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GlobalizationGlobalizationInternationalization StrategiesLecturer: Cristina Robledo A.
2012 - 2
Definition
“Globalization is the process by which geographic constraints on economic, social
and cultural arrangements recede, thus increasing our global interdependence”
Branson, R. (2007)
Interdependence • Increased magnitud and intensity of global flows• Distant events affect local scenarios• Action and reaction across the world• Increased interaction: networks, telecommunications, MNCs• Supported by:
– Telecommunications– Transport– Global customer demand– Knowledge exchange– MNCs– Institutions– Bilateral and multilateral agreements
Decreased costs
Source: http://www.transportation-logistics.net/ (August, 2011)
Sources: http://www.ctuf.za.org/26telcodirections.htm (August, 2011)c
For the past 50 years…
5 key factors have boosted globalization
• Governments have privatized and deregulated economic activities
• Large multinational companies have replaced governments as the vehicle for economic domination
• Industrial revolution has been replaced by information and services revolution
• Advances in technology have intensified global connectedness
• The rise in per capita income has created a perpetual cycle of consumerism
Source: http://www.unesco.org/education/tlsf/mods/theme_c/mod18.html (July, 2013)
Implications for International Companies
Globalization of production
Source: http://geographicadvantage.aag.org/index.cfm?action=main.module§ionID=3&moduleID=7&pageID=28 (July, 2013)
Source: http://www.marcbowles.com/courses/adv_dip/module11/chapter1/amc11_ch1_two2.htm (July, 2011)
Source: http://hotpotconsulting.com/2011/03/shanghai-barbie-store-closing-what%E2%80%99s-to-blame-consumer-preferences-or-strategy/
(July, 2011)
Globalization of markets
Key Challenges
Globalization. In Ernst and Young Global. Retrieved from https://www.youtube.com/watch?v=JvCyRoY6azk
De-globalization
• Global financial crisis 2009 called for increased controls on globalization• Alternative ideology to neo-liberal globalization
10 pillars (Bello,2009):1. Production for the domestic market
must be the focus2. To encourage the production of goods
at the community level if it can be done at a reasonable cost
3. Trade policies to protect local industry (quotas and tariffs)
4. Industrial policy to revitalize the manufacturing sector (subsidies, tariffs and trade)
5. Measures of equitable income distribution
6. Emphasis on upgrading quality of life and equity (not growth)
7. Use of environmentally friendly technology in agriculture and industry
8. All vital questions must become subject to democratic discussion
9. Civil society must monitor and supervise the private sector and the state
10 Mixed economies: community cooperatives, private enterprises and state enterprises; transnational corporations must be excluded
11 Centralized institutions (IMF, WB) should be replace by regional institutions to work not on free trade but cooperation
Source: http://www.unesco.org/education/tlsf/mods/theme_c/mod18.html (July, 2013)
Kids react to controversial Cheerios commercial
Kids react to controversial Cheerios commercial. In The Daily Dot. Retrieved from http://www.dailydot.com/lol/kids-react-cheerios-commercial-race/
Bibliography• Ghemawat, P. & Altman, S.A. (2012). DHL Global Connectedness Index 2012.
Iberglobal, Retrieved from http://www.iberglobal.com/index.php?option=com_content&view=article&id=1052:indice-de-globalizacion-de-dhl-2012&catid=40:globalizacion-y-negocios-internacionales&Itemid=200007
• Looking beyond the obvious: Globalization and new opportunities for growth. Retrieved from http://www.ey.com/GL/en/Issues/Driving-growth/Globalization---Looking-beyond-the-obvious---Companies-case-studies
• The globalization of the Television supply chain: “smaller screen, smaller world”. In Yale Global Online. Retrieved from http://yaleglobal.yale.edu/sites/default/files/flash/Movie2.html
• Globalization. In Ernst and Young Global. Retrieved from https://www.youtube.com/watch?v=JvCyRoY6azk
Fundamentals of Global StrategyFundamentals of Global Strategy
Lecturer: Cristina Robledo A.- [email protected]
26-603
• What is an international company• Internationalization driving forces• Global strategy• Generic global strategies• The value proposition matrix• Global market entry strategies
¿What is an International Company?
International
• Operations in 2 or more countries.
Multinational corporations
• Assets and / or operations in more than one country• Operations are managed from a main office in its home
country.• Long supply chain:
– Acquisition of raw materials in one country– Manufacturing in another country– Sales in another country
Internationalization: driving forces
Source: http://thefarmproduction.blogspot.com/2009/01/pushpull-of-life.html (August, 2011)
Push and Pull Forces
Source: http://harmkuiper.wordpress.com/page/2/ (August, 2011)
Push Forces
Source: http://www.chatcolombia.org/ (August, 2011)
Pull Forces
• Market• Strategic Assets• Resources• Efficiency
Market Seekers
Source: http://www.jacksonstudios.com.au/tmfit.html (August, 2011)
Strategic Asset Seekers
“The strategic assets are that set of goods, tangible or intangible, which the company has been generating and which have become essential to develop a competitive advantage in their market. We would be speaking of real estate patrimony, machinery, patents, marks, know-how, data bases of information of clients, etc”
Source: http://www.innovationthink.com/innovation/articles/strategic_innovation/strategic_assets.html (August, 2011)
Resource Seekers
Source: http://www.tripadvisor.es/Attraction_Review-g31020-d538178-Reviews-Alaska_Gastineau_Mill_and_Gold_Mine_Tour-Juneau_Alaska.html (August, 2011)
Source: http://blog.tourismthailand.org/EugeneTang/?p=1228 (August, 2011)
Efficiency Seekers
Source: http://www.bized.co.uk/educators/16-19/economics/firms/presentation/scale_map.htm (August, 2011)
Internationalization: why?
