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Bangalore Chapter 3 – Global Strategies 1

CHAPTER 3 - STRATEGIES FOR GOING GLOBAL

STRATEGIES IN GLOBALIZATION (Issues involved in Globalization)

1. Decision to GO global
2. Decide MARKETS to enter
3. Decide HOW to enter
4. Learn to handle DIFFERENCES
5. ADJUST the Management process.
6. Select Management APPROACH
7. Decide Organization STRUCTURE

GO GLOBAL

India has decided in 1990 to go global. It has come to stay. There is no going back
on it now. However not all companies need to go global.

RISKS of globalization involved at Macro level are:

- Transfer of assets without compensation (Vodofone not paid 12 crore tax after
acquiring the Mobile service business from Hutch)
- Barriers to take back full profits
- Confiscation of Properties
- Loss of Technology (china make all world brand products)
- Campaign against foreign goods. (Don’t eat MacDonald's, KFC, Pepsi)
- Local labour regulations
- Inflation / Devaluation
- Civil Wars

Risks at Micro level

- Terrorism / Kidnappings
- High taxation
- Corruption / Dis honesty of officials

Prof. Dr. Madhavan Ph.D., Bangalore 0 98860 67232 Email: profmadhavan@yahoo.com

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MARKET ENTRY – Strategies

The usual entry strategies are:

Exports / Imports

Tourism / Transportation

Top class Services

Use of Assets

Direct Investment (Joint Venture / Wholly Owned)

FRANCHISING
This another route for globalization.
This involves granting the rights by the parent company (Franchiser) to another
company (Franchisee) to use their name, production, products, services, marketing,
business approach,

The major forms of franchising are:

Manufacturer – Retailer (Benz Car & Car dealers)
Manufacturer – Whole saler ( Pepsi, Coke, 7up)
Service firm – Retailer (East India Hotel – Hilton)

Many parent companies have franchisees all over the world and their presence and
brand name has become a global watch word. (Examples: McDonalds, KFC, Pizza
Hut, Le Meridian Hotels, Garnier, LaOrealetc)

Franchise agreements generally require, payment of a fee upfront and then

percentage on sales. It is beneficial to both the groups provided there is not much of
a competition among the parent companies ( Example: Pizza corner & Pizza hut &
Domino)

DIRECT INVESTMENT
FDI – Foreign Direct Investment is another entry into the market with controlling
interests. It may be either a Joint venture or Wholly owned.
JOINT VENTUE
It is a shared ownership, may be 50 – 50. Fuji – Xerox is a well proven joint venture
across the globe. Roll Royce has more than 25 joint ventures all over the world.
Some Indian Joint Ventures:
Tata Motors with Marcoplo Brazil for Bus Body Building
Air India with Singapore Airport Terminal Ltd.
Mahindra with Renault France

Prof. Dr. Madhavan Ph.D., Bangalore 0 98860 67232 Email: profmadhavan@yahoo.com

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WHOLLY OWNED
Here the company own 100% equity. The company can set up a new operation or
acquire a running company. Starting a whole new operation is called Green field
project / investment. Green field takes longer time to start operations than an
Acquisition. In acquisition you may end up paying a high price. There are also
difficulties arising from host govt. intervening in pricing, financing, employee
hiring, nationalism and favoritism.
FDI is risky and expensive compared to exporting or licensing. Yet firms prefer to go
for FDI, because of
- Low transport costs (Bulk Items – Steel, Cement)
- Market Imperfections: (It is not so easy to replicate – Toyoto Technology)
- Competition ( Exstg. Companies not good enough to meet the market)
- Product Life cycle (Computers replaced very fast before it stops working)
- Location advantages ( India is central to the world so it can work 24 hrs with the
world)

JVs do not last long due to differences in the management and their approach. The
host company suffer due to the home country influence.

The Direct Investments are unevenly distributed all over the world, is due to the
market needs, economies of scale and financial and regulatory conditions.

HANDLING DIFFERENCES
The differences are due to:
Exchange rate variation; whose fluctuations would affect their profits
Political parties with different ideologies
Cultural differences (food habits, exchange of courtesies, respecting their values)

Strategies for International managers:

1. Mangers to see themselves as World Citizens and not a citizen of a country.
2. Develop innovative and integrative strategies not easy to replicate.
3. Aggressive and effective implementation of strategies
4. Be aware of the potentialities of the country than just what is available.
5. Keep update information on changes in the world that would affect them.
6. Achieve culture strategy fit for their activities.

Prof. Dr. Madhavan Ph.D., Bangalore 0 98860 67232 Email: profmadhavan@yahoo.com

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MANAGEMENT PROCESS
Management process – Panning, Organizing, Staffing, Leading and Controlling must
be different in an MNC.
Planning: National market to International market
Organization: Structure and authority for global activity
Staffing: Source from world wide poolwith geo centric orientation.
Leadership and Motivation: suitable for multicultural, with long distance network
Communication
Controlling: Reporting system to meet many different requirements.

SELECTING A MANAGER
The approach is different for different country managers. Let us the difference
between a Japanese and an American manager approaches.
JAPAN AMERICA
Life time employment Short term employment
Slow promotion Rapid promotion
Non specialized career paths Specialized career paths
Implicit control Explicit control
Collective decision making Individual decision making
Team responsibility Individual responsibility
Holistic concern Divided concern

How Indian managers approach?

Decisions by family members and rarely professionals.
Top Indian managers are second generation from the family, lack professionalism.
Family infighting is more aggressive than for the market.
Decisions made by hunch or astrologers or vastu people.

ORGANISATION STRUCTURE
MNCs can be run by an efficient organization structure.
Factors that affect an org. structure are:
Corporate Objectives; Management style; External constraints and Internal
constarints.

Prof. Dr. Madhavan Ph.D., Bangalore 0 98860 67232 Email: profmadhavan@yahoo.com

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SIX FUNDAMENTAL STRUCTURES

1. International Division: Goes by Units of operations
2. Functional Structure: Divides by expert functions (Finance, Market, Manufacturing)
3. Geographic area structure: Countries or geographical locations based.
4. Product organization: Based on the Type or group of products
5. Mixed organization: a mix of the above
6. Matrix organization: This a cross function with sequential operations

NEW MODELS FOR MNC

1. Create a chain of network
2. Empower small units to outperform
3. Employees involved in decision making
4. Check board model; Opposite party as the deputy
5. Breeding between the Acquired and the parent company.
6. Clearly stated Authority coupled with Responsibility with Performance Targets.

NOTE

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Prof. Dr. Madhavan Ph.D., Bangalore 0 98860 67232 Email: profmadhavan@yahoo.com