Commentary

The world is a far different place than it was a century ago - or even a half-century, for that matter.  There have been tremendous advances in communication and transportation in the past 50 years, and these advances have irrevocably changed the business landscape.  Likewise, political philosophies have changed with many countries, including the United States, abandoning long-standing trade barriers in favor of free trade agreements.  These factors have led to the creation of a truly global economy, including an emphasis on globalization of production and markets.  It's no longer a given that a company will continue to produce in its country of origin when it can slash production costs by half (or more) by relocating production to a nation where hourly wages may average only a dollar or two a day.  Likewise, why limit sales to a national market when the Internet enables cheap, efficient global marketing while efficient transportation mechanisms exist for distribution and delivery?

These factors have created a world of opportunity for organizations, but not without a price.  For if a given company can produce and sell world-wide, so can its competition.  In global economy, traditional barriers cease to exist and companies wishing to thrive need to examine mechanisms for increasing profitability through global expansion.  In general, these mechanisms include expanding the market, taking advantage of economies of scale and location, and effectively utilizing global subsidiaries.  While fairly self-explanatory, each of these concepts will be further detailed in your text. 

But it's not enough simply to find ways to increase profitability - this is a strategy class, after all!  We'd be remiss if we didn't discuss strategies for global expansion.  Much as in our previous model on positioning, options for global strategies is based upon two dimensions: emphasis on cost reduction, and need for local responsiveness.  Emphasis on cost reduction is self explanatory, while a need for local responsiveness dictates how much a firm's products and/or services should be tailored for local conditions.  So a company which sells performance footwear, for example, would offer different products Northern Finland than they would in Ecuador.

Given a low emphasis on reducing costs and low emphasis on local responsiveness, you would employ an international strategy.  An international strategy is one where the focus is on serving a global community, but there are few competitors so there's little emphasis on lowering costs.  This is a rare bird, indeed!  At various points in their history, both Xerox and Microsoft have employed international strategies. 

But, shifting to a high emphasis on cost reduction (a much more common scenario) combined with the same low emphasis on local responsiveness; companies would employ a global strategy.  A global (also sometimes called global standardization) strategy is one where firms make few or no adaptations to their offerings in response to local preferences.  This strategy works well for commodities such as rice or steel.  A good example of the utilization of an effective global strategy would be Bic pens.  Bic provides low cost pens, and we don't expect changes in local markets.  A Bic pen in the U.S. is the same as one in Greece or in China!   

Next, let's look at the two strategic options that enable local responsiveness.  A localization strategy emphasizes a high degree of local responsiveness combined with low pressure to reduce costs.  Tailoring offerings to local preferences takes money, so a localization strategy works best when the cost of tailoring can be passed on to the customer in the form of higher prices.  MTV is a good example of a company which employs a localization strategy.  They are able to alter programming to fit local preferences, incorporating Asian Rock or European reality shows, but they can command a premium price because they're MTV - an international entertainment phenomenon.   

Finally, when a high degree of local responsiveness is required and pressures to reduce costs are high, companies can employ a transnational strategy. 
 This strategy is common in the fast food industry: Burger King, McDonalds, Pizza Hut, and Kentucky Fried Chicken all are international entities.  But each tailors the food choices to better fit local cultural preferences.  The website: http://www.weirdasianews.com/2010/03/23/blank-interesting-menu-items-mcdonalds-asia/ lists some of McDonald's more interesting adaptations in Asia.  Anyone interested in some seaweed-seasoned fries?  How about a Green Tea & Red Bean Ice Cream Sundae?

We wrap up the commentary for this module with a few words about different mechanisms for entering foreign markets.  In general, from lesser to greater investment, these are: exporting, licensing, franchising, joint ventures, and wholly-owned subsidiaries.  The first three, exporting, licensing, and franchising, all are attractive since they're relatively easy to implement, entailing low development costs and low risks.  Their greatest disadvantages relate to loss of control and difficulties in coordination.  Joint ventures and wholly-owned subsidiaries generally allow a higher degree of control, but carry significant risks since they require foreign direct investment and rely significantly upon the good graces of the hosting government.  Many a company throughout history has had assets (including human assets) seized during regime change.  Cuba and Iran are just two of the more recent examples.  Few remember that Iran was a great friend of the United States, mainly on the largess of the progressive Shah of Iran, right up until the day he was deposed and exiled in 1979.  The Iranian Revolution caused immense issues for the many U.S. companies operating there and led to the Iran Hostage crisis, where 66 American citizens were held captive in Iran for more than a year.  As you can see, globalization, while holding the potential for great benefit, should never be entered into lightly! 

At this point, you should complete the Uncle Bob's Breakfast Box assignment.  This fun exercise is designed to give you a taste of the challenges and opportunities related to international expansion. 

Also remember to keep working on your team strategic case analysis and discussion.  Remember, you are required to submit your progress to date at the end of each module.  The expectation is that, by the end of this module, your team will have a refined draft of your analysis paper and PowerPoint based discussion, including the ideal and actual states for your assigned company, and strategies to close the gaps.  Your focus for this module should be on incorporating a greater level of detail, including evidence, to support your ideal and actual states.  You'll be expected to show continuous improvement with each submission, right up through Module 9 where we'll do the fine-tuning together.  So, keep working and as always, please contact me with any questions you may have!