• New markets• Diversified activities• Proximity to the customer• Cost related-motivations• Domestic market-related motivations• Survival
Alternative Vs. Imperative ?
Key Benefits*International companies:• Sales• Employment: more and more qualified• Competitiveness• Productivity: companies who invest abroad are 25%
more productive than those who only export and 77% more productive than domestic companies.
• More resistant to adverse economic cycles (?)
Source: Internacionalización, empleo y modernización de la economía española. ICEX & AFI, mayo 2010. En: Internacionalización empresarial: argumentos y estrategias para el directivo. Fundación CEDE.
Key Risks
PoliticalPolitical
Global risk – affects the company’s global operationsCountry-specific risk – company’s specific investments in a given countryMacro – how FDI is treated (expropiation, nationalization, etc)Micro – accounting practices, breach of contracts, etc.
Global risk – affects the company’s global operationsCountry-specific risk – company’s specific investments in a given countryMacro – how FDI is treated (expropiation, nationalization, etc)Micro – accounting practices, breach of contracts, etc.
LegalLegal Legal systemEnforcement of local regulations (IPR)Legal systemEnforcement of local regulations (IPR)
FinancialFinancial Macroeconomic stabilityCurrency competitiveness and fluctuationsMacroeconomic stabilityCurrency competitiveness and fluctuations
SocietalSocietal Ideologies, religious and ethnic groupsLocal leadersIdeologies, religious and ethnic groupsLocal leaders
Kluyver (2010)
Key barriers
• Language• Culture• Religion• Social structure• Geographical distance• Corruption• Legal framework• Bureaucracy• Tariff and non-tariff
barriers to trade• PPP
• Language• Culture• Religion• Social structure• Geographical distance• Corruption• Legal framework• Bureaucracy• Tariff and non-tariff
barriers to trade• PPP
CountryCountry
• Market knowledge• Competition• Logistics and
distribution channels• Consumer
expectations• Norms and
procedures• technology
• Market knowledge• Competition• Logistics and
distribution channels• Consumer
expectations• Norms and
procedures• technology
IndustryIndustry Organization Organization
• Preparation• Commitment• Finding the right
talent• Access to government
support• Expatriates• Multiculturalism• Corporate culture
• Preparation• Commitment• Finding the right
talent• Access to government
support• Expatriates• Multiculturalism• Corporate culture
2 approaches
• To compensate for changes in domestic market
• Domestic market saturation• Excess capacity• Risk diversification• Entry of foreign competitors to
domestic market
• To compensate for changes in domestic market
• Domestic market saturation• Excess capacity• Risk diversification• Entry of foreign competitors to
domestic market
Reactive Reactive
• Market potential• Emerging markets• Economies of scale • Global supply chain networks• Access to resources• Proximity to customers• Value creation
• Market potential• Emerging markets• Economies of scale • Global supply chain networks• Access to resources• Proximity to customers• Value creation
ProactiveProactive
Global Strategy
Fundamentals of Global Strategy
Dilemmas of competing in a global world
• Convergence vs. homogenization• Global citizenship vs. local identities• Global market vs. global segments• Globalization vs. semi globalization• Global sourcing vs. regional business• Bridges vs. barriers between countries
The center of gravity is changing
• The role of emerging markets• 62 companies from emerging markets appear
in Fortune’s 500 rankings• Emerging market companies acquiring
companies in developed countries• New champions from developing countries -
Lenovo
5 imperatives to become more global
Gupta, Govindarajan & Wang (2008)
Growth Limited growth in developed markets, potential in developing ones
Efficiency Economies of scale linked to the scale of operations
Knowledge Faster and cheaper innovation, lower risk due to knowledge transfer
Customers Responsiveness to needs and preferences
Competition First mover advantage.
Still Distance Remains
Cultural Distance Language, social
norms, , etc.
Administrative or
political distanceLaw
s, policies, institutions
Geographic distancePhysical distance, size, access to the ocean, etc.
