introduction to gi - nyu tandon school of engineeringfaculty.poly.edu/~brao/global09ses1.pdf ·...

Introduction to GI

Q1: WHAT is a global firm?

Q2: WHY do firms go global?

Q3: HOW can firms pursue a global strategy?

Q4: WHAT is the role of technology in GI?

Q5: WHAT are some forms of organizingglobal corporations?

TODAY’SGLOBAL

NewCompetitors

Rise of GlobalStandards

DisintegratingBorders

The Internet &Information GLOBAL

ECONOMYInformationTechnology

Privatization

Growing Tradeand Investment

GlobalProducts/

Customers/Employees

Why do companies go global?

To reduce costs (labor, taxes, tariffs, etc.)

To improve the supply chain

To provide better goods and services

Tangible

To provide better goods and services

To attract and access new markets

To learn how to improve operations

To attract and retain global talentIntangible

Typical evolution towards a global strategy

Firm IntroducesInnovation in

11

Product DemandDevelops and

Firm ExportsProducts

22

Foreign33

Why do companies go global?

Innovation inDomesticMarket

11Foreign

CompetitionBegins Production

33

Firm BeginsProduction Abroad

44Production BecomesStandardized and is

Relocated to Low CostCountries

55

Some examples..

Boeing - flourishes because both its sales andproduction are world-wide

Benetton - moves inventory to stores around the worldfaster than its competitors

Sony - purchases components from suppliers inThailand, Malaysia, etc.

General Motors - simultaneously building four similarplants in Argentina, Poland, China, and Thailand sothat they can learn from each other and drive downcost while increasing quality

Sample Boeing Suppliers (777)

Firm Country PartsAlenia Italy Wing flaps

AeroSpaceTechnologies

Australia Rudder

CASA Spain Ailerons

Fuji Japan Landing geardoors, wing section

Fuji Japan Landing gear

GEC Avionics United Kingdom Flight computers

Korean Air Korea Flap supports

MenascoAerospaceCanada Landing gears

Short Brothers Ireland Landing gear doors

SingaporeAerospace

Singapore Landing gear doors

Branded PCs - 2002Breakdown of Components and Sources of Origin

Brand: USA

Main Box: Ireland

Chips on Cards: USA, Korea,Taiwan, Philippines

Battery: Philippines

CD ROM Drive: China (Japanese

Keyboard: Mexico

Mouse: Mexico

Child's Mouse: Taiwan

Loudspeakers: Malaysia

Microphone: Mexico

Inkjet Printer: SpainCD ROM Drive: China (JapaneseParts)

CD-R (consumables) Germany

Hard Disk Drive: Singapore

3.5" Floppy Disk Drive:Philippines

Modem Card: Netherlands

Graphics Card: China

Specialist Video Card: USA

Monitor: UK

Zip Drive: Malaysia

Scanner: Taiwan

Webcam: China

Power Supplies: Taiwan, China,Malaysia, Mexico

Manuals: Scotland, Ireland, Wales,Germany

Environmental Certification: Sweden

Source: Peter Swann, 2002

Operations Decisions

Global Product Design Issues

Global Supply Chain Management

Global Process Design and Technology

Global Facility Location and Co-ordination Global Facility Location and Co-ordination

Supply-ChainManagement Decisions

Sourcing

Vertical integration

Make-or-buy decisions

Partnering

Location Decisions

Country-related issues

Product-related issues

Government policy/political risk

Organizational issues

Materials Management Decisions

Flow of materials

Transportation options and speed

Inventory levels

Packaging

Storage

What are the differenttypes of globaltypes of global

operations?

