MBA Oxford Lectures – 2005
Cornelis A. “Kees” de Kluyver
Henry Y. Hwang Dean and Professor of Management
Peter F. Drucker and Masatoshi Ito Graduate School of
Management
Claremont Graduate University
Claremont, CA 91711
St. Peter’s College, July 17-28, 2005
Part I – Globalization and
International Trade
by
Cornelis A. “Kees” de Kluyver
Henry Y. Hwang Dean and Professor of Management
Peter F. Drucker and Masatoshi Ito Graduate School of
Management
Claremont Graduate University
Claremont, CA 91711, U.S.A.
Based in part on Cornelis A. de Kluyver and John Pearce, II, STRATEGY: A VIEW FROM THE TOP, Second Edition, Prentice Hall,
2006
de Kluyver - Oxford MBA 2005
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Globalization Is Still Widely
Misunderstood..
 As a phenomenon/process
There are many “myths” about
globalization
 What it means for business
The nature of the challenges
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Three Myths About Globalization
Myths:

The World Has Become Truly Global

Globalization’s principal dimensions are economic,
political and technological

Globalization is a zero-sum game
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Myth 1: The World Has Become
Truly Global
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Reality: Measuring Globalization…
When you can measure
what you are speaking about,
and
express it in numbers,
then you know something about it.
Lord Kelvin
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“Global” Trade/Investment Flows?*
Rest of the
World:
U.S.
or NAFTA
Negligible
Growing but small as a
percentage of the total
Japan
or Asia
European
Union
*Source: Alan M. Rugman: The End of Globalization, Random House Business Books, 2000
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“Global”
Business? – A Reality
Check
 The World’s 500 largest corporations..*
U.S.:
192
Europe:
159
Japan:
88
Rest of the World:
61
* Source: Fortune Global 500, 2003
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The Globalization Index*
 Sample Questions:
To what extent is a country global?
Is globalization increasing or declining?
What is the impact of the Web on the global
economy?
* Source: Foreign Policy Magazine Mar-Apr 2004.
Globalization Index TM . Copyright 2001, A.T. Kearney and
Carnegie Endowment for International Peace
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Findings - 2004
For the third year in a row, Ireland ranks as the most global nation
in the survey, due to the country's deep economic links and high
levels of personal contact with the rest of the world. Western
Europe claimed 6 out of the 10 most globally integrated countries.
The United States broke into the top 10, ranking first in the
number of secure servers and Internet hosts per capita. Countries from
Central and Eastern Europe, Australasia, and Southeast Asia also made it
into the upper tier.
Economic Integration: trade, foreign direct investment, portfolio capital flows, and
investment income
Technological Connectivity: Internet users, Internet hosts, and secure servers
Personal Contact: international travel and tourism, international telephone traffic, and
remittances and personal transfers (including worker remittances, compensation to
employees, and other person-to-person and nongovernmental transfers)
Political Engagement: memberships in international organizations, personnel and
financial contributions to U.N. Security Council missions, international treaties ratified,
and governmental transfers
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Ireland ranks as the most global nation
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Myth 2: Globalization’s Principal
Dimensions Are Economic,
Political, and Technological
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Other Dimensions Are
Becoming Increasingly Important
 Trade, FDI, International calls & Internet traffic serve
as useful measures of global interdependence but…
 Not all relevant dimensions can be quantified by this
approach
 Spread of culture & ideas
 Forces beyond the ability of the individual nations
Global warming
Spread of infectious diseases
Rise of transnational crime
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Significant Concerns and Counter
Effects Have Developed…
 Global Village: Need for identity
 Environmental concerns
 Social Justice & Economic Participation
 Regionalism as a defense
 Perceived diminished power of states
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Life Expectancy
Levels of
globalization vs.
life expectancies
at birth
Finding: people in
the more global
countries tend to
live the longest.
The same holds
true when only
developing
countries are
examined.
