Chapter 1
Globalization of markets
and competition
Globalization of the world economy and foreign direct
investments
Globalization of the world economy
Globalization of the world economy and
business firms
Opportunities 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
Challenges for firms
 Governments regulation
 Cultural diversity
 Need for adaptation?
 Cross border management
1990
2008
Total numbers of multinational
corporations
37000
82000
Total number of foreign affiliates
170000
810000
Globalization of the world economy: the macro drivers
POLITICAL
• Peace in the triad
• Opening of markets ( GATT, EEC, WTO…)
• Liberalization of foreign direct investments
• Liberalization of financial flows
TECHNOLOGICAL
• Increased efficiency of transportation and logistics: air; cargos; containers
• Increased efficiency of telecommunication and information technology
• Increased critical mass of investments in R&D and production
SOCIAL
• Some convergence of middle class consumer behavior
• Wider access to information, movies, TV series, internet
Macro driver: liberalization of trade
Macro driver: decline in maritime transport costs
Macro driver: decline in air transport costs
Macro driver: decline in telecommunication costs
Cost of a phone call to
the USA
Why do firms globalize?
MARKETS
RESOURCES
COMPETITIVENESS
To capture new
markets
Natural resources
Economies of scale
Offshoring/Offsourcing
Costs
Knowledge
Networks
Security of supply
Risk-spreading
Historically, corporate globalization took place in 3
stages
A classic example of transition from multinational
to global elevators in Europe
R
P
R
M
P
R
P
M
M
P
P
M
M
P
M
P
R
M
P
R
M
R
M
P
R
R
P
R
M
P
M
M
M
R
M
P
P
M
M
R
M
M
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GIS 4
Multi local industries
Local industries are industries
in which firms can sustain competitive
advantages within the boundaries of
countries.
Firms competing in multi local industries
are either:
• Domestic firms within each country
• Subsidiaries of multinational companies
operating independently of each other in
their respective countries
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 in a
centralized manner
Industries: global or multi local?
Factors pushing for globalization
Low entry barriers
High scale technology
Convergence of consumption
Transport
Characteristics of global industries
Similar needs and customer behavior
Standardized products
Beyond country economies of scale
Speed of innovation
Transferability of experience
“Global” customers
“Global” pricing
“Global” competitors
Factors against globalization
Cultural differences
Customer proximity
Transport costs
Legal requirements
Characteristics of local industries
Different needs andcustomer behavior
Customized products/services
Low economies of scale
Complex distribution
Transferability of experience
“Local” customers
High transport costs
Going global
Competitive
battlefield
Country
by country
Local
The competitive battlefield is
within the country
boundaries. Competitors are
local or subsidiaries of
multinational firms.
Region
Regional
The competitive battlefield is
regional. Regions have different
markets and competitive
characteristics. Competitors are
firms operating regionally.
Domestic and multinational firms
World
Global
The competitive battlefield is
worldwide. The world is one market.
Competitors are global firms who
compete with a full integration of their
activities.
Global firms
Globalization path
Global
integration and coordination
Optimize competitiveness
by leveraging
international:
• Resources
• Assets
• Competences
Leading to:
• Differentiated advantage
• Cost advantage
• Speed advantage
• Innovation advantage
Multinational expansion
Traditional globalization
Expand value adding
activities into countries
in order to capture:
• Market opportunities
• Resources
• Learning
Spread Risk
16
The different benefits of going global
Benefits
of global
integration
and coordination
The global advantage
Optimize competitiveness by leveraging
international:
• Resource
• Assets
• Competences
Leading to:
 Differentiated advantages
Cost advantages
 Speed advantages
Innovation advantages
Arbitrage
Benefits
of multimarkets
presence
The multinational advantage
 Market opportunities
 Resources opportunities
 Risk spreading
The metanational advantage
Benefits of
knowledge creation
and transfer
 Learn new knowledge
 Use global operations to leverage
local capabilities and knowledge
 Mix new capabilities and market
knowledge
17
The economic benefits of going global
 Increase size (V): capture market opportunities
Customer Value
CV
 Increase size benefit from economies of scale (C)
Price
Profit
 Get access to resources and procurement (S)
Costs
Internal
Costs
C
 Get access to low cost labor and infrastructure (C)
Supplies (S)
 Get access to knowledge (CV and C)
Volume (V)
 Serve
global customers (CV)
 Reduce risks through geographical diversification
Different industries have different competitive
requirements
HIGH
Telecommunication
equipment
Civil aircraft
Microprocessors
Institutional banking
Bulk Chemicals
Corporate banking
Automobile
Paint
GLOBAL
FORCES
Package tours
Retail banking
Catering
LOW
LOW
LOCAL FORCES
Food
retail
HIG
H
Within businesses, different segments have different
competitive requirements
Paints
HIGH
Automotive
Marine
Aircraft
Car repair
GLOBAL
FORCES
Industrial
DIY
LOW
LOW
LOCAL FORCES
HIGH
20
Within businesses, different functions benefit from
being either local or global
HIGH
Research
Development
Finances
After sales
services
Component sourcing
GLOBAL
FORCES
Component manufacturing
Logistics
Marketing
Advertising
Accounting
Customer services
Sales
LOW
LOW
LOCAL FORCES
HIGH