education

1. 10
CHAPTER
Global Strategy:
Competing Around
the World
McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

2. 2–2
2–2
Part 2 Strategy Formulation

3. LO 10-1 Define globalization, multinational enterprise (MNE),
foreign direct investment (FDI), and global strategy.
LO 10-2 Explain why companies compete abroad and evaluate
advantages and disadvantages.
LO 10-3 Explain which countries MNEs target for FDI, and how they
enter foreign markets.
LO 10-4 Describe the characteristics of and critically evaluate the
four different strategies MNEs can pursue when competing
globally.
LO 10-5 Explain why certain industries are more competitive in
specific nations than in others.
LO 10-6 Evaluate the relationship between location in a regional
cluster and firm-level competitive advantage.
10–3

4. Chapter Case 10 Hollywood Goes Global
• Hollywood movie: The quintessential American product
 However, non-US sales increased: 50% in 2000,
and 70% in 2010
 Altered global strategic focus
 Movies that fit the global market by adapting foreign scripts, hiring
international actors/actresses…etc.
• Treat emerging markets as focal targets
 Not just filmmaking industries, but also the electronics industry
(example: Korea, China), and auto industry (example: India)
 Key questions: How can a company compete effectively in a
global market place?
10–4

5. 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
10–5

6. 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 10–6

7. 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
10–7

8. 1–8
STRATEGY HIGHLIGHT 10.1 Stages of Globalization
• Globalization 1.0: 1900–1941
 Only sales and distribution took place overseas
• Globalization 2.0: 1945–2000
Duplicating business functions overseas
• Globalization 3.0: 21st century
MNEs become global collaboration networks
(see Exhibit 10.2)

9. EXHIBIT 10.2 Globalization 3.0 - Collaboration Networks
10–9

10. EXHIBIT 10.3 International Sales as % of Total
Data from 2010
10–10

11. 1–11
STRATEGY HIGHLIGHT 10.2 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
10–11

12. 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
10–12

13. LO 10-1 Define globalization, multinational enterprise (MNE), foreign
direct investment (FDI), and global strategy.
LO 10-2 Explain why companies compete abroad and evaluate
advantages and disadvantages.
LO 10-3 Explain which countries MNEs target for FDI, and how
they enter foreign markets.
LO 10-4 Describe characteristics of and critically evaluate four
different strategies MNEs pursue when competing globally.
LO 10-5 Explain why certain industries are more competitive in specific
nations than in others.
LO 10-6 Evaluate the relationship between location in a regional cluster
and firm-level competitive advantage.
10–13

14. 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. Power distance
2. Individualism
3. Masculinity/femininity
4. Uncertainty-avoidance
5. Long-term orientation
10–14

15. EXHIBIT 10.4 Corporate Tax Rates
Institutional Difference Matters
10–15

16. 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."
10–16

17. EXHIBIT 10.5 Modes of Foreign Market Entry
Market Entry along the
Investment and Control Continuum
10–17

19. Strategy around the World:
Cost Reduction vs. Local Responsiveness
• 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
10–19

20. EXHIBIT 10.6 The Integration-Responsiveness Framework

21. 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
10–21

22. 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

23. EXHIBIT 10.7
Characteristics, Benefits, and Risks
of Four Types of Global Strategy
Characteristics Benefits Risk
• Often the first step in • Leveraging core • No or limited local
internationalizing. competence. responsiveness.
• Used by MNEs with relatively large • Economies of scale. • Highly affected
domestic markets (e.g., MNEs from • Low-cost implementation by exchange rate
U.S., Germany, Japan). through: fluctuations.
International • Well-suited for high-end products • Exporting or licensing • IP embedded in product
Strategy (such as machine tools) and luxury (for products) or service could be
goods that can be shipped across • Franchising (for services) expropriated.
the globe. • Licensing (for trademarks)
• Products and services tend to have
strong brands.
• Main competitive strategy tends to
be differentiation since exporting,
licensing, and franchising add
additional costs.
• Used by MNEs to compete in • Highest-possible local • Duplication of key
host countries with large and/or responsiveness. business functions
lucrative but idiosyncratic domestic • Reduced exchange-rate in multiple countries
Localization markets (e.g., Germany, Japan, exposure. leads to high cost of
(Multidomestic) Saudi Arabia). implementation.
Strategy • Often used in consumer products • Little or no economies of
and food industries. scale.
• Main competitive strategy is • Little or no learning across
differentiation. different regions.
• MNE wants to be perceived as local • Higher risk of IP
company. Expropriation.
10–23

