Describe the strategies of globalization and regionalization essay

ASSIGNMENT 04 BZ480 International Management Directions: Unless otherwise stated, answer in complete sentences, and be sure to use correct English spelling and grammar. Sources must be cited in APA format. Your response should be a minimum of one (1) single-spaced page to a maximum of two (2) pages in length; refer to the "Assignment Format" page for specific format requirements. Describe the strategies of globalization and regionalization and explain when each strategy can be used effectively. Give examples of successful companies that have followed each strategy. This is the end of Assignment 04. Reading Assignments Text Readings Chapter 6 in International Management Lecture Notes Companies "go international" for different reasons, some reactive (or defensive) and some proactive (or aggresive). The threat of the their own decreased competitiveness is the overriding reason many large companies adopt a strategy of aggressive globalization. Reactive reasons include, but are not limited to, global competition, trade barriers, regulations and restrictions by the home country government, customer demands, and as a solution to logistical problems. Proactive reasons likewise include the seeking of economies of scale (lowering the per-unit costs by spreading fixed costs over more units) and opportunities for growth. Access to resources and cost savings also entice many companies to operate from overseas bases. Sometimes, the prospect of shifting production overseas improves competitiveness at home. Governments in countries seeking new infusions of capital and technological know-how often provide incentives to attract MNCs, these incentives being another proactive reason for the latter to expand. The strategy formulation planning is necessary both at the headquarters of a corporation and at each of its subsidiaries. One study reported, for example, that 70% of 56 American MNC subsidiaries in Latin America and the Far East operated on planning cycles of five or more years. Global strategic planning is more complex than domestic strategic planning because of the incidence of more compllex variables, such as difficulty in gaining timely information, diversity of geographic locations, and differences in environmental factors (political, legal, cultural, market, and financial processes). For firms that have not yet engaged in international operations, an ongoing strategic planning process with a global orientation identifies potential opportunities for appropriate market expansion, incremental profitability, and new ventures by which the firm can exploit its strategic advantages. The strategic formulation process is part of the strategic management process in which most firms engage, either formally or informally. Strategic planning modes range from a proactive long-range format to a reactive, more seat-of-the-pants method. The first phase of the strategic management process -- the planning phase -- starts with the company's establishing (or clarifying) its mission and the overall objectives of the firm. The mission of an organization is its overall raison d'être, or the function it performs for society. This mission charts the direction of the company and provides a basis for strategic decision making. A firm's global objectives usually fall into the areas of marketing, profitability, finance, production, and research and development. Goals for market volume and profitability are usually set higher for international than for domestic operations because of the allowance for greater risk involved. In addition, financial objectives must consider different tax regulations in other countries and exchange rate fluctuations. After clarifying the corporate mission and objectives, the first major step in weighing international strategic options is the environmental assessment. This includes environmental scanning and continuous monitoring to keep abreast of variables around the world that are pertinent to the firm and that have the potential to shape its future by posing new opportunities or threats. Firms must adapt to their environment to survive. How to adapt is the focus of strategic planning. Environmental scanning is the process of information-gathering and forecasting relevant trends, competitive actions, and circumstances that will affect operations in geographic areas of potential interest, including, but not limited to, political instability, currency instability, level of nationalism, and international competitors. After the environmental assessment, the second major step in weighing international strategic options is the internal analysis. This determines which areas of the firm's operations represent strengths or weaknesses (currently or potentially) compared to competitors so that the firm may use that information to its strategic advantage. The internal analysis focuses on the company's resources, operations, and global synergies. The strengths and weaknesses of the firm's financial and managerial expertise and functional capabilities are evaluated to determine what key success factors (KSFs) the company has and how well they can help the firm exploit foreign opportunities. During the third step, the firm's managers assess its capabilities and KSFs compared to those of its competitors. They must judge the relative current and potential competitive position of firms in that market and location -- whether that is a global position or that for a specific country or region. This stage of strategic formulation is often called a SWOT analysis (an acronym for Strengths, Weaknesses, Opportunties, and Threats), in which the firms' capabilities relative to its competitors are assessed as pertinent