MGT 4090 Management Policy & Strategy - Global Strategy

Date: Tue, 31 Mar 2026

Definition: Globalization is a process characterized by closer integration and exchange between countries and peoples worldwide.
Enablers:
- Falling trade and investment barriers: This refers to the reduction of regulations and tariffs that impede international trade and investment.
- Advances in telecommunications: These advancements facilitate communications across borders.
- Reductions in transportation costs: Lower costs associated with shipping and transport have made global trade more feasible.

Multinational Enterprise (MNE): A firm that deploys resources and capabilities in two or more countries.
Role in Corporate Strategy: It forms part of a firm's corporate (and global) strategy aimed at gaining and sustaining a competitive advantage, enabling competition against both foreign and domestic companies.
Foreign Direct Investment (FDI): Investments made by a firm in value chain activities abroad, which further emphasizes the commitment to international operations.

Globalization 1.0 (1900 to 1941):
- Focused on sales and operations with some procurement.
- Strategy flowed primarily from headquarters to international sites.
Globalization 2.0 (1945 to 2000):
- Aimed at reconstructing economies damaged by wars.
- Focused on European countries, Japan, and Australia.
- Increased local responsiveness with headquarters setting goals while international sites influenced tactics.
Globalization 3.0 (21st Century):
- Business functions are strategically located based on costs, capabilities, and PESTEL (Political, Economic, Social, Technological, Environmental, and Legal) factors.
- Companies operate on a continuous basis: 24 hours a day, 365 days a year.

The world is currently described as only semi-globalized.
Level of Globalization: Ranges from 10% to 25% of total interactions.
- Indicators:
- Only 2% of all voice-calling minutes are cross-border.
- 3% of the world’s population are first-generation immigrants.
- 9% of investments come from foreign direct investments.
- 15% of patents list at least one foreign inventor.
- 18% of Internet traffic crosses national borders.
Future Implications: There may be a retreat from globalization due to a rise in nationalism.

Access to a Larger Market:
- Enables multinational enterprises to achieve economies of scale and scope by participating in larger markets.
- Increases opportunities to outcompete local rivals.
- Helps firms in smaller economies achieve growth and maintain competitive advantages.
Access to Low-Cost Input Factors:
- Essential for multinational enterprises pursuing a cost leadership strategy.
- Examples of low-cost raw materials include:
  - Lumber
  - Iron ore
  - Oil
  - Coal
- Key drivers of globalization include lower labor costs. Countries that play critical roles include:
  - India: Provides well-educated, English-speaking young professionals.
  - China: Offers low labor costs and efficient infrastructure.
Develop New Competencies:
- Important for multinational enterprises that pursue a differentiation strategy.
- Provides access to:
  - Communities of learning
  - Specific geographic regions
  - Location economies
- Enables optimization of value chain activities geographically.
- Transition from one-way innovation models to polycentric innovation strategies.

Liability of Foreignness:
- Firms may face problems due to unfamiliar cultural environments.
- Economic environments can be difficult to navigate, affecting operational efficiency.
- Challenges include coordinating across geographic distances, which can incur additional costs.
Loss of Reputation:
- Reputation is a valuable resource comprising innovation, customer service, and brand perception.
- A diminished reputation can affect competitiveness, particularly through:
  - Exploitation of low wages, long working hours, and subpar working conditions.
  - Issues arising from corrupt local governments.
  - Enforcement challenges regarding safety standards.
- This issue is closely tied to corporate social responsibility (CSR).
Loss of Intellectual Property (IP):
- Protecting IP in foreign markets poses significant challenges, especially for types like software, movies, and music.
- Risk of copyright infringements increases, exacerbated by the practice in some countries of initially partnering to reverse-engineer proprietary capabilities.
- Such challenges lead to increased exposure of intellectual property.

Overview: The concept of distance represents significant costs and risks associated with expansion.
CAGE: An acronym indicative of various types of distance:
- Cultural Distance
- Administrative and Political Distance
- Geographic Distance
- Economic Distance
The framework assists multinational enterprises in determining optimal countries for expansion.

Defined as the disparity in social norms, morals, beliefs, and values between a firm's home country and host country.
Components of Cultural Distance:
- Power distance
- Individualism vs. collectivism
- Masculinity vs. femininity
- Uncertainty avoidance
- Long-term orientation
- Indulgence vs. restraint

Captured through various factors, including:
- Shared monetary or political associations among countries.
- Political hostilities that may exist.
- Strength or weakness of legal and financial institutions.
Significant political and administrative barriers may include:
- Tariffs
- Quotas
- Various restrictions on trade and investment.

Refers to the wealth and per capita income of consumers, influencing the feasibility of cross-border trade.
Economic relationships are influenced by:
- Wealthy countries engaging more in cross-border trade.
- Wealthy countries typically trading with other wealthy nations due to similar experiences in scale, scope, and standardization, as well as shared infrastructure and resources.
- Wealthy countries trading with poorer nations driven by access to low-cost input factors (economic arbitrage).

Date: Tue, 31 Mar 2026