Strategy: A View From the Top
Chapter 8: Global Strategy
Formulation
TEAM 1
JT Lehotsky
Tara Ferguson
Taylor Skidmore
Sunny To
Today’s Discussion
Globalization and Clustering
1.
◦
Global Strategy Formulation
2.
◦
3.
Macroeconomic perspective
Microeconomic level
Global Strategy and Risk
Globalization

Some countries or regions of the world are
more efficient than others in producing
particular goods.

Examples
◦ Australian mining
◦ US agriculture
Clustering

In the absence of natural comparative
advantages industrial clustering occurs.

If transportation costs are not too high
and there is economy of scale a large area
can be served from a single location.
Porter’s National Diamond
Factor Conditions

The degree to which a country’s
endowments match those needed by the
industry.

When a particular industry is highly
profitable and barriers to entry are low the
industry will spread to international borders.

Japanese compete in industries that
orginated in the United States.
Demand Conditions

Demand in the home country.

When a large home market develops
before it takes hold elsewhere in the
world firms have ample incentives to look
for business abroad when saturation at
home begins to set in.

Japanese motorcycle industry.
Related and Supporting Industries

The presence of related and supporting
industries.

Hollywood has a host of suppliers and
service providers.
Competitiveness

Five forces of Chapter 4

The more vigorous the domestic
competition, the more successful firms
are likely to be in competing on a global
scale.
Government and Chance

Governments can change or make
policies to nurture global industries but
these policies aren’t always effective.

Chance deals with random events or
sheer luck.
◦ US is the leader in photography industry is
because Kodak and Polaroid creators were
born in America.
Industry Globalization Drivers
Market Drivers
Evolution of customer needs
Global Channels
Transferability
Economic Drivers
Nature of industry
Economies of scale/location
Differences in country costs
Industry
Globalization
Potential
Competitive Drivers
Interdependence between
countries/regions
Globalization of competitors
Government Drivers
Trade barriers
Regulatory climate
Technology/standards
Market Drivers

Have to meet changing customer
expectations.

Hamburgers in India
Cost Drivers



In a growing number of industries, the
minimum sales volume required for cost
efficiency is simply no longer available in a
single country or region.
Economies of scale and scope; experience
effects; and exploiting differences in factor
costs for product development,
manufacturing, and sourcing in different parts
of the world have become critical to global
success.
This creates the need for critical mass in
different parts of the value chain.
Competitive Drivers

The globalization potential of an industry
is influenced by competitive drivers such
as:
1. The degree to which total industry sales
are made up by export or import volume.
2. The diversity of competitors in terms of
their national origin.
3. The extent to which major players have
globalized their operations and created an
interdependence between their competitive
strategies in different parts of the world.
Government Drivers

Certain industries are
more regulated then
others, having a direct
influence on a company’s
global strategic options.
◦ Steel Industry: Trade
policies, technical
standards, policies and
regulations, and
government subsidies.
◦ Google in China
Global Strategy Formulation

Multinational- applicable when customer needs
and industry conditions vary considerably from
country to country and a high degree of
localization is required

International- the importance of managing the
international product life cycle through the
transfer of technologies to foreign markets.

Global or Transnational- when some degree of
standardization in products and services is
possible.
Global Strategy Dimensions

Global strategy formulation requires
analysis of at least five additional
dimensions:
1.
2.
3.
4.
5.
Market Participation
Standardization/Positioning
Activity Concentration
Coordination of Decision Making
Non-market Factors
1. Market Participation



Few companies can afford to enter all
markets open to them. They must weigh the
relative advantages of a direct or indirect
presence in different regions of the world.
A global view requires a multidimensional
perspective. Many industries need to
distinguish between “must” markets and
“nice to be in” markets. Example:
Motorola
Developing a global presence also takes time
and requires substantial resources.
2. Standardization/Positioning



As globalization advances, many companies
are seeking opportunities to standardize
core products and services.
Reducing cost and enhancing quality are
primary motivations for standardization.
Adopting a more global market positioning is
a another form of standardization
◦ By applying a global, cost-benefit approach to
formulating marketing strategy, companies seek
to balance flexibility with uniformity.
The Global Branding Matrix
Message
Standardized
Standardized
Tailored
Global Mix
Global Offer
Global Message
Global Change
Offer
Tailored
The Global Branding Matrix

Global Mix Strategies- both the offer and
the message are the same.
1. A product’s usage patterns and brand
potential are homogeneous on a global scale.
2. Scale and scope cost advantages substantially
outweigh the benefits of partial or full
adaptation.
3. Competitive circumstances are such that a
long-term, sustainable advantage can be
secured using a standardized approach.

