V°2 ^

Third Edition

TOTAL GLOBAL STRATEGY

George S. Yip
China Europe International Business School
Shanghai, China

G. Tomas M. Hult
Michigan State University
East Lansing, Michigan, USA

PEARSON
Boston Columbus Indianapolis New York San Francisco Upper Saddle River
Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Montreal Toronto
Delhi Mexico City Sao Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo
 CONTENTS

Preface xvii
Acknowledgments xxi
About the Authors xxiii

Chapter 1 UNDERSTANDING GLOBAL STRATEGY 1

Keys to a Successful Total Global Strategy 4
Developing a Core Business Strategy 5
Developing an Internationalization Strategy 5
Developing a Globalization Strategy 6
Some Definitions and Distinctions 7
Financial Benefits of Internationalization and Globalization 9
\ Financial Benefits of Internationalization 9
Financial Benefits of Globalization 9
Industry Globalization Drivers 10
Global Strategy Levers 11
Market Participation 11
Products and Services 12
Activity Location 13
Marketing 14
Competitive Moves 14
Benefits of Global Strategy 16
Reducing Costs 16
Improving Quality of Products and Programs 16
Enhancing Customer Preference 18
Increasing Competitive Leverage 18
Drawbacks of Global Strategy 18
Finding the Balance 20
More Than One Strategy Is Viable 21
Industry Variation across Drivers 21
Global Effects Are Incremental 21
Position and Resources of Business and Parent Company 21
Limitations in Organization 22
Challenges of Implementation 22
Discussion and Research Questions 23 • Notes 23

VII
viii Contents

Chapter 2 DIAGNOSING INDUSTRY GLOBALIZATION

POTENTIAL 26
Market Globalization Drivers 26
Cost Globalization Drivers 26
Government Globalization Drivers 27
Competitive Globalization Drivers 27
Globalization Drivers for Service Businesses 28
Market Globalization Drivers 29
Common Customer Needs and Tastes 29
Global Customers and Channels 34
Transferable Marketing 38
Lead Countries 40
Cost Globalization Drivers 41
Global Economies of Scale and Scope 41
Steep Experience Curve 44
Global Sourcing Efficiencies 44
Favorable Logistics 45
Differences in Country Costs 46
High Product Development Costs 47
Fast-Changing Technology 48
Government Globalization Drivers 49
Favorable Trade Policies 49
Compatible Technical Standards 52
Common Marketing Regulations 53
Government-Owned Competitors 54
Government-Owned Customers 54
Host Government Concerns 54
Competitive Globalization Drivers 55
High Exports and Imports 55
Competitors from Different Continents and
Countries 56
Interdependent Countries 56
Globalized Competitors 56
Transferable Competitive Advantage 57
Guidelines for Diagnosing Industry Globalization
Potential 57
Discussion and Research Questions 58 • Notes 58
 Contents ix

Chapter 3 BUILDING GLOBAL MARKET PARTICIPATION 63

Basis for Global Expansion 63
Transferable Business Model 64
Leverageable Competitive Advantage 65
Being from a More Developed Economy 71
Global Market Participation for Service Businesses 71
Types of Global Market Participation 72
Global Market Share 72
Global Balance 73
Presence in Globally Strategic Markets 74
Globally Unimportant Countries 76
Benefits of Global Market Participation 76
Cost Reduction 76
Improved Quality 76
* Enhanced Customer Preference 76
Competitive Leverage 77
Drawbacks of Global Market Participation 77
Coordination Costs 77
Crossing National Frontiers 78
Losing Customer Focus 78
Globally Blocked Industries 78
The Special Case of Joint Ventures 79
Differing Strategic Roles for Each Country 79
Business-Growth/Competitive-Strength Matrix 80
Global Strategic Importance/Competitive-Strength Matrix 80
Implementation Issues 81
Industries That Need Multimarket Participation 82
Guidelines for Building Global Market Participation 82
Discussion and Research Questions 83 • Notes 83

Chapter 4 DESIGNING GLOBAL PRODUCTS AND SERVICES 86

Benefits of Global Products and Services 90
Cost Reduction 90
Improved Quality 91
Enhanced Customer Preference 91
Competitive Leverage 92
Contents

