GBS CH 1 FOUNDATIONS OF GLOBAL STRATEGY

LEARNING OBJECTIVES:
 understand the needs of studying global business
strategy.
 define global strategy.
 discuss fundamental issues in global strategy and the
effect of globalization.
 discuss different types of global strategy.
 discuss the emergence of new types of global
corporations.
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FOUNDATIONS OF GLOBAL STRATEGY

THE IMPORTANCE OF GLOBAL STRATEGY TO INTERNATIONAL FIRMS:
 Many companies started to globalize their business strategies to gain
competitive advantage and due to more barriers to trade began to
collapse e.g. China accession to WTO in 2001
 The essential nature of global strategy is visioning the world akin to a
blue ocean where every spot is considered as a prospective market and
as a source of competitive advantage, both alone and when integrated
with the rest of the firm.
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 How has global strategy co-evolved with an emerging global
marketplace?
 To what extent have the drivers of global expansion and diversification
transformed in today’s “new normal” of amplified ambiguity and rapid
change?
 How are multinational sourcing strategies pouring ongoing
internationalization and globalization?
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 As a manager, you’ll have to consider both (1) where to
obtain the inputs you need of the necessitated quality and at
the best potential price and (2) where you can best sell the
product or service that you’ve put together from those
inputs.
 But, why?
 There are two reasons.
1) when your company operates internationally, it will engage in form
of business such as exporting and importing that differ from those in
which it engage domestically.
2) physical, social, and competitive conditions differ between countries
and influence the optimum ways to perform business.
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 Figure 1.1 outlines the intricate set of relationships among circumstances
and operation that may arise when a firm decides to accomplish some of
its
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GLOBAL STRATEGY AND ITS DEFINITION:
 The disparity among a global industry, a global firm, and a global strategy is
somewhat blurred in the literature (Hamel & Prahalad, 1985).
 However, the concept of global strategy has been bonded almost exclusively
with how the firm structures the flow of tasks surrounded by its world-wide
value-adding system.
 Based on Hout, Porter and Rudden (1982), a global strategy is pertinent to
global industries which are classified as those in which a firm's competitive
position in one national market is extensively affected by its competitive
position in other national markets.
 Global Business strategies are a field of study successfully addressed by the
interdisciplinary issues of marketing, organization theory, business strategy
and international management and concentrates on maximizing the firm
performance be it through standardization and adaptation strategies, as
long as there are efficient and profitable to the companies.
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FUNDAMENTALS ISSUES IN GLOBAL STRATEGY AND THE EFFECTS OF
GLOBALIZATION :
 The absence of organizing framework.
 Achieving competitive advantage.
 World Trade Organization (WTO), foreign direct investment
(FDI) and intellectual property rights (IPR).
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SOURCES OF COMPETITIVE ADVANTAGE FROM A GLOBAL STRATEGY:
 A well-designed global strategy can help a firm to gain a
competitive advantage. This advantage can occur from the
following sources:
1) Economies of scale from admittance to more
customers and markets. Exploit another country's
resources - labour, raw materials.
2) Extend the product life cycle - older products can
be sold in lesser developed countries.
3) Operational flexibility - shift production as costs,
exchange rates, etc. change over time.
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Strategic Objectives
Sources of Competitive Advantage
National Differences Scale Economies Scope Economies
Achieving Efficiency in
Current Operations
Benefiting from differences
in factor costs – wages &
cost of capital
Expanding & exploiting
potential scale
economics in each
activity
Sharing of costs &
investments across
products, markets &
businesses
Managing Risks
Managing different kinds
arising from market or
policy-induced changes in
comparative advantages of
different countries
Balancing scale with
strategic & operational
flexibility
Portfolio diversification
of risks and creation of
options and side-bets
Innovation and
Learning
Learning from societal
differences in
organizational and
managerial processes and
systems
Benefiting from
experience-cost
reduction and
innovation
Shared learning across
organizational
components in different
products, markets or
businesses

