Chapter 2
Strategies in the
global economy
1
What is strategy?
A coherent set of choices guiding investment decisions
2
Different strategic levels in global firms
Global corporate
strategy
Regional strategy
Regions
Countries
Businesses
3
Different strategic levels in global firms cont.
4
Different strategic levels in global firms cont.
5
•Market/ resource driven
•Relative importance of region
and key countries in corporate
portfolio
• Geographical
positioning
• Competitive
positioning
• Degree of
standardization
• Decomposition of the value
chain
• Global logistics
• Alliance & acquisitions
• Development paths
• Degree of autonomy and integration
• Global structure and systems
• Global HRM
6
Global ambition: market driven/ resources driven
Capture growth opportunities of the
region to expand global sales
Market driven
Capture resources (natural,
human, knowledge) for global
competitiveness
Resources driven
7
Global ambition: the world in 2010
GDP2010
(current
US$)
North America
Europe
Asia and Pacific
Latin America
Africa
Middle East
Transition ex USSR
15390
17340
17650
4630
1590
1880
1910
Average
GDP per
Growth
capita
Population (1990(current US$) (million)
2010) % of GDP
45152
33000
16650
8230
1630
15000
7107
341
523
3670
623
974
120
363
1,0%
4,1%
6,7%
7,3%
4,0%
6,8%
5,4%
24,4%
27,3%
28,0%
7,3%
2,5%
3,0%
3,0%
6840
5,4%
100,0%
8
World
63120
9227
8
27% GDP
22% PPP
24% GDP
20% PPP
GDP 2010
(current US$)
North
America
Europe
Asia and
Pacific
Latin
America
Africa
Middle East
Transition
ex USSR
World
3% GDP
3% PPP
GDP, PPP
(current $)
15390
17340
15390
16645
17650
25500
4630
1590
1880
6230
2850
2560
1910
3630
63120
76650
3% GDP
5% PPP
3% GDP
4% PPP
7% GDP
8% PPP
9
28% GDP
33% PPP
Global ambition: countries life cycle
09%
Latin America
Middle East
08%
07%
Asia and Pacific
06%
05%
Average growth
yearly rate
(1990-2010)
Transition Economies
04%
Europe
Africa
03%
02%
01%
North America
00%
0
10000
20000
30000
40000
50000
60000
-01%
GDP /Capita (2010)
10
Bubbles
proportional to GDP
2010
Global ambition: global distribution of markets (2005)
Advertising
Clothing & footwear
Computer hardware
Construction materials
Consumer electronics
Cosmetics
Data processing services
Electrical appliances
Electrical equipment
Environment services
Healthcare equipment
Home furnishings
Insurance
Mobile phones
Paint & coatings
Pharmaceuticals
RetaiI
Specialty chemicals
Europe
(%)
North America
(%)
Asia Pacific
(%)
Rest of the world
(%)
19
32
27
18
30
37
29
28
23
31
34
44
34
30
26
28
32
45
57
27
27
9
23
22
52
27
20
39
46
22
38
25
27
48
30
39
23
25
39
63
38
27
14
34
42
23
18
18
25
42
35
18
23
11
1
15
7
10
9
14
9
10
15
7
2
15
3
3
12
6
15
4
11
Global ambition: Ciba fine chemicals
12
12
Ciba fine chemicals
13
Global ambition: what kind of global player?
Global companies mapping
Key
Sourcer
Domestic
Production
and supplies
Global
Exporter
Regional
Sales
Number of countries
14
Global ambition: Global companies mapping cont.
100%
90%
NORTEL
80%
70%
NOKIA
60%
Ratio of foreign assets/
total assets
MOTOROLA
ALCATEL
50%
40%
30%
ERICSSON
20%
10%
0%
Circle proportional to total sales
0%
20%
40%
60%
80%
Ratio of foreign sales/ total sales
15
100%
Global ambition: countries portfolio
KEY COUNTRIES: Have to be there
EMERGING COUNTRIES (WINDOW OF OPPORTUNITIES) : It’s time to go there
PLATFORM COUNTRIES: Entry and support
MARKETING COUNTRIES : No need to invest/only sales
SOURCING COUNTRIES: Manufacturing base/source of raw materials or purchasing
office
16
•Market/ resource driven
•Relative importance of region and
key countries in corporate portfolio
•Geographical
positioning
• Competitive
positioning
• Degree of
standardization
•Decomposition of the value
chain
•Global logistics
•Alliance & acquisitions
•Development paths
•Degree of autonomy and integration
•Global structure and systems
•Global HRM
17
Global positioning: countries choice
Business
opportunities
Market size
Market growth
Market quality
Resources quality
Resources costs
Geographical facilities
Infrastructures
Ease of doing business
H
L
H
L
Risks of doing business
Political
Economical
18
Competitive
Operational
Global positioning: Foreign Direct Investments 2000-2008
Inflows in billions USD
USA
1666
UK
881
France
Brazil
214
Mexico
202
656
Russian Federation
200
China
591
Italy
192
Germany
486
Australia
171
Canada
362
Singapore
166
Belgium
357
Sweden
166
China, Hong Kong SAR
339
Switzerland
148
India
119
Netherlands
337
Poland
106
Spain
313
World
10070
19
Global positioning: the 3 dimensions of global competitive positioning
Global standardization
Multiple segments
Local adaptation
Single segment
Compete
on costs/price
advantages
Compete
on differentiated/value
advantages
20
Global positioning: the 3 dimensions of global
competitive positioning cont.
Apple (stores)
Wal-Mart
Global standardization
Ikea
Hermes
Dairy Farm
(in Asia)
Local adaptation
Carrefour
Compete
on costs/price
advantages
Multiple segments
Single segment
Compete
on differentiated
/value
advantages
21
GLOBAL
POSITIONING
High
(Global Scale)
Minimum Size
Of
Standardized or Localized ?
