McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

The Global Environment

Chapter 5
Globalization
▪ Globalization refers to the strategy of pursuing
opportunities anywhere in the world that
enable a firm to optimize its business functions
in the countries in which it operates.

5-3
Why Firms Globalize?
▪ U.S. firms 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 U.S. markets.
Question: Should firms be proactive or reactive?

5-4
Reasons for Going Global
PROACTIVE REACTIVE
 Additional resources  Trade barriers
 Lowered costs
 International customers
 Incentives
 New, expanded markets  International competition
 Exploitation of firm-specific  Regulations
advantages  Chance
 Taxes
 Economies of scale
 Synergy
 Power and prestige
 Protect home market

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4 Strategic Orientations of Global Firms
▪ Ethnocentric orientation
▪ When the values and priorities of the parent
organization guide the strategic decision making of
all its international operations

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4 Strategic Orientations of Global Firms (contd.)

▪ Polycentric orientation
▪ When the culture of the country in which the
strategy is to be implemented is allowed to
dominate a company’s international decision
making process

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4 Strategic Orientations of Global Firms (contd.)

▪ Regiocentric orientation
▪ When a parent company blends its own
predisposition with those of its international units
to develop region-sensitive strategies.

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4 Strategic Orientations of Global Firms (contd.)

▪ Geocentric orientation
▪ When an international firm adopts a systems
approach to strategic decision making that
emphasizes global integration.

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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
 Global face extreme competition
 Global are restricted in their selection of competitive strategies
by various regional blocs and economic integrations

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Control Problems of the Global Firm
 Financial policies typically are designed to
further the goals of the parent company and
pay minimal attention to the goals of the host
countries
 Different financial environments make normal
standards of company behavior more
problematic
 Important differences in measurement and
control systems often exist
 These problems can be reduced through more
attention to strategic planning

5-11
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. Acquisition
7. Wholly Owned Subsidiary

5-12