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StrategyA View From

The Top

Prentice Hall

3-1Copyright 2009 Pearson Education, Inc.

Publishing as Prentice Hall

Cornelis A.

de Kluyver

and

John A.

Pearce II

Third Edition


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All Business Environments are

Subject to Change.

Successful Companies

Keep their strategy aligned with changes intheir environments and

Actively anticipate change - in customerdemographics, future technologies, potentialfor new products/services, etc. - and seek toreinvent their industries.

ButMany executives are unable to see the relevant

changes in their strategic environment or appreciate

their impact on the future of their business


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Understanding Globalization is

Key to Strategic Thinking

As the economies and demographicsof the industrialized nations furthermature, growth opportunities in

traditional markets will diminish

Global Competition has synchronized economic cycles

has increased business risk in all markets has redefined relations between the private

and public sector

has created new strategic challenges


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But Globalization is Still Widely

Misunderstood

As a phenomenon/process

There are many myths about globalization

What it means forbusinessThe nature of the challenges


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Three Myths About Globalization

and a Conclusion

Myths:

The World has become truly global

Globalizations principal dimensionsare economic, political andtechnological

Globalization is a zero-sum game

Conclusion:

Intelligent Globalization requires adifferent approach


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Myth 1

The World Has BecomeTruly Global


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Myth 1 Has the World Become

Truly Global? Consider Trade and

Investment Flows

U.S.

or NAFTA

EuropeanUnion

Japanor Asia

Growing but small as a

percentage of the total

Rest of the

World:

Negligible


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Myth 2 - Globalizations Principal

Dimensions Are Economic,Political, and Technological

While Many Globalization Issues HaveTheir Roots In Economics, Politics or

Technology.

Examples: FDI, Regionalization


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Other Dimensions are

BecomingIncreasinglyImportant

Trade, FDI, international calls &internet traffic serve as usefulmeasures of global interdependence

but Not all relevant dimensions can be

quantified by this approach Spread of culture & ideas

Forces beyond the ability of the individualnations Global warming

Spread of infectious diseases

Rise of transnational crime


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In Fact, Globalization Has

Acquired A New Dimension

(Human Expectations)

Economic

Political

Technological

Psychological


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Myth 3 - Globalization is a

Zero-Sum Game

Benefits of international trade? theories show why countries should trade

for products/ services even when they can

produce them domestically Patterns of international trade?

theories show why countries specialize theway they do

Role of the government? theories help articulate the role of

government policy


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The Evolution of Trade Theory

Early thinking: Mercantilism

Adam Smith: The theory of absoluteadvantage, 1776

Ricardo:T

he theory of comparativeadvantage, 1817

Heckscher-Olin theory: 20th century

Product Life cycle effects

New trade theory Porters diamond: national competitive

advantage


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Early Thinking: Mercantilism

Basic theme: encourage exports,discourage imports (accumulategold/silver)

Fundamental weakness: Trade is

seen as a zero-sum game (Latertheories showed trade is apositive-sum game)

Although discredited as a theory,

mercantilist thinking is still verymuch alive:political power=economic

power=balance of trade surplus


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Adam Smith: Absolute

Advantage Attacks zero-sum game

assumption

Countries should specialize inthe production of goods for whichthey have an absolute advantageand trade for others with other

countries


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Ricardo: Comparative Advantage

Theory goes beyond Adam Smith:Question: What happens when onecountry has an absolute advantagein all goods?

A: Still makes sense to trade -Produce only those goods which can

be made mostefficiently, trade for theothers.. Theprinciple ofcomparative advantage


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Smith & Ricardo - Principal

Conclusions Potential world production is

greater with unrestricted thanwith restricted trade

Holds even when we relax keyassumptions:

diminishing returns to specialization

changes in the stock of resources or

in the efficiency with resources arebeing used


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Vernon: Product Life Cycle Theory

As products (markets) mature, boththe location of sales and of (optimal)production change, thereby affectingthe pattern of exports and imports

For many, especially technologyproducts, the pattern is US, other

advanced countries and developingnations


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New Trade Theory

Origin: Questioning of the assumptionofdiminishing returns tospecialization.

