Chapter 10
Global Strategy: Competing Around the World
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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Chapter Outline
10.1 What Is Globalization?
• Stages of Globalization
10.2 Going Global: Why?
• Advantages of Expanding Internationally
• Disadvantages of Expanding Internationally
10.3 Going Global: Where and How?
• Where in the World to Compete? The CAGE Distance
Framework
• How Do MNEs Enter Foreign Markets?
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Chapter Outline (cont’d)
10.4 Cost Reductions vs. Local Responsiveness: The
Integration-Responsiveness Framework
•
•
•
•
International Strategy
Multidomestic Strategy
Global-Standardization Strategy
Transnational Strategy
10.5 National Competitive Advantage: World Leadership
in Specific Industries
• Porter’s Diamond Framework
10.6 Implications for the Strategist
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ChapterCase 10
©STR/AFP/Getty Images/Newscom
Hollywood Goes Global
 Hollywood movie: The quintessential American product
• However, non-U.S. sales increased: 50% in 2000,
AND
70% in 2012
 Altered global strategic focus
• Movies that fit the global market by adapting foreign scripts,
hiring international actors/actresses
• Two versions of Iron Man 3 in 2013 (one just for China)
 Treat emerging markets as focal targets
 Not just filmmaking industries, but also electronics industry
(ex: Korea, China), and auto industry (ex: India)
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Exhibit 10.1 Lifetime Revenues of
Hollywood Blockbuster Movies
>$500 million (in $ million)
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10.1 What Is Globalization?


Globalization is a process of closer integration and
exchange between different countries and peoples
worldwide.
Made possible by:
• Falling trade and investment barriers
• Advanced telecommunications
• Reduced transportation costs
• Importance of MNEs and FDIs
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Exhibit 10.2 Globalization 3.0:
21st Century
Based on an optimal
mix of costs, skills, and
PESTEL factors, MNEs
are organized as
globalcollaboration
Networks that perform
business functions
throughout the world.
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WHAT DEFINES A U.S. COMPANY?
Address
• IBM, GE, and others are U.S. companies…
 Despite the fact that a majority of their employees work outside
the U.S.
Investment
• Carmakers from Japan (Toyota, Honda, and Nissan) and
South Korea (Hyundai and Kia) and engineering
companies (Siemens from Germany, and ABB)
 All have made significant investments in the U.S.
 Also created a large number of good jobs
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10.2 Going Global: Why?
 Gain access to a larger market
• MNE has opportunities for economies of scale and scope
• Firms in smaller home markets (Acer, Nestlé, Samsung)
 Gain access to low-cost input factors
• Labor, natural resources, technology, logistics.
• Professionals less expensive in China & India
 Develop new competencies
• Location economies- Cisco, AstraZeneca, & Unilever
• Polycentric innovation strategies
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Strategy Highlight 10.1
Does GM’s Future Lie in China?
 Market opportunity in China
• 1.4 billion people; only 1 in 100 people owns a vehicle
 GM entered China in 1997.
• Joint venture with Shanghai Automotive Industrial Corp
 Sold 1.4 million vehicles in 2012.
• China makes up 25% of GM’s revenues and GROWING fast.
• GM China factories are more productive than U.S. plants.
 70% of GM revenues – OUTSIDE the United States
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Disadvantages of Expanding
Internationally
 Liability of foreignness
• Additional cost of doing business in an unfamiliar cultural
and economic environment
 Loss of reputation
• Globalizing a supply chain can have unintended effects
 Low wages, long hours, poor working and living conditions
• This challenge directly concerns the MNEs’ corporate
social responsibility (CSR)
 Loss of intellectual property
• Large-scale infringements in software, movie, & music
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Strategy Highlight 10.2
Walmart Retreats from Germany
 Walmart entered Germany.
• Acquisition of 21 stores and 74 hypermarkets
 Walmart duplicating its U.S. policies and applying
them in Germany
• Employees refused to accept those policies.
 Walmart faced significant cultural differences.
 The result is a defeated Walmart that sold its stores to
Metro… Walmart’s key rival in Germany!
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Where in the World to Compete?
The CAGE Distance Framework
 A decision framework based on the relative distance.
between home and a foreign target country
 Along four dimensions:
1.
2.
3.
4.
Cultural distance
Administrative and political distance
Geographic distance
Economic distance
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HOFSTEDE AND CULTURAL DIMENSIONS
 Hofstede’s national-culture research work provides a
useful tool to proxy cultural distance.
 Based on data analysis from more than 100,000
individuals from different countries, four dimensions
of culture emerged:
•
•
•
•
•
Power distance
Individualism
Masculinity–femininity
Uncertainty avoidance
Long-term orientation (fifth cultural dimension added later)
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How Do MNEs Enter
Foreign Markets?
Remaining decision: How to enter a foreign market
Low investments and low level of control:
• Exporting
• Licensing
• Franchising
High investments and high level of control:
• Joint venture
• Acquisition
• Greenfield operations
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10.4 Cost Reductions vs. Local
Responsiveness:
The Integration-Responsiveness Framework
 Two opposing forces when competing globally
 Cost reductions versus local responsiveness
 Cost reduction:
 MNEs enter global market place with the intention to reduce operation cost
− Globalization Hypothesis

Ex: Toyota Prius
 Local responsiveness:
 Tailor product and service offerings to fit local consumer preferences and
host-country requirements
 Higher cost

Ex: McDonald’s uses mutton in India
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Exhibit 10.6 Dynamic Strategic
Positioning: The MTV Music Channel
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10.5 National Competitive Advantage:
World Leadership in Specific Industries
 Death-of-distance hypothesis:
• Geographic location alone should not lead to firm-level
competitive advantage because firms are now more able to
source inputs globally (ex: capital, commodities, etc.)
Labor markets also have become more global.
 Computer manufacturers – China & Taiwan
 Consumer electronics – Japan & South Korea
 Mining companies − Australia
 Why are certain industries in some countries more
competitive than in others?
• Answer: National competitive advantage
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Porter’s Diamond Framework
 Factor conditions:
 A nation’s endowments in terms of national, human, and other
resources.
 Demand conditions:
 Specific characteristics of demand in a firm’s domestic market.
 Competitive intensity:
 Highly competitive environments tend to stimulate firms to outperform
others.
 Related and supporting industry:
 Leadership in related and supporting industries can also foster worldclass competitors in downstream industry.
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Exhibit 10.8 Porter’s Diamond of
National Competitive Advantage
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10.6 Implications for the Strategist
 The CAGE framework helps with global strategy
decisions.
 Business-level strategy provides clues to possible global
strategies.
 Despite globalization and the Internet geographic
location has maintained its importance.
 The enduring competitive advantages in a global
economy lie increasingly in local things:
• Knowledge, relationships, and motivation that distant rivals
cannot match
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ChapterCase 10
©STR/AFP/Getty Images/Newscom
Consider This…
• The Hollywood film industry enters global market to explore
new revenue stream!
• Will we see a decrease in the production of regional and
U.S.-centered movies? Or will small independent movie
producers pick up a higher share of the domestic U.S.
market?
• What are some alternatives to combat piracy?
• How would you prioritize which nations to expand
distribution into if you were working for a major Hollywood
movie studio?
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