GlobalizationGlobalizationInternationalization StrategiesLecturer: Cristina Robledo A.

2012 - 2

Definition

“Globalization is the process by which geographic constraints on economic, social

and cultural arrangements recede, thus increasing our global interdependence”

Branson, R. (2007)

Interdependence • Increased magnitud and intensity of global flows• Distant events affect local scenarios• Action and reaction across the world• Increased interaction: networks, telecommunications, MNCs• Supported by:

– Telecommunications– Transport– Global customer demand– Knowledge exchange– MNCs– Institutions– Bilateral and multilateral agreements

Decreased costs

Source: http://www.transportation-logistics.net/ (August, 2011)

Sources: http://www.ctuf.za.org/26telcodirections.htm (August, 2011)c

For the past 50 years…

5 key factors have boosted globalization

• Governments have privatized and deregulated economic activities

• Large multinational companies have replaced governments as the vehicle for economic domination

• Industrial revolution has been replaced by information and services revolution

• Advances in technology have intensified global connectedness

• The rise in per capita income has created a perpetual cycle of consumerism

Source: http://www.unesco.org/education/tlsf/mods/theme_c/mod18.html (July, 2013)

Implications for International Companies

Globalization of production

Source: http://geographicadvantage.aag.org/index.cfm?action=main.module&sectionID=3&moduleID=7&pageID=28 (July, 2013)

Source: http://www.marcbowles.com/courses/adv_dip/module11/chapter1/amc11_ch1_two2.htm (July, 2011)

Source: http://hotpotconsulting.com/2011/03/shanghai-barbie-store-closing-what%E2%80%99s-to-blame-consumer-preferences-or-strategy/

(July, 2011)

Globalization of markets

Key Challenges

Globalization. In Ernst and Young Global. Retrieved from https://www.youtube.com/watch?v=JvCyRoY6azk

De-globalization

• Global financial crisis 2009 called for increased controls on globalization• Alternative ideology to neo-liberal globalization

10 pillars (Bello,2009):1. Production for the domestic market

must be the focus2. To encourage the production of goods

at the community level if it can be done at a reasonable cost

3. Trade policies to protect local industry (quotas and tariffs)

4. Industrial policy to revitalize the manufacturing sector (subsidies, tariffs and trade)

5. Measures of equitable income distribution

6. Emphasis on upgrading quality of life and equity (not growth)

7. Use of environmentally friendly technology in agriculture and industry

8. All vital questions must become subject to democratic discussion

9. Civil society must monitor and supervise the private sector and the state

10 Mixed economies: community cooperatives, private enterprises and state enterprises; transnational corporations must be excluded

11 Centralized institutions (IMF, WB) should be replace by regional institutions to work not on free trade but cooperation

Source: http://www.unesco.org/education/tlsf/mods/theme_c/mod18.html (July, 2013)

Kids react to controversial Cheerios commercial

Kids react to controversial Cheerios commercial. In The Daily Dot. Retrieved from http://www.dailydot.com/lol/kids-react-cheerios-commercial-race/

Bibliography• Ghemawat, P. & Altman, S.A. (2012). DHL Global Connectedness Index 2012.

Iberglobal, Retrieved from http://www.iberglobal.com/index.php?option=com_content&view=article&id=1052:indice-de-globalizacion-de-dhl-2012&catid=40:globalizacion-y-negocios-internacionales&Itemid=200007

• Looking beyond the obvious: Globalization and new opportunities for growth. Retrieved from http://www.ey.com/GL/en/Issues/Driving-growth/Globalization---Looking-beyond-the-obvious---Companies-case-studies

• The globalization of the Television supply chain: “smaller screen, smaller world”. In Yale Global Online. Retrieved from http://yaleglobal.yale.edu/sites/default/files/flash/Movie2.html

• Globalization. In Ernst and Young Global. Retrieved from https://www.youtube.com/watch?v=JvCyRoY6azk

Fundamentals of Global StrategyFundamentals of Global Strategy

Lecturer: Cristina Robledo A.- MIBcrobled1@eafit.edu.co

26-603

• What is an international company• Internationalization driving forces• Global strategy• Generic global strategies• The value proposition matrix• Global market entry strategies

¿What is an International Company?

International

• Operations in 2 or more countries.

Multinational corporations

• Assets and / or operations in more than one country• Operations are managed from a main office in its home

country.• Long supply chain:

– Acquisition of raw materials in one country– Manufacturing in another country– Sales in another country

Internationalization: driving forces

Source: http://thefarmproduction.blogspot.com/2009/01/pushpull-of-life.html (August, 2011)

Push and Pull Forces

Source: http://harmkuiper.wordpress.com/page/2/ (August, 2011)

Push Forces

Source: http://www.chatcolombia.org/ (August, 2011)

Pull Forces

• Market• Strategic Assets• Resources• Efficiency

Market Seekers

Source: http://www.jacksonstudios.com.au/tmfit.html (August, 2011)

