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The Global Environment

&
Strategy
- Dr. Sandeep Vij

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Projected Economic Growth

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Labor Costs and Location Decisions

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Countervailing Forces: Global

Integration vs. Local Responsiveness
Pressures for global integration
Globalization of markets: the convergence of customer

preferences for similar products, minimal costs, and maximum

value

[A commodity serves a universal need across countries and cultures and is

traded strictly on the basis of price.]

Globalization of production: efficiency gains via standardization, i.e., the maximization of location economies

Pressures for local responsiveness

Customer divergence: differences in culture, national attitudes,
and economic and usage conditions
Host government policies: economic freedom, work-place and
product regulation, buy-local legislation, etc.

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The Global Integration/ Local

Responsiveness Grid
The integration/responsiveness grid (IR) profiles the
interaction of the pressures for global integration and
pressures for local responsiveness.
Integration: the process of combining differentiated parts into
a standardized whole
Responsiveness: the process of disaggregating a standardized
whole into differentiated parts
The IR grid reveals how a firms choice of strategy is a
function of the relationship between its idea of value creation
and the pressures for integration and/or responsiveness as it
looks to international markets for growth opportunities, cost
reductions, and risk diversification.

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The Integration/ Responsiveness Grid

and Industry Types

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The Integration/ Responsiveness Grid

and Strategy Types

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Strategic Alternatives: The

International Strategy
International strategy: opportunistic expansion into
foreign operations that leverages the firms core
(domestic) competencies
Ultimate control and decision-making reside at headquarters.
Value is created by transferring core competencies and unique
offerings from headquarters into foreign markets where rivals
are unable to develop, match, or sustain them.
International activities are generally secondary to the priorities
of the domestic market.
Headquarters ethnocentric orientation, i.e., its home country focus, may
lead to significant missed market opportunities.

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Strategic Alternatives: The

Multidomestic Strategy
Multidomestic strategy: expansion into foreign opera-tions
that grants decision-making authority to local managers
and emphasizes responsiveness to local conditions
Decision-making is decentralized so that offerings can be adjusted to
meet the needs of individual countries or regions.
Value is created by giving local managers the authority to respond to
unique local cultural, legal, and economic environments.
The polycentric view holds that people who are close to the market
both physically and culturally can best run a business.

The distribution of decision-making authority to local managers may

lead to duplication in activities, significantly higher costs, and
unusually powerful (autonomous) local subsidiaries.

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Strategic Alternatives: The Global

Strategy
Global strategy: expansion into foreign operations that
champions worldwide consistency, standard-ization, and
cost competitiveness
Although activities are dispersed to the most favorable global
locations, decision-making remains highly cen-tralized at
headquarters.
Value is created by designing products for a world market and
manufacturing and marketing them as effectively and
efficiently as possible.
Global firms strive to convert global efficiency into price
competitiveness via production and location economies.
In markets where demand for local responsiveness remains high, global strategies
are largely ineffective, and market opportunities are missed.

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Strategic Alternatives: The

Transnational Strategy
Transnational strategy: expansion into foreign opera-tions that
exploits location economies, leverages core competencies,
and responds to key local conditions
The causes of interactive global learning and worldwide information
sharing are championed.
Value is created by the relentless renewal, enhancement, and
exchange of ideas, products, and processes across functions and
borders.
The transnational MNE differentiates capabilities and contribu-tions
while finding ways to systematically learn and ultimately integrate
and diffuse knowledge, thus developing more powerful core
competencies.
Realistically, the transnational firm faces serious challenges to its attempts to
efficiently and effectively configure and coordinate its activities.

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THANKS
profsandeepvij@gmail.com