Instead: Has globalization fostered

increasing returns to specialization?(economies of scale/scope)

Is the principle of comparativeadvantage therefore undermined by

first-mover advantage? Question: Does this encourage

government intervention/strategictrade policy?


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Porters Diamond National

Competitive Advantage

Outgrowth of new trade theory

Focus on four national attributes:

factor endowments demand conditions

related and supporting industries

firm strategy, structure, rivalry

Note: Governments can influence allfour


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Determinants of National

Competitive Advantage:

Porters Diamond

Firm strategy,

structure, andrivalry

Demandconditions

Factorendowments

Related andsupportingindustries

Chance

Government


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Key External Strategic

Change Drivers for the 21st

Century:

Global Tectonics

Source: Fariborz Ghadar and Erik Peterson, GLOBALTECTONICS: What Every Business Needs to Know, The PennState Center for Global Business Studies, 2005


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Global Tectonics

The process by which developingtrends in technology, nature, and

society slowly revolutionize ourenvironment, much like how theEarths tectonic plates shift theground beneath our feet.


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1. Population The world population is rising fast from 6.4

billion today to 9 billion by 2050 The rate of global population growth is

decreasing, especially in developed countries,making a global population explosion unlikely

Growth is highest in those areas of the world

least capable of supporting such growth Asymmetric global growth will change the

global political equation and could createfriction

New migration and immigration patterns will

emerge Aging populations in Europe, the U.S. and

Japan will present key challenges for thepublic, as well as the private sector


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2. Urbanization W

hereas today less than half of theworlds population lives in cities, by2030 this number is expected toincrease to nearly 60 percent.

Local and federal governments will be

hard pressed to provide the necessaryinfrastructure and social services

Rising potential for social, health-related, economic and security volatility

Mega cities with 10 million or moreinhabitants will becomecommonplace; rural development maylanguish


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5. Environmental degradation

Possible effects of global warminginclude the inundation of low-lyingcountries due to rising sea levels,increased frequency of severe stormsand the retreat of glaciers and icecaps.

Less abrupt changes could also occur asaverage temperatures increased. Intemperate areas with four seasons, thegrowing season would be longer withmore precipitation.

Less temperate parts of the world wouldlikely see an increase in temperature anda sharp decrease in precipitation,causing long droughts and potentiallycreating deserts.


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6. Economic integration Higher levels of cross-border economic

activity have increasedinterdependence among the worldseconomies and created a fullyintegrated economic system on a

global scale. Example: Airbus. The aircrafts wings are

manufactured in Britain; its fuselage andtail in Germany. A Spanish companyproduces the doors, while cockpit

construction and final assembly takeplace in France. In all, more than 2,000companies, located in more than thirtydifferent countries, supply components,spare parts or provide services.


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7. Knowledge dissemination

The emergence of a global economybased on knowledge and ideas haschanged the very nature of strategicopportunity and risk.

So-called smartproductsinteractiveproducts that become smarter themore they are used and which can becustomizedare a primary focus ofmodern product development.

A tire that notifies the driver of its airpressure and a garment that heats orcools in response to temperaturechanges are early versions ofknowledge-based, or smart, products

already on the market.


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9. Biotechnology The biotechnology revolution is likely to have the

greatest potential in three areas: medicine,agriculture, and the environment.

One day, farmers will be able to grow plantsthat make plastic enough to lessen ourdependence on oil;

Whole families of new drugs will allow theeradication of many types of disease, and

Major advancements in pollution cleanup willbecome possible.

Long term, advances in the biosciences will also

likely shake up the world of electronics and makesilicon obsolete.

Motorola is taking the first step toward a DNA-based computer.


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10. Nanotechnology The ability to create new materials one

atom at a time is fundamentallyreshaping our vision of the future with

stronger and lighter materials that willreduce the cost of transportation andreduce pollution,

One day, nanomedicines will be able

to monitor, repair, and control humanbiological systems.


