MGX5181
Week One
Introduction to International Strategy
Globalisation versus Localisation
Unit Objectives
• On completion of this unit students should be able
to:
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Describe the concepts and use the tools for competitive
analysis and strategic planning in the international
environment.
Formulate and implement strategies for SMEs and
multinational organisations in a global setting.
Identify and analyse the opportunities and dangers
involved in international strategic management
Evaluate the impact different types of foreign
operations have on the internationalising organisation
Week One Objectives
• Define strategy, globalisation and a ‘global
firm’
• Identify the forces pushing towards
globalisation
• Identify the forces pushing towards
localisation
• Discuss the global integration/local
responsiveness grid
What is Strategy?
• Definitions vary between people and across
cultures.
• Theories vary across strategic issues so you
need a toolbox of options rather than
looking for the “one” best approach.
• Maslow 1908-1970
“If the only tool you have is a hammer, you
treat everything like a nail”
Strategic Dimensions
• There are three dimensions of strategy:
• Strategic Process

The manner in which strategies come about ie
questions to ask:
• How, who and when
• How should strategy be made, implemented,
changed and controlled, who is involved and when
do the necessary activities take place?
Strategic Dimensions
• Strategic Content

The product of a strategic process is referred to
as the strategic content ie the what of strategy
• What is and should be the strategy for this
organisation or unit?
• Strategic Context

The circumstances under which both the
strategic process and strategic content are
determined is called the strategic context ie the
where of strategy
• Where as in which firm and which environment are
the strategic process and strategic content embedded
Evolution of international
strategy
• 1950s-1960s
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Multinational expansion through the
establishment of miniature replica subsidiaries
abroad. Predominance of multidomestic
strategies, with largely autonomous foreign
subsidiaries supplying local/regional markets.
Limited global co-ordination or integration of
geographically dispersed operations.
Evolution of international
strategy
• 1970’s

Multinationals in retreat: divestments,
rationalisation and host country plant closures.
• 1980’s

Shift to co-ordinated and integrated global
strategies by established MNEs (multinational
enterprises); focus on global competitiveness
and use of global scope as a competitive
weapon in global industries involving plant
specialisation and national interdependency
Historically
globalisation
took place in 3
stages
Global integration
(Global)
Internationalisation
(Multinational)
Export
(Trade)
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• 1990’s

Evolution of international
strategy
Transition to global and transnational
strategies. Business focus on developing core
competences with outsourcing of other noncore activities. Development of global
networks and strategic alliances which are both
horizontal and vertical. Increasing emphasis on
knowledge as an asset and early forms of
learning organisation begin to develop
• 2000’s

The era of the “virtual” corporation and the
intelligent organisation?
21st-century
competitive landscape
• The nature of competition in many of the
world’s industries is changing
• Conventional sources of competitive advantage
– economies of scale and huge advertising
budgets – are not so effective as they were in
the 1900s
• Rapid technological change
• Pressure for innovation and knowledge
management
• Hypercompetition
11
Developing an International
Perspective
“Every man takes the limits of his own field of
vision for the limits of the world”
Arthur Schopenhauer 1788-1860
• When it comes to strategic perspectives,
countries can differ in many ways eg

Language, business culture, education, distribution,
laws etc
• The question is: how significant are these
international differences?
Developing an International
Perspective
• Another issue is impact of international
linkages
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To what extent do events in one country have
an impact on what happens in other countries?
Countries linked closely together leads to
international integration
Countries with weak links leads to
international fragmentation.
The question for the strategist is how closely
are they linked? – if fragmented then each
country can be viewed separately if highly
integrated the strategist must view all countries
as part of the same system
Globalisation versus
localisation
• Some strategists see countries becoming
more similar and interrelated.
• This development towards lower
international variety and tighter linkages is
referred to as the process of globalisation –
leading eventually to a “nationless” world –
a global convergence perspective.
Globalisation forces
IT and
Communications
Capital
Flow
Consumer
Convergence
Deregulation
and
Trade Agreements
Trade
Investments
Globalisation
Information
People
Cross-borders
Innovation
Cross-borders
Sourcing and
Production
Cross-borders
Marketing
Cross-Cultural
Management
15
Two dimensions of
globalisation?
Integration and Coordination
•
Optimise competitiveness by
leveraging international,
resource, assets and
competencies leading to:
•
Differentiated advantage
•
Cost advantage
•
Speed advantage
•
Innovation advantage
Traditional globalisation
• Expand value adding activities
•
into countries in order to capture:
•Market opportunities
•Resources
•Learning
Spread risk
Multinational Expansion
16
Global Convergence Perspective
• Many examples of convergence:
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Clothing, TVs, vehicles, phones, music etc and
many of the same companies seen around the
world
Global convergence driven by the ease, low
cost and frequency of international
communication, transport and travel. This has
diminished the importance of distance. Focus is
long term and on emerging global reality
(Ohmae, 1990).
Result is a “global village”, where individual
firm leverage resources to gain scale economies
through “standardisation” (Levitt, 1983)
Global Convergence
Perspective

