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.
C. The Global Challenge
1. Each global firm must decide which of its corporate functional activities should be
2. Location and Coordination of Functional Activities
a) Typical functional activities of a firm include purchases of input resources,
service.
(1) A multinational corporation has a wide rang of possible location options
(2) A multinational corporation may have each location perform each
b) A multinational corporation also must determine the degree to which
(1) Such coordination can be extremely low, allowing each location to
3. Location and Coordination Issues
How a particular firm should address location and coordination issues depends on
a) As discussed earlier, an industry can be ranked along a continuum that ranges
b) Little coordination of functional activities across countries may be necessary
c) However, as its industry becomes increasingly global, a firm must begin to
4. Going global impacts every aspect of a company’s operations and structure.
a) As firms redefine themselves as global competitors, workforces are
b) The most significant challenge for firms, therefore, is the ability to adjust to
D. Market Requirements and Product Characteristics
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.
1. Businesses have discovered that being successful in foreign markets often
demands much more than simply shipping their well-received domestic products
overseas.
desired.
b) As shown in Exhibit 5.8, Global Strategy in Action, all markets can be
c) Standardized products in all markets include color film and petrochemicals,
2. Similarly, products can be arrayed along a continuum from products that are not
a) Products with a fast rate of change include computer chips and industrial
1. Exhibit 5.8 shows that the two dimensions can be combined to enable companies
VIII. Competitive Strategies for Firms in Foreign Markets
A. Strategies for firms that are attempting to move toward globalization can be categorized
1. Complexity refers to the number of critical success factors that are required to
2. When a firm must consider many such factors, the requirements of success
3. Diversity, the second variable, refers to the breadth of a firm’s business lines.
B. Niche Market Exporting
1. The primary niche market approach for the company that wants to export is to
2. Combining product criteria from both the U.S. and the foreign markets can be
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. Exporting usually requires minimal capital investment. The organization maintains
C. Licensing and Contract Manufacturing
1. Establishing a contractual arrangement is the next step for U.S. companies that
a) Licensing involves the transfer of some industrial property right from the
b) Most tend to be patents, trademarks, or technical know-how that are granted
2. Another licensing strategy open to U.S. firms is to contract the manufacturing of
3. U.S. firms that use either licensing option will benefit from lowering the risk of
a) Clearly, alliances of this type are not for everyone.
4. Two major problems exist with licensing.
a) One is the possibility that the foreign partner will gain the experience and
b) The experience of some U.S. electronics firms with Japanese companies
c) The other potential problem stems from the control that the licensor forfeits
d) This loss of control minimizes a company’s degrees of freedom as it
D. Franchising
1. A special form of licensing is franchising, which allows the franchisee to sell a
a) In exchange, the franchisee pays a fee to the parent company, typically based
b) The franchise is operated by the local investor who must adhere to the strict
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.
2. Franchising is so popular that an estimated 500 U.S. businesses now franchise to
E. Joint Ventures
1. As the multinational strategies of U.S. firms mature, most will include some form
2. Compared with full ownership of the foreign entity, JVs provide a variety of
benefits to each partner.
a) U.S. firms without the managerial or financial assets to make a profitable
independent impact on the integrated foreign markets can share management
3. JVs speed up the efforts of U.S. firms to integrate into the political, corporate, and
4. Although joint ventures can address many of the requirements of complex markets
and diverse product lines, U.S. firms considering either equity- or non-equity-
based JVs face many challenges.
a) For example, making full use of the native firm’s comparative advantage
b) Additionally, dealing with a host-company management requires the
c) Addressing such challenges with well-defined covenants agreeable to all
d) Equally important is the compatibility of partners and their enduring
commitments to mutually supportive goals.
endangered.
F. Foreign Branching
1. A foreign branch is an extension of the company in its foreign market—a
a) Host countries may require that the branch be “domesticated,” that is, have
b) The branch most likely will be outside any U.S. legal jurisdiction, liabilities
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.
G. Equity Investment
1. Small and medium-size enterprises with strong growth potential frequently have
a) These firms often enlist the support of a venture capital firm or private
b) In exchange for a private equity stake, which is sometimes a majority or
H. Wholly Owned Subsidiaries
1. Wholly owned foreign subsidiaries are considered by companies that are willing
and able to make the highest investment commitment to the foreign market.
a) These companies insist on full ownership for reasons of control and
managerial efficiency.
2. Fully owned subsidiaries can be started either from scratch or by acquiring
established firms in the host country.
3. U.S. firms seeking to improve their competitive postures through a foreign
business culture.
b) Second, the host country expects both a long-term commitment from the U.S.
c) Fortunately, hiring or training foreign managers for leadership positions is
contacts.
e) Third, changing standards mandated by foreign regulations may eliminate a
f) Product design and worker protection liabilities also may extend back to the
2. The strategies shown in Exhibit 5.11 are not exclusive – they may be undertaken