Strategic Asset Seekers

“The strategic assets are that set of goods, tangible or intangible, which the company has been generating and which have become essential to develop a competitive advantage in their market. We would be speaking of real estate patrimony, machinery, patents, marks, know-how, data bases of information of clients, etc”

Source: http://www.innovationthink.com/innovation/articles/strategic_innovation/strategic_assets.html (August, 2011)

Resource Seekers

Source: http://www.tripadvisor.es/Attraction_Review-g31020-d538178-Reviews-Alaska_Gastineau_Mill_and_Gold_Mine_Tour-Juneau_Alaska.html (August, 2011)

Source: http://blog.tourismthailand.org/EugeneTang/?p=1228 (August, 2011)

Efficiency Seekers

Source: http://www.bized.co.uk/educators/16-19/economics/firms/presentation/scale_map.htm (August, 2011)

Internationalization: why?

• New markets• Diversified activities• Proximity to the customer• Cost related-motivations• Domestic market-related motivations• Survival

Alternative Vs. Imperative ?

Key Benefits*International companies:• Sales• Employment: more and more qualified• Competitiveness• Productivity: companies who invest abroad are 25%

more productive than those who only export and 77% more productive than domestic companies.

• More resistant to adverse economic cycles (?)

Source: Internacionalización, empleo y modernización de la economía española. ICEX & AFI, mayo 2010. En: Internacionalización empresarial: argumentos y estrategias para el directivo. Fundación CEDE.

Key Risks

PoliticalPolitical

Global risk – affects the company’s global operationsCountry-specific risk – company’s specific investments in a given countryMacro – how FDI is treated (expropiation, nationalization, etc)Micro – accounting practices, breach of contracts, etc.

Global risk – affects the company’s global operationsCountry-specific risk – company’s specific investments in a given countryMacro – how FDI is treated (expropiation, nationalization, etc)Micro – accounting practices, breach of contracts, etc.

LegalLegal Legal systemEnforcement of local regulations (IPR)Legal systemEnforcement of local regulations (IPR)

FinancialFinancial Macroeconomic stabilityCurrency competitiveness and fluctuationsMacroeconomic stabilityCurrency competitiveness and fluctuations

SocietalSocietal Ideologies, religious and ethnic groupsLocal leadersIdeologies, religious and ethnic groupsLocal leaders

Kluyver (2010)

Key barriers

• Language• Culture• Religion• Social structure• Geographical distance• Corruption• Legal framework• Bureaucracy• Tariff and non-tariff

barriers to trade• PPP

• Language• Culture• Religion• Social structure• Geographical distance• Corruption• Legal framework• Bureaucracy• Tariff and non-tariff

barriers to trade• PPP

CountryCountry

• Market knowledge• Competition• Logistics and

distribution channels• Consumer

expectations• Norms and

procedures• technology

• Market knowledge• Competition• Logistics and

distribution channels• Consumer

expectations• Norms and

procedures• technology

IndustryIndustry Organization Organization

• Preparation• Commitment• Finding the right

talent• Access to government

support• Expatriates• Multiculturalism• Corporate culture

• Preparation• Commitment• Finding the right

talent• Access to government

support• Expatriates• Multiculturalism• Corporate culture

2 approaches

• To compensate for changes in domestic market

• Domestic market saturation• Excess capacity• Risk diversification• Entry of foreign competitors to

domestic market

• To compensate for changes in domestic market

• Domestic market saturation• Excess capacity• Risk diversification• Entry of foreign competitors to

domestic market

Reactive Reactive

• Market potential• Emerging markets• Economies of scale • Global supply chain networks• Access to resources• Proximity to customers• Value creation

• Market potential• Emerging markets• Economies of scale • Global supply chain networks• Access to resources• Proximity to customers• Value creation

ProactiveProactive

Global Strategy

Fundamentals of Global Strategy

Dilemmas of competing in a global world

• Convergence vs. homogenization• Global citizenship vs. local identities• Global market vs. global segments• Globalization vs. semi globalization• Global sourcing vs. regional business• Bridges vs. barriers between countries

The center of gravity is changing

• The role of emerging markets• 62 companies from emerging markets appear

in Fortune’s 500 rankings• Emerging market companies acquiring

companies in developed countries• New champions from developing countries -

Lenovo

5 imperatives to become more global

Gupta, Govindarajan & Wang (2008)

Growth Limited growth in developed markets, potential in developing ones

Efficiency Economies of scale linked to the scale of operations

Knowledge Faster and cheaper innovation, lower risk due to knowledge transfer

Customers Responsiveness to needs and preferences

Competition First mover advantage.

Still Distance Remains

Cultural Distance Language, social

norms, , etc.

Administrative or

political distanceLaw

s, policies, institutions

Geographic distancePhysical distance, size, access to the ocean, etc.