Global Offer Strategies- apply when the same
offer can beneficially be positioned differently
in different parts of the world
◦ Holiday Inn

Global Message Strategies- use the same
message worldwide but allow for local
adaptation of the offer.
◦ McDonalds

Global Change Strategies- both the offer and
the message are adapted to local market
circumstances.
3. Activity Concentration

To enhance global competitiveness,
continuously reexamine:
1. Which parts of value-creation process they should
perform themselves & which to outsource
2. Whether they can eliminate duplicate operations in
different parts of the world & reduce manufacturing
sites
3. Whether they can relocate value-added activities to
more cost-effective locations
3. Activity Concentration

Selecting the right level of participation and location:
◦
◦
◦
◦
◦
◦
◦
◦
Factor conditions
Presence of supporting industrial activity
Nature and location of the demand for the product
Industry rivalry
Tax consequences
Currency and political risks
Ability to manage different locations
Other elements of overall strategy
Eli Lilly – R&D and clinical trails in India & China

◦
◦
◦
Rising development costs - $1.1 billion per drug
Phase III test costs - $50 million a year
But not all outsourcing

Patients might not be able to afford them

Patent protection
Risks of Activity Concentration
Organization problems
 Staffing problems
 Increase performance risk at a time when
the dependence of one unit on others is
increased
 Does not necessarily preclude being
responsive to local demands

◦ Rather, decide which value-creation process
should be standardized or concentrated
4. Coordination of Decision Making
The degree to which decision making is
coordinated on a global scale defines the
extent to which globalization has been
implemented successfully
 Decisions to be made:

◦ Which markets to participate in
◦ How to allocate resources
◦ How to compete
5. Nonmarket Dimensions

Global corporate success is influenced by
nonmarket factors that are governed by
social, political, and legal arrangements

Different countries have different…
◦
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◦
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Political systems
Economic systems
Legal systems
Cultures
Educational levels
Skill levels
Have profound implications
for the rules that shape
global competition and,
consequently, crafting a
global strategy
India Independence logo

Mission Statement
◦ To organize the world’s information and make it
universally accessible and useful.

95+% worldwide revenue comes from online
ads when a “Google search” is performed

India – more people are offline; mobile devices
outnumber internet connections

http://www.news-relay.com/latest-news/googlecom-has-tweaked-its-globalstrategy-for-india/
International Entry Strategies
Ownership
Acquisition / Start-Up
Alliances / Joint Ventures
Entry
Mode
Licensing
Exports
Low
Entry Cost
High
Region/Country Analysis

5 dimension framework to map a
particular country/region’s institutional
contexts
1.
2.
3.
4.
5.
Political and social systems
Openness
Product markets
Labor markets
Capital markets
How Wal-Mart Went Global

Evolution from domestic company into a
major global player
◦
◦
◦
◦
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Global Opportunity
Target Markets
Mode of Entry
Global Transfer of Skills
Local Adaptation
Local Competition
Gains and Setbacks
Global Opportunity
Decision to “go global” was driven by need
to grow
 Confining itself meant missing out on 96% of
world’s potential customers
 Key success factor – dedicated and
committed workforce
 Leveraged 2 key resources

◦ Developed tremendous buying power with giant
domestic suppliers
◦ Took advantage of domestically developed
knowledge and competencies
Target Markets


Could not simultaneously enter all options
outside US
First 5 years
◦ Concentrated heavily on Americas
◦ European market was less attractive as first point
of entry
 Already mature
 Competitors would retaliate
 Reduce competitive advantage
◦ Asia markets also unattractive
 Geographically and culturally distant
Mode of Entry

Canada – Acquisition
◦ Mature market
◦ Adding new retail capacity was unattractive

Mexico – Greenfield Start-Up
◦ Significant income and cultural differences

Brazil– Joint Venture
◦ With Lojas Americana

Argentina – Wholly owned subsidiary
◦ Success in Brazil
◦ And only 2 major markets
Global Transfer of Skills