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Religion
Levels of
globalization vs.
levels of
religious
participation
Does global
integration lead to
secularization?
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Women’s well-being
Levels of
globalization vs.
women's wellbeing
Does globalization
create new job
opportunities for
women? Yes
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Key: Globalization Has Acquired A
New Dimension
Economic
Political
Psychological
Technological
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Cultural Globalization?
Culture is the most visible manifestation
of globalization, whether it is the
appearance of new cultural forms (such
as Disneyland Paris) or the
transformation of traditional
cultural expressions into
something a bit
different (such as
Egyptian McDonald's
restaurants
serving
their patrons
“McFalafel”).
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Myth 3: Globalization is a
Zero-Sum Game
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Economic Aspects of Globalization are
still not well understood
 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 the way they
do
 Role of the government?
 theories help articulate the role of government policy
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Trade – The Big Picture
 Pattern of Trade
 Trade is based primarily on comparative advantage and
specialization.
 Trade flows may arise from differences in technology,
endowments, tastes, first-mover advantage, random.
 Gains from Trade
 Trade is not zero-sum, there are mutual gains to trade.
 But gains may be unequally distributed within a country.
 Result is pressure by concentrated groups for protectionism.
 Protectionism
 Attempts by government to shield economy from trade hurt
welfare generally, but may improve welfare of sectors.
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Fundamentals of Trade
 Absolute vs. Comparative Advantage
 Gains from specializing in producing goods for which
have a comparative, not absolute, advantage.
 Trade & Specialization
 Nations specialize their production and trade for what
they have a comparative disadvantage in.
 Relative Wages
 What matters for trade is relative cost versus relative
productivities.
 Mutual Gains from Trade
 Increased range of consumption choices for each nation
relative to no trade (autarky).
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Winners and Losers from Trade

Trade & specialization result in:
1. Lower prices and higher domestic consumption for imported
products.
2. Domestic Consumers benefit from lower prices and larger
quantity and/or variety purchased.
 Large number of people each with small gains –
 Collectively large gains to the economy.
3. Domestic Producers hurt as firms suffer losses, leave industry
and workers lose jobs.
 Small number of firms/people each with significant losses
 Collectively NOT a big loss to the economy.

Ignores dynamic effect on economy as workers move from
losing to winning industries – our export firms.
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Instruments of Trade Policy
 Tariffs are taxes levied on imported goods.
 Specific Tariff: levied as fixed amount on each unit of goods
imported.
 Ad Valorem Tariff: a tax levied as a fraction of the value of
goods imported.
 Export Taxes or Subsidies levied on exported goods.
 Either as specific tax (subsidy)or as an Ad Valorem tax
(subsidy) on exports.
 Non-Tariff Barriers (NTB’s)
 Import Quotas: Limitations on the quantity of imports.
 Export Restraints: Limitations on quantity of exports (usually
imposed by exporting country).
 Other NTB’s
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Tariff for a Small Country
1. Import tariff, t, raises domestic
price PT = PW + t for small country.
Price, P
2. Consumer surplus falls by areas:
a+b+c+d
SH
3. Producer surplus rises by area:
a
4. Government revenue rises by area:
c
5. Deadweight loss (cost of protection):
b + d (= pro’dn loss + consump loss)
PT
t
a
b
c
d
DH
PW
S0
ST
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DT
D0
Quantity, Q
26
Other NTB’s
 Government Procurement Provisions
 Restrict purchase of foreign goods by home gov’t agencies.
 Domestic Content Provisions
 Reserve some of value-added & product sales to home producers.
 Administrative Classification
 Import duty depends on classification, gives leeway to customs.
 Restrictions on Services Trade
 Less visible. Restrict foreign provision of certain services.
 Health, Safety, or other Standards
 Some standards reflect not safety concerns but restrictions on
imports.
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Industrial Policy as an NTB
 Two firms, one industry, new
aircraft decision.
 Produce or Not Produce.
 Payoff Table at right.
