Expert answer:To discuss globalization in the 21st Century.
Solved by verified expert:Assignment: Create a new thread and write a two paragraph or longer response to the following question – Is Globalization in Decline or Not? What is the proper role for US based companies in their globalization efforts? Can US based companies afford to retreat from global markets? While competition in global markets has increased, and profitability has become difficult to maintain, can US based companies afford to retreat from their global footprint? Do you have any direct experience with this issue in your workplace that you could bring to the discussion? Your response will hopefully be informed not only by Chapter Seven in the textbook but also articles from Harvard Business Review and the Washington Post. Your task will be to take a position on globalization and the competitive response of US based corporations to the challenges of competing in global markets. The key issue for debate: Should US based companies retreat? Can US based companies retreat? What are the difficulties that US based companies face when competing in global markets? How should US based corporations respond?Then, read and post a reply to two of your classmates regarding their analysis of these questions. Specific issues to address include: Do you concur with your classmates’ analysis of the current state of globalization? Do you have any thoughts on your classmates’ analysis of the challenges facing US based companies in global markets? Rule: Post one (1) original thread and two (2) replies to other threads for a total of three (3) posts on the discussion board. Your original thread must be unique to you and must be at least roughly focused on the topic of globalization. This assignment will be due by 11pm CDT on Sunday.
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It is my belief that globalization has slowed, but is not in any way declining. It is typical for
globalization to behave this way in response to the economies across the globe. I think it is more
accurate to say that perceptions about globalization are incorrect. The average American
perceives globalization efforts to be exponentially higher than the reality. Ghemawat (2017)
performed a survey where he found that respondents believed the % of GDP that came from
exports was more than 45% when in actuality it is only 30%. These misperceptions about
globalization contribute to the erroneous belief that globalization is declining.
Given this information, the role of US based companies in relation to globalization efforts is
twofold. First, taking the initiative to educate themselves about current globalization efforts is
important before making any kind of market entry decisions. Second is educating themselves
about the culture of potential markets. One grievous error a company can make is entering a
market assuming that American traditions and customs will translate. Ghemawat (2017) also
found that US businesses incorrectly felt that cultural differences are no longer an issue in
globalization due to the ease of communicating with branches in foreign countries provided by
technology. In reality, sometime that technology causes a bigger communication gap.
Ghemawat (2017) also found that of those companies who have globalized, 60% of their profits
generally come from 3 to 4 of their foreign locations. It is my belief that if a business were to
decide to retreat from their global footprint, they should only do so in the areas where the smaller
profits are originated. Sticking it out in the larger profit countries is the most advisable strategy.
I do not have any direct experience with globalization. I work for a small community bank, so
international relations are non-existent.
References
Editorial Board. (2015, September 20). “The End of Globalization?” Washington Post.
Retrieved at www.washingtonpost.com
Gamble, J., Peteraf, M., & Thompson, A. (2017). Essentials of Strategic Management,
5th Edition. NY, NY: McGraw-Hill.
Ghemawat, P. (2017, July-August). “Globalization in the Age of Trump.” Harvard Business
Review. Retrieved at hbr.org.
Although globalization has recently slowed down, I do not believe it is in decline yet.
The extensive expansion of international trade that began in the 1980s has slowed in
recent years (Editorial Board, 2015). However, the enhancements in technology and
the internet have provided opportunities for growth in globalization. There has been
political opposition from certain groups, but overall globalization is not in decline.
U.S. based companies will continue to play a major role in globalization and trade.
They should not retreat from global markets, or they risk disrupting financial stability
and opportunities that arise from obtaining a global footprint. While competition
continues to increase and profitability becomes difficult to maintain, U.S. based
companies cannot afford to retreat from their global footprint. A retreat would hamper
companies’ ability to create value across borders, which is especially imperative for
large companies to compete successfully (Ghemawat, 2017). Global trade would shift
from the U.S to another country, giving them an advantage. U.S. companies must
have a long-term global strategy to experience continued growth. This could include a
strategic alliance, in which a formal contractual agreement is made between two or
more firms; or a joint venture with a company in another country to maintain market
leadership (Gamble, 2017).
