QTCLTC

1. Chapter 1
Globalization of
Markets and
Competition

2. 0
500000
1000000
1500000
2000000
2500000
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Millions
of
US dollars
FDI inflows, by region and economy, 1990-2016
Developed
Economies
Developing
Economies
Transition Economies
Source: Using data from UNCTAD: World Investment Report 2017: Annex table 01
(http://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Annex-Tables.aspx)
Globalization of the World Economy
2

3. Globalization of the World Economy:
Selected Indicators of FDI and International Production and Trade
1990-2016
Source: UNCTAD: World Investment Report 2017: Table I.4, Page 26
3

4. Total number of Multinational Corporations 37000 82000
Total number of Foreign Affiliates 170000 810000
Globalization of the World Economy:
For Business Firms
OPPORTUNITIES for FIRMS CHALLENGES for FIRMS
 Wider scope of markets
 Growth potential
 Wider access to resources:
- Labor
- Raw materials
- Components
- Knowledge
 Ability to gain costs advantages
thru economies of scale
 Ability to moderate risks
 Government regulation
 Cultural diversity
 Need for adaptation?
 Cross border management
1990 2008
4

5. Globalization of the World Economy: Business Firms
Internationalization trends in top 100 MNEs, 1990–2015 (Per cent)
Source: UNCTAD: World Investment Report 2017: Figure I.23, Page 27
5

6. Globalization of the World Economy:
The Macro Drivers
POLITICAL
• Peace in the Triad
• Opening of Markets ( GATT, EEC, WTO…)
• Liberalization of Foreign Direct Investments
• Liberalization of Financial flows
TECHNOLOGY
• Increased efficiency of transportation and logistics : Air, cargos, containers
• Increased efficiency of telecommunication and information technology
• Increased critical mass of investments in R&D and production
SOCIAL
• Some convergence of middle class consumer behavior
• Wider access to information, movies, TV series, internet
6

7. Macro Driver: Liberalization of Trade
China Tariffs rates
China Trade
Trade
(US+EU+Japan+UK)
Tariffs (US+EU+Japan+UK)
Weighted tariffs
rate all products
%
Uruguay
Round
Doha Round
China joint
WTO
0
5
10
15
20
25
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
1988 1992 1996 2000 2005 2010 2012
Trade
00Bl $
7

8. Macro Driver: Liberalization of Investments
Changes to national investment policies, 2002–2016
Source: UNCTAD: World Investment Report 2017: Table III.1, Page 99
8

9. Macro Driver: Decline in Maritime Transport Cost
Redrawn with permission of the AEA from Hummels D. 'Transportation Costs and International Trade in the
Second Era of Globalization'. Journal of Economic Perspectives 21, (3) 2007 pp 131–154 – Fig 6 p.147,
9

10. Macro Driver: Decline in Air Transport costs
Redrawn with permission of the AEA from Hummels D. 'Transportation Costs and International Trade in the Second Era of
Globalization'. Journal of Economic Perspectives 21, (3) 2007 pp 131–154 – Fig 2 p.139,
10

11. Macro Driver: Decline in telecoms costs
Source: World Bank World Development Report 2009: Reshaping Economic Geography Fig 6.3 p.180
11

12. Why Do Business Firms Globalize?
Markets Resources Competitiveness
• Capture new markets • Natural Resources
• Offshoring/Offsourcing
• Knowledge
• Security of supply
• Economies of scale
• Costs
• Networks
• Risk spreading
12

13. Historically, Corporate
Globalization
took place in 3 stages;
Export
(Trade)
Internationalization
(Multinational)
Global Integration
(Global)
13

14. A classic example of transition
from Multinational to Global
ELEVATORS in EUROPE
14

15. R
P M
R
P M
R
P M
R
P M
R
P M
R
P M
R
P M
R
P M
R
P M
R
P
M
R
M M
P
P
M M
M
M
M M
P
A classic example of transition
from Multinational to Global:
ELEVATORS in EUROPE
15