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11. Conflict The fall of the Berlin wall in 1989

changed the nature of internationalconflict from being primarily a bilateralclash between superpowers to multiple

civil and intra-country conflicts, most ofthem clustered in the developing world.

Terrorism has become a major threat for business as well as civil society

and continues to threaten the stabilityof the international political andeconomic order.


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12. Governance

Societies and corporations areconnected by two inter-related sets oflaws.

The rule of law as defined by local andnational legislatures, multilateral

agreements, and an emerging body ofinternational law.

The market defines the second set oflaws. This second set of laws is becoming- within the boundaries of applicable legal

structures - the dominant force in theevolution of corporate governancepractices around the world.


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Analyzing Change: Scenario

Planning

Four Steps:

1: Define boundaries of planning effort

2

: Identify most important determinants ofstrategic environment

3: Construct a comprehensive set of futurescenarios

4: Generate forecasts to assess theimplication of alternative futures forstrategic postures & choices


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Global Governance Toward

A New Compact Between

Business and Society

Nine New Rules


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1. Size Means Scrutiny

The bigger a company is, and the moremarket dominance it achieves, the moreattention and demand it faces for exemplary

performance in ethical behavior, goodgovernance, environmental management,employee practices, product developmentthat improves quality of life, support forcommunities, honest marketing, etc.


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2. Cutting Costs Raises

Compliance Risk

The more companies use traditional meansto cut costsfinding low wage producers in

less developed countries, squeezingsuppliers, downsizing, cutting corners,etc.the more potential there is for crisesrelated to noncompliant ethical practices.


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3. Strategy MustInvolve Society

For forward-thinking companies, social,and environmental problems representthe growth opportunities of the future. Forothers, they represent the new risks that

must be managed. GE is looking to solve challenges

related to the scarcity of global naturalresources and changingdemographics.

IBM prioritizes producing socialinnovations alongside businessproduct and process innovations.


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4. Reducing Risks Means

Building Trust Classic risk management strategies must

expand beyond financial and currencyanalysis to include destabilizing trends and

events arising from society. Smart leadersrealize that no company can manage theserisks if it doesnt earn the trust of societysleaders and of its communities.


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5. Satisfying Shareholders

Means Satisfying Stakeholders In the long-run, the company that pays

attention to the business-society relationshipultimately serves its investors interestsbecause

its antennae are better tuned toidentifying risk,

it is able to build trust with its

stakeholders, and it is well-positioned to develop goods and

services that society values.


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6. Global Growth Requires

Global Gains

Increasingly, growth requires a globalperspective that recognizes the importanceof strong communities which supplyinfrastructure, maintain stable business

climates, attract investment capital, supplyhealthy educated workers, and supportgrowth that generates consumers withgreater purchasing power.

Long-term growth also requires

development. Visionaries realize that thecompanies that serve not just consumerdemand for quality devices, but their demandfor quality of life, will seize the

greatest market share.


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7. Productivity Requires

Sustainability

Companies have seen that commitment toenvironmental management and safety in theworkplace has been a driver of lower costsand greater productivity.

Companies that take on the challenge ofconstraining their behavior throughcommitments to corporate citizenship findnew incentive to innovate to compete.

The more companies innovate, the moreproductive and sustainable they become.


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8. Differentiation Relies on

Reputation In the U.S., an estimated 50 million

people, representing over $225 billion ayear in purchasing power, comprise the

emerging lifestyles of health andsustainability consumer base. As theinfluence of these activist consumersgrows, they will demand companies to

demonstrate sterling reputations andcommitment to society.


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9. Good Governance Needs

Good Representation

The recent wake of the corporate scandals

is creating strict controls and governancereforms. But behind these changes is adeeper revolution calling for companies toinclude stakeholders in formal governance.


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StrategyA View From

The Top

Prentice Hall

3-48Copyright 2009 Pearson Education, Inc.

Publishing as Prentice Hall

All rights reserved. No part of this publication may bereproduced, stored in a retrieval system, or transmitted, in

any form or by any means, electronic, mechanical,

photocopying, recording, or otherwise, without the priorwritten permission of the publisher. Printed in the United

States of America.

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