MODULAR
STANDARDISATION
And MULTIBRANDS
GLOBAL
STANDARDISATION
Aircraft
Microprocessors
BasicChemicals
Pulp and paper
Electronic Components
Elevators
IT Services
Handphones
Example: Otis, Nokia
Example: Intel, Dell
Production
PROCESS
STANDARDISATION
Low
(Local Scale)
LOCAL
ADAPTATION
Consumer Banking
Consulting Services
Mobile Telephone Services
Cement
Example: Cemex
Example: Vodafone
Little Difference across the World
(Global Segments)
Countries specific
(Local Segments)
Customers Requirements and Competitive Contexts
22
•Market/ Resource Driven
•Relative importance of region and
key countries in corporate portfolio
•Geographical
positioning
• Competitive
positioning
• Degree of
standardization
•Decomposition of the value
chain
•Global logistics
•Alliance & Acquisitions
•Development paths
•Degree of autonomy and integration
•Global structure and systems
•Global HRM
23
Investments in a
global business
system
Capabilities and sources of competitive advantages
R&D
Resources based
Manufacturing
General
management
Higher quality scientists and
technologists
Better database
Higher amount of funding
for R&D
More creative designers
Better suppliers
Larger suppliers base
Cheaper sources of
supplies
Higher quality
supplies
Better location
and infrastructure
Higher qualification of work
force
Lower labour costs?
Good quality
channel partners
Superior strategic
and marketing Intelligence
Higher quality marketing
and sales personnel
Higher quality
managerial personnel
Cheaper cost of capital
Strong “sponsors”
Privileged access to
licenses from authorities
Superior existing products
line
Patents
More efficient CAD
More effective warehousing
& inventories management
Electronic data purchasing
Economies of scale due to
high volume of purchase
Economies of scale due to
volume
Better quality/cost
processes
More advanced CAM
Proprietary equipments
Well established
brand/reputation
Density and scope of
distribution
Better electronic data
management and
transmission network
Proprietary scientific/
technological know-how
Superior product
development
Superior research
technique
Faster products
development
More effective supply chain
mgt (JIT)
More effective suppliers
relationships management
Better quality plant
management
Better process
management
Better time24
management
Superior product and
brand management
Superior customer
relationship management
Better financial
management
Better HRM
Superiority in strategizing
More effective, timely,
responsive
Organisational mechanisms
“Better” corporate culture
Assets
based
Competencies
based
Procurement
Marketing
Sales and
distribution
24
Investments in a
global business
system
Building global competitive advantages
Transerability of competitive advantages
 What is the value of our existing advantages on local
markets?
 To what extent do we need to adapt our products and
management approaches?
 What new capabilities need to be acquired and how?
Our
competitive
advantages
To what extent
are they
transferable?
Which new
capabilities to
create and how?
25
Investments in a
global business
system
How do a firm’s capabilities apply to regional/local markets?
Transfer, Adapt, Create Model
R&D
Procurement
Manufacturing
What capabilities
are needed
to compete?
What capabilities
do we bring but
need to adapt?
What capabilities
do we bring and
can transfer?
26
Marketing
General
management
What capabilities
do we need to create?
Investments in a
global business
system
Transferability of competitive advantages and
business model ?
Technical
Source of
competitive
advantages
Social, cultural
political,
contextual
TRANSFER with
Little or No
adaptation
TRANSFER
and
ADAPT
Example: Dell, Intel
Example: Unilever
TRANSFER and do
Relevant ADAPTATION
ADAPT and
RECREATE
Example: KFC
Example: McDonald’s
Country specific
Little difference
across the world
(global segments)
(local segments)
Customers’ requirements and competitive
contexts
27
•Market/ resource driven
•Relative importance of region and
key countries in corporate portfolio
•Geographical
positioning
• Competitive
positioning
• Degree of
standardization
•Decomposition of the value
chain
•Global logistics
•Alliance and acquisitions
•Development paths
•Degree of autonomy and integration
•Global structure and systems
•Global HRM
28
Global
organization
Components of a global value chain
Research
Development
Global
Regional
Local
GIS 35
Sourcing
Production
Marketing
Customers
Services
- Central R & D
- Technology
Strategy
- Core Technology
- Core Products
- Technology
conferences
- Technological
intelligence
- Global factories
- Global materials
flow
- Process Engineering
- Central sourcing
- Global marketing - Policies
- Procedures
strategy
- Information
- Global
system
communication
- Global products
Management
- Regional Accounts
- Regional Bidding
- Regional Products
development
- Regional
intelligence
- Regional seminars
- Regional factories
- Regional sourcing
Regional:
- Distribution
- Promotion
- Sales
- Local Laboratories
- Local production
- Local sourcing
29
Finances
H.R.M
- Corporate
Finance
- Global
Treasury
- Control
- International
H.R.M
- Regional
customers
support
- Logistics
- Maintenance
- Regional
Debt financing
- Regional
Control
- Regional
careers
- Training
- After sales
services
- Local
borrowing
- Local careers
- Local
Global organization
FUNCTIONAL
Structures
PRODUCT
HQ
HQ
R&D
Production
Business
A
Marketing
MATRIX
GEOGRAPHICAL
HQ
HQ
Region
Business
A
Business
B
Business
C
Region
Region
Region
Countries
Countries
Business
C
Countries
Countries
Region
Business
B
Countries
30
Business
D
Business
E
Global organization
The global human resources wheel
Local Managers
Local Managers
Local Managers
CORE
International
Managers
Local Managers
Local Managers
Local Managers
Local Managers
Local Managers
Local Managers
Local Managers
31