Chapter 8 Internationalization and Globalization

Chapter 8Internationalization

and Globalization

Chapter Outline

Introduction: Internationalization and GlobalizationDrivers of Corporate Internationalization and Globalization: Why Firms Go AbroadPreparing the Company for Internationalization and GlobalizationEffects of GlobalizationFinancing International and Global Operations

Internationalization and Globalization

Internationalization Defined: Internationalization: firms extend

products and services in overseas markets, usually from their home country. Internationalization is the first stage in the globalization process


Globalization Defined

Globalization: the process by which businesses create value by leveraging their resources and capabilities across borders, and includes the coordination of cross-border manufacturing and marketing strategies


Measuring Internationalization and GlobalizationObjective measures: United

Nations Conference on Trade and Development (UNCTAD) has developed an index to show international corporate involvement called Transnationality Index.


Measuring Internationalization and GlobalizationObjective measures: United Nations

Conference on Trade and Development (UNCTAD) has developed an index to show international corporate involvement called

Transnationality Index. It is based on:Foreign assets to total assets.



Conference on Trade and Development (UNCTAD) has developed an index to show international corporate involvement called Transnationality Index. It is based on:

Foreign assets to total assets.

Foreign sales to total sales



Conference on Trade and Development (UNCTAD) has developed an index to show international corporate involvement called Transnationality Index. It is based on:

Foreign assets to total assets. Foreign sales to total sales

Foreign employment to total employment


Measuring Internationalization and Globalization

Objective measures:

Corporate measures: Governance and responsibility: who

are controlling to corporation



Objective measures:

Corporate measures: Governance and responsibility: who are controlling to corporation

Strategy and planning: of global corporations that

• Produce standardize products could be ventrally planed,

• must meet local needs should be decentralized



Objective measures:

Corporate measures: Governance and responsibility: who are controlling to corporation Strategy and planning: of global corporations that

• Produce standardize products could be ventrally planed, • must meet local needs should be decentralized

Market orientation also depends on the orientation of the countries where the company is active. If they are similar, a unified marketing strategy will be use. Otherwise, each country requires its own strategy.



Objective measures:




Manufacturing operations and technology. Customers, country conditions, and competition determine where resources should be allocated. Whether economies of scale could be exploited; whether low cost factors could be utilized;



Objective measures:




Manufacturing operations and technology. Customers, country conditions, and competition determine where resources should be allocated. Whether economies of

scale could be exploited; whether low cost factors could be utilized; R & D intensive industries must balance their

activities across borders when possible and advantageous and safe. R&D are usually centralized due to secrecy as well as need for specific knowledge and resources.



Objective measures:




Manufacturing operations and technology. Customers, country conditions, and competition determine where resources should be allocated. Whether economies of scale could be exploited; whether low cost factors could be utilized;

R & D intensive industries must balance their activities across borders when possible and advantageous and safe. R&D are usually centralized due to secrecy as well as need for specific knowledge and resources.

Organization and human resource management the challenge has been to train and retain managers with local market knowledge as well as with global understanding.

Advantages of Internationalization and Globalization

Extension and expansion of market


Extension and expansion of market

Exploitation of resources overseas


Extension and expansion of market Exploitation of resources overseas

Taking advantage of economies of scale


Extension and expansion of market Exploitation of resources overseas Taking advantage of economies of scale

Acquiring economies of scope: building and using foreign market expertise in against their rivals

Disadvantages of Internationalization and Globalization

Divert resources from dometic to international markets

Disadvantages of Internationalization and Globalization

Divert resources from dometic to international markets

Going overseas is a permanent learning process. You need to constantly adapt to new and changing environment

Internationalization, Globalization, and industry strategy

High

Pressuresfor global integration

Low

Low Pressures for local responsiveness High

Global Integration Strategy Global/Local(cross border branding andsupply chain)

Internationalization Strategy Multinational Strategy (Export /Import) (localized marketing

with supply chain)

Drivers of Corporate Internationalization and Globalization

Market Drivers Cost Drivers Competitive

Drivers Government

Drivers Globalization

and Information Technologies


Market Drivers Common customer needs: products

and technology is transferred with its cultural baggage to other countries with similar needs. Some products such as Coca-Cola, McDonalds, KFC, etc. have been palatable to many cultures


Market Drivers Common customer needs: Coca-Cola, McDonalds

Global channels: global channels have emerged with free trade as free trade enabled companies to distribute goods and provide services internationally. Carrefour, Toys R Us, Wal-Mart have developed global channels to distribute products.