 Payoffs to each given
strategy choice of other.
 Assume particular structure.
Airbus
Boeing
No Prod’n
Produce
Produce
-5
-5
No Prod’n
0
100
100
0
0
0
 Features:
 If both firms choose to produce new aircraft, both suffer losses.
 If either firm is sole producer, then they make substantial profits.
 Equilibrium:
 Advantage to firm that moves first. First-mover captures entire market, no
incentive for other firm to enter. No unique equilibrium.
 A firm could guarantee market if had a credible commitment to enter.
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Subsidies as an NTB
 Targeted Gov’t subsidy can
Boeing
provide a credible entry
commitment.
 Assume EU guarantees
Produce
Airbus a $25 mill. Subsidy to
produce new aircraft.
 New Payoff Table at right.
No Prod’n
 Payoffs to Airbus change.
Airbus
No Prod’n
Produce
20
-5
0
100
125
0
0
0
 Features:
 Profitable for Airbus to enter regardless of Boeing strategy.
 Boeing knows Airbus will enter, so Boeing will not to avoid loss.
 Equilibrium with Subsidy
 Subsidy ensures Airbus produces new aircraft & Boeing does not enter.
 EU Subsidy acts as deterrent to U.S. firm, allows EU industry to capture
industry.
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World Trade Organization (WTO)
 General Agreement on Tariffs and Trade, GATT (1947)
 Multi-lateral commitment to reducing trade barriers, sponsored
 Kennedy Round (1962 – 67)
 Tariffs reduced average 35% on 2/3 of manufactured goods.
 Tokyo Round (1974 – 79)
 Tariffs fall 1/3 on manufactures, restrict NTB’s,
 Non-reciprocity principle for developing countries.
 Uruguay Round (1986 – 93)
 Tariffs fall 34% on manufactures, agricultural subsidies cut 36%
 Textile quotas (MFA) phased out 2005, nat’l treatment for services
under GATS, establish WTO to replace GATT.
 World Trade Organization, WTO (1995)
 Doha Development Round (1999 – ongoing)
 Focus on tariff reductions for development, agriculture tariff reductions,
trade-related intellectual property issues (TRIP’s)
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Issues in Trade Negotiations
 Doha Development Round (1999 – ongoing)
 Tariff reductions for development
 G21 countries vs. G7
 Agriculture tariff reductions:
 G21 & Cairns Group vs. EU and US
 Trade-related intellectual property issues (TRIP’s)
 Singapore issues
 Government Procurement programs
 Investment treatment
 Financial Service access
 Anti-Globalization (Seattle 1999)
 Anti-sweatshop campaigns, Child Labor opponents
 Fair trade advocates
 Trade and the environment, labor, women, etc.
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Regional Trade Blocs
 Free Trade Area
 All members of the bloc remove tariffs on each other’s products
but retain independence in setting trade policy with nonmembers. Possibility of transshipments within FTA.
 Customs Unions
 All tariffs removed between members and common external
trade policy for nonmembers – common external tariff.
 Common Market
 All tariff barriers and all barriers to factor movement removed
between members plus common external trade policy.
 Economic Union
 Common market plus unification of economic institutions and
economic policies. If adopt common currency adopted then
termed a monetary union..
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Trade Diversion or Creation?
 Trade Creation
 Regional trade bloc leads to shift in product origin from
higher cost domestic producer to lower cost producer in
member country.
 Similar effect to moving to free trade.
 Trade Diversion
 Regional trade bloc leads to shift in product origin from lower
cost non-member producer (before tariff) to higher cost
producer in member country.
 Opposite effect to moving to free trade.
 Regional Trade Arrangements desirable if Trade creation
greater than trade diversion.
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The European Union
 Treaties of Rome, etc.
 1951: establish European Steel and Coal Community
 1957: European Economic Community established. Goal Integrated market in goods, services, capital & people.
 European Community (EC) expands from original 6 to 15
members in 1973. Continues periodic expansion.
