Introduction to GI
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Q1: WHAT is a global firm?
Q2: WHY do firms go global?
Q3: HOW can firms pursue a global strategy?
Q4: WHAT is the role of technology in GI?
Q5: WHAT are some forms of organizing
global corporations?
New
Competitors
Rise of Global
Standards
Disintegrating
Borders
TODAY’S
GLOBAL
ECONOMY
The Internet &
Information
Technology
Global
Products/
Customers/
Employees
Privatization
Growing Trade
and Investment
Why do companies go global?
Tangible
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To reduce costs (labor, taxes, tariffs, etc.)
To improve the supply chain
To provide better goods and services
To attract and access new markets
To learn how to improve operations
To attract and retain global talent
Intangible
Why do companies go global?
Typical evolution towards a global strategy
2
1
Product Demand
Develops and
Firm Exports
Products
Firm Introduces
Innovation in
3
Foreign
Competition
Domestic
Market
Begins Production
5
Production Becomes
Standardized and is
Relocated to Low Cost
Countries
4
Firm Begins
Production Abroad
Some examples..
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Boeing - flourishes because both its sales and
production are world-wide
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Benetton - moves inventory to stores around the world
faster than its competitors
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Sony - purchases components from suppliers in
Thailand, Malaysia, etc.
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General Motors - simultaneously building four similar
plants in Argentina, Poland, China, and Thailand so
that they can learn from each other and drive down
cost while increasing quality
Sample Boeing Suppliers (777)
Firm
Country
Parts
Alenia
Italy
Wing flaps
AeroSpace
Technologies
CASA
Fuji
Australia
Rudder
Spain
Japan
GEC Avionics
United Kingdom
Korean Air
Korea
MenascoAerospace Canada
Ailerons
Landing gear
doors, wing section
Flight computers
Flap supports
Landing gears
Short Brothers
Ireland
Landing gear doors
Singapore
Aerospace
Singapore
Landing gear doors
Branded PCs - 2002
Breakdown of Components and Sources of Origin
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Brand: USA
Main Box: Ireland
Chips on Cards: USA, Korea,
Taiwan, Philippines
Battery: Philippines
CD ROM Drive: China (Japanese
Parts)
CD-R (consumables) Germany
Hard Disk Drive: Singapore
3.5" Floppy Disk Drive:
Philippines
Modem Card: Netherlands
Graphics Card: China
Specialist Video Card: USA
Monitor: UK
Keyboard: Mexico
Mouse: Mexico
Child's Mouse: Taiwan
Loudspeakers: Malaysia
Microphone: Mexico
Inkjet Printer: Spain
Zip Drive: Malaysia
Scanner: Taiwan
Webcam: China
Power Supplies: Taiwan, China,
Malaysia, Mexico
Manuals: Scotland, Ireland, Wales,
Germany
Environmental Certification: Sweden
Source: Peter Swann, 2002
Operations Decisions
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Global Product Design Issues
Global Supply Chain Management
Global Process Design and Technology
Global Facility Location and Co-ordination
Supply-Chain
Management Decisions
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Sourcing
Vertical integration
Make-or-buy decisions
Partnering
Location Decisions
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Country-related issues
Product-related issues
Government policy/political risk
Organizational issues
Materials Management Decisions
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Flow of materials
Transportation options and speed
Inventory levels
Packaging
Storage
What are the different
types of global
operations?
Types of Global Operations
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International business - engages in cross-border
transactions
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Multinational Corporation - has extensive involvement
in international business, owning or controlling
facilities in more than one country
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Global company - integrates operations from different
countries, and views world as a single marketplace
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Transnational company - seeks to combine the
benefits of global-scale efficiencies with the benefits of
local responsiveness
Types of Global Strategies
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International Strategy: uses exports and licenses to
penetrate the global area
Multi-domestic Strategy: uses decentralized authority
with substantial autonomy at each business
Global Strategy: Uses a high degree of centralization,
with headquarters coordinating to seek standardization
and learning between plants
Transnational Strategy: Exploits economies of scale
and learning, as well as pressure for responsiveness,
by recognizing that core competencies reside
everywhere in the organization
Four International Operations
Strategies
Cost Reductions
High
Low
Global Strategy
Standardized product
Economies of scale
Cross-cultural learning
Toyota
Canon
Caterpillar
Otis Elevator
International Strategy
Import.export or
license existing
product
Kraft
Pfizer
U.S. Steel
Harley Davidson
Low
Transnational Strategy
Move material, people,
ideas, across national
boundaries
Cross-cultural learning
ABB
Shishedo
Nestlé
McKinsey
Multi-domestic strategy
Use existing domestic
model globally
Franchise, joint ventures,
subsidiaries
Unilever
Heinz
McDonalds
Local Responsiveness
High
Global Innovation Strategies
The cost-responsiveness tradeoff
Home Replication (or International) Strategy
In this approach, a firm utilizes the core
competency or firm-specific advantage it
developed at home as its main competitive
weapon in the foreign markets that it enters.