16. GLOBAL INDUSTRIES
Global industries are industries:
in which firms can sustain competitive advantages
only if :
• They are present in the key countries of the world
And
• They integrate and coordinate their activities
across the world on a centralized manner.
MULTILOCAL
INDUSTRIES
Local industries are industries:
in which firms can sustain competitive
advantages within the boundaries of
countries.
Firm competing in multilocal industries
Are either:
• Domestic firms within each country
or
• Subsidiaries of multinational companies
operating independently of each others in
the respective countries
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17. Industries: Global or Multilocal ?
Factors Pushing For Globalization
• Similar Needs & Customers Behavior
• Standardized Products
• Beyond country economies of scale
• Speed of Innovation
• Transferability of experience
• “Global” customers
• “Global” pricing
• “Global” competitors
• Low entry barriers
• High Scale Technology
• Convergence of consumption
• Transport
• Cultural Differences
• Customer proximity
• Transport costs
• Legal requirements
• Different Needs & Customers Behavior
• Customized Products/services
• Low economies of scale
• Complex distribution
• Transferability of experience
• “Local” customers
• High transport costs
Factors Against Globalization
Characteristics of Global Industries Characteristics of Local Industries
17

18. Going Global
Competitive
Battlefield
(Country by
Country) Local
(World) Global
(Region) Regional
Global Firms
Domestic and Multinational Firms
18

19. Globalization Path
Expand value-adding activities
in countries to capture more:
• Market opportunities
• Resources
• Learning
 Optimize competitiveness
by leveraging international
- Resources
- Assets
- Competencies
Leading to:
 Differentiated
advantage
 Cost advantage
 Speed advantage
 Innovation advantage
Global
Integration and Coordination
Multinational Expansion
Traditional Globalization
19

20. The Different Benefits of Going Global
Benefits
of Multimarket
Presence
 Market opportunities
 Resources opportunities
 Risk Spreading
The Multinational Advantage
Benefits of
Knowledge
Creation
and Transfer
 Learn new knowledge
 Use global operations to leverage
local capabilities and knowledge
 Mix new capabilities and market
knowledge
The Metanational Advantage
 Optimize competitiveness
 By leveraging international
 Resources
 Assets
 Competences
 Leading to
 Differentiated
advantages
 Cost advantages
 Speed advantages
 Innovation advantages
 Arbitrage
The Global Advantage
Benefits of
Global
Integration
and Coordination
20

21. Customer Value
(CV)
PROFIT
Internal Costs
(C )
Supplies (S)
Costs
Volume (V)
 Increase Size (V): Capture market opportunities
 Increase Size: Benefit from Economies of Scale (C)
 Access to resources and procurement (S)
 Access to low-cost labor and infrastructure (C)
 Get access to knowledge (CV and C)
 Serve global customers (CV)
 Reduce risks through geographical diversification
Price
The Economic Benefits of Going Global
21

22. HIGH
GLOBAL
FORCES
LOW
LOW HIGH
LOCAL FORCES
Different industries have different
competitive requirements
Civil Aircraft
Microprocessors
Bulk Chemicals
Catering
Automobiles
Telecommunication
Equipment
Package Tours
Retail Banking
Food
Retail
Paint
Corporate Banking
Institutional Banking
22

23. WITHIN INDUSTRIES DIFFERENT SEGMENTS HAVE
DIFFERENT COMPETITIVE REQUIREMENTS
HIGH
GLOBAL
FORCES
LOW
LOW HIGH
LOCAL FORCES
AUTOMOTIVE
AIRCRAFT
MARINE
CAR REPAIR
INDUSTRIAL
DO-IT-YOURSELF
PAINTS
23

24. HIGH
GLOBAL
FORCES
LOW
LOW HIGH
LOCAL FORCES
WITHIN BUSINESSES DIFFERENT FUNCTIONS GET
DIFFERENT BENEFITS FROM BEING "GLOBAL" OR "LOCAL"
Research
Finances
Development
After Sales
Services
Logistics
Components Sourcing
Components Manufacturing
Marketing
Accounting
Customers Services
Sales
Advertising
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