Chapter 05 – The Global Environment
5-1
distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a webs ite, in
whole or part.
Chapter 5
The Global Environment
Chapter Summary
The differences between global and multidomestic industries about the location and coordination
foreign branching, and foreign subsidiaries.
Learning Objectives
1. Explain the importance of a company’s decision to globalize.
2. Describe the four main strategic orientations of global firms.
3. Understand the complexity of the global environment and the control problems that are
faced by global firms.
4. Discuss major issues in global strategic planning, including the differences for
multinational and global firms.
5. Describe the market requirements and product characteristics in global competition.
6. Evaluate the competitive strategies for firms in foreign markets, including niche market
exporting, licensing and contract manufacturing, franchising, joint ventures, foreign
branching, private equity, and wholly owned subsidiaries.
Lecture Outline
I. Globalization
A. Globalization refers to the strategy of approaching worldwide markets with
standardized products.
1. Such markets are most commonly created by end consumers that prefer lower-
Chapter 05 – The Global Environment
5-2
distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a webs ite, in
whole or part.
2. Global corporations headquartered in one country with subsidiaries in other
B. Awareness of the strategic opportunities faced by global corporations and of the threats
posed to them is important to planners in almost every domestic U.S. industry.
1. Among corporations headquartered in the U.S. that receive more than 50 percent
2. The largest U.S. globals earn an average of 37 percent of their operating profits
C. Understanding the myriad and sometimes subtle nuances of competing in global
1. Exhibit 5.1, Global Strategy in Action, describes Coke’s strategic approach to
2. Exhibit 5.3, Projected Economic Growth, reports on the growth in national
II. Development of a Global Corporation
A. The evolution of a global corporation often entails progressively involved strategy
levels.
1. The first level has minimal effect on the existing management orientation or on
a) Entails export-import activity
2. The second level requires little change in management or operation.
3. The third level typically is characterized by direct investment in overseas
a) Requires large capital outlays and the development of global management
skills
b) Domestic operations continue to dominate policy, but this type of firm is
Chapter 05 – The Global Environment
5-3
distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a webs ite, in
whole or part.
4. The most involved level is characterized by a substantial increase in foreign
a) The firm begins to emerge as a global enterprise with global approaches to
B. Some firms down play their global nature (to never appear distracted from their
domestic operations), whereas others highlight it. Examples include:
III. Why Firms Globalize
A. The technological advantage once enjoyed by the U.S. has declined dramatically during
the past 30 years.
1. Through globalization, U.S. firms often can reap benefits from industries and
technologies developed abroad.
2. In many situations, global development makes sense as a competitive weapon.
a) Direct penetration of foreign markets can drain vital cash flows from a
3. Firms that operate principally in the domestic environment have an important
a) Should they be proactive by entering global markets in advance of other
b) Or should they be reactive by taking the more conservative approach and
B. Strategic Orientations of Global Firms
1. Multinational corporations typically display one of four orientations toward their
Chapter 05 – The Global Environment
5-4
distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a webs ite, in
whole or part.
a) A company with an ethnocentric orientation believes that the values and
b) If the corporation has a polycentric orientation, then the culture of the
c) In contrast, a regiocentric orientation exists when the parent attempts to
d) Finally, a corporation with a geocentric orientation adopts a global systems
2. American firms often adopt a regiocentric orientation for pursuing strategies in
Europe.
3. Global Strategy in Action Exhibit 5.4, Orientation of a Global Firm, shows the
IV. At the Start of Globalization
A. External and internal assessments are conducted before a firm enters global markets
B. External assessment involves careful examination of critical features of the global
Strategy in Action, describes the J-curve.
1. Expansion of industrial facilities, favorable balances of payments, and
C. Internal assessment involves identification of the basic strengths of a firm’s operations.
1. These strengths are particularly important in global operations, because they are
3. The resources that should be analyzed include, in particular, technical and
4. The global capabilities that should be analyzed include the firm’s product delivery
Chapter 05 – The Global Environment
5-5
distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a webs ite, in
whole or part.
D. A firm that gives serious consideration to internal and external assessment is Business
1. As shown in Exhibit 5.6, Global Strategy in Action, these categories include
V. Complexity of the Global Environment
A. Global strategic planning is more complex than purely domestic planning. Note the
following five contributory factors:
1. Globals face multiple political, economic, legal, social, and cultural environments
as well as various rates of changes within each of them.
a) Occasionally, foreign governments work in concert with their militaries to
b) International firms must resist the temptation to benefit financially from such
2. Interactions between the national and foreign environments are complex, because
3. Geographic separation, cultural and national differences, and variations in
4. Globals face extreme competition, because of differences in industry structures
5. Globals are restricted in their selection of competitive strategies by various
VI. Control Problems of the Global Firm
A. An inherent complicating factor for many global firms is that their financial policies
2. The conflict is accentuated by the use of the various schemes to shift earnings
Chapter 05 – The Global Environment
5-6
distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a webs ite, in
whole or part.
B. Different financial environments make normal standards of company behavior
1. It becomes increasingly difficult to measure the performance of international
C. Important differences in measurement and control systems often exist.
1. Fundamental to the concept of planning is a well-conceived, future-oriented
2. Consistent approaches to planning throughout a firm are needed for effective
3. In the global firm, planning is complicated by differences in national attitudes
increased attention to strategic planning.
1. Such planning will aid in coordinating and integrating the firm’s direction,
4. Finally, it helps the management of overseas affiliates become more actively
VII. Global Strategic Planning
A. The strategic decisions of a firm competing in the global marketplace become
B. Multidomestic Industries and Global Industries
1. Multidomestic Industries
a) International industries can be ranked along a continuum that ranges from
b) A multidomestic industry is one in which competition is essentially
Chapter 05 – The Global Environment
5-7
distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a webs ite, in
whole or part.
(1) Thus, even if global corporations are in the industry, competition in one
(2) Such industries include retailing, insurance, and consumer finance.
c) In a multidomestic industry, a global corporation’s subsidiaries should be
(1) Thus, the global strategy of such an industry is the sum of the strategies
(2) The primary difference between a domestic firm and a global firm
d) Factors that increase the degree to which an industry is multidomestic
include:
(1) The need for customized products to meet the tastes or preferences of
(2) Fragmentation of the industry, with many competitors in each national
(3) A lack of economies of scale in the functional activities of firms in the
(4) Distribution channels unique to each country.
2. Global Industries
a) A global industry is one in which competition crosses national borders.
(1) In a global industry, a firm’s strategic moves in one country can be
(2) The very rapidly expanding list of global industries includes
(3) Many authorities are convinced that almost all product-oriented
b) Strategic management planning must be global for at least six reasons:
(1) The increased cope of the global management task
(2) The increased globalization of firms
Chapter 05 – The Global Environment
5-8
distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a webs ite, in
whole or part.
c) A firm in a global industry must maximize its capabilities through a
worldwide strategy.
(1) Such a strategy necessitates a high degree of centralized decision
across subsidiaries.
d) Among the factors that make for the creation of a global industry are:
(1) Economies of scale in the functional activities of firms in the industry
(2) A high level of R&D expenditures on products that require more than
one market to recover development costs
direction investment.
e) Six factors that drive the success of global companies are listed in Global
Strategy in Action Exhibit 5.7, Factors That Drive Global Companies.