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International integrated facilities provides
centralisation. Firms look for most attractive
locations for R&D, marketing, sales and
procurement – aim is world-wide economies of
scale.
Buyers can shop at one global market,
suppliers and competitors create global
industries, resulting in companies coordinating
their global strategies ie developing global
strategic alignment
Political Factors
•WTO
•EU
•FDI
Reduce trade barriers
Technology
Factors
•Transport
•Teleommunications
•R&D
•Manufacturing
Social Factors
Globalisation
Favours standardisation and
global branding
Reduce the cost of coordination and increase
economies of scale
Competitive Factors
•Multinational customers
•Shorter cycles
P. Lasserrre 2013
•Convergence of customers
needs
•Travel
•TV
•Movies
Induce integration and coordination
Divergence (localization)
perspective
• Other strategists suggest important international
differences will not change easily. Therefore
international variety might increase and
international linkages loosen, referred to as
“localization”
• These strategists suggest you must be willing to
adapt to complex variety and fragmentation that
characterises our world. This is called an
international diversity perspective.
International Diversity
Perspective
• It is easier to see convergence however the
actual level of international variety might be
quite consistent. Why?
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Habits change slowly, and cultural norms and
values are outright rigid (de Wit et al 2010)
Renewed emphasis on local language, political
systems diverse, legal differences etc.
New developments and novel systems in
nations creates international divergence (Dosi
& Kogut, 1993).
Cultural Factors
•Attitudes and tastes
•Behaviour
•Social codes
Reduce the benefits of standardisation
Technical Factors
•Standards
•Spatial presence
•Transporation
•Languages
Reduce the benefits of economies
of scale, centralisation and
standardisation
Commercial Factors
Localisation
•Distribution networks
•Customisation
•Responsiveness
Requires differentiated
approaches to sales and
marketing
Legal Factors
•Regulations
•National security
P. Lasserrre 2013
Limits free flow of people, goods, data,
cash
Imposes localisation constraints
22
Dealing with Convergence
and Divergence
• International organisations that can balance
these two competing factors are called
“transnationals”
(Bartlett and Ghoshal, 1995)

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Are transnationals good? – well some types might not be:
http://vimeo.com/53497863
• Strategists must wrestle with the paradox of
globalisation (convergence) and
localisation (divergence).
Why companies globalise?
• Increase size (V): capture market opportunities
Customer Value
(CV)
• Increase size benefit from economies of scale (C)
PROFIT
• Get access to resources (S)
• Get access to low cost labor and infrastructure (C)
Price
Costs
Internal Costs
(C)
Supplies (S)
Volume (V)
• Get access to knowledge (CV and C)
• Serve global customers (CV)
• Reduce risks through geographic diversification
24
Global industries
• A global industry is an industry in which firms
can sustain competitive advantages only
through:
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A multi-market presence
An integration and cross-borders coordination of
their resources, assets and competencies in various
components of the value chain
Global industry
• An industry is ‘global’ when:

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26
Customers have similar demands for functionalities
and design across countries
Customers “behave” the same way across
countries
Products or services have a high proportion of
standard components across countries
Customers (or distributors) themselves operating in
different countries and are buying centrally
26
Global industry
• An industry is ‘global’ when:

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Minimum economies of scale can only be achieved
by serving multiple national markets
The speed of introducing new products worldwide is
important for competitiveness
Experience gained in one country is transferable to
others countries
Competitors operate successfully in a
“standardized” and “centralized” way across
countries
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Local industry
• An industry is ‘local’ when
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Sales of products or services depend on cultural factors
Pricing can be different from country to country (No
arbitrage)
The extent distribution channel management differ from
country to country
The extent business regulations and contexts differ from
country to country requiring a high degree of local
practices
The extent products or services require a high degree of
interaction with customers (customisation)
Local customer interface is needed to operate
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28
Global integration/local
responsiveness grid
• Two sets of forces described – globalisation and
localisation – are shaping the competitive
structure of industries worldwide.