Market Drivers Common customer needs: Coca-Cola, McDonalds

Global channels: Carrefour, Toys R Us, Wal-Mart

Marketing Transfers and Global Branding: IBM, Toyota, Bic, Kodak have become household names throughout the world


Market Drivers Common customer needs: Coca-Cola, McDonalds Global channels: Carrefour, Toys R Us, Wal-Mart Marketing Transfers and Global Branding: IBM, Toyota, Bic, Kodak

Lead Countries: Made in xxxx. Countries have developed a name for some products, e.g., Japan for consumer electronics, Switzerland for watches, USA for computer software, etc.


Cost Drivers Economies of scale: expensive

to set up production but they could service any market such as steel and microprocessors


Cost Drivers Economies of scale: steel and microprocessors

Steep Experience Curves: knowledge and technology intensive sectors: aircraft


Cost Drivers Economies of scale: steel and microprocessors Steep Experience Curves: knowledge and technology intensive

sectors: aircraft

Low Cost Production: low cost labor (textiles)


Cost Drivers Economies of scale: steel and microprocessors Steep Experience Curves: knowledge and technology intensive

sectors: aircraft Low Cost Production: textiles

Favorable Logistics: transportation costs important as we decide where to produce: lumber, non-specialty chemicals


Cost Drivers Economies of scale: steel and microprocessors Steep Experience Curves: knowledge and technology intensive sectors:

aircraft Low Cost Production: textiles Favorable Logistics: transportation costs important) lumber, chemicals

New Product Development Costs: are rising due to short life of their products that require higher return on their investment (airlines, telecommunications, chips, pharmaceuticals )


Competitive DriversCompeting with imports and

other global rivals have placed increasing pressures on both domestic and international companies to be competitive in national and international markets.


Government DriversUnited Nations, and its agencies

like the IMF, World Bank and WTO: free trade, privatization (but can retard also)


Globalization and Information Technologies

Inter-firm linkages International new product development has become more quicker

Customer responsiveness has been reduced from 125 days to about 10 days due to supply chain

Inter-organizational systems (IOS) connecting insurance, banks, customs, immigrations to minimize duplication

Internet-based E-commerce

Extranet: allowing outside parties limited access to the company’s information system

Intranet Groupware technology allowing email, screen sharing, and other forms of global communications have allowed around the clock work on projects

Organizational Memory System that allows access to past information and strategies and therefore enhances the ability of the decision-makers to do a better job

Preparing the Company for Internationalization & Globalization

Focusing the Organization: Corporate Competencies

Focusing the Organization: Supply Chain Restructuring

Developing Leadership and Management Capabilities

Globalizing the Corporate Culture

Preparing the Company for Globalization

Focusing the Organization Corporate Competencies – those activities that have

proven international potential – hard decisions must be made

on activities that do not add value to the globalization move

World Business Analysis & Opinion: What do you think?

100+ year old essentially family-run Italian firm is an automobile producer (all types, from basic to luxury—half the company’s

sales). It also produces trucks, agricultural tractors, construction equipment, trains, and is in chemicals, publishing and insurance.

It needs to internationalize and globalize its operations. What should its first steps be?

-


Focusing the Organization Supply Chain Restructuring De-layer corporate hierarchies for quicker

decisions Rethink manufacturing systems to close

unproductive plants and consolidate production Reevaluate supplier relationships to focus on a

few, well-positioned providers Reassess distributor capabilities for the global

arena


Developing Competent Leadership and Management Capabilities

Global Leadership Characteristics Unbridled Inquisitiveness : the desire to

learn and the ability to enjoy the constant stimulation and challenges

Personal characteristics: The ability to connect socially and emotionally with wide varieties of individuals

Duality: senior management’s ability to balance global and local considerations in making

Savvy: Management leaders have instinctive recognitions of strategic tradeoffs


Developing Leadership and Management Capabilities

Developing Global Leaders International travel to see and learn other

cultures Global team experiences to see and learn

the decision making process and social interaction at the local level with

Cross-cultural training Overseas assignments


Globalizing the Corporate Culture What is Corporate Culture

Authority structures

Degree of organizational formality

Information flows

Tolerance for maverick behaviors

Competitive or cooperative culture

Decision-making apparatus

Organizational focus

Organizational structure

Gender orientations


Globalizing the Corporate Culture

Deciding on Corporate Cultures in Foreign Markets: no ‘right’ or wrong answers

Global Standardization of Corporate Cultures is the trend but caution is always required


Globalizing the Corporate Culture Adapting Corporate Cultures to National

Culture Influences depends on: Societal competitiveness: the amount of

competition within societies—political, economic, social class systems

Shareholder-Stakeholder Orientations: the specific objectives or audiences corporate cultures oriented toward: spread of capitalism vs. local needs

National culture influences on corporate cultures


8-2: How would you globalize a corporate culture?