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COUNTRIES COMPARATIVE ADVANTAGES STRATEGIES:
 Country comparative advantage (Hecksher and Ohlin Theory) would
normally depend on factor endowments (land, natural resources,
labour, size of populations and created contributions that a nation is
fortunate enough to inherit.
 However, Porter argued that a nation can generate its own factor
endowments (skilled labour through education and training,
technology and innovation, knowledge base through university
research, government support for business friendly environments and
strong ethics and high performance culture) by developing Diamond
Porter Framework or Model.
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 to conclude, there are four elements that lead to a national
comparative advantage under diamond model:
1. the availability of resources and skills,
2. information that firms use to decide which opportunities to pursue
with those resources and skills,
3. the goals of individuals in companies,
4. the pressure on companies to innovate and invest.
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GLOBAL STRATEGY AND THE GLOBAL BUSINESS ENVIRONMENT:
 Global strategy should incorporate all global and regional issues as
they affect strategy and strategic management.
 Key questions to ponder:
1. How do company level strategies and organizational characteristics
coevolve with exogenous global conditions when equilibrium
seems to be an obsolescing concept?
2. How can global enterprises use nonmarket strategies to manage
exposure to the inherent uncertainty of the global business
environment (GBE)?
3. How does the interaction of political theory and strategic
management theory affect our study of global enterprises?
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STRATEGY AND LOCATION:
 The overall global business environment affects enterprise-
level strategies, but the specific characteristics of the
domestic environment are equally important to choosing
locations for expanding markets, setting up offshore
operations, and diversifying operating risks.
 For example, consider when and how do location differences
limit integration strategies?
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GLOBAL STRATEGY AND EMERGING ECONOMIES:
 Multinational enterprises from emerging economies are
absorbing established firms in industrial nations and may
well dominate international merger and acquisition activities
in the near future, whereas traditional global enterprises are
facing fundamental changes in their nonmarket strategies.
 Therefore, how must global strategy adapt to emerging
markets with their large numbers and large income
disparities?
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TYPES OF INTERNATIONAL STRATEGY:
 Recurring patterns in the marketplace identify generic strategy types
among MNCs. Research labels these types as the international
strategy, multidomestic strategy, global strategy, or transnational
strategy.
 Figure on the next page identifies their differentiating elements within
the context of the integration-responsiveness (IR) grid.
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TYPES OF INTERNATIONAL STRATEGY:
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 Benefits of international strategy:
1) create value by transferring core competencies and unique
products to foreign business sectors, where opponents are unable
to contend.
2) aids the transfer of skills and ideas from the parent company to
subsidiaries.
3) works well when an organization has core competencies that
foreign competitors do not have and when industry conditions do
not demand
4) high degree of global integration or local responsiveness incurs
moderate operation expenses yet earns high profits
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 Limitations of international strategy:
1) Applying the parent company’s ethnocentric direction across the
board to all foreign nations can prove to be a setback in dealing
with foreign markets.
2) When too much importance is given to leveraging, the firm’s core
competency by its own managers in the home front overshadows
the need to come up with value activities for local conditions e.g.
Uber may have the financial leverage but failed to adapt local
conditions in Southeast Asian markets and Grab (a competitor)
managed to fill the voids.
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 Benefits of multidomestic strategy:
1) delegate authority to its foreign subsidiaries
2) high need for local responsiveness and low need to reduce
costs via global integration
3) minimized political risk given the local position of the
company
4) lower exchange rate and risk given reduced the need to
repatriate funds to the home office
5) greater prestige given its national prominence
6) higher potential for innovative products from local R&D
7) higher growth potential due to entrepreneurial pursuits
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 Limitations of multidomestic strategy:
1) customizing products and processes to local market
inevitably increases costs.
2) decentralizes control to local managers can collapse the
business due to different management style and value-
chain designs
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 Benefits of global strategy:
1) emphasize efficient operations and where local
responsiveness needs either are nonexistent or can be
neutralized by offering a higher quality product for a lower
price than the local substitute
2) emphasize improving worldwide performance through the
sales and marketing of common goals and services with
minimum product variation.
3) Companies translate into competitive advantage by basing
operations in the superior location.
4) The global strategy directs managers’ attention to two
absolute production and marketing standards.
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 Limitations of global strategy:
1) countries whose markets demand local responsiveness
reduce the attractiveness of the global strategy
2) the cost sensitivity and standardization bias of global
strategy gives MNCs little latitude to adapt value activities
to local conditions
3) Disruptive market changes or product breakthrough can
turn a fine-tuned value chain into a badly aimed target.
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 Benefits of transnational strategy:
1) spurs the MNE to differentiate its capabilities from country to
country according to prevailing economic, political, legal, and
cultural conditions
2) calls upon managers to perfect methods that can take the
insights gained from unique experiences in local markets and
diffuse them throughout global operations
3) fine-tuned global integration and local responsiveness
4) develop the learning capacity to leverage efficiencies of global
integration without ignoring rising calls for local
responsiveness.
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 Limitations of transnational strategy:
1) difficult to configure, tough to coordinate, and prone to
performance shortfalls and these are further complicated
by the need to adeptly manage knowledge worldwide can
overwhelm the best managers.
2) developing a network mindset among employees,
installing the requisite information systems, and
navigating the ambiguity of multi-criteria decision making
is expensive.
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GLOBAL STRATEGY LEVER’S BENEFITS AND DRAWBACKS:
- see table 1.1 in textbook
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Major Benefits Major
Drawbacks
Global
Strategy
Levers
Cost
Reduction
Improved
Quality
Enhanced
Customer
Preference
Competitive
Leverage
All levels Incur
Coordination
Costs, Plus
Global Market
Participation
Increase
volume for
economies of
scale.
Via exposure to
demanding
customers and
innovative
competitors.
Via global
availability,
global
serviceability,
and global
recognition.
-Advantages of
early entry.
-Provides more
sites foe attack
and
counterattack,
hostage for
good behavior.
Earlier or
greater
commitment to
a market than
warranted on
own merits.
Global
Products
-Reduces
duplication of
development
efforts.
-Reduce
sourcing,
production,
and inventory
costs.
Focus
development
and
management
resources.
-Allows
consumer to
use familiar
product while
abroad.
-Allows
organizations
to use same
product across
country units.
-Basis for low-
cost invasion of
markets.
-Offsets
disadvantages
of low market
share.
Less responsive
to local needs.

