Chapter 1
Globalization of Markets
and Competition
Learning objectives
The purpose of this chapter is to answer the following questions:
• What globalization means for firms?
• What is the distinction between multinational and global firms?
• What are the benefits and pitfalls of globalization for business?
• How to position an industry or a business on the global/multi-local mapping?
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Globalization of the World Economy
FDI inflows, by region and economy, 1990-2019
2000000
Millions of US dollars
1500000
1000000
Developed
Economies
500000
Developing
Economies
Transition Economies
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2005 2006 2007 2008 2009 2010 2011 2012 2014 2015 2016 2018
Source: Using data from UNCTAD: World Investment Report 2017: Annex table 01
(http://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Annex-Tables.aspx)
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Globalization of the World Economy: Business Firms
Internationalization trends in top 100 MNEs, 1990–2015 (Per cent)
Source: UNCTAD: World Investment Report 2017: Figure I.23, Page 27
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The world's top non-financial MNEs, ranked by
foreign assets, 2018
Source: World
Investment Report 2019
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Global Definitions
• Globalization = The process by which people, products, information and money can move
freely across borders
• Global industries are industries in which, in order to survive, competitors need to operate in
the key world markets in an integrated and coordinated way
• Global companies - multinational companies that operate in the main markets of the world in
an integrated and coordinated way
• ‘Born global’ companies have become multinational immediately upon or soon after being
founded
• Globalizing - the phenomenon whereby the competitive structure of industries changes
progressively from multinational to global
• Global integration and coordination are the organizational structure and management
processes by which various activities scattered across the world are made interdependent
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Globalization of the World Economy:
Why Business Firms Globalize?
OPPORTUNITIES for FIRMS
CHALLENGES for FIRMS
▪ Wider scope of markets
▪ Growth potential
▪ Wider access to resources:
- Labor
- Raw materials
- Components
- Knowledge
▪ Ability to gain costs advantages
through economies of scale
▪ Ability to moderate risks
▪ Government regulation
▪ Cultural diversity
▪ Need for adaptation?
▪ Cross border management
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The Benefits of Globalization for Business
• Cost benefits
• economies of scale due to the standardization of products and processes as well as
increased bargaining power over suppliers of raw materials, components, equipment and
services
• the ability to organize a logistic and sourcing network based on location factors
• Timing benefits
• coordinated approach to product launch in the early stage of the product life cycle
• each subsidiary is more or less free to adopt products for its own market
• Learning benefits
• coordinated transfer of information, best practices and people across subsidiaries
• eliminates the costly ‘reinvention of the wheel’
• facilitates the accumulation of experience and knowledge
• Example: https://www.unilever.com/news/news-and-features/Feature-article/2019/sellingice-cream-just-got-twice-as-nice.html
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The Benefits and Pitfalls of Globalization for Business (cont.)
• Arbitrage benefits
• advantages that a company can gain by using the resources in one country for the
benefit of its subsidiary in another country
• direct competitive advantages or indirect cost advantages
• a competitive advantage can be gained by playing a ‘global chess game’: engaging in
a price war in one country in order to tie up the resources of competitors in that
country, thus depriving them of cash flow which could be used elsewhere (example:
Goodyear)
• differential cost elements such as taxes, interest and possibly risk reduction through
the pooling of currencies
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Historically, Corporate
Globalization
took place in 3 stages
Global Integration
(Global)
Internationalization
(Multinational)
Export
(Trade)
Globalization = The process by which people,
products, information and money can move freely
across borders
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A classic example of transition
from Multinational to Global:
ELEVATORS in EUROPE
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P
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P
R
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P
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MULTILOCAL
INDUSTRIES
Multi-local industries are industries:
in which firms can sustain competitive
advantages within the boundaries of
countries.
Local forces dominate; flexibility, proximity
and quick response are determining
capabilities for competitive advantage
Firm competing in multi-local industries
are either:
• Domestic firms within each country
• Subsidiaries of multinational companies
operating independently of each others in
the respective countries (their approaches
are different from country to country)
Examples: food retailing, consumer
banking or catering
Industries with a mix of
global and local forces
at play and
competitiveness cannot
be achieved without
achieving the benefits of
global coordination and,
at the same time, the
benefits of flexibility,
proximity and quick
response time
This positioning is
increasingly becoming
the dominant competitive
battleground for a vast
majority of sectors
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GLOBAL
INDUSTRIES
Global industries are industries:
in which firms can sustain competitive
advantages
only if :
• they are present in the key countries of
the world
• they integrate and coordinate their
activities across the world on a
centralized manner
There are few advantages to push for
local adaptation of products, services
and approaches
Efficiency, speed, arbitrage and learning
are the competitive drivers
Examples: microchips, bulk chemicals or
civil aircraft
Industries: Global or Multilocal ?
Characteristics of Global Industries
Characteristics of Local Industries
• Similar Needs & Customers Behavior
• Standardized Products
• Beyond country economies of scale
• Speed of Innovation
• Transferability of experience
• “Global” customers
• “Global” pricing
• “Global” competitors
• Different Needs & Customers Behavior
• Customized Products/services
• Low economies of scale
• Complex distribution
• Transferability of experience
• “Local” customers
• High transport costs
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Different industries have different
competitive requirements
HIGH
Civil Aircraft
Microprocessors
Institutional Banking
Bulk Chemicals
Telecommunication
Equipment
Corporate Banking
Automobiles
Paint
GLOBAL
FORCES
Package Tours
Catering
LOW
LOW
LOCAL FORCES
Retail Banking
Food
Retail
HIGH
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WITHIN BUSINESSES DIFFERENT FUNCTIONS GET
DIFFERENT BENEFITS FROM BEING "GLOBAL" OR "LOCAL"
HIGH
Research
Development
Finances
After Sales
Services
Components Sourcing
Components Manufacturing
Logistics
GLOBAL
FORCES
Marketing
Advertising
Accounting
Customers Services
Sales
LOW
LOW
LOCAL FORCES
HIGH
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