Understanding Global and Local Pressures Flashcards
What are the two sets of conflicting external pressures?
Forces of global integration (including worldwide innovation and learning forces)
Forces for national responsiveness
What are the forces for global integration?
- Exploitation of EOS and EOscope
- Exploiting cost differentials of FOPs across nations
- Liberalised trade environment
- Technological advances: communications and transport costs
- Forces of global learning and innovation
- Competitive positioning (global chess)
What are the forces for national responsiveness?
- National cultural differences; in ways of doing business, in consumer behaviour
- Host gov demands (policy)
- Growing pressures for localisation
What is the definition of economies of scale?
They exist wherever proportionate increases in the amounts of inputs employed in a production process result in lower unit costs
What is the definition of economies of scope?
The cost of joint production (development/distribution) of two or more products can be less than the cost of producing separately
E.g telecommunications; do cable TV as they already have the network, labour and expertise
What it the industry effect for macro industries like tourism and education?
Relative strength forces for globalisation vs forces for local responsiveness that vary by industry
Transnational industry growth from 1990s
How does the strength of globalisation vs local forces differ throughout different industries according to the industry effect?
Global industries - don’t cater to markets e.g Apple iPhone the same everywhere
- Global integration forces dominate
Multinational/multi-domestic industries - product changed based on preferences e.g soft drink sugar content
- National responsiveness dominates
Transnational industries - trying to optimise costs by keeping a global volume but with local flavours
- Both forces are strong
- Pharmaceuticals
Why do firms go abroad?
- Increase sales and profits
- Enter new markets
- Compensate for slow home growth
- Increase customer base
- Economies of scale
- Risk diversification
- Follow demand
- Arbitrage
How do firms research whether or not to go abroad?
- Reliable data: global reports, embassies, gov websites, national centres for statistics, local market research reports
- SWOT
- PESTLE
What factors need to be considered in a business report?
- Starting: labour market regulation, other regulation
- Location: construction permits, electricity, property registration
- Access of finance: credit, investors
- Day-to-day operations; tax, trading across boarders
- Security; contracts, resolving insolvency
What considerations would need to be taken for an Oman business report?
- Absolute monarchy
- Sharia law; common law
- Local shareholding
- Omanisation quote (nationalisation of employment)
- Limited internal market (4.9m)
- Rank 3 in safety and security
- Traditional and conservative country
- Hofstede cultural dimensions: power distance high, low individualism
How have factor costs driven globalisation?
Petrol companies explored the Middle East due to little domestic crude oil, less capital intensive industries like textiles sought cheap labour
How did the industrial revolution drive globalisation?
Pressure to capture EOS offered by technology, cheap and abundant energy, goof transport and new production technologies
How has P&G and Unilever transformed national businesses like soap and detergent?
By standardising product formulation, rationalising packaging sizes, multilingual labels = restructuring and specialisation of nationally dominant plants to achieve scale economies
What is global chess?
Played by companies that manage their worldwide operations as interdependent units that implemented a coordinated global strategy
Involves building and defending profit sanctuaries in order to cross subsidise weaker market positions and products
Make high risk investment and force out rivals through alliances
Centralised systems
Flexibility to change product designs, sourcing patterns and pricing policies
What is an example of a labour intensive industry experiencing globalisation?
Danish ISS cleaning services company transferred practices and know-how across countries and offered consistent, high quality service to international customers
How have Japanese companies used profit sanctuaries?
Protected market position with substantial profits to subsidise loss making expansion abroad
What are the forces for local differentiation and responsiveness?
- Cultural differences
- Government demands
- Growing pressures for localisation
How is culture a force for local differentiation and responsiveness?
- Hofstede’s cultural dimensions reflected in behaviour e.g American response to time pressure, Japanese respect for elders
- Reflected in consumption patters: tea - GB milky, US iced, Japanese herbal
How do government demands drive differentiation and responsiveness?
Love-Hate relationship between host gov and MNE perspective due to mutual benefits and differing interests
MNEs as cause of social disruption: rural exodus, rising consumers, rejection of indigenous values, breakdown of traditional community
How has the relationship between MNEs and governments shifted over time?
- Early 1980s: Govs more sophisticated in imposing demands through LCRS etc
- 1990s saw locational tournament due to success of Ireland and Singapore driving Econ development through inward FDI
- 1995 hanging of Ken Saro Wiwa in Nigeria due to Shell = anti-globalisation movement
- Shell and BP now promote policies for sustainable development
What is an example of locational tournament?
Demand for Mercedes plant led to Alabama paid incentives amounting to $167k per employee for 1993 auto plant
What are the growing pressures for localisation as a force for differentiation and local responsiveness?
- Rejection of standardised products
- New profitable markets for adaptation to locational preferences
- Flexible manufacturing techniques (CAD and robotics) enabling greater responsiveness without compromising economic efficiency
- Desire to locate near market to overcome costs of freight and admin as a result of global manufacturing plants
What are the forces for worldwide innovation and learning?
- Need fast, globally coordinated innovation and development due to shorter product lifecycles, increasing cost of R&D
- Licensing now a source of funding, cross licensing fills technology gaps
- Joint ventures
- Importance of global standards for dominant competitive positions and first mover advantages
How do global industries operate?
- Economic forces dominate
- Centralisation
- Scale intensive manufacturing and R&D
- Standardisation
How do multi domestic industries operate?
- Localising forces of national, cultural, social and political differences dominate
- Strong and resourceful
- Sensitive to local market needs
- Adapt in response to local forces
How do International industries operate?
- Technological forces central
- Need to develop and diffuse innovations
- International strategy essential
- Ability to effectively manage the creation of new products and processes in the home market and diffuse to foreign affiliates
What is the transition to transnationality?
Regional markets leverage the potential for product standardisation by developing regional brands, multilingual packaging, common advertising themes –> additional economies
More businesses driven by simultaneous demand for global efficiency, national responsiveness and worldwide innovation
How do transnational industries operate?
- Global chess
- Create products that meet local demands
- Flexibility to change product designs, sourcing patterns and pricing policies
- Centralised systems