Major Benefits Major
Drawbacks
Global
Strategy
Levers
Cost Reduction Improved
Quality
Enhanced
Customer
Preference
Competitive
Leverage
All levels Incur
Coordination
Costs, Plus
Global
Location of
Activities
-Reduces duplication
of activities.
-Helps exploit
economies of scale.
-Exploits differences in
country factor costs.
-Partial concentration
allows flexibility versus
currency changes and
versus bargaining
parties.
-Focuses effort
-Allows more
consistent
quality control
-Allows
maintenance of cost
advantage
independent of
local conditions.
-Provides flexibility
on where to base
competitive
advantage.
-Distances activities
from customer.
-Increase currency
risk.
-Increase risk of
creating
competitors.
-More difficult to
manage value
chain.
Global
Marketing
Reduces design and
production costs of
marketing programs.
-Focuses talent
and resources.
-Leverage
scarce, good
ideas.
Reinforces
marketing messages
by exposing
customer to the
same mix in
different countries.
Reduces adaption
to local customer
behavior and
marketing
environment.
Global
Competitive
Moves
-Magnifies
resources available
to any country.
-Provides more
options and
leverage in attack
and defense.
Local
competitiveness
may be sacrificed.

THE EMERGENCE OF A NEW TYPE OF GLOBAL CORPORATION:
 In the future, the business world is likely to be populated by a variety of local
firms, regional firms, firms that operate in a few countries, firms that operate
in many countries, centralized firms, and networks of firms.
1) This anomaly signals the era of so-called “micro-multinationals”: clever,
small companies that are born global and operate worldwide from day
one.
2) Others see the emergence of the “metanational” as a new type of global
corporation that thrives on the process of seeking out uniqueness that it
might exploit elsewhere or that might complement its own existing
operations and probably building competitive advantage by uncovering
and transferring knowledge from many locations around the world.
3) Another emerging organizational form is the “cybercorp”, a company that
operates exclusively in cyberspace and is not impacted by the physical
geography of lines on a map.
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CONCLUSION:
 no successful firm can abandon the traditional principles of superior
value creation, superb core competencies, and bright management
who can articulate clear visions and practical goals consistent with the
real and virtual context.
 finding the balance is keyed to a success, for example, by matching
the level of strategy globalization to the globalization potential of the
industry, or, in other words, a business with low globalization potential
should have a strategy that is not very global.
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GBS CH 1 FOUNDATIONS OF GLOBAL STRATEGY

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