Types of Global Operations

International business - engages in cross-bordertransactions

Multinational Corporation - has extensive involvementin international business, owning or controllingfacilities in more than one countryfacilities in more than one country

Global company - integrates operations from differentcountries, and views world as a single marketplace

Transnational company - seeks to combine thebenefits of global-scale efficiencies with the benefits oflocal responsiveness

Types of Global Strategies

International Strategy: uses exports and licenses topenetrate the global area

Multi-domestic Strategy: uses decentralized authoritywith substantial autonomy at each business

Global Strategy: Uses a high degree of centralization, Global Strategy: Uses a high degree of centralization,with headquarters coordinating to seek standardizationand learning between plants

Transnational Strategy: Exploits economies of scaleand learning, as well as pressure for responsiveness,by recognizing that core competencies resideeverywhere in the organization

Four International OperationsStrategies

Global Strategy

Standardized product

Economies of scale

Cross-cultural learning

Transnational Strategy

Move material, people,ideas, across nationalboundaries

Cross-cultural learning

High

Co

stR

edu

ctio

ns

ToyotaCanon

ABBShishedo

International Strategy

Import.export orlicense existingproduct

Multi-domestic strategy

Use existing domesticmodel globally

Franchise, joint ventures,subsidiaries

Low HighLocal Responsiveness

Low

Co

stR

edu

ctio

ns Canon

CaterpillarOtis Elevator

ShishedoNestléMcKinsey

KraftPfizerU.S. SteelHarley Davidson

UnileverHeinzMcDonalds

Home Replication (or International) Strategy

In this approach, a firm utilizes the corecompetency or firm-specific advantage itdeveloped at home as its main competitive

Global Innovation StrategiesThe cost-responsiveness tradeoff

developed at home as its main competitiveweapon in the foreign markets that it enters.

It takes what it does exceptionally well in itshome market and attempts to duplicate it inforeign markets.

Examples: Kraft, Pfizer, US Steel, Harley Davidson

Multi-Domestic StrategyA multi-domestic corporation views itself as acollection of relatively independent operatingsubsidiaries, each of which focuses on aspecific domestic market.


specific domestic market.Each of these subsidiaries is free tocustomize its products, its marketingcampaigns, and its operations techniques tobest meet the needs of its local customers.

Examples: Unilever, Heinz, McDonalds

Global StrategyA global corporation views the world as asingle marketplace and has as its primarygoal the creation of standardized goods and


goal the creation of standardized goods andservices that will address the needs ofcustomers worldwide. The global strategy isalmost the exact opposite of themultidomestic strategy.

Examples: Toyota, Caterpillar, Canon, Otis Elevator

Transnational Strategy

The transnational corporation attempts tocombine the benefits of global scaleefficiencies, such as those pursued by a


efficiencies, such as those pursued by aglobal corporation, with the benefits andadvantages of local responsiveness, which isthe goal of a multidomestic corporation.

Examples: ABB, Shiseido, Nestle, McKinsey

How MultinationalCorporations Differ

Company HomeCountry

% SalesOutsideHomeCountry

% AssetsOutsideHomeCountry

% ForeignWorkforce

Colgate- USA 65 47 NA

Citicorp USA 34 46 NA

Colgate-Palmolive

USA 65 47 NA

DowChemical

USA 54 45 NA

Gillette USA 68 66 NA

Honda Japan 63 36 NA

IBM USA 59 55 51

How MultinationalCorporations Differ

WorkforceCompany Home

Country% SalesOutsideHomeCountry

% AssetsOutsideHomeCountry

% Foreign

ICI Britain 78 50 NA

Nestlé Switzerland 98 95 97

Philips Netherlands 94 85 82

Siemens Germany 51 NA 38

Electronics

The BOP Market

What is the BOP concept? Why does itmatter?

Why do MNCs ignore BOP opportunities?

Are there new ways of looking at the BOP Are there new ways of looking at the BOPmarket a) to deliver value, and b) as a sourceof innovations?

Examples and prospects

THE BOTTOM OF THE PYRAMIDFour Billion People!

