Chapter 10

Global Strategy: Competing Around the World

Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

10-2

Chapter Outline
10.1What
WhatIsIsGlobalization?
Globalization?
10.1
Stages of Globalization
Stages
of Globalization

10.2Going
GoingGlobal:
Global:Why?
Why?
10.2

Advantages of Expanding Internationally

Advantages of Expanding Internationally
Disadvantages of Expanding Internationally
Disadvantages
of Expanding Internationally

10.3Going
GoingGlobal:
Global:Where
Whereand
andHow?
How?
10.3

Where in the World to Compete? The CAGE Distance

Where
in the World to Compete? The CAGE Distance
Framework
Framework
How Do MNEs Enter Foreign Markets?
How
Do MNEs Enter Foreign Markets?

10-3

Chapter Outline (contd)

10.4Cost
CostReductions
Reductionsvs.
vs.Local
LocalResponsiveness:
Responsiveness:The
The
10.4
Integration-ResponsivenessFramework
Framework
Integration-Responsiveness
International Strategy
International
Strategy
Multidomestic Strategy
Multidomestic
Strategy
Global-Standardization Strategy
Global-Standardization
Strategy
Transnational Strategy
Transnational
Strategy

10.5National
NationalCompetitive
CompetitiveAdvantage:
Advantage:World
WorldLeadership
Leadership
10.5
SpecificIndustries
Industries
ininSpecific
Porters Diamond Framework
Porters
Diamond Framework

10.6Implications
Implicationsfor
forthe
theStrategist
Strategist
10.6
10-4

ChapterCase 10
STR/AFP/Getty Images/Newscom

Hollywood Goes Global

Hollywood Goes Global
Hollywood movie: The quintessential American product
Hollywood
movie: The quintessential American product
However, non-U.S. sales increased: 50% in 2000,
However, non-U.S. sales increased: 50% in 2000,
AND
70% in 2012
AND
70% in 2012

Altered global strategic focus

Altered
global strategic focus

Movies that fit the global market by adapting foreign scripts, hiring
Movies that fit the global market by adapting foreign scripts, hiring
international actors/actresses
international actors/actresses
Two versions of Iron Man 3 in 2013 (one just for China)
Two versions of Iron Man 3 in 2013 (one just for China)

Treat emerging markets as focal targets

Treat
emerging markets as focal targets
Not just filmmaking industries, but also electronics industry (ex:
Not
just filmmaking industries, but also electronics industry (ex:
Korea, China), and auto industry (ex: India)
Korea, China), and auto industry (ex: India)
10-5

Exhibit 10.1 Lifetime Revenues of

Hollywood Blockbuster Movies
>$500 million (in $ million)

10-6

10.1 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 Multinational Enterprises and
Foreign Direct Investments
10-7

Globalization Timeline
Globalization 1.0: 1900 1945
Sales and distribution operations take place overseas
Raw materials
U.S. headquarters provided direction

Globalization 2.0: 1945 2000

Mini-MNE copies in various markets
Increase in FDIs
Local responsiveness

Globalization 3.0: 2000 Present

PESTEL analysis
Increased communications ability
10-8

Exhibit 10.2 Globalization 3.0:

21st Century

Based on an optimal
mix of costs, skills, and
PESTEL factors, MNEs
are organized as global
collaboration
Networks that perform
business functions
throughout the world.

10-9

U.S. Multinational Enterprises

Boeing
Caterpillar
Coca-Cola
GE
John Deere
Exxon Mobil
IBM
P&G
Walmart
10-10

10.2 Going Global: Why?

Gain access to a larger market
MNE has opportunities for economies of scale and scope
Firms in smaller home markets (Acer, Nestl, Samsung)

Gain access to low-cost input factors

Labor, natural resources, technology, logistics.
Professionals less expensive in China & India

Develop new competencies

Location economies- Cisco, AstraZeneca, & Unilever
Polycentric innovation strategies

10-11

10-12

Strategy Highlight 10.1

DoesGMs
GMsFuture
FutureLie
LieininChina?
China?
Does
Marketopportunity
opportunityininChina
China
Market

1.4 billion people; only 1 in 100 people owns a vehicle

1.4 billion people; only 1 in 100 people owns a vehicle

GMentered
enteredChina
Chinainin1997.
1997.
GM

Joint venture with Shanghai Automotive Industrial Corp

Joint venture with Shanghai Automotive Industrial Corp
Sold 1.4 million vehicles in 2012.
Sold 1.4 million vehicles in 2012.

China makes up 25% of GMs revenues and GROWING fast.

China makes up 25% of GMs revenues and GROWING fast.
GM China factories are more productive than U.S. plants.
GM China factories are more productive than U.S. plants.

