chapter 12 - managing environment (managing the global economy)

issue: types of multinationals entry mode & business strategies.

Global sourcing/ outsourcing

• purchase materials from all over the world (cheapest)

• APPLE - source components (microchips, cameras, screens) from India and China

Exporting

• make product in home country

• sell in host country

advantage

1. no need to invest in host country

2. less risk for cost

3. mass production - economies of scale

disadvantage

1. risk of accidents

2. transportation cost

3. tariff barriers

Licensing/ Franchising

Licensing

• use brand name/ technology

• DISNEY, MICROSOFT

Franchising

• follow SOP with freedom to run

• SUBWAY, MCDONALDS

advantage

1. no capital intensity

2. quick to venture

disadvantage

1. stress - quality and consistency

2. fear of imitation

Strategic Alliance

• joint venture

• partnership with foreign country

• GSX and Pfizer

advantage

1. share knowledge, technology

2. customer unique preferences

3. share risk of venturing

disadvantage

1. conflict over ownership/ control/ resources

2. fear of partner exploiting business for own interest/goals
   

Foreign subsidiaries

• direct investment in host country

• set up independent/ separate office/ production facilities

• TOYOTA - subsidiaries from North America and Europe - manufacture and sales outside of Japan

advantage

1. fully in control - complete decision

2. retain complete profit

3. less risky - global resource ready

disadvantage

1. born full cost if loss

2. high cost for global investment

Advantages for entry modes

1. adapt to local consumer preference

2. global presence

3. venture in new market

4. reduce cost

International company

• produce in home country

• sell internationally

• minimal local customization

• centralized R&D

• duplicate manufacturing and marketing in host country

• FERRARI - produce in Italy sell internationally

International strategy

• low pressure for cost reduction

• low pressure for local responsiveness

Multi-domestic company

• decentralize management to host country

• MCDONALS - maintain core menu, modify to suit local taste

Multidomestic strategy

• low pressure for cost reduction

• high pressure for local responsive

Polycentric view

• employees in host country knows best practices

Global company

• centralize management in home country (HQ)

• APPLE - designs for global audience, consistent brand image

Global strategy

• high pressure for cost reduction

• low pressure for local responsiveness

Ethnocentric view

• home country knows best practice

Transnational company

• IKEA - global standardization but adapt product based on home size and local preferences

Transnational strategy

• high pressure for cost reduction

• high pressure for local responsiveness

Geocentric view

• use best practices from around the world

Expatriate manager - agency

• citizen of one country working in another country

successful because

1. open mindedness

2. flexible

3. adventurous

4. cultural intellifence

5. language proficiency