to the opportunities and threats in the environment for those firms. Most companies develop their strategies around key strengths, or distinctive competencies. Core competencies represent important corporate resources because, as Prahalad and Hamel explain, they are "the collective learning in the organization, especially how to coordinate diverse production skills and to integrate multiple streams of technologies." Managers must also assess their firm's weaknesses. Of course, the subjective perceptions, motivations, capabilities, and the goals of the managers involved in such diagnoses frequently cloud the decision-making process. The international manager has a choice of strategic models to guide decision making. The institution-based theory looks at existing and potential risks and influences in the host area. Porter's industry-based model examines five forces that determine the dynamics within the industry. The resource-based approach identifies a firm's unique niche or competitive advantage. The fourth major step in the strategic planning is for managers to consider the advantages of various strategic alternatives in light of the competitive analysis. There are two levels of strategic alternatives: global and national. Globalization, as said in Lesson 1, refers to the integration of worldwide operations and the development of standardized products and marketing. The rationale behind globalization is to compete by establishing worldwide economies of scale, offshore manufacturing, and international cashflows. One of the quickest and cheapest ways to develop a global strategy is through strategic alliances. Globalization is inherently more vulnerable to environmental risk than a regionalization strategy. Regionalization is a strategy in which local markets are linked together within a region, and a strategy is formulated for each region, allowing more local responsiveness and specialization. The strategic choice as to where a company should position itself along the globalization-regionalization continuum is contingent upon the nature of the industry, the type of company and its goals and strengths, and the nature of its subsidiaries. In addition, each company's strategic approach should be unique in adapting to its own environment. For an MNC, a more specific set of strategic alternatives focuses on different ways to enter a foreign market. Exporting is a relatively low-risk way to begin international expansion or to test out an overseas market. An experienced firm may want to handle its exporting functions by appointing a manager or establishing an export department. Alternatively, an export management company (EMC) may be retained to take over some or all exporting functions, including dealing with host country regulations, tariffs, duties, documentation, letters of credit, currency conversion, and so forth. Licensing agreements grant rights to a firm in the host country to either produce or sell a product, or both. An international licensing agreement is especially suitable for the mature phases of the product life cycle. Franchising involves very little risk. The franchiser licenses its trademark, products, services, and operating principles for an initial fee and ongoing royalties. Franchising can be an ideal strategy for small businesses because outlets require little investment in capital or human resources. Contract manufacturing is a common means of utilizing cheaper labor overseas for the production of finished goods or component parts. Service-sector outsourcing is the process of setting up overseas offices, call centers, and research labs in low-wage countries such as India, the Phillipines, and China in order to reduce the cost of white-collar employees. In a turnkey operation, a company designs and constructs a facility abroad, trains local personnel, and then turns the key over to local management for a fee. A management contract gives the rights to a foreign company to manage the daily operations of a business, but not to make decisions regarding ownership, financing, or strategic and policy changes. An international joint venture (IJV) involves an agreement by two or more companies to produce a product or service jointly. Ownership is shared, typically by an MNC and a local partner. This strategy facilitates rapid entry into new markets by means of an already established partner who has local contacts and familiarity with local operations. The choice of one or more entry strategies will depend on a critical evaluation of the advantages and disadvantages of each in relation to the firm's capabilities, the critical environmental factors, and the contribution that each choice would make to the overall mission and objectives of the company. After consideration of these factors, some entry strategies will no longer be appropriate. Managers will decide between equity-based (wholly owned or equity joint ventures) and non-equity-based (contractual agreements and exporting) alternatives. International strategic formulation requires a long-term perspective. Entry strategies, therefore, need to be conceived as part of a well-designed overall plan. In addition, strategic choices at various levels are often influenced by cultural factors, such as a long-term versus short-term perspective. Hofstede found that most people in countries such as China and Japan generally had a longer-term horizon than those in Canada and the U.S. The second phase of the strategic management process is the implementation phase, which requires the establishment of the structure as well as the systems and procedures suitable to make the strategy work. This phase will be discussed in detail in Lesson 5. SOURCE: Study Guide for International Management by Helen Deresky.