Econ
omic
dis
tanc
eIn
com
e di
spar
ities
, cos
t di
ffere
ntial
s
CAGE (Ghemawat, 2001)
Source: Author’s creation based on Ghemawat, 2001)
Generic Global Strategies
Generic Global Strategies
AAA Global Strategy Framework (Ghemawat, 2007)
Adaptation Aggregation Arbitrage
Tailoring products or components to suit local
preferences or requirements
Achieving economies of scale or scope
through regional or
global efficiencies
Exploiting differences rather than adapting to
them
Adaptation• Unavoidable to virtually all products
Variation Products, processes, policies, positioning (Coca-Cola)
Focus Without modification products will appeal to a smaller market (Luxury goods)
Externalization Transfer of responsibilities requiring adaptation (Eli Lilly – drug testing)
Design Flexible design to overcome supply differences (modularity)
Innovation Improving the effectiveness of adaptation efforts (IKEA – Flat packaging)
The Globalization of Industries
• Truly global industries?• Global vs. local• Global competition:
– Cross market share battles– Global brands– Global distribution
Local Global
Oil, Passenger cars, Pharmaceutical
Tax preparation, retailing, real state
Furniture
What about Cement?What about Cement?
Aggregation
• Achieving economies of scale and scope without compromising local responsiveness
GeographicGeographic Regional purchasesRegional purchases
Cultural Publishing a book only in a few languages
AdministrativeAdministrative Fulfilling regulatory requirements to introduce a product in the EUFulfilling regulatory requirements to introduce a product in the EU
Economic Choosing to focus on developed or developing markets but not in both
Arbitrage
• Locating separate parts of the supply chain in different locations
• Buying at a low price in one country to sell in another
GeographicGeographic X-Rays in US-India; India investing in LA to serve US customers X-Rays in US-India; India investing in LA to serve US customers
CulturalCultural Association of fashion items with french or italian cultureAssociation of fashion items with french or italian culture
AdministrativeAdministrative Holding companies in the Cayman IslandsHolding companies in the Cayman Islands
EconomicEconomic Leveraging differences in costs of labor and capital (offshoring)Leveraging differences in costs of labor and capital (offshoring)
Which “A” to use?• The goal is to create global value• Many companies will focus on just
one “A”• Most likely all of them will be
considered at some point• Strong marketing focus –
adaptation• R&D – aggregation• Labor intensive industries -
arbitrage
P&G’s AAA Strategy
• Adaptation of products•Aggregation at the regional level•Geographical arbitrage -Outsourcing of production activities
P&G’s AAA Strategy
• Adaptation of products•Aggregation at the regional level•Geographical arbitrage -Outsourcing of production activities
The value proposition matrix
Value Proposition Matrix
Global “Mix”-Pure aggregation-
Global Message-Message aggregation-
Global Offer-product
aggregation + message adaptation-
Global Change-pure adaptation-
The
Mes
sage
The Offer
Sam
eD
iffer
ent
Same DifferentKluyver, 2010
Global Mix
• Pure aggregation• Rare• It requires:
– Global usage patterns– Economies of scale– Standardization leads to a sustainable competitive
advantage
Basic electronic componentsBasic electronic components
Global Offer
• Same offer• Different positioning• Core benefits are identical but a local
message is needed to reach customers• Difficult to sustain – consistency and global
expectations?
Global Message
• Same message• Product adaptation• Customers with similar
aspirations• Cost of adaptation is low• Global brand leverage• Risk: global customers do not
find a global offer
McDonaldsMcDonalds
Global Change
• Pure adaptation• Best fit• Often linked to acquisitions• Requires higher local R&D costs• may lead global customers to confusion
Bibliography• Zhao, Xuemin and Decker, Reinhold, “Choice of foreign market entry
mode – cognitions from empirical and theoretical studies”, Available at: http://bieson.ub.uni-bielefeld.de/volltexte/2004/507/pdf/m_entry.pdf (August, 2010).
• International Management-Concepts and Cases by A.V. Phatak, pp. 270-275. Deresky, Helen, 2008, International Management: Managing Across Borders and Cultures – Text and Cases. Pearson-Prentice Hall Ed., New Jersey
• Welch, Lawrence S., Benito, Gabriel R.G. & Petersen, Bent. 2007, Foreign Operations Methods. Edward Elgar Publishing Ltd., Cheltenham, UK. Chapter 8.
• Rasmussen, Erik S. and Madsen, Tage Koed, “The born global concept”, Paper for the EIBA Conference, December, 2002. Available http://www.aueb.gr/deos/EIBA2002.files/PAPERS/S4.pdf (August, 2010)
Bibliography
• Welch, Lawrence S., Benito, Gabriel R.G. & Petersen, Bent. 2007. Foreign Operations Methods – Theory, Analysis, Strategy. Edward Elgar Publishing Ltd., Cheltenham, UK.
• Dunning, John H. & Lundan, Sarianna M. 2008. Multinational Enterprises and the Global Economy, 2nd edition. Edward Elgar Publishing Ltd., Cheltenham, UK.
• Deresky, Helen, 2008, International Management: Managing Across Borders and Cultures – Text and Cases. Pearson-Prentice Hall Ed., New Jersey, U.S..
• Wild, John H.;Wild, Kenneth L. & Han, Jerry C.Y., 2006, International Business: The Challenges of Globalization, Pearson – Prentice Hall Ed., New Jersey, U.S..