-


National Culture Influences on Corporate Cultures

Power Distance: the extent to which strong social class distinctions are maintained at societal and corporate levels

Individualism/Collectivism: the degree to which individual or group actions are the bases for getting issues resolved

Masculine and Feminine Societies: the tolerance levels for aggressive behaviors and their gender orientations

Uncertainty Avoidance: the extent to which societal behaviors are risk-oriented or risk-averse

Long Versus Short Term Orientations: East-West contrasts


8-3: A large US multinational operating in Malaysia noticed that US expatriates and local managers were not on the same cultural page. In particular: (i) Malaysian managers took fewer initiatives in front of their bosses; (ii) they often said ‘yes’ when they meant ‘no’; (iii) they were upset when a lower status US engineer openly

disagreed with his boss in a meeting (iv) Malaysian managers copied everyone in their e-mails. Why do you think?

-

Effects of Globalization Industry Structure

Effects Organizational

Structure Effects Corporate Culture

Effects Relationships

Among Strategies, Structures and Corporate Cultures

Effects of Globalization

Industry Structure Effects At the national level, domestic firms must

attain critical mass size to deal with foreign competitors

At the regional level, firms need to attain regional market coverage and scale economies to compete against other global producers

At the worldwide level, industry structures have been affected by a series of ‘mega-mergers’ between large international companies


Organizational Structure Effects

International department Worldwide functional structure Worldwide product structure Geographic structures

International Division Structure Headquarters

Domestic Division

International Division

Regional Managers

Latin America Europe Asia

Worldwide Functional Structure

Headquarters

Vice Presidents – Worldwide Responsibilities

Manufacturing Marketing R & D Finance Human Resource

Markets 1----nProducts 1----n

Worldwide Product Structure

Headquarters

Product Division 1

Product Division 2

Product Division 3

Product Division ‘n’

Region 1 Region 2 Region ‘n’

Geographic Structure Headquarters

Region 1 Region 2 Region 3 Region ‘n’

etc.Country 1 Country 2 Country

‘n’

Product 1 Product 2 Product ‘n’


Corporate Culture Adjustments Ethnocentric corporate cultures emphasize home-

market orientations in strategic decision making and attitudes: ‘made in’ advantages, alcohol, fashion, food

Polycentric operations involve complete host country orientations; competitive advantage based on responsiveness

Regiocentric cultures blend national subsidiaries within regions into cohesive strategy-making units; regional brands, supply chains

Geocentric corporate cultures are totally globally-oriented; no regard for individual national cultures


Relationships Among Strategies, Structures, and Corporate Cultures

Causes of Change: marketplace change and new strategy; new structure (M & A, JVs); leadership changes

Relationships among international strategies, structures, and corporate cultures: ethnocentric and exporting; polycentric and consumer goods; regional, global products=regiocentric/geocentric

Financing International and Global Operations

Equity Options Using Outside Financing: availability of national stock exchanges; appear ‘local’

Equity Options Using Internal Financing: cross-holdings of shares among subsidiaries; good control; protection from takeovers

Debt Options Using External Financing: local financial institutions must be sound; low interest rates

Debt Options and Internal Financing: borrowing from HQ/subsidiaries; can adjust interest rates according to subsidiary/market needs

Key Points Defining internationalization Defining globalization Measuring them? Globalization drivers Preparing for globalization Globalizing corporate cultures Effects of globalization on

industries, organizations, corporate cultures

Financing foreign operations

Key Points

Internationalization occurs as firms extend products and services into foreign markets.

As companies globalize, they must balance pressures to globally integrate their operations with pressures to localize output.

Globalization can be measured objectively through foreign percentages of assets, sales, and employment.

Key Points

Globalization drivers can be based on market, cost, competitor, or government factors.

Companies prepare for globalization by assessing corporate competencies, supply chains, leadership capabilities, and corporate cultures.

Key Points

Globalizing corporate cultures involves defining and critically examining organizational relationships, communication patterns, and employee behaviors.

Effects of globalization must be assessed for industry structure, organizational structure, and corporate culture

International firms have a number of options in financing their internationalization and globalization efforts.

Chapter 8 Internationalization and Globalization

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Transcript of Chapter 8 Internationalization and Globalization