Global Strategy New

8/3/2019 Global Strategy New

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Global Strategies

Presented by:-

Romy Barik

Sneha Banerjee

Hemant Gaurkar

Robin Bhatt


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Globalisation-

To gain new customers

To achieve lower costsTo obtain economies of scaleTo manage competition

Globalisation is growing interdependenciesamong countries reflected in increase in cross borderflow goods, services and capital.

Reasons for Globalisation-


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Patterns of global expansion and entry modes-

Exporting-

Generally the first stage of international expansion, a

company exports a product through a distributer or agent.

It serves two main purposes-

1. Low cost incurred as the company doesnt need to

establish the manufacturing facilities.

And hence no extra costs to manage them.

2. There is an increase in the volume of sales and

enables production in bigger bulks.


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Advantages and Disadvantages-

Advantages-

Low cost is incurred.

Reduces the potential risk of operating overseas.

Economies of scale can be achieved.

Disadvantages-

Some of the products may be fragile, bulky or perishable

and hence making the transport cost not feasible for the

company.

Some services may need face to face contact.

Trade barriers and heavy taxation may make the product

more expensive when compared to competing products

offered by domestic firms.


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Licensing-

A firm makes a choice of giving a foreign firm the right

to produce and sell the firms products in the foreign country in

exchange for a fee or royalty based on the number of units sold.

Though the functions of production, marketing andservicing are moved abroad, the firm doesnt incur capital cost

in set up or management.


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Disadvantages-

Doesnt follow the economies of scale

Technological know how have to be provided to the firm

which is licensed

Compromisation with the quality standards is possible, this

might hurt the image of licensor

Licensees can become competitors

Advantages-

Nominal cost in venturing abroad through licensing

Gets a stream of additional revenue


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Franchising-

It involves giving a franchisee the right to use a

companys trademark and providing the assistance in

setting up and running the business.

A franchisee has to pay fees and royalties and

is responsible for maintaining the standards set by the

franchiser


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Advantages-

Able to get a revenue stream without much investment

Can rapidly expand numerous markets as it doesnt have to bear

capital cost or be actively involved in details about setting up and local

regulations.

Disadvantages-

Major disadvantage is that the franchisee might not adhere to the

standards of the franchisor.

Problems in both Licensing and Franchisingemerge because of lack of control over the licensees

or franchisees.


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FUNCTIONAL SUBSIDIARYFirms with need to have more control in specific functionsform a Functional Subsidiary in a foreign country .

For Example :

For the control in sales and service of products , a sales subsidiarymay be formed in the host country.

The firm retains the production and research & developmentactivities in its home country.

The sales subsidiary performs the marketing , sales and service ofthe product.


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Advantages :

1. Enjoying economies of scale.2. Allows to dedicate resources to criticalfunctions.

3. Less investment as compared to setting upcomplete operational unit.

Disadvantages :

1. Transport costs and import duties.2. Firms might experience higher transactional

cost and forgo of lower operating costs.


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PARTLYORWHOLLYOWNEDSUBSIDIARY

If the market is large or has strategic importance , a firm cango for partly or wholly owned subsidiary performing all or mostvalue chain activities in the host country .

Firm has complete control over operations in that country.

Profits are not shared .

Sole management and strategic coordination.

Secrets and crucial processes need not to be shared.

High risk of capital in going to foreign country alone.

A partly owned subsidiary would allow the firms to benefit from the

participation of local investors or other local or foreign firms in theequity.


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JOINT VENTURES One of the major way of entering into a foreign market is by way

of Joint venturing.

In a joint venture two or more firms decide to contribute to theequity of a third and new entity .

Equity contributions of joint venture can be equal or unequal .

The major decision is how to share the control but usually mostvalue chain activities are performed by joint ventures.

Example :Indian government and Suzuki Motors of Japan have had a verysuccessful joint venture since 11981 i.e. Maruti Udyog.It had the Market share of nearly 60% in December 2002.


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Advantages :

1. Complementary Expertise.2. Key connections can be brought together.3. Financial burden and Risk is shared.4. Government Policy regarding Joint venture.

