Global Strategy:
Competing Around the World
Joe Mahoney
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
10–2
What Is Globalization?
• Multinational Enterprise (MNE)
 Deploys resources and capabilities in the
procurement, production, and distribution in
at least two countries

Less than 1% of firms, BUT employ 19% of U.S. workforce
– 74% of private sector R&D spending
• Foreign Direct Investment (FDI)
 Investments in value chain activities abroad
• Global Strategy
 To sustain a competitive advantage
 Competing against foreign and domestic companies
around the world
10–3
Why Global?
• Gain access to a larger market
 Capitalize on market potential, such as China, India,
and emerging economies
• Gain access to low-cost input factors
 Labor, natural resources, technology, logistics
• Managing corporate risk
• Leverage core competencies
• Develop new competencies
 Location economies
 Unique locational advantages
10–4
Globalization - Collaboration Networks
10–5
International Sales as % of Total
Data from 2010
10–6
Does GM’s Future Reside in China?
• Market opportunity in China
 1.4 billion population, only 1 in 100 people owns a vehicle
• GM entered China in 1997
 Joint venture with Shanghai Automotive Industrial Corp
 China is 25% of GM’s revenues and GROWING fast
 GM China factories are more productive than U.S. plants
• GM’s future relies on China and other emerging economies
 $ 250 million on a state-of-the-art R&D center…in Shanghai
 Future of GM likely decided in their international HQ…in Shanghai
10–7
1–7
Disadvantages of Expanding Internationally
• Liability of foreignness
 Additional cost of doing business in an
unfamiliar cultural and economic environment
 Cost of coordinating across geographic distance
 Economic development may increase the cost of
doing business

Rising wages with improved living standards

Difficulty in protecting intellectual property
10–8
Global Expansion: Where
• How does an MNE decide where to go?
 National institutions:

Well-established legal and ethical pillars as well as
well- functioning economic institutions such as
capital markets, banks, and infrastructures
 National culture: "Programming of the mind"

Geert Hofstede’s Cultural Dimensions
1.
2.
3.
4.
5.
Power distance
Individualism
Masculinity/femininity
Uncertainty-avoidance
Long-term orientation
10–9
Corporate Tax Rates
Institutional Difference Matters
10–10
Global Expansion: How
• Exporting: producing goods in one country to sell
in another country
• Acquisition, strategic alliance are also popular
vehicles for entry into foreign markets
• MNEs sometime prefers greenfield operations
or wholly-owned subsidiaries
 Greenfield is building new factories/offices from scratch

Physically and organizationally building from the "ground up."
10–11
Modes of Foreign Market Entry
Market Entry along the
Investment and Control Continuum
10–12
Strategy around the World:
Local Responsiveness vs. Cost Reduction
• Local responsiveness:
 Tailor product and service offerings to fit local
consumer preferences and host-country requirements
 Higher cost

Example: McDonald’s uses mutton in India
•Cost reduction:
 MNEs enter global marketplace with
the intention to reduce operation cost

Example: Toyota Prius
10–14
The Integration-Responsiveness Framework
Four Global Strategies
• International strategy
 Leveraging home-based core competencies
 Selling the same products or services in both domestic
and foreign markets

Example: Selling Starbucks coffee internationally
• Localization (product differentiation) strategy
 Maximize local responsiveness via a
multi-domestic strategy
 Consumers will perceive them to be domestic
companies

Example: Nestlé’s customized product offerings in
international markets
10–16
Four Global Strategies
• Global standardization (cost leadership) strategy
 Economies of scale and location economies
 Pursuing a global division of labor based on best-of-class
capabilities reside at the lowest cost

Example: Lenovo’s R&D in Beijing, Shanghai, and Raleigh;
production center in Mexico, India, and China
• Transnational strategy
 Combination of localization strategy (high responsiveness)
with global standardization strategy (lowest cost position
attainable)

Example: German multimedia conglomerate Bertelsmann
: Caterpillar’s earth-moving equipment
National Competitive Advantage
• 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
10–18
Porter’s Diamond Model of National Competitive Advantage
10–19
National Competitive Advantage Framework
• Factor conditions
 A nation’s endowments in terms of national, human, and other
resources as well as supportive infrastructure and institutions.
• Demand conditions
 Specific characteristics of demand in a firm’s domestic market
• Competitive intensity
 Highly competitive environments tend to stimulate
firms to outperform others (e.g., German car industry)
• Related and supporting industry
 Leadership in related and supporting industries can also foster
world-class competitors in downstream industry
 Complementarity
10–20
Regional Clusters
• Regional cluster
 A group of interconnected companies and
institutions in a specific industry, located
near each other geographically and linked
by common characteristics
 Knowledge spillover

Positive externalities that are
regionally constrained

Exchange of ideas among firms
in a cluster
10–21
Mapping a Regional Cluster: Research Triangle
10–22
Geographical Distribution of Clusters
Boise
Boston
Wisconsin / Iowa / Illinois
Minneapolis
Information Tech Agricultural Equipment
Mutual Funds
West Michigan
Western Massachusetts
Cardio-vascular Office and Institutional
Farm Machinery
Medical Devices
Polymers
Omaha
Equipment
Mgmt. Consulting
Furniture
Seattle
Rochester
Telemarketing
and Services
Biotechnology
Aircraft Equipment and Design
Imaging Equipment
Hotel Reservations
Software and
Michigan
Software
Credit Card Processing
Networking
Clocks
Warsaw, Indiana
Coffee Retailers
Venture Capital
Detroit
Orthopedic Devices
Auto Equipment
Hartford
and Parts
Insurance
Oregon
Electrical Measuring
Providence
Equipment
Jewelry
Woodworking Equipment
Marine Equipment
Logging / Lumber Supplies
New York City
Financial Services
Silicon Valley
Advertising
Microelectronics
Publishing
Biotechnology
Multimedia
Venture Capital
Pennsylvania / New Jersey
Pharmaceuticals
Las Vegas
Pittsburgh
Amusement /
Advanced Materials
Casinos
Energy
Small Airlines
North Carolina
Household Furniture
Los Angeles Area
Synthetic Fibers
Defense Aerospace
Hosiery
Entertainment
Wichita
Cleveland / Louisville
Light Aircraft
San Diego
Paints & Coatings
Farm Equipment
Baton Rouge /
Golf Equipment
New Orleans
Biotech/Pharma
Dalton, Georgia
Dallas
Specialty Foods
Carpets
Real Estate
Southeast Texas /
Development
Nashville / Louisville
Louisiana
Colorado
Hospital Management
South Florida
Chemicals
Computer Integrated Systems / Programming
Health Technology
Engineering Services
Computers
Mining / Oil and Gas Exploration
10–23
Source: Adapted from Professor Michael E. Porter, Harvard Business School