Strategy
A view from the Top
Chapter 8
Global Strategy Formulation
Zane Barnes
Nolan Bosworth
Johnnie Davis
Clay Jones
Anna Sterling
Kimberly Smith
Shaina Weaver
Global Strategy Formulation
• “Going global”
– Gradual process
– Core competencies, mission, structure, culture, and
processes of international corporations evolve in the
creation of global corporations.
– Truly global Strategies are extremely rare.
– To create a vision a company must accurately define
what globalization means for its particular business.
– Each company and industry will have very different
requirements for global success.
Globalization And Industrial
Clustering
• Clustering- some countries or regions of the
world are more efficient than others in
producing particular goods which causes a
clustering of competing firms.
– Reasons for clustering are: natural resources,
concentration of buyers, transportation cost, labor
cost, local government laws, etc.
Porter’s National Diamond
Porter’s National Diamond helps explain why particular regions
attract certain global industries.
Factor Conditions
• What is the degree in which the country or
regions endowments match the characteristics
and requirements of the industry.
• Two forms of endowments
– Natural conditions (ex: climate, minerals)
– Created conditions (ex: skill levels, capital,
infrastructure)
• If a industry is highly profitable and barriers to
entry are low, the forces of imitation and
diffusion cause such and industry to spread
across international borders.
Industry Globalization Drivers
Industry Globalization Drivers are underlying conditions that create the
potential for an industry to become more global.
Economic Drivers (cost)
Market Drivers
•Nature of industry
•Economies of scale/location
•Differences in country costs
•Evolution of customer needs
•Global customers
•Global channels
•Transferability of marketing
Competitive Drivers
•Interdependence between
countries/regions
•Globalization of competitors
Industry
Globalization
Potential
Government Drivers
•Trade barriers
•Regulatory climate
•Technology/standards
Market Drivers
•
Market drivers are measures that define how customer behavior patterns evolve and
converge.
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Market drivers are important because they indicate whether…
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Many forces push companies to think more globally in order to…
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worldwide channels of distribution can develop
market platforms are transferable
“lead” countries can be identified in which most innovation takes place
meet foreign competition head on
better serve an increasingly global customer base
exploit diverse capabilities and cost advantages
take advantage of an easing global environment
Example: HDTV
Cost Drivers
•
Cost drivers are factors that define the opportunity for global scale or scope economics,
sourcing efficiencies reflecting differences in costs between countries and regions, and
technology advances. They shape the economics of an industry.
•
In many different industries, the minimum sales volume required for cost efficiency might not
be available in a single country or region anymore.
•
Example: Pharmaceutical industry
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The development of many new drugs can no longer be justified on the basis of the economic returns from a single
country.
Exploiting differences in costs for product development, manufacturing, and sourcing in different parts of the world
have become critical to success. (R&D)
Determining which parts of the value chain are your cost drivers also assists in assessing the
need for mergers and acquisitions and guides the development of key alliances.
Competitive Drivers
•
Competitive drivers are defined by the actions of competing firms--the extent to which
competitors from different continents enter the market, globalize their strategies and
corporate capabilities, and create interdependence between geographical markets.
•
The globalization potential of an industry is also influenced by competitive drivers such as…
(1) the degree to which total industry sales are made up by export/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
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Some useful questions to ask when analyzing global competitive drivers are…
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How many competitive arenas does our company compete in?
Do we mainly face the same competitors in different parts of the world?
Do competitors employ similar strategies in the different arenas?
How necessary is it to coordinate competitive responses on a global scale?
Government Drivers
•
Government drivers include such factors as favorable trade policies, a benign regulatory
climate, and common product and technology standards. The presence or absence of these
factors have a direct influence on a company’s global strategic options.
•
As the politics and economics of global competition have become more closely intertwined,
companies are paying greater attention to the nonmarket dimensions of their global
strategies in an attempt to shape the global competitive environment to their advantage.
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EXAMPLE: Telecommunications industry
-Falling trade barriers and other deregulatory moves have encouraged companies to pursue more global approaches
to their business. ( Outsourcing)
Global Strategy Formulation
• Four types:
– Multinational
– International
– Global
– Transnational
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
– Ex: Nestle- Allows the company to adapt to
differences in local taste preferences and
distribution structures
– Most strategic and operating decisions are made
at the local level
Global Strategy Formulation
• International
– Industries in which global strategic advantage depends on
• 1. Effectively developing new products in home market
• 2. Diffuse innovations to foreign markets through affiliate
organizations
• Example: High Technology Companies
• Global or Transnational
– When some degree of standardization is possible
– Example: Coca-Cola, McDonalds
– Some parts of the value chain are standard and others are
tailored to local needs
– Implementation can be hard due to difficult coordination
Global Strategy Dimensions
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1. Market Participation
2. Standardization/Positioning
3. Activity Concentration
4. Coordination of decision making
5. Non-market factors
Market Participation
• It is too expensive to enter every market available
• Companies must weigh the relative advantages of
a direct or indirect presence
• Midsize companies- key is to create a worldwide
resource network through alliances
• Good strategies- highly selective in participation,
realistic target market and profit objectives, and
balance stretch with current capabilities
Market Participation, Continued
• “Must” Markets
– Markets in which a company must compete to
realize its global ambitions
• “Nice-to-be-in” Markets
– Desirable, not critical
• Other factors:
• Developing global presence takes time & resources
• Pace of international expansion depends on customer
demand
Standardization/Positioning
• Motivations for standardization
– Reducing cost & enhancing quality
• Adopting a more global market positioning is
another form of standardization
– Ex: Disney, IBM– Global Branding
Global Mix
Global Offer
Global Message
Global Change
Global Branding Matrix
MESSAGE
Standardized
Tailored
Global Mix
Global Offer
Global Message
Global Change
Standardized
OFFER
Tailored
Activity Concentration
• Companies must ask themselves 3 questions:
– What parts of the value-creation process to keep in-house
and which to outsource?