It takes what it does exceptionally well in its
home market and attempts to duplicate it in
foreign markets.
Examples: Kraft, Pfizer, US Steel, Harley Davidson
Global Innovation Strategies
The cost-responsiveness tradeoff
Multi-Domestic Strategy
A multi-domestic corporation views itself as a
collection of relatively independent operating
subsidiaries, each of which focuses on a
specific domestic market.
Each of these subsidiaries is free to
customize its products, its marketing
campaigns, and its operations techniques to
best meet the needs of its local customers.
Examples: Unilever, Heinz, McDonalds
Global Innovation Strategies
The cost-responsiveness tradeoff
Global Strategy
A global corporation views the world as a
single marketplace and has as its primary
goal the creation of standardized goods and
services that will address the needs of
customers worldwide. The global strategy is
almost the exact opposite of the
multidomestic strategy.
Examples: Toyota, Caterpillar, Canon, Otis Elevator
Global Innovation Strategies
The cost-responsiveness tradeoff
Transnational Strategy
The transnational corporation attempts to
combine the benefits of global scale
efficiencies, such as those pursued by a
global corporation, with the benefits and
advantages of local responsiveness, which is
the goal of a multidomestic corporation.
Examples: ABB, Shiseido, Nestle, McKinsey
How Multinational
Corporations Differ
Company
Home
Country
% Sales
Outside
Home
% Assets
Outside
Home
Country
Country
% Foreign
Workforce
Citicorp
USA
34
46
NA
ColgatePalmolive
USA
65
47
NA
Dow
Chemical
Gillette
USA
54
45
NA
USA
68
66
NA
Honda
Japan
63
36
NA
IBM
USA
59
55
51
How Multinational
Corporations Differ
Company
Home
Country
% Sales
Outside
Home
Country
% Assets
Outside
Home
Country
% Foreign
Workforce
ICI
Britain
78
50
NA
Nestlé
Switzerland
98
95
97
Philips
Electronics
Siemens
Netherlands
94
85
82
Germany
51
NA
38
The BOP Market
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What is the BOP concept? Why does it
matter?
Why do MNCs ignore BOP opportunities?
Are there new ways of looking at the BOP
market a) to deliver value, and b) as a source
of innovations?
Examples and prospects
THE BOTTOM OF THE PYRAMID
Four Billion People!
Population
(in millions)
Purchasing power
parity (in dollars)
>$20,000
Tier 1
$1,500-20,000
$1,500
<$1,500
Tiers 2-3
Tier 4
75-100
1,500-1,750
4,000
Tier 5
Source: Prahalad, C.K., 2004. The Fortune at the Bottom of the Pyramid, Wharton School Publishing
The Bottom of the Pyramid
Customer Profiles
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There are 3-4 billion people with per-capita
equivalent purchasing power (PPP) less that
US$2,000 per year
The numbers could swell to 6-8 billion over the next
25 years
Most live in rural villages or urban slums and shanty
towns—urbanization representing opportunity
Education levels are low or no-existent (especially
among women)
Markets are hard to reach, disorganized, and very
local in nature
MNC Myopia
Underestimating BOP Markets
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The first wave of multinationals’ entries to emerging
markets missed the real potential
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“Corporate Imperialism” (Prahalad & Lieberthal, 2002)
Focus on the high-end, “Western-like” consumers
Many misperceptions about the state of the economies and
market attractiveness
Strategies pursued were not adjusted to emerging market
needs
Assumed that emerging markets were on the same
development trajectory as developed countries
MNC Myopia
Dominant Logic of MNCs as it relates to BOP
Assumption
Implication
The poor are not our target customers.