 1968: eliminated tariffs on intra-EC trade & adopts common
external tariffs.
High growth rates of members 1961-1970
Disappointingly low growth 1970’s-1980’s
 1986: Single European Act sets removal of all internal
market restrictions for 1992. European Union
Political implications of establishing supra-national
institutions
Cultural and social dimensions to economic liberalization
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The Euro, €
 European Monetary System (EMS)
 1979: creation of new monetary unit, ecu plus
 Exchange Rate Mechanism, ERM
European currencies linked target exchange rates within
tight bands supported by all European governments.
European currencies as a whole float against $, yen, etc.
 European Monetary Union (EMU)
 1991: Maastricht Treaty established goal of common currency.
 1999: 11 of 15 EU countries fix exchange rates to begin.
 2000: new currency, the euro, €, begins to circulate, national
currencies retired. Euro floats against all other currencies.
 Required new central bank, the ECB, and strict set of rules on
national fiscal policy.
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Monetary and Fiscal Policies
 European Central Bank (ECB)
 Based on U.S. Fed Reserve model.
 Set monetary, interest rate & exchange rate policies.
 Currently worries about high inflation, strong €, and slow
economic growth.
 European Fiscal Policy
 High unemployment and social benefits.
 Future problems with state pension schemes.
 High budget deficits relative to Stability Pact level of 3% of
GDP.
 Agricultural subsidies and enlargement.
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EU Accession
 May 1, 2004 saw enlargement of EU to include:
 Poland, Czech Republic, Hungary, Slovak Republic, Slovenia,
Lithuania, Cyprus, Latvia, Estonia, and Malta
 Features of these countries
 All have much smaller economies and much lower per capita
GDP’s than existing EU members (except for Greece).
 Majority have increased trade with EU greatly in past 5 years.
2002 share of EU in exports - 63% up from 53% in 19
 Increase in foreign direct investment capital flows from EU to
these countries in anticipation of accession.
 Many have large fiscal problems with mushrooming public debt,
high levels of unemployment, potential political instability.
 Also migration, financial market stability, and infrastructure concerns.
 Political and cultural differences
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EU Trade Issues
 Agriculture
 Common Agricultural Policy (CAP), recent
announcements, relation to enlargement.
 GMO’s
 Soybeans, beef and hormones, Microsoft, finance
 Industrial Subsidies
 Airbus & Boeing, National champions, Golden shares
 Labor and (non-) migration
 Lack of mobility across countries
 Problems with pensions and social benefits.
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Mercosur
 Southern Cone Common Market (Mercosur)
 Established 1991 by Argentina, Brazil, Paraguay and Uruguay.
 Chile and Bolivia join later as associates.
 Combined population exceeding 200 million, combined GDP over
$1 trillion.
 Customs Union
 No tariffs between members, common external tariff.
 Also agreement on capital – no restriction on flows and protection
against expropriation
 1995: Intellectual property protections approved.
 Trade diversion
 Widely acknowledged that Mercosur has resulted in significant
trade diversion, i.e. trade shifted into Mercosur and away from
rest of world.