– Can we streamline our value-creation process by
eliminating duplicate operations in other parts of the
world?
– Can we relocate value added activities to more costeffective locations?
Coordination of Decision Making
• Involves aligning company resources (management,
capital, and personnel) to work towards a common
goal in order to collectively answer important
questions:
– What markets do we participate in?
– How should resources be allocated?
– How do we compete?
“Many companies have found that integrating and
coordinating activity on a global scale is at least as
important as control” (SAVFTT pg. 188)
Nonmarket Demensions
• Increasingly, global corporate success is influenced
by nonmarket factors that are governed by social,
political, and legal arrangements. Different countries
have vastly different political, economic, and legal
systems. An effective global strategy addresses both
elements; it has market dimensions that seek to
create value through economic performance and
nonmarket strategy dimensions aimed at unlocking
competitive opportunity.
Entry Strategies
• Exporting – low risk, but has high costs when compared to
the small amount of control over marketing and distribution.
Does not allow firsthand experience in staking out a
competitive position abroad.
• Licensing – low cost and carries limited risk, but issuing firm
has low control and limited returns.
• Joint Ventures – allow risk sharing and give the firm some
degree of flexibility. Profits must also be shared.
• Acquisitions/Startups – the ultimate commitment. Firm
has all the risk, but if successful enjoys all the return.
International Entry Strategies
Start-up
Joint Ventures
Ownership
Licensing
Exports
SAVFTT Page
190
Entry Cost
Region/Country Analysis
• Political and Social Systems
• Openness
• Product Markets
• Labor Markets
• Capital Markets
Wal-Mart: Global Opportunity
• Driven by need to grow.
• Relation between employees and stock.
• Two key resources that aided global
expansion.
Wal-Mart: Target Markets
• Stages of expansion.
• Stage 1: 1991-1995
• Stage 2: 1996 to present
Mode of Entry
• Wal-Mart
– Chose an acquisition to enter Canada.
• Very similar markets.
– Used a 50-50 Joint venture to enter Mexico
• Needed to expertise of Mexico’s largest retailer, Cifra,
due to the income and cultural differences.
– Chose two different strategies in South America.
Went with a 60-40 joint venture in Brazil and a
wholly owned subsidiary in Argentina.
Global Transfer of Skills
• Wal-Mart was able to get Canada’s Woolco
out of the red by using a US model. Within
three years, they were the leading discount
retailer in Canada.
• The transition included Wal-Mart sending a
team to help employees understand “the WalMart way”, renovating every store, and
familiarizing customers with low prices, good
customer service, and a broad mix.
Local Adaptation
• Wal-Mart had many difficulties in China and
had to experiment many different approaches
that would best align with the Chinese
culture.
– There were low levels of disposable income and
unpredictable government policies and
regulations they had to deal with.
– Adaptations was vital. Wal-Mart created smaller
stores, hybrid stores, carried more products and
different foods.
Local Competition
• Acquiring a dominant player.
– Wetkauf hypermarket chain in Germany. Competing
against them would not have been a good strategy.
• Acquiring a weak player.
– Woolco in Canada. Is a good strategy if the company
can turn the weak player into a strong player.
• Launching a frontal attack on the incumbent.
– Carrefour in Brazil. Created a price war, especially with
food, so Wal-Mart had to focus on customer service
and merchandise mix. Only a good strategy if you have
a huge competitive advantage.
Gains and Setbacks
• Wal-Mart’s international stores account for
around 40% of their stores, but less than 25%
of their profits. It’s a huge “playground” so to
speak. Their global strategies have not always
been successful though…
– Wal-Mart in Germany. Had to sell it’s stores and
lost over $1 billion because they were not able to
achieve the economies of scale they needed.
Global Strategy and Risk
• Political Risk – relates to politically induced actions
and policies initiated by a foreign government
– Can be broken into two sub-categories: Global risk and
country-specific risk
• Legal Risk – is assessed by analyzing the
foundations of a country’s legal system and
determining whether or not the laws are properly
enforced
– Numerous countries have laws protecting multinational’s
rights, but are rarely enforced
Global Strategy and Risk
• Financial/Economic Risk – comparable to
operating and financial risk at home
– Currency competitiveness and fluctuation
• Societal/Cultural Risk – involves understanding
elements such as the standard of living, patriotism,
religious factors, or the presence of charismatic
leaders.
Global Strategy and Risk
• Exploiting Similarities and Differences
– “How much to adapt the business model—how much to
standardize from country to country versus how much to
localize to respond to local differences”—defines global
strategy in terms of exploiting similarities.
– A single focus on possible tradeoffs between global scale
economies and local considerations obscures strategic
opportunities bases on the exploitation of differences.
– arbitrage