Econ

omic

dis

tanc

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com

e di

spar

ities

, cos

t di

ffere

ntial

s

CAGE (Ghemawat, 2001)

Source: Author’s creation based on Ghemawat, 2001)

Generic Global Strategies

Generic Global Strategies

AAA Global Strategy Framework (Ghemawat, 2007)

Adaptation Aggregation Arbitrage

Tailoring products or components to suit local

preferences or requirements

Achieving economies of scale or scope

through regional or

global efficiencies

Exploiting differences rather than adapting to

them

Adaptation• Unavoidable to virtually all products

Variation Products, processes, policies, positioning (Coca-Cola)

Focus Without modification products will appeal to a smaller market (Luxury goods)

Externalization Transfer of responsibilities requiring adaptation (Eli Lilly – drug testing)

Design Flexible design to overcome supply differences (modularity)

Innovation Improving the effectiveness of adaptation efforts (IKEA – Flat packaging)

The Globalization of Industries

• Truly global industries?• Global vs. local• Global competition:

– Cross market share battles– Global brands– Global distribution

Local Global

Oil, Passenger cars, Pharmaceutical

Tax preparation, retailing, real state

Furniture

What about Cement?What about Cement?

Aggregation

• Achieving economies of scale and scope without compromising local responsiveness

GeographicGeographic Regional purchasesRegional purchases

Cultural Publishing a book only in a few languages

AdministrativeAdministrative Fulfilling regulatory requirements to introduce a product in the EUFulfilling regulatory requirements to introduce a product in the EU

Economic Choosing to focus on developed or developing markets but not in both

Arbitrage

• Locating separate parts of the supply chain in different locations

• Buying at a low price in one country to sell in another

GeographicGeographic X-Rays in US-India; India investing in LA to serve US customers X-Rays in US-India; India investing in LA to serve US customers

CulturalCultural Association of fashion items with french or italian cultureAssociation of fashion items with french or italian culture

AdministrativeAdministrative Holding companies in the Cayman IslandsHolding companies in the Cayman Islands

EconomicEconomic Leveraging differences in costs of labor and capital (offshoring)Leveraging differences in costs of labor and capital (offshoring)

Which “A” to use?• The goal is to create global value• Many companies will focus on just

one “A”• Most likely all of them will be

considered at some point• Strong marketing focus –

adaptation• R&D – aggregation• Labor intensive industries -

arbitrage

P&G’s AAA Strategy

• Adaptation of products•Aggregation at the regional level•Geographical arbitrage -Outsourcing of production activities

P&G’s AAA Strategy

• Adaptation of products•Aggregation at the regional level•Geographical arbitrage -Outsourcing of production activities

The value proposition matrix

Value Proposition Matrix

Global “Mix”-Pure aggregation-

Global Message-Message aggregation-

Global Offer-product

aggregation + message adaptation-

Global Change-pure adaptation-

The

Mes

sage

The Offer

Sam

eD

iffer

ent

Same DifferentKluyver, 2010

Global Mix

• Pure aggregation• Rare• It requires:

– Global usage patterns– Economies of scale– Standardization leads to a sustainable competitive

advantage

Basic electronic componentsBasic electronic components

Global Offer

• Same offer• Different positioning• Core benefits are identical but a local

message is needed to reach customers• Difficult to sustain – consistency and global

expectations?

Global Message

• Same message• Product adaptation• Customers with similar

aspirations• Cost of adaptation is low• Global brand leverage• Risk: global customers do not

find a global offer

McDonaldsMcDonalds

Global Change

• Pure adaptation• Best fit• Often linked to acquisitions• Requires higher local R&D costs• may lead global customers to confusion

Bibliography• Zhao, Xuemin and Decker, Reinhold, “Choice of foreign market entry

mode – cognitions from empirical and theoretical studies”, Available at: http://bieson.ub.uni-bielefeld.de/volltexte/2004/507/pdf/m_entry.pdf (August, 2010).

• International Management-Concepts and Cases by A.V. Phatak, pp. 270-275. Deresky, Helen, 2008, International Management: Managing Across Borders and Cultures – Text and Cases. Pearson-Prentice Hall Ed., New Jersey

• Welch, Lawrence S., Benito, Gabriel R.G. & Petersen, Bent. 2007, Foreign Operations Methods. Edward Elgar Publishing Ltd., Cheltenham, UK. Chapter 8.

• Rasmussen, Erik S. and Madsen, Tage Koed, “The born global concept”, Paper for the EIBA Conference, December, 2002. Available http://www.aueb.gr/deos/EIBA2002.files/PAPERS/S4.pdf (August, 2010)

Bibliography

• Welch, Lawrence S., Benito, Gabriel R.G. & Petersen, Bent. 2007. Foreign Operations Methods – Theory, Analysis, Strategy. Edward Elgar Publishing Ltd., Cheltenham, UK.

• Dunning, John H. & Lundan, Sarianna M. 2008. Multinational Enterprises and the Global Economy, 2nd edition. Edward Elgar Publishing Ltd., Cheltenham, UK.

• Deresky, Helen, 2008, International Management: Managing Across Borders and Cultures – Text and Cases. Pearson-Prentice Hall Ed., New Jersey, U.S..

• Wild, John H.;Wild, Kenneth L. & Han, Jerry C.Y., 2006, International Business: The Challenges of Globalization, Pearson – Prentice Hall Ed., New Jersey, U.S..