I work for a global supply chain company. My company is very invested and directly
impacted by globalization. We outsource production to countries outside of the U.S,
as well as depend on global logistics for shipments to and from countries all over the
world. We receive raw materials used in production plants from manufacturing plants
overseas. Our facility ships finished goods particularly to Mexico, Canada, Puerto
Rico, and China, among others. It is imperative to keep close ties and global
partnerships with these areas, as a majority of our business would be lost otherwise. A
large part of our profits depend on global logistics and shipments into and out of the
country on a daily basis. Globalization is a way for my company, as well as others, to
gain access to new customers, achieve lower costs and enhance competitiveness, and
further exploit its core competencies. In addition, globalization gives companies
access to additional resources not readily available in their home country, often giving
them a competitive advantage to compete in the marketplace (Gamble, 2017).
References
Editorial Board. (2015, September 20). “The End of Globalization?” Washington Post. Retrieved
at www.washingtonpost.com
Gamble, J., Peteraf, M., & Thompson, A. (2017). Essentials of Strategic Management,
5th Edition. NY, NY: McGraw-Hill
Ghemawat, P. (2017, July-August). “Globalization in the Age of Trump.” Harvard
Business Review. Retrieved at hbr.org.
Page 132
LEARNING OBJECTIVES
LO1Develop an understanding of the primary reasons companies choose to compete in international markets.
LO2Learn why and how differing market conditions across countries influence a company’s strategy choices in
international markets.
LO3Gain familiarity with the five general modes of entry into foreign markets.
LO4Learn the three main options for tailoring a company’s international strategy to cross-country differences in
market conditions and buyer preferences.
LO5Understand how multinational companies are able to use international operations to improve overall
competitiveness.
LO6Gain an understanding of the unique characteristics of competing in developing-country markets.
Page 133
Any company that aspires to industry leadership in the 21st century must think in terms of global, not
domestic, market leadership. The world economy is globalizing at an accelerating pace as countries
previously closed to foreign companies open their markets, as countries with previously planned
economies embrace market or mixed economies, as information technology shrinks the importance of
geographic distance, and as ambitious, growth-minded companies race to build stronger competitive
positions in the markets of more and more countries. The forces of globalization are changing the
competitive landscape in many industries, offering companies attractive new opportunities but at the
same time introducing new competitive threats. Companies in industries where these forces are greatest
are under considerable pressure to develop strategies for competing successfully in international
markets.
This chapter focuses on strategy options for expanding beyond domestic boundaries and competing in
the markets of either a few or many countries. We will discuss the factors that shape the choice of
strategy in international markets and the specific market circumstances that support the adoption of
multidomestic, transnational, and global strategies. The chapter also includes sections on strategy
options for entering foreign markets; how international operations may be used to improve overall
competitiveness; and the special circumstances of competing in such emerging markets as China, India,
Brazil, Russia, and Eastern Europe.
Why Companies Expand into International Markets
LO1 Develop an understanding of the primary reasons companies choose to compete
in international markets.
A company may opt to expand outside its domestic market for any of five major reasons:
1. To gain access to new customers. Expanding into foreign markets offers potential for increased revenues, profits,
and long-term growth, and becomes an especially attractive option when a company’s home markets are mature.
Honda has done this with its classic 50-cc motorcycle, the Honda Cub, which is still selling well in developing
markets, more than 50 years after it was introduced in Japan.
2. To achieve lower costs and enhance the firm’s competitiveness. Many companies are driven to sell in more than
one country because domestic sales volume alone is not large enough to fully capture manufacturing economies
of scale or learning curve effects. The relatively small size of country markets in Europe explains why
companies such as Michelin, BMW, and Nestlé long ago began selling their products all across Europe and then
moved into markets in North America and Latin America.
3. To further exploit its core competencies. A company may be able to leverage its competencies and capabilities
into a position of competitive advantage in foreign markets as well as domestic markets. Walmart is capitalizing
on its considerable expertise in discount retailing to expand into the United Kingdom, Japan, China, and Latin
America. Walmart executives are particularly excited about the company’s growth opportunities in China.
4. To gain access to resources and capabilities located in foreign markets.An increasingly important motive for
entering foreign markets is to acquire resources and capabilities that cannot be accessed as readily in a
company’s home market. Companies often enter into cross-border alliances, make acquisitions abroad, or
establish operations in foreign countries to access local resources such as distribution networks, low-cost labor,
natural resources, or specialized technical knowledge.1
5.
