Globalization Drivers Mahesh P. Joshi Director of Research & Practice Center for Innovation and Entrepreneurship and Associate Professor of Global Strategy and Entrepreneurship School of Business – George Mason University President - Joshi International, Inc. mpjoshi@gmu.edu Mahesh Joshi - Globalization Drivers Some Thoughts • • • • Globalization is very difficult All firms are born global US was created as a result of globalization To be successful a firm must be active in global arena Mahesh Joshi - Globalization Drivers Why Firms Internationalize • Demand – New Markets – Follow the customer – Follow the competition – Fend off new competition • Supply – Raw materials – Land – Labor – capital Mahesh Joshi - Globalization Drivers 3 Benefits of Globalization • Cost reduction – Economies of scale, lower factor cost, focused production (rationalized production), flexibility, enhancing bargaining power • Quality enhancements – Exposure to demanding customers, focused offerings • Enhanced customer preferences – Global availability, global serviceability, global recognition • Increased competitive leverage – Cross subsidization of competitive moves, entering the backyard of your competitor Mahesh Joshi - Globalization Drivers 4 Costs of Globalization • Main cost – Coordination of resources and people • Levers used to globalize pose their own costs – Market participation may have unique reasons – Standardized products/service created by committee – Location may be not suitable for global activities – Centralized marketing message may miss the local flavor – Cross competition may not be feasible Mahesh Joshi - Globalization Drivers 5 Core Strategy • Several dimensions to • • • • • What is offered Who is the customer What geographic markets What functional strategy What is the competitive advantage • Key focus • Board versus narrow strategic choices Mahesh Joshi - Globalization Drivers 6 International Strategy • International Market Selection leads to • • • • • A need for geographic market selection Appreciation of barriers to trade (tariffs and quotas) Foreign ownership and repatriation rules Knowledge of local laws Knowledge of Local preferences in customer behavior • Cross-Cultural interaction • Results: Weakening of the core strategy Mahesh Joshi - Globalization Drivers 7 Core Strategy and Globalization Mahesh Joshi - Globalization Drivers 8 Creating a Global Strategy • To overcome weakening of the core strategy • Need to find a fit between external and internal environment • • • • Competitive position of the firm Resource base and businesses of the firm Industry globalization drivers Organization’s ability to implement global strategy Mahesh Joshi - Globalization Drivers 9 Industry Globalization Potential Mahesh Joshi - Globalization Drivers 10 External: Industry Globalization Drivers • Market Drivers: Consists of but not limited to – – – – – – Common customer needs and tastes Global customer: Lifestyle and taste plus global travel Global distributors and global brands Global Marketing and advertisement message Emergence of lead countries in specific industries Growth of ICT • Cost Drivers: Consists of but not limited to – – – – – Economies of scale plus learning curve effect Sourcing efficiencies and favorable logistics Differences in country costs (including exchange rates) Accelerating technological innovation at a higher cost Changing product life cycles Mahesh Joshi - Globalization Drivers 11 External: Industry Globalization Drivers: 2 • Government drivers: Consists of but not limited to – Reduction in tariffs and other protective actions – Growth of compatible technical standards – Uniform or common marketing regulations – Government owned customers and competitors (Denationalization, deregulation, open economies) – Host government concerns (if managed well leads to reduction in isolated economies) • Competitive drivers: Consists of but not limited to – Rising world trade levels (high export and import) – New competitors are not restricted to developed economies because of born global firms -variety of countries – Global networks in many industries allow for global focus (interdependence of counties) – Globalized competitors (increased foreign ownership among corporations) – Transferable competitive advantage Mahesh Joshi - Globalization Drivers 12 Global Strategy Levers • Market participation – Choice of countries or regions to exploit competitive advantage • Choice of Products/services – Product modification versus standardization • Activity location – Understanding the value added and hence location to exploit competitive advantage • Marketing – Choice of message that would be uniform or modified • Competitive Moves – Integration of competitive moves across the world Mahesh Joshi - Globalization Drivers 13 The Globalization Triangle Mahesh Joshi - Globalization Drivers 14 Integration or Responsiveness Global integration National responsiveness Low High High Global strategy Transnational strategy Low International strategy Multi-domestic strategy Mahesh Joshi - Globalization Drivers 15 References • Based on: • The Multinational Mission: Balancing Local Demands and Global Vision by C.K. Prahalad, Yves L. Doz, 1999. • Global Strategy... In A World Of Nations? By George S. Yip., Sloan Management Review; Fall 1989; pages 29-43. Mahesh Joshi - Globalization Drivers 16 Contact Mahesh P. Joshi Director of Research & Practice Center for Innovation and Entrepreneurship and Associate Professor of Global Strategy and Entrepreneurship School of Business – George Mason University President - Joshi International, Inc. mpjoshi@gmu.edu Mahesh Joshi - Globalization Drivers 17