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From Trade to Strategy
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Determinants of National Competitive
Advantage: Porter’s Diamond
Chance
Firm strategy,
structure, and
rivalry
Factor
endowments
Demand
conditions
Related and
supporting
industries
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Government
44
Porter’s 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 all four
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Implications for business
 Location of production is a key variable
 Being a first mover, while risky, can have substantial
payoffs
 Government policy can have an important influence
on competitiveness
 Tariffs
 Subsidies
 Import quotas (and “voluntary” export restraints
 Local content requirements
 Administrative trade policies (bureaucratic hurdles)
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Toward A New Framework for Global
Strategic Thinking
 Based on
 Sources of Global Competitive Advantage
 Models of Industry Globalization Potential
 Strategic Trade Theory
 With Market dimensions that
 are business-specific, industry-specific
 force companies to rethink their strategic intent, global
architecture, core competencies, and their entire current
product & service mix
 And Non-market dimensions that




are defined by Social, Political and Legal arrangements
often involve public institutions
are much more important in a global context
reflect heterogeneity of global economy
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Sources of Global Competitive
Advantage
Strategic
Objectives
National
Differences
Economies
of scale
Economies
of scope
Achieving
Global
Efficiency/
Local
Responsiveness
Benefiting from
differences in
factor costs
Expanding &
exploiting potential
Sharing of
investments &
costs
Managing
Risk
Risks arising from
policy induced
changes
Balancing scale with
strategic & operational
flexibility
Portfolio
diversification of
risks
Innovation
Learning &
Adaptation
Learning from
societal
differences
Benefiting from
experience- cost
reduction & innovation
Shared learning
across
organizational
components
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Market Dimensions/Issues of Global
Strategy
Issues:
Dimensions:
 Will increased international
presence improve our
competitive position?
 What is the attractiveness of
investing abroad compared with
investment in the U.S.?
 How much geographic focus
should we have?
 What are the key success
factors in competing globally?
 Where should we concentrate
value-added activities?
 How much can we standardize
core products or services?
 Market positioning
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 Market Participation
 Products / Services
 Activity Concentration
 Partnering
 Coordination of Decision
Making
49
Non-Market Dimensions of Global
Strategy
 Dealing with
 Political risk
 Country/ Socio-cultural Risk
 Dealing with Government/Regulatory Institutions
 Trade Policy Issues
 Special Interest Politics
 Corporate Governance
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Summary
 Globalization is still largely misunderstood
 The pressure for corporate globalization is driven not
so much by diversification or competition as by the
needs & increasingly global preferences (psychology)
of customers.
 Global Strategy is different
 Elements of Strategic Trade Theory
 Market and non-market dimensions
 Market and Non-Market Dimensions must be
integrated for global success
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Acknowledgements
Sources:
• Cornelis A. de Kluyver and John A Pearce II, STRATEGY: A VIEW FROM THE TOP,
Second Edition, Prentice Hall, 2006
• George S. Yip, TOTAL GLOBAL STRATEGY: Managing for Worldwide Competitive
Advantage, Prentice Hall, 1992, Chapters 1 and 2.
• Foreign Policy, March-April 2004
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Part II: Creating Global
Competitive Advantage
by
Cornelis A. “Kees” de Kluyver
Henry Y. Hwang Dean and Professor of
Management
Peter F. Drucker and Masatoshi Ito Graduate School
of Management
Claremont Graduate University
Claremont, CA 91711, U.S.A.
Based in part on Cornelis A. de Kluyver and John Pearce, II, STRATEGY: A VIEW FROM THE TOP, Second Edition, Prentice
Hall, 2006
Analysis: Four sets of drivers shape
industry globalization
Market Drivers
Economic Drivers
Evolution of customer needs
Global customers
Global Channels
Transferability of marketing
Nature of industry
Economies of scale/ location
Differences in country costs
Industry
Globalization
Potential
Competitive Drivers
Governmental Drivers
Interdependence between
countries/ regionc
Globalization of competitors
Trade barriers
Regulatory climate
Technology/ standards
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Source: Yip
54
Market drivers: How global are your
customer needs?
Similar needs in
most countries?
Similar benefits sought
in most countries?
Similar product
features required
in most countries?
Global product
category
Need
Benefit
Requirements
Global benefit/
positioning strategy
Global product/
distribution strategy
At which level is your customer global?
de Kluyver - Oxford MBA 2005
Source: Jeannet
55
Market drivers: How global are
purchasing patterns?
Purchasing patterns
Local
Pricing
transparency
Logistics
Regional
Global purchasing
agreements
Global
Global
How do your customers prefer to do business?
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Competitive drivers: Compete where?
With whom? How?
The world
Regional
Countries
Questions to ask...