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To spread its business risk across a wider market base. A company spreads business risk by operating in a
number of foreign countries rather than depending entirely on operations in its domestic market. Thus, if the
economies of North American countries turn down for a period of time, a company with operations across much
of the world may be sustained by buoyant sales in Latin America, Asia, or Europe.
Factors That Shape Strategy Choices in International
Markets
LO2 Learn why and how differing market conditions across countries influence a company’s
strategy choices in international markets.
Four important factors shape a company’s strategic approach to competing in foreign markets: (1) the
degree to which there are important cross-country differences in demographic, cultural, and market
conditions; (2) whether opportunities exist to gain a location-based advantage based on wage rates,
worker productivity, inflation rates, energy costs, tax rates, and other factors that impact cost structure; (3)
the risks of adverse shifts in currency exchange rates; and (4) the extent to which governmental policies
affect the local business climate.
Cross-Country Differences in Demographic, Cultural, and Market Conditions
Buyer tastes for a particular product or service sometimes differ substantially from country to country. For
example, ice cream flavors such as eel, shark fin, and dried shrimp appeal to Japanese customers,
whereas fruit-based flavors have more appeal in the United States and Europe. In France, top-loading
washing machines are very popular with consumers, whereas in most other European countries,
consumers prefer front-loading machines. Consequently, companies operating in a global marketplace
must wrestle with whether and how much to customize their offerings in each different country market to
match the tastes and preferences of local buyers or whether to pursue a strategy of offering a mostly
standardized product worldwide. While making products that are closely matched to local tastes makes
them more appealing to local buyers, customizing a company’s products country by country may raise
production and distribution costs. Greater standardization of a global company’s product offering, on the
other hand, can lead to scale economies and learning curve effects, thus contributing to the achievement
of a low-cost advantage. The tension between the market pressures to localize a company’s product
offerings country by country and the competitive pressures to lower costs is one of the big strategic
issues that participants in foreign markets have to resolve.
Understandably, differing population sizes, income levels, and other demographic factors give rise to
considerable differences in market size and growth rates from country to country. In emerging markets
such as India, China, Brazil, and Malaysia, market growth potential is far higher for such products as
mobile phones, steel, credit cards, and electric energy than in the more mature economies of Britain,
Canada, and Japan. The potential for market growth in automobiles is explosive in China, where 2013
sales of new vehicles amounted to 18 million, surpassing U.S. sales of 15.6 million and making China the
world’s largest market for the second year in a row.2 Owing to widely differing population demographics
and income levels, there is a far bigger market for luxury automobiles in the United States and Germany
than in Argentina, India, Mexico, and Thailand. Cultural influences can also affect consumer demand for a
product. For instance, in China, many parents are reluctant to purchase PCs even when they can afford
them because of concerns that their children will be distracted from their schoolwork by surfing the web,
playing PC-based video games, and downloading and listening to pop music.
Page 135
Market growth can be limited by the lack of infrastructure or established distribution and retail networks in
emerging markets. India has well-developed national channels for distribution of goods to the nation’s 3
million retailers, whereas in China distribution is primarily local. Also, the competitive rivalry in some
country marketplaces is only moderate, whereas others are characterized by strong or fierce competition.
The managerial challenge at companies with international or global operations is how best to tailor a
company’s strategy to take all these cross-country differences into account.
Opportunities for Location-Based Cost Advantages
Differences from country to country in wage rates, worker productivity, energy costs, environmental
regulations, tax rates, inflation rates, and the like are often so big that a company’s operating costs and
profitability are significantly impacted by where its production, distribution, and customer service activities
are located. Wage rates, in particular, vary enormously from country to country. For example, in 2013,
hourly compensation for manufacturing workers averaged about $3.07 in China, $6.82 in Mexico, $9.37 in
Taiwan, $9.44 in Hungary, $10.69 in Brazil, $12.90 in Portugal, $21.96 in South Korea, $29.13 in Japan,
$36.33 in Canada, $36.34 in the United States, $48.98 in Germany, and $65.86 in Norway. 3 Not
surprisingly, China has emerged as the manufacturing capital of the world—virtually all of the world’s
major manufacturing companies now have facilities in China. A manufacturer can also gain cost
advantages by locating its manufacturing and assembly plants in countries with less costly government
regulations, low taxes, low energy costs, and cheaper access to essential natural resources.