Disadvantages :

1. Partners do not get along.2. Decisions become delayed .

3. Dependency increases.4. Partners may exploit each others expertise.


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STRATEGICCHOICES

Four basic strategies to enter and compete in theinternational environment:

International strategy

Multi domestic strategy

Global strategy

Transnational strategy

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FOURBASICSTRATEGIES


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INTERNATIONALSTRATEGY

Create value by transferring valuable corecompetencies to foreign markets thatindigenous competitors lack

Centralize product development functions at

homeEstablish manufacturing and marketing

functions in local country but head officeexercises tight control over it

Limit customization of product offering andmarket strategy Strategy effective if firm faces weak pressures

for local responsive and cost reductions

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MULTIDOMESTICSTRATEGY

Main aim is maximum local responsiveness

Customize product offering, market strategyincluding production, and R&D according tonational conditions

Generally unable to realize value from experiencecurve effects and location economies

Possess high cost structure

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GLOBALSTRATEGY

Focus is on achieving a low cost strategy byreaping cost reductions that come fromexperience curve effects and locationeconomies

Production, marketing, and R&D concentratedin few favorable functions

Market standardized product to keep costs low

Effective where strong pressures for cost

reductions and low demand for localresponsiveness Semiconductor industry

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TRANSNATIONALSTRATEGY

To meet competition firms aim to reducecosts, transfer core competencies whilepaying attention to pressures for localresponsiveness

Global learning Valuable skills can develop in any of the

firms world wide operations Transfer of knowledge from foreign

subsidiary to home country, to other foreignsubsidiaries

Transnational strategy difficult task due tocontradictory demands placed on theorganization Example : Caterpillar

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ADVANTAGESANDDISADVANTAGESOFTHEFOURSTRATEGIES


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LOCATION, LOCATION, LOCATION

A classic Make Or BuyDecision

offshoring

Offshore, Near Shore, BestShore, No Shore,


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Offshoring

Production relocation across national boundaries to takeadvantage of cost savings and other benefits in countries where

products or services can be produced more efficiently.


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PROSAND CONS

Pros

Reduced labor cost

Improved proximity to materials

Superior cultural work ethics

cons

Cultural differences

Cost of monitoring a global supply chain


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KEY OUTCOME VARIABLES

Labor cost

Relative Labor Sources

Logistics Cost

Relative Socio-Political Risk Profiles


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POTENTIAL COST SAVINGS

Companies that globalize their cost structures to

include low cost countries can realize savings of20-40% in the landed cost of their products.


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EXPORTING AMERICA

Companies:

Anheuser-Busch

AOL

Boeing Coca-Cola

Dell Computer

Delta Airlines

Gateway Computer Home Depot

Lowes


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WHY OUTSOURCE/ OFFSHORE?

Main Factor: Huge Cost Savings

30-60% Overall

LaborTechnologyInvestments

ProcessEfficiencies


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ADDITIONAL BENEFITS

Access to Skills and Capabilities Beyond theCompanys

Speed

Wake Up Call or Motivational Impact Improved Operational Visibility

Access to Instant Capacity

Financing Flexibility Improved Service/ Decrease Time To

Market


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COST SAVINGS BREAKDOWN


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WOW! HUGE COSTREDUCTIONS!

Offshoring is the Way To Go RIGHT???????


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NOT SO FAST MY FRIEND. THEREARESOME RISKS INVOLVED WITHTHAT

DECISION!


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THE MAJOR RISKS IN OFFSHORING

Contract

Privacy and Security

Diminishing Technical Returns

Increased/ Hidden Costs Loss of Expertise (Mainly IT)

Impact On Your Employees

Impact on Your Customers

Failure of Outsource Provider


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ADDITIONAL OFFSHORING RISKS

Economic Risks

Culture Risks

Demographic Risks

Political Stability Risks


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WHAT MAKES YOUR BUSINESS AHOT CANDIDATEFOR

OFFSHORING?

Top 3 Candidate Processes

Processes are Labor Intensive

Processes are Scale - and Efficency Driven

Repetitious

Processes Allow Remote Execution

T


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TAPPINGTHEMASSMARKETINEMERGINGECONOMIES

Why companies are jumping into different markets?

Saturated home market Large population in other market

To grab the opportunity in new market

Also global expansion


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COMPETINGWITH MULTI-NATIONALFIRMS

High pressure to globalize Dodger Contender

Low pressure to globalize Defender Extender

strengths suitable Strengths that can be

for local market transferred abroad

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