70%ofofGM
GMrevenues
revenues OUTSIDE
OUTSIDEthe
theUnited
UnitedStates
States
70%
10-13

Disadvantages of Expanding
Internationally
Liability of foreignness
Additional cost of doing business in an unfamiliar cultural
and economic environment

Loss of reputation
Globalizing a supply chain can have unintended effects
Low wages, long hours, poor working and living conditions

This challenge directly concerns the MNEs corporate

social responsibility (CSR)

Loss of intellectual property

Large-scale infringements in software, movie, & music
10-14

Strategy Highlight 10.2

Walmart
Retreats
from
Germany
Walmart Retreats from Germany
Walmartentered
enteredGermany.
Germany.
Walmart
Acquisition of 21 stores and 74 hypermarkets
Acquisition
of 21 stores and 74 hypermarkets

Walmartduplicating
duplicatingitsitsU.S.
U.S.policies
policiesand
andapplying
applying
Walmart
themininGermany
Germany
them
Employees refused to accept those policies.
Employees
refused to accept those policies.

Walmartfaced
facedsignificant
significantcultural
culturaldifferences.
differences.
Walmart
Theresult
resultisisa adefeated
defeatedWalmart
Walmartthat
thatsold
solditsitsstores
storestoto
The
MetroWalmarts
Walmartskey
keyrival
rivalininGermany!
Germany!
Metro
10-15

Where in the World to Compete?

The CAGE Distance Framework
A decision framework based on the relative distance.
between home and a foreign target country
Along four dimensions:
1.
2.
3.
4.

Cultural distance
Administrative and political distance
Geographic distance
Economic distance

10-16

10-17

HOFSTEDE AND CULTURAL

DIMENSIONS
Hofstedes national-culture research work provides a useful
tool to proxy cultural distance.
Based on data analysis from more than 100,000 individuals
from different countries, four dimensions of culture
emerged:

Power distance
Individualism
Masculinityfemininity
Uncertainty avoidance
Long-term orientation (fifth cultural dimension added later)

10-18

How Do MNEs Enter

Foreign Markets?
Remaining decision: How to enter a foreign market
Low investments and low level of control:
Exporting
Licensing
Franchising

High investments and high level of control:

Joint venture
Acquisition
Greenfield operations
10-19

10.4 Cost Reductions vs. Local

Responsiveness:
The Integration-Responsiveness Framework
Two opposing forces when competing globally
Cost reductions versus local responsiveness

Cost reduction:
MNEs enter global market place with the intention to reduce operation cost
Globalization Hypothesis

Ex: Toyota Prius

Local responsiveness:
Tailor product and service offerings to fit local consumer preferences and
host-country requirements
Higher cost

Ex: McDonalds uses mutton in India

10-20

Moving International
What kind of strategic innovation might trigger
global competition?
Is it in the best position among all competitors to
establish and defend the advantages of global
strategy?
What kind of resources over a period will be required
to establish the leading position?

10-21

Exhibit 10.6 Dynamic Strategic

Positioning: The MTV Music
Channel

10-22

10.5 National Competitive

Advantage:
World Leadership in Specific Industries
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
10-23

Porters Diamond Framework

Factor conditions:
A nations endowments in terms of national, human, and other
resources.

Demand conditions:
Specific characteristics of demand in a firms domestic market.

Competitive intensity:
Highly competitive environments tend to stimulate firms to outperform
others.

Related and supporting industry:

Leadership in related and supporting industries can also foster worldclass competitors in downstream industry.

10-24

Companies that have Failed

Poor marketing strategy
Europeans prefer smaller shops
Failing to differentiate its product lines

10-25

Exhibit 10.8 Porters Diamond of

National Competitive Advantage

10-26

10.6 Implications for the

Strategist
The CAGE framework helps with global strategy
decisions.
Business-level strategy provides clues to possible
global strategies.
Despite globalization and the Internet geographic
location has maintained its importance.
The enduring competitive advantages in a global
economy lie increasingly in local things:
Knowledge, relationships, and motivation that distant rivals
cannot match

10-27

ChapterCase 10
STR/AFP/Getty Images/Newscom

Consider
This
Consider This

The Hollywood film industry enters global market to explore

The
Hollywood film industry enters global market to explore
new revenue stream!
new revenue stream!
Will we see a decrease in the production of regional and
Will
we see a decrease in the production of regional and
U.S.-centered movies? Or will small independent movie
U.S.-centered movies? Or will small independent movie
producers pick up a higher share of the domestic U.S.
producers pick up a higher share of the domestic U.S.
market?
market?
What are some alternatives to combat piracy?
What are some alternatives to combat piracy?
How would you prioritize which nations to expand
How
would you prioritize which nations to expand
distribution into if you were working for a major Hollywood
distribution into if you were working for a major Hollywood
movie studio?
movie studio?
10-28

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10-29

10-30