24. EXHIBIT 10.7
Characteristics, Benefits, and Risks
of Four Types of Global Strategy
Characteristics Benefits Risk
Global- • Used by MNEs that are offering • Location economies: • No local responsiveness.
Standardization standardized products and services global division of labor • Little or no product
Strategy (e.g., computer hardware or based on wherever best-of- differentiation.
business process outsourcing). class capabilities • Some exchange-rate
• Main competitive strategy is price. reside at lowest cost. exposure.
• Economies of scale. • “Race to the bottom” as
wages increase.
• Some risk of IP
expropriation.
Transnational • Used by MNEs that pursue an • Attempts to combine • Global matrix structure
(Glocalization) integration strategy at the business benefits of localization and is costly and difficult to
Strategy level by simultaneously focusing on standardization strategies implement, leading to high
product differentiation and low cost. simultaneously by creating failure rate.
• Mantra: Think globally, act locally. a global matrix structure. • Some exchange-rate
• Economies of scale, exposure.
location, and learning. • Higher risk of IP expropriation.

25. 1–25
STRATEGY HIGHLIGHT 10.3
Wal-mart Retreats
from Germany
• Wal-mart entered Germany
 Acquisition of 21 stores and 74 hypermarkets
• Wal-mart duplicated its U.S. policies and applied them in Germany
 Employees refused to accept those policies
• Wal-mart faced significant cultural differences
• Wal-mart could not develop efficient economies of scale and distribution
centers to drive cost down
• The result is a defeated Wal-mart that sold its stores to Metro,
Wal-mart’s key rival in Germany
• ALDI, another of Wal-mart’s competitors in Germany, is now expanding
aggressively in the U.S.

26. LO 10-1 Define globalization, multinational enterprise (MNE), foreign
direct investment (FDI), and global strategy.
LO 10-2 Explain why companies compete abroad and evaluate
advantages and disadvantages.
LO 10-3 Explain which countries MNEs target for FDI, and how they
enter foreign markets.
LO 10-4 Describe the characteristics of and critically evaluate the
four different strategies MNEs can pursue when
competing globally.
LO 10-5 Explain why certain industries are more competitive in
specific nations than in others.
LO 10-6 Evaluate the relationship between location in a regional
cluster and firm-level competitive advantage.
10–26

27. 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
10–27

28. EXHIBIT 10.8
Porter’s Diamond Model of National
Competitive Advantage
Porter American
Future Video 10–28

29. 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 10–29

30. 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
10–30

31. EXHIBIT 10.9 Mapping a Regional Cluster: Research Triangle
10–31

32. Omaha
Telemarketing
Hotel Reservations
Credit Card Processing
Wisconsin / Iowa / Illinois
Agricultural Equipment
Detroit
Auto Equipment
and Parts
Rochester
Imaging Equipment
Western Massachusetts
Polymers
Boston
Mutual Funds
Medical Devices
Mgmt. Consulting
Biotechnology
Software and
Networking
Venture Capital
Hartford
Insurance
Providence
Jewelry
Marine Equipment
New York City
Financial Services
Advertising
Publishing
Multimedia
Pennsylvania / New Jersey
Pharmaceuticals
North Carolina
Household Furniture
Synthetic Fibers
Hosiery
Dalton, Georgia
Carpets
South Florida
Health Technology
Computers
Nashville / Louisville
Hospital Management
Baton Rouge /
New Orleans
Specialty Foods
Southeast Texas /
Louisiana
Chemicals
Dallas
Real Estate
Development
Wichita
Light Aircraft
Farm Equipment
Los Angeles Area
Defense Aerospace
Entertainment
Silicon Valley
Microelectronics
Biotechnology
Venture Capital
Cleveland / Louisville
Paints & Coatings
Pittsburgh
Advanced Materials
Energy
West Michigan
Office and Institutional
Furniture
Michigan
Clocks
San Diego
Golf Equipment
Biotech/Pharma
Minneapolis
Cardio-vascular
Equipment
and Services
Warsaw, Indiana
Orthopedic Devices
Colorado
Computer Integrated Systems / Programming
Engineering Services
Mining / Oil and Gas Exploration
Las Vegas
Amusement /
Casinos
Small Airlines
Oregon
Electrical Measuring
Equipment
Woodworking Equipment
Logging / Lumber Supplies
Seattle
Aircraft Equipment and Design
Software
Coffee Retailers
Boise
Information Tech
Farm Machinery
Geographical Distribution of Clusters
Source: Adapted from Professor Michael E. Porter, Harvard Business School
10–32