How many different
environments do you
face?
de Kluyver - Oxford MBA 2005
Do you always
face the same
competitors?
Do you always
face the same
strategy?
Do you cross
subsidize in
different markets?
57
Economic drivers: What defines
critical mass?
Identify critical business elements that demand
a minimum scale, usually in the form of fixed costs
R&D
Manufacturing
Market
presence
Product/
Service
support
Such critical mass
considerations drive
many of today’s
mergers and
acquisitions
Question: Do we have the required critical mass?
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Market/Economic/Competitive drivers:
Key success factors?
Country A
Application elsewhere
Leverage
KSF’s
KSF’s
Questions to ask:
1. What are the Key Success Factors?
2. Can they be leveraged globally?
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Government drivers: What regulations
or standards affect us?
Telecoms
Banking
Pharmaceuticals
Regulation/
Deregulation
or
Standards
Patent issues?
Insurance
Does this logic affect you? Your customers? Your
suppliers? Does it change your global strategic
perspective?
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Creating Global Advantage – Five Key
Choices
 Market participation
 Activity Concentration
 Standardization
 Integration
 Risk posture
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Market participation: “Must” Markets?
A successful global strategy is shaped around
the notion of “must” markets/opportunities...
“must” markets/
opportunities
Needed for reasons
Needed because they define
of product volume
a cutting edge technology
competitive leadership
Needed because the
outcome of global
leadership is decided
there
Assessment for your business?
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Activity concentration: global resource
allocation is complex
New
Segments
New
Technology
New Products
Resources
Value Chain
Integration
Global
Coverage
Manufacturing
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Activity concentration: Integration?
Strategic alliances can boost contribution to fixed cost
while expanding global reach
Implication: Vertical and horizontal integration are
becoming less important to growth/profitability
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What should (can) we standardize?
Business
Strategic Elements
Geography
Common Elements
Analyze the Value Chain by Activity and Region
 Which strategic elements are
worth leveraging?
de Kluyver - Oxford MBA 2005
How much of our business is
common?
How much is different by region?
 Country?
65
Integration of Activity
 Strategic Integration
 Strategic interdependence of business units
 Operational Integration
 Sharing of strategic capabilities
 Administrative Integration
 Centralized vs. decentralized decision making
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Global strategic intent should explicitly
consider risk
 Market share objectives may require earlier or
greater commitments to a market than current
returns can justify
 If overdone or implemented poorly, activity
concentration carries risk
Diminished responsiveness to local needs
Greater exposure to cyclical trends, currency
risk, political risk
And any globalization strategy incurs substantial
coordination costs
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Summary: Global strategy dimensions
Strategy
Element
Global Focus
Benefits
Market segment
participation
Significant share in major
markets
Direct investment
Joint ventures/alliances
 Increased volume of
business through economies
of scale/scope
 Enhanced customer
preference via global
availability, serviceability,
and recognition
 Increased competitive
leverage through early
market entry and multiple
sites for attack and
counterattack
Activity
Concentration
Emphasis on core
skills/technologies
 Cost reduction through
critical mass, world wide
integration
 Improved quality through
standardization and control
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Summary: Global strategy dimensions
Strategy Element
Elements of service:
integration and
standardization
Global Focus
Standardization
where practical
Concentration of
value-added
components
Benefits
 Reduces duplication of
development efforts
 Allows concentration of
resources
 Enhances customer
recognition
Marketing: integrated
worldwide
Integrated
worldwide
 Increase feel for the market
 Focuses talent
 Leverages scarce
resources/ideas
Competitive
intelligence/moves:
integrated worldwide
Integrated
worldwide
 Create additional options and
greater leverage
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What does “global” mean?
What is a global brand?
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Source: Basu
70
The global brand strategy matrix
Question: What does
“global” mean?
