventures
5. Foreign Branching
6. Equity Investment
7. Wholly Owned Subsidiary
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Niche Market Exporting

A niche is an identifiable target market that has unique
preferences. In many cases, a niche is a small subset
of the total market. The existence of niches represents
an opportunity for small companies to compete with
larger firms who may have a strong hold on the
mainstream market.
5-24
Licensing & Contract
Manufacturing
Licensing Is a contractual arrangement in which a
firm (the licensor) sells the right to use its intellectual
property(technology, patents, work methods, brand
names, trade marks, copyrights, and company name)
to a firm (the licensee) in return for fees
5-25
Contract Manufacturing
It is when a company outsource the production of one
or more of its products to another company (contract
manufacturer). Contract manufacturers provide such
service based on their own specifications and designs.
Also called private label manufacturing. Contract
manufacturer may produce products for several
companies even if they are competitors
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Franchising
Franchising is a Business Strategy in which franchiser
(owner of the business, product or services), affiliate
with franchisees (dealers of products) for distribution,
business expansion, and marketing. Franchisees use
the trademark and strategies of parent company i.e.
franchiser and sell the products on their behalf. Both
parties agree on specific terms like advertising,
training, support through Franchising agreement.
Some common examples of franchising are
McDonald’s, Pizza Hut, Starbucks, Burger King, etc.
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Joint Venture
A joint venture is a business entity created by two or
more parties, generally characterized by shared
ownership, shared returns and risks, and shared
governance. Companies typically pursue joint
ventures for one of four reasons: to access a new
market, particularly emerging markets; to gain scale
efficiencies by combining assets and operations; to
share risk for major investments or projects; or to
access skills and capabilities.
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• Listed Jollibee Foods Corp. (JFC) has entered into a joint venture with Yoshinoya
International Philippines Inc. to operate and expand the Japanese food chain’s brand in the
country.
• In a disclosure on Tuesday, the fast food giant said the joint venture company would be the
Yoshinoya franchisee in the country. It also looks to open 50 stores, it added.
• “The Philippines remains JFC’s most important market, and Yoshinoya will be a strong
addition to our presence in the country. I am confident that this is the beginning of a long-
term and much larger partnership,” Jollibee Chairman Tony Tan Caktiong was quoted as
saying in the disclosure.
• Yoshinoya Philippines is the local subsidiary of Asia Yoshinoya International SDN BHD and
Yoshinoya Holdings Co. Ltd., the trademark owner of the Yoshinoya System. The parent
firm has more than 2,000 outlets worldwide, of which three are in the country.
• According to Yasutaka Kawamura, Yoshinoya Holdings president and chief executive
officer, the partnership offers an opportunity to expand his company’s presence in the
Philippines.
• Yoshinoya will serve as Jollibee’s first Japanese food chain and join its roster of franchised
foreign brands in the country, which includes Burger King, PHO 24 and Panda Express
Joint ventures between the government and a 5-29
private company
On July 2019, Metro Pacific Water (MPW) launched

its largest joint venture company to date, the
Metro Pacific Iloilo Water (MPIW) Corporation.
MPIW is a joint venture company formed by MPW
and its partner local water district, the Metro Iloilo
Water District (MIWD). MPIW will operate,
rehabilitate, maintain, and expand the water
distribution system and establish wastewater
management facilities in Metro Iloilo, which is
comprised of Iloilo City and seven adjacent
municipalities
5-30
Foreign Branching
A foreign branch is another location of your
company that operates entirely in another
country. Think of it as an extension of your main
office, similar to adding on an extension to your
current office, but on a global scale.
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Equity Investment
Equity investment is a financial transaction where
certain number of shares of a given company or fund
are bought, entitling the owner to be compensated
ratably according to his ownership percentage.
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Foreign Investment Restrictions in
the Philippines
• Philippine laws generally allow foreign investors or
companies to set up their business in the country.
However, the Constitution and some specific laws
prescribe the implementation of the Foreign
Investment Negative List (FINL) to restrict foreign
equity and participation in regulated industry sectors
and areas of business activity that are exclusive to
Filipino citizens. Industry sectors that are not
included in the FINL are 100% open to foreign
investment.
5-33
Registration for Tax Incentive
Programs
• Both local and foreign investors can avail of tax
incentives from the Philippine government under
any of the country’s inbound investment laws,
especially if they register their business location in
any of the country’s special economic zones and
free ports.
.
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Philippine Industries Commonly Participated In
by Foreign Corporations
• IT-BPO, KPO or Outsourcing Company
• Shared Services Company
• Call Center Company
• IT, Software, or Web Development Company
• Animation Development or Design Company
• Internet / E-commerce Company
• Medical Transcription Company
• Legal Transcription Company
• Import-Export trading company
• Mining Company
• Manufacturing
• Power energy company
5-35
Wholly owned Subsidiaries

Wholly Owned Subsidiary is a separate independent
legal entity which is 100% owned and control by other
company (parent company) and directly works under
the guidance and decision making of the parent
company. It has its own senior management to control
the business operations of the company however all
the strategic decisions at the group level are been
taken by the parent company only.
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Examples
• Starbucks company Japan is a wholly-owned
subsidiary of the Starbucks group.
• The Walt Disney Company holds 100% of the share
capital of Marvel entertainment and EDL Holdings.
• Volkswagen AG owns the entire Volkswagen
America. (Volkswagen is a German Auto maker)

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5-1

Pearce & Robinson, 10th ed.

Development of a Global Corporation

Why Firms Globalize

Reasons for Going Global

At the Start of Globalization

Global Strategic Planning

Niche Market Exporting

On July 2019, Metro Pacific Water (MPW) launched

Wholly owned Subsidiaries

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