Strategy in the Global Environment

Synopsis of Chapter

This chapter looks at the strategies companies adopt when they expand outside their domestic marketplace and start to compete on a global basis. The chapter opens by discussing how global expansion creates value for a company. The focus is on the ability of global companies to transfer distinctive competencies across national markets, to realize location economies from basing individual value-creation activities in the optimal location for that activity, and to ride down the experience curve more rapidly than competitors that are focused on just their domestic market. Next the chapter examines two types of competitive pressures that firms competing in the global marketplace typically face: pressures for cost reductions and pressures to be responsive to local conditions. These pressures place conflicting demands on a company. The sources of pressures for cost reductions and pressures for local responsiveness are explored. The discussion then turns to the different strategies that companies can pursue in the global arena. Four different strategies are reviewed in some detail—an international strategy, a multidomestic strategy, a global strategy, and a transnational strategy. The pros and cons of each of these strategies are debated. A link is made between the appropriateness of different strategies and the pressures for cost reductions and local responsiveness. It is suggested that the optimal strategy is contingent on the extent of pressures for cost reductions and local responsiveness facing a company. We then discuss the basic entry decisions a company faces when going international. In particular, we look at three basic decisions that a firm contemplating foreign expansion must make: which markets to enter, when to enter those markets, and on what scale? In the next section, which reviews the