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Globalisation of Business Strategy

Drivers of Globalisation

Understanding the fundamental forces that push companies toward international operations is crucial for strategic planning.

1

Technological advances

Improvements in communication and transport make international trade easier and cheaper.
2

Trade liberalisation

Reduction of tariffs and barriers via agreements like WTO encourages cross-border commerce.
3

Global supply chains

Firms source components and materials worldwide to reduce cost and improve quality.
4

Emergence of multinational corporations

Firms operating in multiple countries stimulate global markets.
5

Capital flows

Easier access to international financing facilitates expansion.
6

Consumer demand

Global customers seek diverse products, brands, and services.
7

Competitive pressures

Firms go abroad to seek growth or escape saturated markets.

The Business Case for Globalisation

Operating globally offers significant advantages that boost resilience and scalability for modern enterprises.

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Access to larger markets increases sales potential.
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Ability to source inputs and labour at lower cost enhances competitiveness.
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Spread risk by operating in different economic environments.
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Gain new ideas and innovations from other countries.
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Improve economies of scale and scope in production and marketing.

Emerging Markets: Opportunity vs. Risk

Emerging economies drive global growth but require careful evaluation of benefits against inherent risks.

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The OpportunitiesEmerging markets like India, China, Brazil represent fast-growing consumer bases with rising incomes. Offer cheaper labour and resources for manufacturing. Can serve as low-cost production hubs. Offer opportunities for early market entry before saturation.
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The RisksHowever, risks include political instability, poor infrastructure, and regulatory complexities.

Four Strategic Motives (The 'Seeking' Framework)

Companies target international markets based on specific resource, efficiency, or strategic requirements.

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Market seeking

Access new customers to increase revenue.
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Resource seeking

Acquire raw materials unavailable or costly at home.
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Efficiency seeking

Utilize lower labour or production costs abroad.
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Strategic asset seeking

Gain access to technology, brands, or knowledge.

Market Entry Strategies

The choice of entry method determines the level of commitment, risk, and control a company maintains in the foreign market.

L

Exporting

Selling products made domestically into foreign markets; low risk and investment but less market control.
R

Licensing

Allowing foreign firms to produce or sell under your brand, earning royalties; low cost but limited control.
P

Alliances/joint ventures

Partnerships with local firms to combine resources and knowledge; shares risk and improves market understanding.
H

Direct investment

Establishing owned operations (subsidiaries, factories) abroad; high control but high risk and cost.

Market Attractiveness Factors

Before committing resources, firms evaluate various quantitative and qualitative factors impacting success.

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Economic/Growth

Market size and growth rate.
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Stability/Regulation

Political stability and regulations.
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Infrastructure

Economic environment and infrastructure quality.
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Competition

Competitive intensity.
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Cultural Fit

Cultural similarity or difference.
+

Logistics

Access to distribution channels.
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Financial Risk

Exchange rate risk and taxation.

Sourcing Decisions: Off-shoring vs. Re-shoring

Firms continually evaluate where to locate production based on shifting cost structures and quality demands.

Key Concepts

Off-shoring: Moving production to foreign countries to reduce labour or production costs.

Re-shoring: Bringing manufacturing back home when offshoring costs rise or quality issues emerge.

Advantages include cost savings, access to local markets, and improved supply chain flexibility.

Strategic Insight on MNCs

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Multinational Corporation (MNC) Impact: Being a multinational corporation (MNC) involves locating activities in multiple countries to benefit from local advantages. Firms must balance the need for global integration with local responsiveness. Cultural differences impact marketing and management styles. Legal systems and ethical standards vary.

The Integration-Responsiveness Dilemma

Managers must strategically navigate the balance between global standardization and local adaptation.

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How do we achieve cost reduction globally?
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By seeking global efficiency (Cost reduction pressures), often through standardised products and centralised production.
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But what about local tastes?
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That's Local responsiveness: Adapting products and strategies to local tastes, laws, and preferences. Managers must find the right combination to succeed globally, often called the integration-responsiveness framework.
Reasons for Greater Globalisation of Business
Q
Technological Advances

What role do technological advances play in globalisation?

A
Answer

They improve communication and transport, making international trade easier and cheaper.

Q
Trade Liberalisation

How does trade liberalisation promote globalisation?

A
Answer

By reducing tariffs and barriers via agreements like the WTO, encouraging cross-border commerce.

Q
Global Supply Chains

Why are global supply chains important for global businesses?

A
Answer

They enable firms to source components worldwide to reduce costs and improve quality.

Q
Multinational Corporations

What impact do multinational corporations have on globalisation?

A
Answer

They operate in multiple countries and stimulate global markets.

Q
Capital Flows

How do capital flows influence global business expansion?

A
Answer

Easier access to international financing facilitates expansion.

Q
Consumer Demand

Why is consumer demand a reason for globalisation?

A
Answer

Global customers seek diverse products, brands, and services.

Q
Competitive Pressures

What role do competitive pressures play in globalisation?

A
Answer

Firms expand abroad to find growth or escape saturated markets.

Q
Risk Diversification

How can businesses benefit from globalisation in terms of risk?

A
Answer

They can spread risk by operating in different economic environments.

Q
Emerging Economies

What advantages do emerging economies offer to businesses?

A
Answer

Fast-growing markets, cheaper labor, and early market entry opportunities.

Q
International Market Entry

What are common methods for entering international markets?

A
Answer

Exporting, licensing, alliances/joint ventures, and direct investment.

Q
Market Attractiveness Factors

What factors influence the attractiveness of international markets?

A
Answer

Market size, political stability, economic environment, competition, culture, distribution channels, and exchange rates.

Q
Off-shoring

What is off-shoring?

A
Answer

Moving production abroad to reduce costs.

Q
Managing International Business

What challenge must firms balance when managing international business?

A
Answer

The integration-responsiveness framework balancing global efficiency and local adaptation.

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🌍 Reasons for Greater Globalisation of Business

1. Which of the following primarily facilitates globalisation by reducing trade barriers?

Trade liberalisation lowers tariffs and other barriers, promoting international trade.

2. What is a major reason firms develop global supply chains?

Global supply chains allow firms to source materials where costs are lower and quality is high.

3. Multinational corporations only operate in one country but sell internationally. (True or False)

MNCs operate in multiple countries, which helps stimulate global markets.

4. Emerging economies are attractive to businesses because they offer:

Emerging economies like India and China provide growing consumer bases and cheaper labor.

5. Which of the following is NOT a common method of entering international markets?

Domestic franchising applies only within the home country, not international expansion.

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