The Offer
Same
Different
Global
Global
“Mix”
Message
Global
Global
Offer
Change
Same
The Message
Different
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Global Mix: One offer, One message
Key drivers:
 Homogeneous benefits/use patterns
 Economies of scale
 E-channels
 Deregulation
 M&A
 Identical competitive patterns
Advantages:
 Cost/Synergies
 Category killers
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Disadvantages:
 Non-responsiveness
 Inhibits creativity?
72
Global Change: “Best-Fit” Approach
Key drivers:
 Conglomerate Growth
 Critical differences in product/service use
 Varying competitive structures
 Channel diversity
 Regulatory differences
 Expertise linked to markets
Advantages:
 Responsiveness
 Support from local managers
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Disadvantages:
 Cost
 Inadequate transfer
of learning
73
Global offer: One product/service,
different positioning
Key drivers:
 High fixed cost/ technological inflexibility
 Similar core benefits
 Market separation
 Centralized sourcing
Advantages:
 Economies of scale
 Creativity/Adaptation
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Disadvantages:
 High promotional budgets
 “Contamination” of message
 Confused global customers
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Global message: identical positioning
worldwide
Key drivers:
 Strong brands
 Customer mobility
 Low cost for product adaptation
Advantages
 Leverage brand identity
 Competitiveness
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Disadvantages:
 Local R&D
 Confusing “global” customers
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Internal factors can undercut or support
globalization efforts
Structure
Capability to
implement a
globalization
strategy
Culture
Process
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Resources
Staffing
76
Structure: Network organizations are
proving increasingly effective…
 Organizational design is no longer bound by
physical arrangements - knowledge and human
resources have become the focus of structure
 Companies will increasingly structure their
operations around their communications networks span of communication replaces span of control
 Decentralization of corporate headquarters will
allow more effective global coordination
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People: International skills will be in
great demand
Hybrid background, with early experience of other
cultures and languages
 Work experiences in more than one industry,
preferably including services
 Commitment to corporate values
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Coordination: Globalizing
management processes is key
Business Units/regions
requiring high corporate
involvement
Embryonic
Activities
Guiding Influences
Business units/regions
requiring low corporate
involvement
Insufficient
Global planning,
coordination
Flexible,
Strategic
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Too much global
planning,
coordination
Flow of talent,
knowledge,
experience,
and resources
Mature Activities
Control
Rigid
Financial
79
Developing global capability...
Most companies follow a path of learning…
 From multi-domestic to global or
transnational strategy
 From local to global roles/responsibilities
 From local to global learning
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Globalization is CEO-led
 Implementation: A Top Management
Responsibility
 Conflict resolution
 Authority to make key decisions
 Resource allocation
 Key tasks:
 Closing capability gaps
 Maintaining strategic focus
 Organizational learning
 Managing expectations
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Balance “Can” with “Should” for global
competitive advantage...
Customer
Purchasing
Competitor
Size
Regulatory
Economic
Common Elements
Capability Analysis:
What Can We
Successfully Do?
Global Needs Analysis
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Global Leverage
Strategy
82
Shared values are critical
 Organizational structures and formal systems can
help, but are no substitute for nurturing a set of
core values
 Human resources policies aimed at hiring and
developing local talent, fairness worldwide,
greater employee involvement, and reward for
performance will gain in strategic importance
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Two approaches to creating change:
Outcome and Behavior Control
Behavior Control
Outcome Control
 Structure: Independent, selfcontained units
 Rewards, Incentives: Substantial
part of overall compensation, tied to
a single, quantifiable objective
 Resource Allocation: Tight
expenditure controls
 People: Focus on industry
experience, aligning incentives with
performance
 Corporate Office: Small, focused on
analyzing results
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 Rewards, Incentives: Focus on
long-term career progression;
performance measurement based
on multiple quantitative and
qualitative goals
 People: Internal career paths;
active career development
focused on industry and
company-specific experience
 Culture: Focus on common
corporate culture designed to
allow managers to move freely
among divisions
 Corporate Office: Experienced
corporate managers function as
advisors and monitors
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Globalization Requires Flexibility and a
Tolerance for Ambiguity
 Creative, global management cadre
 Worldwide shared values and global identity
 Global resource development and deployment
 Long-term planning, flexible implementation
 Willingness to become politically involved
 Innovation in all aspects of the business
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Acknowledgements
Sources:
• Cornelis A. de Kluyver and John A Pearce II, STRATEGY: A VIEW FROM THE TOP,
Second Edition, Prentice Hall, 2006
• George S. Yip, TOTAL GLOBAL STRATEGY: Managing for Worldwide Competitive
Advantage, Prentice Hall, 1992, Chapters 1 and 2.