Drawbacks of Global Products and Services 92

Global Standardization in Service Businesses 93
When to Use Global Products and Services 94
Market Globalization Drivers for Global Products 94
Cost Globalization Drivers for Global Products 96
Government Globalization Drivers for Global Products 97
Competitive Globalization Drivers for Global Products 97
Developing Global Products and Services 97
Guidelines for Designing Global Products and Services 99
Discussion and Research Questions 99 • Notes 99

Chapter 5 LOCATING GLOBAL ACTIVITIES 100

Role of National Factors 103
Traditional Country Considerations 103
Globally Strategic Countries for Activity Location 104
Role of Exchange Rates 106
Strategic Advantage versus Comparative Advantage 108
Benefits of Global Location of Activities 110
Cost Reduction 110
Improved Quality 112
Enhanced Customer Preference 112
Increased Competitive Leverage 113
Drawbacks of Global Location of Activities 113
Lessened Responsiveness to Customers 113
Increased Currency Risk 114
Increased Risk of Creating Competitors 114
Difficulties in Managing Value-Added Chain 114
Global Activity Location for Service Businesses 114
People-Processing Activities 114
Possession-Processing Activities 115
Information-Based Activities 115
Future Locations of Service Facilities 115
Global Location of Service Value Chain 116
Locating Individual Activities 117
Global Financing 117
Global Research and Development 118
Global Purchasing and Sourcing 121
 Contents xi

Global Production 122

Global Distribution and Logistics 126
Global Service 127
Guidelines for Locating Global Activities 128
Discussion and Research Questions 128 • Notes 129

Chapter 6 CREATING GLOBAL MARKETING 134

Benefits of Global Marketing 136
Cost Reduction 136
Enhanced Customer Preference 137
Improved Program Effectiveness 137
Increased Competitive Leverage 138
Drawbacks of Global Marketing 139
When to Use Global Marketing 140
Market Globalization Drivers for Global Marketing 140
Cost Globalization Drivers for Global Marketing 140
Government Globalization Drivers for Global Marketing 141
Competitive Globalization Drivers for Global Marketing 141
How to Use Global Marketing 141
Global Positioning 141
Global Brand Names 144
Global Packaging 149
Global Pricing 150
Global Advertising 152,
Global Sales Promotion 154
Global Selling 155
Where to Use Global Marketing 157
Conducting Global Market Research 157
Collecting Global Marketing Information 158
Organizing for Global Marketing 159
A Global Consumer Marketing Success Story 159
The Kuschelweich/Robijn/Bamseline/Cajoline/Coccolino/Mimosin/
Yumos/Snuggle/Fofo/Fafa/Pomi/Baubau/Huggie Brand 159
A Global Business-to-Business Marketing Success Story 161
Hewlett-Packard's Use of Global Account Management 161
Globalization Drivers Affecting the Computer Systems Industry 161
HP's Organizational Response 162
xii Contents

Coordinating on Global Lines: Balancing Geographic, Product,

and Customer Focus 162
Empowering GAMs 163
Measuring Performance 163
Setting Quotas 163
Restructuring Headquarters Activities 164
Effects on Strategy 164
Guidelines for Creating Global Marketing 165
Discussion and Research Questions 165 • Notes 166

Chapter 7 MAKING GLOBAL COMPETITIVE MOVES 169

Key Features of Global Competitive Moves 169
Cross-Subsidization of Countries and Regions 170
Counterparry 170
Globally Coordinated Sequence of Moves 172
Targeting of Global Competitors 172
Developing Country-Competitor Plans 174
Preemptive Use of Global Strategy 175
Global Competitive Moves for Service Businesses 176
Benefits and Drawbacks 176
Choosing the Speed of Globalization 178
Guidelines for Making Global Competitive Moves 178
Discussion and Research Questions 179 • Notes 179

Chapter 8 BUILDING THE GLOBAL ORGANIZATION 180

Organization Structure 182
Integration of Global Authority 182
Absence of Domestic-International Split 184
Business Dimension Stronger than Geographic Dimension 185
Designating Strategic Leaders 188
National Differences in Global Organization 188
Potential for Cost Savings 190
Management Processes 190
Global Strategy Information System 190
Cross-Country Coordination 192
Global Knowledge Sharing 193
Global Strategic Planning 193
 Contents xiii