They cannot afford our products and
services.
With our cost structure, we cannot serve
BOP markets.
The poor do not have use for products
sold in developed countries.
We are committed to form over
functionality.
Only developed countries appreciate and
pay for technological innovations.
The BOP does not need technology
solutions and is not a source of
innovations.
The BOP market is not critical for the longterm growth and vitality of MNCs
BOP markets are at best an attractive
distraction.
Intellectual excitement is in the developed
markets. It is very hard to recruit
managers for BOP markets.
We cannot assign our best people to work
on market development in BOP markets.
Source: Prahalad, C.K., 2004. The Fortune at the Bottom of the Pyramid, Wharton School Publishing
MNC Myopia
Underestimating Emerging Markets
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Most common misperceptions regarding
emerging markets are:
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Potential resides in the high-end market segments
Poor are so concerned with fulfilling the basic
needs that they’re unable to buy any ‘luxury’
items, e.g., TVs or phones
Poor are unable to use advanced technologies,
e.g., wireless communications
Multinational’s operations in emerging markets
means exploitation of the already poor
The Bottom of the Pyramid
Customer Profiles
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In Dharavi, one of the poorest slums of Bombay:
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85% of residents have a TV
50% of residents have a pressure cooker
21% of residents have a telephone
Almost all residents pay a premium for water and electricity
… but most cannot afford a house
Even the poorest families in Bangladesh:
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devote 7 percent of household income to communications
services (like GrameenPhone)
The Bottom of the Pyramid
Being Poor can be Expensive
Item
Dharavi
Warden Road
Poverty
Premium
(The poorest slum in
Asia)
(Decent 2BR apartment
costs around $750K)
Credit
(Annual Interest)
600-1000%
12-18%
53.0
Municipal grade
water (per cubic
meter)
$1.12
$0.03
37.0
Phone call (per
minute)
$0.04-$0.05
$0.025
1.8
Diarrhea
medication
$20.00
$2
10
Rice (per
kilogram)
$0.28
$0.24
1.2
Source: Prahalad, C.K., 2004. The Fortune at the Bottom of the Pyramid, Wharton School Publishing
The Bottom of the Pyramid
Being Poor can be Expensive
Item
Dharavi
Warden Road
Poverty
Premium
(The poorest slum in
Asia)
(Decent 2BR apartment
costs around $750K)
Credit
(Annual Interest)
600-1000%
12-18%
53.0
Municipal grade
water (per cubic
meter)
$1.12
$0.03
37.0
Phone call (per
minute)
$0.04-$0.05
Q. Are these valid
market opportunities?
$0.025
1.8
Diarrhea
medication
$20.00
$2
10
Rice (per kilogram)
$0.28
$0.24
1.2
MNC Myopia
Emerging Markets Realities
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Traditional product life-cycle models predict slow
diffusion for a new product. However, in emerging
markets:
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Customers can be surprisingly sophisticated
The lack of installed old infrastructure enables adoption of
state-of-the-art technology directly, enabling leapfrogging
BOP customers are very brand conscious and aspire for
the best
Virtuous cycle takes over once initial resistance is
overcome
Technosol Case
(Nicaragua)
Voxiva Case
(Peru)
The Enabling Environment Matters
Need to improve these in BOP markets
Private Sector Growth
Pillars of entrepreneurship Level
playing
(Too often missing)
Access to
financing
field
Access
to skills
and
knowledge
Rule of Law
Pillars of private sector
(Not yet ready)
Physical and social Infrastructure
Domestic macro environment
Global macro environment
“The aspiring poor present a prodigious
opportunity for the world’s wealthiest
companies. But it requires a radical new
approach to business strategy”
C.K. Prahalad and Stuart Hart
“The Fortune at the Bottom of the Pyramid”
Strategy+Business, January 2002
Early Lessons
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Existing mental models prevent success
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BOP is not a homogeneous market
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Need both technology optimization and innovation
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Product features include durability, ruggedness,
consistency
Disruptive innovation is not bad if it works
Requires business model innovation
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Understand real needs of end-users and customers
Systemic understanding may redefine industry
categories
Small scale, distributed, fragmented distribution
Co-development, local partners, new brands
Capital efficiency, employment intensiveness
Avoid dependence upon centralized institutions
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National governments
Technological infrastructure
Source: Prof. Stuart Hart, UNC Chapel Hill
Differences in Business Models
Developed markets versus BOP markets
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“Developed” Market  “BOP” Market
Business Model
Business Model
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Rapid innovation
Obsolecence
Fine segmentation
High margins
Labor efficiency
Mass media
Top down
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Durability
Consistency
Coarse segmentation
High volume
Capital efficiency
Direct selling
Bottom up
Source: Prof. Stuart Hart, UNC Chapel Hill
This is great for MNCs.
