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334 PART 5 • KEY STRATEGIC-MANAGEMENT TOPICS

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for commercial piracy only when caught in possession of at least 500 counterfeit items. In
China, pirated goods such as Nike running shoes, new Hollywood movies on DVD, and
Microsoft software can be purchased for a fraction of their actual prices on many streets.
China still has substantial barriers to sales of authentic U.S.-made copyrighted products.
Former U.S. Trade Representative Susan Schwab says, “This is more than a handbag here
or a logo item there; it is often theft on a grand scale.” China’s counterfeit trade practices
contribute to an annual bilateral trade deficit of about $250 billion with the United States.
Chinese pirating of products is an external threat facing many firms.
Advancements in telecommunications are drawing countries, cultures, and organi-
zations worldwide closer together. Foreign revenue as a percentage of total company
revenues already exceeds 50 percent in hundreds of U.S. firms, including Exxon/Mobil,
Gillette, Dow Chemical, Citicorp, Colgate-Palmolive, and Texaco.
A primary reason why most domestic firms are engaging in global operations is that
growth in demand for goods and services outside the United States is considerably
higher than inside. For example, the domestic food industry is growing just 3 percent per
year, so Kraft Foods, the second largest food company in the world behind Nestle, is
focusing on foreign acquisitions.
Shareholders and investors expect sustained growth in revenues from firms; satisfac-
tory growth for many firms can only be achieved by capitalizing on demand outside the
United States. Joint ventures and partnerships between domestic and foreign firms are
becoming the rule rather than the exception!
Fully 95 percent of the world’s population lives outside the United States, and this group
is growing 70 percent faster than the U.S. population. The lineup of competitors in virtually
all industries is global. General Motors, Ford, and Chrysler compete with Toyota and
Hyundai. General Electric and Westinghouse battle Siemens and Mitsubishi. Caterpillar and
John Deere compete with Komatsu. Goodyear battles Michelin, Bridgestone/Firestone, and
Pirelli. Boeing competes with Airbus. Only a few U.S. industries—such as furniture, print-
ing, retailing, consumer packaged goods, and retail banking—are not yet greatly challenged
by foreign competitors. But many products and components in these industries too are now
manufactured in foreign countries. International operations can be as simple as exporting a
product to a single foreign country or as complex as operating manufacturing, distribution,
and marketing facilities in many countries.

Globalization
Globalization is a process of doing business worldwide, so strategic decisions are made
based on global profitability of the firm rather than just domestic considerations.
A global strategy seeks to meet the needs of customers worldwide, with the highest
value at the lowest cost. This may mean locating production in countries with the lowest
labor costs or abundant natural resources, locating research and complex engineering
centers where skilled scientists and engineers can be found, and locating marketing
activities close to the markets to be served.
A global strategy includes designing, producing, and marketing products with
global needs in mind, instead of considering individual countries alone. A global
strategy integrates actions against competitors into a worldwide plan. Today, there are
global buyers and sellers, and the instant transmission of money and information
across continents.
It is clear that different industries become global for different reasons. The need to
amortize massive R&D investments over many markets is a major reason why the aircraft
manufacturing industry became global. Monitoring globalization in one’s industry is an
important strategic-management activity. Knowing how to use that information for one’s
competitive advantage is even more important. For example, firms may look around the
world for the best technology and select one that has the most promise for the largest num-
ber of markets. When firms design a product, they design it to be marketable in as many
countries as possible. When firms manufacture a product, they select the lowest-cost
source, which may be Japan for semiconductors, Sri Lanka for textiles, Malaysia for
simple electronics, and Europe for precision machinery.