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The result is that companies need to configure their
business systems worldwide with the correct
balance of co-ordination, integration or
decentralisation.
• The global integration/local responsiveness grid is used
for identifying the competitive requirements of an
industry or a business segment and can assist companies
in formulating business and country strategies.
Degree of universality of product
Factors limiting universality
Examples
Culture/habits
Design taste
• Fish sausage
• Furniture
• Root beer
• Refrigerator
• Boxer shorts
• Processed
food
Language
• Word
processor
• Computer
• Rice cooker
Size/package
• Textile
• Automobile
(seat size)
• Soft drinks
Technical
system
User/
application
• Colour TV
(PAL system
in European
voltage)
• Portable
radio/cassette
player (youths
in US)
None
• Watch
• Motorcycle
• Petrochemical
• White liqueur
(young females products
in Japan)
• Piano
• Money
(capital
market)
Marketing concept
Technology
Product application
Product concept
Source: Ohmae
Must modify locally
Could be shared globally
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Global integration/local
responsiveness grid
• The first two categories are easily defined
and justified.

Firstly, global forces are dominant and there
are few advantages to push for localisation.
• Examples include civil aircraft, microchips and
baulk chemicals. In these industries, efficiency,
speed and learning are prime competitive drivers.
31
Global integration/local
responsiveness grid

The second type is local forces, where
flexibility and quick response to customer
needs are the key determinants of competitive
advantage.
• Examples in this category include food retailing and
consumer banking.
32
Global integration/local
responsiveness grid
• The final category is more complex and
involves a mix of both global and local
forces.

Competitive advantage is achieved through a
combination of global integration and
rationalisation, as well a local responsiveness.
• Many sectors, such as the automobile industry, find
that this combination is required for maintaining an
advantage in an increasingly competitive industry.
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Competitive requirements
HIGH
Telecommunication
Equipment
Civil Aircraft
Institutional Banking
GLOBAL
FORCES
Bulk Chemicals
Corporate Banking
Automobiles
Paint
Package Tours
Retail Banking
LOW
Catering
LOW
LOCAL FORCES
HIGH
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Competitive requirements
within segments - Paint
HIGH
Marine
Automotive
Cars
Aircraft
GLOBAL
FORCES
Industrial
Do it yourself
LOW
LOW
LOCAL FORCES
HIGH
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Competitive requirements business functions
HIGH
Research
Development
Finance
GLOBAL
FORCES
After Sales
Services
Components Sourcing
Components Manufacturing
Logistics
Marketing
Advertising
Accounting
Customers Services
Sales
LOW
LOW
LOCAL FORCES
HIGH
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Globalisation versus Localisation
• Thinking about industries you know, what
opportunities and threats does a trend to
globalisation versus localisation provide?
• Can these two trends be balanced?
• What strategies can an individual firm use to
take advantage of either trend?
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http://www.youtube.com/watch?feature=player_detailpage&v
=R0W3Wi_mJ14
http://www.youtube.com/watch?feature=player_detailpage&v
=12YDLZq8rT4 (first 18.23min only)
Class discussion: What are the pros and cons of globalisation
V localisation? What is the role of regionalisation?
Terms
• International company

A business operating in more than one country.
• A Multinational Company (MNC)
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A multinational company carries out one activity (e.g.
manufacturing) or a component of the activity (e.g.
manufacturing one sub-part only) of the value chain in one
country which serves the company’s worldwide market.
Consequently, a multinational’s operations are self
contained in each country and are assessed on a country by
country basis.
• Multinational Enterprises (MNEs)
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are not true corporations
eg accounting partnerships and Lloyd’s of London
Terms
• Multinational organisation (MNO)
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covers not-for-profit and profit seeking organisations.
• Griffin and Pustay (2009)
• Multidomestic company (MDC)

is an organisation with multi-country affiliates each
which formulates its own business strategy based on
perceived market differences.
• Ball et al (2010)
Terms
• Global firm
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can be defined as a company that operates in the main
markets of the world in an integrated and co-ordinated way.
Integration, co-ordination and rationalisation are the key
terms usually applied to a firm’s progression from a
multinational approach to international operations to a
global approach.
Refers to more than just markets and is used to indicate the
potentially global scope of all of an organisation’s business
operations and its ability to compete on a global scale
(Yip,1992)
• Transnational
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A globally networked company aiming for benefits of
globalisation and localisation