Global Industry Analysis
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In general, there are four forces that exert pressure on an industry and determine how locally responsive or globally integrated the company should be.
- The most important is if YY's customers have the same taste and preferences as XX's customers. If this is true, the company might be able to just export its products into YY without much localization.
- Existence of global customers??
- If country XX and YY have the same distribution channels, the company will be able to export its supply chain and marketing without much effort.
- If the company has some idea how to market in country YY, this will make it easier to export to that country.
- Often times it might be worth it to expand to YY just to gain economies of scope and scale. The company can obtain the biggest economies of scale when it can just export its products and the products do not have to be localized.
- Often times moving manufacturing to YY because labor costs there are cheaper than they are in country XX. The decision to do this is based on a global integration story rather than a localization story??
- Sometimes it might be extremely expensive to transport goods and products from XX to YY, so it might make sense to set up manufacturing facilities in YY. Again this is driven by a global integration story rather than a localization story??
- Globalization of competitors??
- If the industry is extremely concentrated in country XX, the only way to grow might be to expand to country YY??
- Differences in industry concentration across countries??
- It might be less appealing to go to country YY if that country has stiff trade barriers/taxes/regulations. In the case if taxes and tariffs are high, it might not be profitable to produce the same product in that new region. Further, certain regulations might prohibit the creation of that product.
- It might be more appealing to go to country YY if they have similar technical standards (this wireless phone frequencies). Conversely, if there are different technical standards, there might have to be significant localization of products.
Here are some other general factors:
- Global economies of scale
- Products that are or can be standardized
- Marketing prowess that can be transferred
- Products that require a lot of R&D
- Global customers?
- Global competition?
- Global learning curve
- Transportation costs are low
- Low tariff barriers
- Different in tastes between countries
- Difference in standards across countries
- Differences in how distribution happens across countries
- Industries which are advertising intensive
- Strong laws and regulations in different countries
- The level of economic development is different across countries