• Jean-Pierre Jeannet, MANAGING WITH A GLOBAL MINDSET, Financial
Times/Prentice Hall, 2000, Chapters 4 and 5..
• Lectures at Templeton College by Professor Kunal Basu, Spring 2000, with
permission.
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Part IV - Epilogue
Epilogue: Global
governance issues
by
Cornelis A. “Kees” de Kluyver
Henry Y. Hwang Dean and Professor of Management
Peter F. Drucker and Masatoshi Ito Graduate School
of Management
Claremont Graduate University
Claremont, CA 91711, U.S.A.
Based in part on Cornelis A. de Kluyver and John Pearce, II, STRATEGY: A VIEW FROM THE TOP, Second Edition, Prentice
Hall, 2006
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“Global” corporate governance will
become a major issue…
 Dealing with rapid, global change
 Exercising global oversight/risk management
 Balancing stakeholder concerns
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Driver: Changes in the global business
environment
 The globalization of product markets
 The globalization of corporate (capital)
structures, risk management
 A globally underdeveloped regulatory
system
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Driver: Changes in business culture…
 Less government interference (in a
growing part of the world) but increasing
economic volatility
 Global and local identities, ties,
allegiances, and conflicts
 Alliances, Knowledge-based, virtual
business models
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Driver: Growing cross-border
investment …
 Worldwide cross-border M&A transactions now
top $500 billion/year, between 1 and 2 percent of
world GDP, and are widely expected to increase
further…
 A rising proportion of this investment is
targeted at companies in developing countries
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Driver: The growing importance of
global performance…
 For most global companies, an increasing
proportion of revenues and profits come
from outside their “home”country
 Corporations around the world increasingly
tap into international debt and equity markets
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Driver: The evolving needs of global
investors…
 Involvement and liquidity
 Short-term and long-term value
 Risk taking and predictability
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Tomorrow’s corporate governance
must respond on all dimensions…
 Ability to deal with change
Global efficiency and multi-cultural tailoring
and worldwide innovation
 Global oversight/risk management
Accountability and value creation and crisis
prevention
 Balancing stakeholder concerns globally
Short-term and long-term value creation
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The good news: Long-term value
creation is rapidly becoming the norm
 U.S.: The virtues of customer, capital and
employee loyalty are being (re)discovered
 Germany: Excessive regulation, stifling
practices are being dismantled or reexamined
 Japan: Transparency, accountability and
independent oversight are on the horizon
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The bad news: Governance systems
will be slow to change…
 The Anglo-American model
 The German model
 The Japanese model
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Five propositions…
#1: Long-term value creation will increasingly become the
guiding governance principle across the globe
#2: Boards will become stronger, more global in orientation,
and more independent
#3: The (global) regulatory void will be filled
#4: “Distributed” global governance will provide answers…
#5: Information technology will enter – and change – the
board room
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Thank You
Cornelis A. “Kees” de Kluyver
Henry Y. Hwang Dean and Professor of Management
Peter F. Drucker and Masatoshi Ito Graduate School
of Management
Claremont Graduate University
Claremont, CA 91711, U.S.A.
Based in part on Cornelis A. de Kluyver and John Pearce, II, STRATEGY: A VIEW FROM THE TOP, Second Edition, Prentice
Hall, 2006
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