Ethical Concerns When Firms Market Standardized Products Globally by jxc10646

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									 Competing For Advantage

Part III – Creating Competitive Advantage
    Chapter 10 – International Strategy
The Strategic
International Strategy

 Key Terms

     International Diversification – strategy
      through which a firm expands the sales
      of its goods or services across the
      borders of global regions and countries
      into different geographic locations or
International Strategy
International Strategy

 Key Terms

     International Strategy – strategy through
      which the firm sells its goods or services
      outside the domestic market
Incentives for Using an International Strategy

    Increased market size

    Greater returns on major capital
     investments or on investments in new
     products and processes
    Greater economies of scale, scope, or
    A competitive advantage through location
Increased Market Size

   Domestic market may lack
   the size to support efficient
   scale manufacturing facilities
Return on Investment

  Large investment projects may require
   global markets to justify the capital
  Weak patent protection in some
   countries implies that firms should
   expand overseas rapidly in order to
   preempt imitators
Economies of Scale, Scope, and Learning

   Expanding size or scope of markets
    helps to achieve economies of scale
    in manufacturing as well as
    marketing, R&D, or distribution
   Costs are spread over a larger sales
   Profit per unit is increased
Location Advantages

 Low-cost markets may aid in developing
  competitive advantage
 Low-cost markets may achieve better access
  to critical resources:
        Raw materials
        Lower cost labor
        Key customers
        Energy
Expanding Internationally

 Decide whether the firm will follow an
  international corporate-level strategy (one
  that emphasizes a different approach to each
  international market), a standardized
  approach, or something in between
 Determine how to use the firm's distinctive
  competencies to create advantages in
  international markets through a business-
  level strategy
 Choose a mode for entering new markets
International Corporate-Level Strategies

 Type of corporate strategy selected will have
  an impact on the selection and
  implementation of business-level strategies
 Some corporate strategies provide each
  individual country unit with the flexibility to
  choose its own strategies
 Others dictate business-level strategies from
  the home office and coordinate resource
  sharing across units
Advantages of Regionalization

 Firms are better able to understand the
   cultures, legal and social norms, and other
   factors that are important for effective
   competition in those markets
 Entering regional markets sequentially
   (beginning in markets that are most familiar
   and have the largest and strongest product
   lines) can be an effective way of launching
   an international strategy
Liability of Foreignness

   Liabilities associated with foreign businesses in a
    highly different business environment can make
    competing on a worldwide scale risky and
   Several factors make operating a business in a
    foreign country difficult:
       Employment contracts and labor forces differ
       Host governments make different demands and
        requirements to compete in their markets
       Customers are not always understood
   Given these conditions, regional adaptation may be
    favored over a broad, global market approach
International Corporate-Level Strategies
 Multidomestic Strategy
 Key Terms
     Multidomestic Strategy – international strategy in
      which strategic and operating decisions are
      decentralized to the strategic business-unit
      (SBU) in each country to allow the units to tailor
      products to local markets
     Worldwide Geographic Area Structure –
      organizational structure that emphasizes
      national interests and facilitates efforts to satisfy
      local or cultural differences (used to implement
      the multidomestic strategy)
Multidomestic Strategy – Features
   Focuses on variations of competition within each
   Customizes products to meet specific needs and
    preferences of local customers
   Decentralizes the firm's strategic and operating
    decisions to business units in each country
   Takes steps to isolate the firm from global competitive
       Establish protected market positions
       Compete in industry segments most affected by
        differences among local countries
   Deals with uncertainty due to differences across
Worldwide Geographic Area Structure
 Global Strategy
 Key Terms
     Global Strategy – international strategy through
      which the firm offers standardized products
      across country markets, with the competitive
      strategy being dictated by the home office
     Worldwide Product Divisional Structure –
      organizational structure in which decision-making
      authority is centralized in the worldwide division
      headquarters to coordinate and integrate
      decisions and actions among divisional business
      units (used to implement the global strategy)
Global Strategy – Features

 Emphasizes economies of scale

 Is facilitated by improved global accounting
   and financial reporting standards
 Centralizes the firm's strategic and operating
   decisions at the home office
 Involves SBUs operating in each country
   that are interdependent
Global Strategy – Features (cont.)

