Introduction to Global Competitive Strategy

© Professor Daniel F. Spulber

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Global Competitive StrategySuggested Course Outline

1. Introduction

2. Home country

3. Supplier and partner countries

4. Customer and competitor countries

5. Strategies for Global Value Added: Gains

6. Strategies for Global Value Added: Gains

7. Strategies for Global Value Added: Costs of trade

8. Competitive strategies: Global vs local

9. Competitive strategies: Modes of entry and FDI

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Global Competitive StrategyMain Cases

1. Introduction

2. LENOVO

3. BP/ OIL INDUSTRY

4. P&G JAPAN

5. RENAULT-NISSAN

6. LI & FUNG

7. CEMEX

8. ZARA

9. FLEXTRONICS IN INDIA

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Global Competitive Strategy

Introduction

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Global Competitive Strategy

Outline of introduction

The global challenge

The global mosaic

The global strategy “Star Analysis”

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The Global Challenge Globalization changes nature of competition

-- Competitors can be very different! Innovative entrants, including emerging market firms Global competitive advantage

• Best sources of products, global brands • World-class cost efficiencies• Global pool of innovations• Global mix of transactions

Global Competitive Strategy

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The Global Challenge

To serve large-scale global market

To address market differences across countries

Global Competitive Strategy

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Size of Global BusinessCurrent $ (Source: World Bank)

• World GDP: $ 41.3 trillion

(Gross Domestic Product)• US: $ 11.7 trillion• EU (25): $ 12 trillion• Japan $ 4.6 trillion• Latin America and Caribbean $ 2 trillion• Middle East and Africa $ 1 trillion• India $ 0.7 trillion• China $ 1.9 trillion

High growth rate of emerging markets

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Size of International BusinessTotal exports of goods and services

World Trade $ 11 trillion

• Merchandise $9 trillionAgriculture, fuels and mining, manufactured goods

• Services $2 trillion

Transportation, travel, commercial services

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Growing importance of trade to US economy

Increases in:Exports:- Capital goods

(mainly semiconductors, computer accessories)

- Industrial supplies- Consumer goodsImports:- Industrial supplies

and crude oil- Auto industry- Capital goods

Shares of Exports and Imports in GDP

0.02.04.06.08.0

10.012.014.016.0

37 46 55 64 73 82 91

Year

in %

export-share

import-share

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Size of International Business

• $1.5 trillion in international currency

transactions per day!• 63,000 multinational corporations• Major source of economic growth and investment for

developed and developing countries• Source of global technological innovation• Earnings growth for many companies (Wal-Mart, GE,

Carrefour, Nestlé, Unilever, Cemex, Toyota, Samsung)

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Why was Nokia so successful?

Why did Daimler-Chrysler have

problems?

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The Global Mosaic• Vast economic differences across countries

GDP per capita, prices, wages

• Underlying geographic differences – Geography matters

• Large “economic distances” between countries

• “Sticky borders” preserve these differences

• The arbitrage principle – economic differences evidence of sticky borders, many strategic opportunities remain

Global Competitive Strategy

The world is bumpy!

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Differences in economic activity

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• Language• Culture, customs, and history• Social institutions• Demographic differences: health, education• Public policies• Legal and regulatory systems• Business practices• Currencies• Technology

Business must bridge critical differences between countries

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Differences in climate, topography, natural resources

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The costs of trade: The Four T’s• Transaction costs• Tariff and non-tariff barriers• Transportation costs• Time costs

Borders are “sticky”

Global Competitive Strategy

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Business must navigate the World Trade System

NAFTA

Caribbean Basin InitiativeProposed

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Business strategy must account for changes in political relationships

and trade deals between countries

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The Arbitrage Principle

Country borders:

• Restrict movement of inputs – capital, labor, technology, resources

• Limit trade in goods and services

• Create persistent differences in technology and information

• Preserve economic differences -- prices and wages

• Arbitrage reduces economic differences

• Innovative transactions find arbitrage opportunities

Country borders provide opportunities and competitive advantage to international business

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• Globalization challenges business strategy in a fundamental way

• Trade costs are high resulting in economic differences between countries

• The global mosaic offers opportunities for generating gains from trade

• The successful global business develops innovative international transactions to gain global competitive advantage

Global competitive advantage

NEXT SESSION:Analytical framework!