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The Myth of Global Strategy
- 1. THE MYTH OF GLOBAL STRATEGY (ALAN M. RUGMAN, 2001) Presented by Sharandeep K Nijher, Siddharth Sanghai and Yi Ping Shieh
- 2. INTRODUCTION: THE MYTH OF GLOBAL STRATEGY Business activity in large firms takes place in ‘regional blocks’ Global markets are neither homogenising, nor becoming dominated by US market capitalism Government regulations and cultural differences have divided the business world into the triad blocks Multinational national firms are competing for regional market share within N. America EU Global strategies suit very few sectors; for the majority integration strategies are required Concept of globalisation is driven by network managers, but strategies tend to be triad/regional, not global and unvarying Only the ‘unsuccessful’ multinationals pursue global strategies further Japan
- 3. SOME COMMON GLOBAL MISUNDERSTANDINGS 1. Globalisation is providing the same output to countries everywhere. Business professionals claim to recognise the emergence of globalisation by MNE’s that sell uniform products Yet little emphasis that the majority of revenue is generated from the ‘triad-region’ Over 90% of cars produced in the EU are sold there too Over 90% of paint, steel, heavy electrical equipment, energy and transportation are made and used within triad-based MNE’s Services sector, 70% employed within triad, are essentially local or regional activity based
- 4. SOME COMMON GLOBAL MISUNDERSTANDINGS 2. That MNE’s are globally monolithic and excessively powerful in politic terms Research does not support Such process of regional competition reduces chances of sustainable long- term profits, and ability to build a strong, sustainable political advantage 198 NAFTA 500 EU 156 Japan 125
- 5. SOME COMMON GLOBAL MISUNDERSTANDINGS 3. That MNE’s develop homogenous products for the world market, and can dominate local markets everywhere through their efficient production techniques. Truth: products are adapted to local markets. Hence, no standardised global car for all Triad-based factories, with support system from local suppliers What is popular in one geographic region may be rejected in another Even ‘universal products’ are modified to satisfy different laws and markets Increasing the economic difficulty of centralised production and worldwide distribution
- 6. WORLD TRADE IS HIGHLY REGIONAL Despite growth, continues to be dominated by the triad Accounts for 57.3% of world exports Accounts for 56.5% of world imports The core triad members do not rely on each other, they rely on other members of their own triad.
- 7. WORLD TRADE IS HIGHLY REGIONAL ‘Core’ Triad consists of - NAFTA; USA, Canada and Mexico -ASIA; Japan, Australia, New Zealand, Hong Kong... - EU Confirms that the World’s trade is controlled by the triad. NAFTA Intra-NAFTA: 49.1% 22.4% ASIA Intra- Asia: 53.1% 21.1% 8.7% 15.4% 14.7% 9.4% Majority of trade in the European and Asian triads is within their internal markets Nearly half of North America’s trade is intra-regional Thus, what strategies are appropriate for individual multinationals? EU Intra-EU: 60.6%
- 8. CONCLUSIONS Ultimately examining from a business perspective, not philosophical. 1. Do not assume an integrated global market. Deeper than worldwide economies of scale, strategies should consider regional trade and investment agreements Adapt to different culture, recognising when to become ‘nationally responsive’ 2. Organisation structures should acknowledge triad-based capabilities and competencies Less reliance on international divisions or global product divisions 3. Develop research and knowledge of triad-based networks, clusters, attributes and competitors. Foreign markets will have varying behaviours from home markets Make alliances and deploy cross-cultural awareness in managerial levels 4. Develop analytical methods for assessing regional drivers of success May prove useful to gain and hold market share in the future 5. Encourage managerial levels to ‘think regional, act local’.
Editor's Notes
- Globalization is the production and distribution of products and services of a homogenous quality on a worldwide basis.Business executives, university professors and industry analysts talk about globalization and industry dominance by giant MNEs.Examples to support misconception:70% of the workforce in North America, Western Europe and Japan are employed in the service sector activities which are essentially local or regional. More than 85% of automobiles produced in North America are built in North American factories owned by Ford, General MotorsOver 90% of all specialty chemicals are produced and consumed regionally by triad based MNEs. Foreign sales of MNEs account for more than 50% revenue for companies like P&G, Johnson & JohnsonBUT in reality.. most of the sales of a global company are made on a triad-regional basis MNEs are globally monolithic and politically supreme. BUT in reality.. The largest 500 MNEs are spread across the triad economies of NAFTA, the EU and Japan/Asia. MNEs compete for global market share and profits across industries/sectors which prohibits long term sustainable profits and political advantage.
- MNEs develop homogenous products for the world market and dominate world markets through efficient production. BUT in reality .. MNEs have to adapt heir product for the local market. There is no universal product!