Wal-Mart acquired Woolco (Canada)
• Sending a transition team  Wal-Mart way of doing
business + core competencies
• Upgrade to Wal-Mart standards + renovate
• Leverage high brand recognition by introducing
“everyday low prices” strategy
• Provide a broad merchandise mix, excellent
customer service, and a high in-stock position
• Implement employee rewards
◦  Profitable and leading discount retailer in 3 years
Local Adaption


Wal-Mart and Chinese market
China:
◦
◦
◦
◦
regulations and government policies: unpredictable
Infrastructure: not well-developed
Low levels of disposable income
Language difference
Hybrid store: supercenter and a warehouse club
(memberships)
 Smaller satellites stores fit better with local needs
 Product sourcing and product selection 
balance the desire of local for high-status U.S.made consumer goods and domestic goods

Local Competition
Acquiring a dominant player.
 Acquiring a weak player.
 Launching a frontal attack on the
incumbent.

Acquiring a dominant player
Germany: Wertkauf hypermarket chain
(21 stores, one of the most profitable)
 Reason:

◦ Mature European market  building new
ones not good
◦ Strict zoning laws precluded greenfield
operations
Acquiring a weak player

Remember the Woolco case?
Launching a frontal attack
on the incumbent






Attacking dominant and entrenched local
competitors head-on
Only feasible when the global company can bring
a significant competitive advantage to the host
country
Brazil 1996: aggressive pricing
Backfired when local competitors retaliated and
initiated a price war
Leading sale category was food  local sourcing
 local competitors’ advantage
Focus on customer service and merchandise mix
Gains and Setbacks

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


Not all of Wal-Mart’s global moves succeeded
1999, Asda in Britain (acquiring a dominant player).
Now behind Tesco and gradually fell behind in profit
and market share.
2005, costly exit from the German market, loss of $1
billion: unable to attain the economies of scale to
beat rivals’ prices
International activities: 40% of the stores  <1/4 of
total sales
However: only overseas markets offer the world’s
biggest retailer the kind of room it needs to grow.
GLOBAL STRATEGY AND RISK
Legal Risk
Financial/Economic
Risk
Political Risk
Global
StrategyExploiting
Similarities and
Differences
Societal/Cultural
Risk
Political Risk
Politically induced actions and policies initiated by a
foreign government
 Assess stability of a country’s current government
and its relationships with others
 2 subcategories: global and country-specific risk

◦ Global risk: all of a company’s multinational operations
◦ Country-specific: a specific country

Macro and micro risk:
◦ Macro: how foreign investment in general in a particular
country is affected by reviewing the government’s past
use of soft and hard policy instruments
◦ Micro: particular company or group of companies
Legal Risk
Multinational companies encounter in the
legal arena in a particular country
 Analyzing the foundations of a country’s
legal system  law properly enforced?
 High risk (loss of IP, technology,
trademarks…): countries with written laws
protecting a multinational's rights but
rarely enforce

Financial/Economic Risk




Analogous to operating and financial risk at
home
Volatility of a country’s macroeconomic
performance and the country’s ability to meet
its financial obligations directly affect
performance
A nation’s currency competitiveness and
fluctuation are important indicators of a
country’s stability + willingness for changes and
innovations
Other factors
Societal/Cultural Risk
Associated with operating in a different
sociocultural environment
 Ethnics, Religions, Nationalist movements,
Ideologies, Change Adaptability… should be
analyzed
 Standard of living, patriotism, religious
factors, the presence of charismatic
leaders…

Exploiting Similarities and Differences

Wal-Mart: global strategy involves more
than taking a superior business model and
rolling it out globally to capture economies
of scale.
Similarities
How much to adapt
the business model?
Similarities
to answer
How much to
standardize from
country to country?
How much to
localize to respond
to local differences
Differences = obstacles to overcome?
Global strategies based on the principle of arbitrage =
differences in costs, market structure, or other key
variables  competitive advantages
 Best global strategies exploit opportunities to
standardize while differentiate
 CEMEX: Mexican global cement producer

◦ Arbitrage cost differences
◦ Standardized operational strategy (uniform production to
distribution chains with information technology,
innovation)
◦ Choose how to raise capital independently from the way it
chooses to compete in product markets
 Differences: make arbitrage valuable: comparative
advantages
 Similarities: create opportunities for scales