 Home office attempts to achieve integration
   across SBUs, adding management
 Produces lower risk
 Is less responsive to local market
 Offers less effective learning processes due
   to the pressure to conform and standardize
Worldwide Product Divisional Structure
  Transnational Strategy
 Key Terms

     Transnational Strategy – international strategy
      through which the firm seeks to achieve both global
      efficiency and local responsiveness
     Flexible Coordination – building a shared vision and
      individual commitment through an integrated network
     Worldwide Combination Structure – organizational
      structure in which characteristics and mechanisms
      are drawn from both the worldwide geographic area
      structure and the worldwide product divisional
      structure (used to implement the transnational
Worldwide Combination Structure –
Competing Objectives

  Assets and operations may be
  Functions may be integrated/nonintegrated
  Relationships may be formal/informal
  Coordination mechanisms may leverage
  Mandates to subsidiaries may be
Worldwide Combination Structure –
 Strong educational component to support the
 Adaptation of core competencies in local
  economies to gain competitive benefits
 Effective corporate headquarters to foster
  leadership, shared vision, and strong
  corporate identity
 Centers of excellence to foster multiple and
  dispersed capabilities
Determinants of National Advantage
Choice of International Entry Mode

 Involves low expense to establish operations
  in host country
 Often involves contractual agreements
 Involves high transportation costs

 May have some tariffs imposed
 Offers low control over marketing and
 Involves low cost to expand internationally

 Allows licensee to absorb risks
 Has low control over manufacturing and
 Offers lower potential returns (shared with
 Involves risk of licensee imitating technology
  and product for own use
 May have inflexible ownership arrangements
Strategic Alliances

 Involve shared risks and resources

 Facilitate development of core
 Involve fewer resources and costs required
  for entry
 May involve possible incompatibility,
  conflict, or lack of trust with partner
 Are difficult to manage

  Allow for quick access to market

  Involve possible integration difficulties
  Are costly

  Have complex negotiations and transaction
New Wholly Owned Subsidiary

    Is costly
    Involves complex processes
    Allows for maximum control
    Has the highest potential returns
    Carries high risk
International Diversification and Returns

 Key Terms

    Offshoring –   offshore outsourcing
Multinational Firms –
Potential Advantages

   Economies of scale and
     Location advantages
     Increased market size
     Stabilized returns
     Reduce overall firm risk
International Diversification and Innovation

   Exposure to new products and markets

   Opportunity to integrate new knowledge
     into operations
   Generation of resources to sustain
     innovation efforts
International Expansion Risks

      Political risks
      Economic risks
Political Risks of International Expansion

     Government instability
     Conflict or war
     Government regulations
     Conflicting and diverse legal authorities
     Potential nationalization of private assets
     Government corruption
     Changes in government policies
Economic Risks

   Differences and fluctuations in currency
   Investment losses due to political risks
Complexity of Managing Multinational Firms

    Geographic dispersion
    Costs of coordination
    Logistical costs

    Trade barriers
    Cultural diversity

    Host government
    Ethical Questions

As firms internationalize, they may be tempted
to locate facilities where product liability laws
are lax in testing new products. Is this an
acceptable practice? Why or why not?
     Ethical Questions

Regulation and laws regarding the sale and distribution
of tobacco products are stringent in the U.S. market.
What are the ethical implications for U.S. pursuing
marketing strategies for tobacco products in other
countries that would be illegal in the U.S.?
    Ethical Questions

Some companies outsource production to firms
in foreign countries to save money. To what
extent is a company morally responsible for the
ways that workers are treated by the firms in
those countries?
     Ethical Questions

Global and multidomestic strategies call for different
competitive approaches. What ethical concerns might
surface when firms try to market standardized products
globally? When should firms develop different products
or approaches for each local market?
     Ethical Questions

Is a company morally responsible to support the U.S.
government as it imposes trade sanctions on other
countries, such as China, because of human rights
violations? What if a significant amount of its
international business involves one of those countries?
     Ethical Questions

Latin America has been experiencing significant
changes in both political orientation and economic
development. What strategies should foreign
international businesses implement, if any, to influence
government policy in these countries? Can businesses
realistically expect to influence political changes?

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