How about startups?
Low Cost Eyeglasses
2001
WINNERS - Harvard Business School Social Enterprise Business Plan Contest
URL: http://www.lowcosteyeglasses.net
Low Cost Eyeglasses
2001
Low Cost Eyeglasses is a social enterprise for the
one billion people in the developing world who need
eyeglasses yet currently do not have them.
Unlike existing eyeglasses that are difficult to
purchase and very expensive, we are designing
eyeglass systems that make eyeglasses
inexpensive and easy to purchase.
We believe low cost and availability can be
achieved through product designs that eliminate
complexity and channel designs that rely on local
outlets such as micro-entrepreneurs.
URL: http://www.lowcosteyeglasses.net
Gyaana
2003
Gyaana’s vision is to eliminate functional
illiteracy in India
Gyaana believes that:
•By providing funds
•By making education economically relevant
•By fostering community commitment to education
Families will further invest in their children’s education,
thereby fostering a virtuous cycle of empowerment,
opportunity, and poverty alleviation.
WINNERS - Harvard Business School Social Enterprise Business Plan Contest
URL: http://www.gyaana.org
Other Resources
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University of Michigan
Serving the Bottom of the Pyramid
http://www.bus.umich.edu/BottomOfThePyramid/xMAP2003.htm
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Social Enterprise @HBS
http://www.hbs.edu/socialenterprise/bplan/entrants.html
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Business for Social Responsibility
www.bsr.org
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World Bank – Documents and Projects
http://www-wds.worldbank.org/
Grameen Bank
Group Discussion Questions
•What
were the success factors behind
Grameen Bank’s performance in
Bangladesh?
•What are the key incentives for participants
in Grameen’s microlending system? What
are the checks and balances (i.e. controls)?
•Suggest two new areas where Grameen
could expand to using a similar business
model.
Grameen Bank: Banking for the
poor
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Started out providing “tiny loans” (microcredit) to the
poorest of the poor in rural Bangladesh (1976);
officially converted as an independent bank (1983).
96% of its borrowers (3.36 million) are women.
93% of equity owned by borrowers, remaining 7%
owned by the government.
No collateral required against micro-loans.
Loan recovery rate of 98.69%.
Approximately 1200+ branches, servicing 45,000
villages, with a staff of 12,000.
Total disbursed: $4.27 billion (197 billion Taka).
Founded by Muhammad Yunus in Jobra,
Bangladesh. Yunus became guarantor of loans to
poor ($300, 10,000 Taka).
The 16 decisions:
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We shall follow and advance the four principles of Grameen Bank
--- Discipline, Unity, Courage and Hard work – in all walks of our
lives.
Prosperity we shall bring to our families.
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We shall not live in dilapidated houses. We shall repair our houses
and work towards constructing new houses at the earliest.
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We shall grow vegetables all the year round. We shall eat plenty of
them and sell the surplus.
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During the plantation seasons, we shall plant as many seedlings
as possible.
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We shall plan to keep our families small. We shall minimize our
expenditures. We shall look after our health.
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We shall educate our children and ensure that they can earn to
pay for their education.
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We shall always keep our children and the environment clean.
The Grameen Network
The Grameen Bank Family has grown to over two
dozen organizations.
The major groups are:
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Grameen Trust
Grameen Fund
Grameen Communications
Grameen Shakti/Energy
Grameen Shikkha/Education
Grameen Telecom
Grameen Knitwear Ltd.
Grameen Cybernet Ltd.
Grameen Byabosa Bikash
(Business Promotion )
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Grameen Phone Ltd.
Grameen Software Ltd.
Grameen IT Park
Grameen Information
Highways Ltd.
Grameen Star Education Ltd.
Grameen Bitek Ltd.
Grameen Uddog (Enterprise)
Gonoshasthaya Grameen
Textile Mills Ltd.