The Risks of Adverse Exchange Rate Shifts
When companies produce and market their products and services in many different countries, they are
subject to the impacts of sometimes favorable and sometimes unfavorable changes in currency exchange
rates. The rates of exchange between different currencies can vary by as much as 20 to 40 percent
annually, with the changes occurring sometimes gradually and sometimes swiftly. Sizable shifts in
exchange rates, which tend to be hard to predict because of the variety of factors involved and the
uncertainties surrounding when and by how much these factors will change, shuffle the global cards of
which countries represent the low-cost manufacturing locationand which rivals have the upper hand in the
marketplace.
To illustrate the competitive risks associated with fluctuating exchange rates, consider the case of a U.S.
company that has located manufacturing facilities in Brazil (where the currency is reals—pronounced rayalls) and that exports most of its Brazilian-made goods to markets in the European Union (where the
currency is euros). To keep the numbers simple, assume the exchange rate is 4 Brazilian reals for 1 euro
and that the product being made in Brazil has a manufacturing cost of 4 Brazilian reals (or 1 euro). Now
suppose that for some reason the exchange rate shifts from 4 reals per euro to 5 reals per euro (meaning
the real has declined in value and the euro is stronger). Making the product in Brazil is now more costcompetitive because a Brazilian good costing 4 reals to produce has fallen to only 0.8 euro at the new
exchange rate (4 reals divided by 5 reals per euro = 0.8 euro). On the other hand, should the value of the
Brazilian real grow stronger in relation to the euro—resulting in an exchange rate of 3 reals to 1 euro—the
same Brazilian-made good formerly costing 4 reals to produce now has a cost of 1.33 euros (4 reals
divided by 3 reals per euro = 1.33). This increase in the value of the real has eroded the cost advantage
of the Brazilian manufacturing facility for goods shipped to Europe and affects the ability of the U.S.
company to underprice European producers of similar goods. Thus, the lesson of fluctuating exchange
rates is that companies that export goods to foreign countries always gain in competitiveness when the
currency of the country in which the goods are manufactured is weak. Exporters are disadvantaged when
the currency of the country where goods are being manufactured grows stronger.
Page 136
The Impact of Government Policies on the Business Climate in Host Countries
National governments enact all kinds of measures affecting business conditions and the operation of
foreign companies in their markets. It matters whether these measures create a favorable or unfavorable
business climate. Governments of countries eager to spur economic growth, create more jobs, and raise
living standards for their citizens usually make a special effort to create a business climate that outsiders
will view favorably. They may provide such incentives as reduced taxes, low-cost loans, and sitedevelopment assistance to companies agreeing to construct or expand production and distribution
facilities in the host country.
On the other hand, governments sometimes enact policies that, from a business perspective, make
locating facilities within a country’s borders less attractive. For example, the nature of a company’s
operations may make it particularly costly to achieve compliance with environmental regulations in certain
countries. Some governments, wishing to discourage foreign imports, may enact deliberately burdensome
customs procedures and requirements or impose tariffs or quotas on imported goods. Host-country
governments may also specify that products contain a certain percentage of locally produced parts and
components, require prior approval of capital spending projects, limit withdrawal of funds from the
country, and require local ownership stakes in foreign-company operations in the host country. Such
governmental actions make a country’s business climate unattractive and in some cases may be
sufficiently onerous as to discourage a company from locating facilities in that country or selling its
products there.
CORE CONCEPT
Political risks stem from instability or weakness in national governments and hostility to foreign
business; economic risks stem from the stability of a country’s monetary system, economic and
regulatory policies, and the lack of property rights protections.
A country’s business climate is also a function of the political and economic risks associated with
operating within its borders. Political risks have to do with the instability of weak governments, the
likelihood of new onerous legislation or regulations on foreign-owned businesses, or the potential for
future elections to produce government leaders hostile to foreign-owned businesses. In a growing number …
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