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Competing in Global Markets


unemployment levels, wage/price controls, energy availability ... Total Population: 279,912 (Oakland County, MI: 1,213,339) Fertility rate: 1.65 children/woman ... – PowerPoint PPT presentation

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Title: Competing in Global Markets

Competing in Global Markets
Key Ideas Absolute Advantage Comparative
Advantage Free Trade Measuring Trade Economic
Institutions Macro Factors Multi-domestic and
Global (Competition/Strategy) Entry
Strategies Partnerships
Why Trade?
No country is self-sufficient Countries need
products that other countries produce. Natural
Resources, technological skills and other factors
of production are not distributed evenly or
efficiently around the world.
Example Weekly Business Project
Pretend that Each Week the Following Activities
Need to be Completed for a Business
Project Gathering Data through
Interviews Statistical Analysis Report
Writing Report Editing Putting together a
PowerPoint Presentation Standing up before the
audience and presenting the report How many
hours would it take you to complete each task?
How do you value your time?
Absolute Advantage
  • Exists when a country can produce a product more
    efficiently than any other country.

Theory of Comparative Advantage
  • Countries should sell to other countries those
    products that it produces most efficiently and
    buy from countries those products it cannot
    produce as effectively or efficiently.

In other words, comparative advantage is the
ability of a country to produce a good at a
lower opportunity cost than another country.
Free Trade
  • The movement of good and services among nations
    without political or economic trade barriers.

Examples of Barriers Tariffs, Quotas, Embargo,
Exchange Controls
Measuring Global Trade
Balance of Payments Balance of Trade Trade
Deficit Exchange Rates
Important Economic Institutions
World Trade Organization World
Bank International Monetary Fund
International Macro Environment Factors
Economic Social/Cultural Political/Legal Tec
Economic Factors
Help us to measure the state of the macroeconomic
environment and determine the general health and
well being of an economy. Examples GDP trends,
interest rates, money supply, inflation unemployme
nt levels, wage/price controls, energy
availability and costs, disposable and
discretionary income, exchange rates.
Land Mass 166 square miles Oakland County, MI
873 square miles US land mass 3,794,083 sq mi
Economic Data
Source CIA Factbook and Country Commercial
Source CIA Factbook
Land mass 10,714 sq mi
Economic Data
Source CIA Factbook and World Bank
Social/Cultural Factors
This category of factors describe the beliefs,
values, attitudes, opinions, and lifestyles of
persons in the firms external environment as
developed from cultural, demographic,
religious, educational and ethnic
conditioning. Examples Lifestyle changes,
career expectations, age distribution, regional
shifts in population, birth rates, life
expectancies, growth rate in population, consumer
activism, rate of family formation, literacy
levels, language, social institutions, skill
level of the workforce
Social/Cultural Factors
Source CIA Factbook
Total Population 279,912 (Oakland County, MI
1,213,339) Fertility rate 1.65
children/woman Ethnic Groups Black (90), White
(4), Asian and Mixed (6) Language
English Years of Compulsory Schooling 12
years Literacy Rates 99 (United States
97) Religious Affiliations Christian (71),
None (17), Other (12) Other Info Life
Expectancy 71 (m) and 75 (f)
Social/Cultural Factors
Source CIA Factbook and World Bank
Total Population 8.3 million (2006) Fertility
rate 4.9 children/woman Ethic Groups Black
(95), White and Mixed (5) Language French
and Creole Years of Compulsory Schooling 6
years Literacy Rates 52.9 Religious
Affiliations Christian (96), None (1), Other
(3) Other Info Doctors per 100,000 people
25, Life expectancy 53.23years
Political/Legal Factors
These factors define the legal and regulatory
parameters within which a firm must
operate. Examples Antitrust regulations,
environmental protection, tax laws, employment
laws, stability of government, foreign trade
protection Form of government, political
ideology, protectionist sentiment, terrorist
activity, legal system, governments attitude
toward foreign firms, corruption.
Politics in Barbados
CIA Factbook and http//
Government Type Parliamentary democracy
independent sovereign state within the
Commonwealth Legislative Branch Bicameral
Parliament (Senate (appointed by the Governor
General) and House of Assembly (elected by
popular vote)) Political Parties 2
Corruption Ranked 21 in the world by
Transparency International
Politics in Haiti
CIA Factbook and http//
Government Type Bicameral National Assembly
Legislative Branch Senate and Chamber of
Duties)/All elected by popular vote Political
Parties 24 Corruption Ranked 145 by
Transparency International
Technological Factors
This factor deals with the general technological
infrastructure, the rate of change in
technology, and those things impacting the
development and introduction of new
technologies. Examples Total government
spending for RD, Total industry spending for
RD, focus of technological efforts, patent
protection, new developments in technology
transfer, productivity improvements through
automation, Regulations on technology transfer,
information flow infrastructure, patent and
trademark protection.
Barbados Technological Factors Source World
Bank (2000, 2004)
Haiti Technological Factors Source World Bank
(2000, 2004)
See Handout
Balancing Macro Factors is Key
Do low wages in developing countries translate
into lower manufacturing costs? What about
higher profitability?
Globalization in Competition
Multi-domestic Competition
Global Competition
Multidomestic Competition
Competition is essentially segmented from country
to country. Competition in one country is
independent of competition in other
countries. Examples Grocery, healthcare
Global Competition
Global competition occurs when competition
crosses national borders. A firms strategic
moves in one country can be significantly
affected by its competitive position in another
country. Examples Automobiles, Consumer
electronics, Petroleum
How should firms position themselves to compete
in the global marketplace?
Competing Pressures
Pressure for Local Responsiveness Consumers
Tastes and Preferences Differences in
Infrastructure or Traditional Practices Differen
ces in Distribution Channels Demands of Host
Pressure for Cost Reductions Commodity-type
product Universal needs of customers Competitors
use a low cost position
Multidomestic Strategy
Focus Local Responsiveness Customize the
strategy to fit the circumstances of each host
country Little to no coordination of strategy
across countries Form subsidiary companies to
handle operations in each host country each
subsidiary operates more or less autonomously
Global Strategy
Focus Cost Reduction Same basic strategy
worldwide (minor variations where
essential) Takes advantage of location
economies Locate subunits near high-quality raw
material Locate subunits near sources of
high-quality or low cost labor Seek low cost
financing anywhere in the world Much more
worldwide coordination All major strategic
decisions are closely coordinated at global
headquarters. Structure is designed to unify
Entry Strategies
Contract Manufacturing
JV and Strategic Alliances
Foreign Direct Investment
Amount of Commitment, Control, Risk and Profit
Examples of Partnerships
Strategic Alliance Joint Venture
Can be leveraged internationally by linking
value chain activities
Motivations for Partnerships
1. Generate scale economies Toyota/GM joint
venture (Toyota could spread fixed investment
over more units) 2. Gain access to strategic
markets Japanese firm, JVC, provided
design technology to partner in exchange for
access to European market. 3. Overcoming trade
barriers Inland Steel and Nippon Steel built
cold steel plant in Indiana (Nippon supplied
technology, capital and access to Japanese firms
in the US). 4. Use excess capacity Toyota/GM
joint venture used an idle GM plant 5. Gain
access to low-cost manufacturing capabilities GE
sourcing microwaves from Korea.