Understanding Global Market Dynamics and Business Strategies
Drivers of Market Globalization
Worldwide reduction of barriers to trade and investment, facilitated by organizations like the WTO.
Market liberation and the adoption of free market principles, exemplified by China’s economic reforms.
Industrialization, economic development, and modernization contribute to economic growth.
Integration of world financial markets.
Advances in technology reduce the cost of doing business globally.
Dimensions of Market Globalization
Integration and interdependence of national economies.
Rise of regional economic integration blocs such as the EU, NAFTA, and Mercosur.
Growth of global investment and financial flows.
Convergence of buyer lifestyles and preferences.
Globalization of production, leading to cost reductions through international sourcing.
Globalization of services.
Societal Consequences of Market Globalization
Contagion: The rapid spread of financial crises across countries, as seen during the 2008 economic crisis.
Loss of national sovereignty, as multinational enterprises (MNEs) can influence government economic policies, such as the US influencing Japan’s auto industry.
Offshoring and the flight of jobs, where companies relocate production to reduce costs, leading to job losses in home countries.
Effects on the poor, as globalization can disrupt employment and MNEs may offer low wages.
Impact on the natural environment due to increased global economic activity.
Effects on national culture, potentially leading to a dilution of national identity.
Firm-Level Consequences of Market Globalization
Countless new business opportunities for internationalizing firms.
New risks and intense rivalry from foreign competitors.
More demanding buyers who source from suppliers worldwide.
Greater emphasis on proactive internationalization strategies.
Internationalization of a firm’s value chain.
Understanding International Business Entities
What is a Multinational Enterprise (MNE)?
MNEs are organizations that own or control production or service facilities in more than one country. They can increase a host country’s GDP, create jobs, and promote economic and social progress. However, they can also lead to job displacement in home countries due to lower labor costs.
What is a Small and Medium-sized Enterprise (SME)?
SMEs are crucial to the economy, representing 70% of Europe’s workforce. They possess the flexibility to respond effectively to market needs.
What is a Born Global Firm?
A Born Global firm is a business that, from its inception, seeks to gain significant competitive advantage by utilizing resources and selling its output in multiple countries.
Value Chain Activities
Upstream and Downstream Value Chain Activities
Upstream activities occur before production, including market research and sourcing.
Midstream activities involve transportation and storage.
Downstream activities take place after production, such as marketing, distribution, and after-sales service.
Foreign Market Entry Strategies
Types of Foreign Market Entry
- Foreign Direct Investment (FDI): Involves 100% ownership of foreign operations.
- International Collaborative Venture: Partnerships between firms from different countries, like Sony and Ericsson.
- Exporting: Selling products to buyers in other countries, generally considered low risk.
- Import or Sourcing: Purchasing goods from across national borders.
- Licensing: Granting a foreign partner the right to use intellectual property in exchange for royalties, though it offers limited control.
- Franchising: Allowing a franchisee to use a business model and brand in exchange for fees and royalties.
Distribution Channel Intermediaries
Role of Distribution Channel Intermediaries
Intermediaries facilitate the delivery of products from manufacturers to end-users in foreign markets.
- Foreign Distributors: Purchase products from manufacturers for resale to other middlemen or final buyers.
- Agents or Brokers: Wholesalers that assist in facilitating sales.
- Manufacturer’s Representatives: Work under contract for exporters to represent them in foreign markets.
- Trading Companies: Intermediaries that handle both import and export transactions.
- Export Management Companies (EMCs): Commonly found in the USA, they act as export agents for domestic firms.