Global Budgeting 195

Global Customer Management 196
Global Performance Review and Compensation 196
Getting Global Cooperation 197
People 197
Use of Foreign Nationals 198
Multicountry Careers 199
Frequent Travel 200
Statements and Actions of Leaders 200
Global Boards of Directors 200
Culture 201
Global Identity 201
Commitment to Worldwide Not Domestic Employment 201
Interdependence of Businesses 202
x Matching Culture to Globalization Needs 202
Minimizing the Drawbacks of Global Organization 202
Combining Strategic and Organizational Analysis 203
Transforming TransElectronics 203
Repositioning Persona 206
Guidelines for Building the Global Organization 208
Concluding Thoughts 208
Discussion and Research Questions 208 • Notes 209

Chapter 9 REGIONAL STRATEGY 213

Regional Strategy in the Context of Global Strategy 213
Defining Regions 214
Examples of Major Regions 215
European Union as a Region 215
Central and Eastern Europe as a Region 215
The Former Soviet Union as a Region 216
The Middle East and Islamic Countries as a Region 216
North America as a Region 216
Latin and South America as a Region 216
Africa as a Region 217
Asia-Pacific as a Region 217
xiv Contents

Diagnosing Industry Regionalization Potential 217

Market Regionalization Drivers 218
Cost Regionalization Drivers 220
Government Regionalization Drivers 221
Competitive Regionalization Drivers 223
Summary 223
The Case of the European Union 223
Changes in EU Government Globalization Drivers 223
Changes in Competitive Globalization Drivers 224
Changes in Market Globalization Drivers 224
Changes in Cost Globalization Drivers 225
Using Regional Strategies 225
Regional Market Participation 225
Regional Products and Services 226
% Regional Activity Location 227
Regional Marketing 227
Regional Competitive Moves 227
Regional Strategy as a Partial or Temporary Solution 227
Regional Organization and Management 228
Guidelines for Diagnosing Regionalization Potential and
Developing Regional Strategies 228
Discussion and Research Questions 229 • Notes 229

Chapter 10 MEASURING INDUSTRY DRIVERS, STRATEGY

LEVERS, ORGANIZATION FACTORS, AND
REGIONAL FOCUS 231
Geographic Basis for Measurement 231
Who Should Do the Measuring 232
Measuring Industry Globalization Drivers 232
Summary of Globalization Measures 232
Market Globalization Drivers 233
Cost Globalization Drivers 236
Government Globalization Drivers 238
Competitive Globalization Drivers 239
Measuring Global Strategy Levers 240
Summary of Measures of Global Strategy Levers 240
Global Market Participation 242
Global Products and Services 242
 Contents xv

Global Location of Activities 244

Global Marketing 244
Global Competitive Moves 245
Measuring Global Organization 245
Summary of Measures of Global Organization 245
Measuring Regional Focus 246
Summary of Measures of Regional Focus 247
Discussion and Research Questions 247 • Notes 248

Chapter 11 CONDUCTING A GLOBAL STRATEGY ANALYSIS 249

Worksteps 249
A. Assembling the Global Team 250
B. Defining the Business 251
C. Identifying Key Markets 252
Information to be Collected for Each Region/Country 253
'!: D. Identifying Key Competitors 253
E. Checking the Core Strategy 255
F. Checking Country Selection 255
1. Identify Countries/Regions 256
2. Develop List of Subfactors 256
3. Assign Weights to Each Subfactor 257
4. Rate Each Country/Region on Each Subfactor 257
5. Combine the Subfactor Weights and Country Ratings 257
6. Adjust for Country Risk 257
Using the Ratings 258
G. Diagnosing Industry Globalization Potential 258
H. Evaluating Current and Potential Use of Global Strategy Levers 258
Global Market Participation 259
Global Products and Services 259
Global Activity Location 259
Global Marketing 260
Global Competitive Moves 262
Summary of Business and Competitors 263
I. Evaluating Organization Capability 264
J. Developing Global Programs 265
Global Products Program 265
Objective 265
Overall Strategy 266
xvi Contents

Potential Benefits 266

Potential Disadvantages 266
Implementation 266
Further Steps 266
Some Guiding Ideas for Implementing a Total Global Strategy 267
Discussion and Research Question 267 • Notes 267

Appendix: Worksheets for Evaluating Core Strategy 269

Bibliography 273
Company Index 283
Subject Index 287
Author Index 293