>$20,000 75-100

Purchasing powerparity (in dollars)

Population

(in millions)

Tier 1

Source: Prahalad, C.K., 2004. The Fortune at the Bottom of the Pyramid, Wharton School Publishing

$1,500-20,000

$1,500

1,500-1,750

4,000

Tiers 2-3

Tier 4

Tier 5<$1,500

The Bottom of the PyramidCustomer Profiles

There are 3-4 billion people with per-capitaequivalent purchasing power (PPP) less thatUS$2,000 per year

The numbers could swell to 6-8 billion over the next25 years25 years

Most live in rural villages or urban slums and shantytowns—urbanization representing opportunity

Education levels are low or no-existent (especiallyamong women)

Markets are hard to reach, disorganized, and verylocal in nature

MNC MyopiaUnderestimating BOP Markets

The first wave of multinationals’ entries to emergingmarkets missed the real potential “Corporate Imperialism” (Prahalad & Lieberthal, 2002)

Focus on the high-end, “Western-like” consumers

Many misperceptions about the state of the economies andmarket attractiveness

Strategies pursued were not adjusted to emerging marketneeds

Assumed that emerging markets were on the samedevelopment trajectory as developed countries

MNC MyopiaDominant Logic of MNCs as it relates to BOP

The poor are not our target customers.They cannot afford our products andservices.

With our cost structure, we cannot serveBOP markets.

The poor do not have use for productssold in developed countries.

We are committed to form overfunctionality.

Assumption Implication

Only developed countries appreciate andpay for technological innovations.

The BOP does not need technologysolutions and is not a source ofinnovations.

The BOP market is not critical for the long-term growth and vitality of MNCs

BOP markets are at best an attractivedistraction.

Intellectual excitement is in the developedmarkets. It is very hard to recruitmanagers for BOP markets.

We cannot assign our best people to workon market development in BOP markets.


MNC MyopiaUnderestimating Emerging Markets

Most common misperceptions regardingemerging markets are: Potential resides in the high-end market segments

Poor are so concerned with fulfilling the basic Poor are so concerned with fulfilling the basicneeds that they’re unable to buy any ‘luxury’items, e.g., TVs or phones

Poor are unable to use advanced technologies,e.g., wireless communications

Multinational’s operations in emerging marketsmeans exploitation of the already poor

The Bottom of the PyramidCustomer Profiles

In Dharavi, one of the poorest slums of Bombay: 85% of residents have a TV

50% of residents have a pressure cooker

21% of residents have a telephone

Almost all residents pay a premium for water and electricity

… but most cannot afford a house

Even the poorest families in Bangladesh: devote 7 percent of household income to communications

services (like GrameenPhone)

The Bottom of the PyramidBeing Poor can be Expensive

Item Dharavi(The poorest slum inAsia)

Warden Road(Decent 2BR apartmentcosts around $750K)

PovertyPremium

Credit

(Annual Interest)

600-1000% 12-18% 53.0

Municipal gradewater (per cubicmeter)

$1.12 $0.03 37.0

Phone call (perminute)

$0.04-$0.05 $0.025 1.8

Diarrheamedication

$20.00 $2 10

Rice (perkilogram)

$0.28 $0.24 1.2


The Bottom of the PyramidBeing Poor can be Expensive

Item Dharavi(The poorest slum inAsia)

Warden Road(Decent 2BR apartmentcosts around $750K)

PovertyPremium

Credit 600-1000% 12-18% 53.0

(Annual Interest)

Municipal gradewater (per cubicmeter)

$1.12 $0.03 37.0

Phone call (perminute)

$0.04-$0.05 $0.025 1.8

Diarrheamedication

$20.00 $2 10

Rice (per kilogram) $0.28 $0.24 1.2

Q. Are these validmarket opportunities?

MNC MyopiaEmerging Markets Realities

Traditional product life-cycle models predict slowdiffusion for a new product. However, in emergingmarkets: Customers can be surprisingly sophisticated

The lack of installed old infrastructure enables adoption ofstate-of-the-art technology directly, enabling leapfrogging

BOP customers are very brand conscious and aspire forthe best

Virtuous cycle takes over once initial resistance isovercome

Technosol Case(Nicaragua)

Voxiva CaseVoxiva Case(Peru)

The Enabling Environment MattersNeed to improve these in BOP markets

Private Sector Growth

Levelplayingfield

Access tofinancing

Accessto skillsand

Pillars of entrepreneurship(Too often missing)

Domestic macro environment

field andknowledge

Physical and social Infrastructure

Global macro environment

Rule of Law

(Too often missing)

Pillars of private sector(Not yet ready)

“The aspiring poor present a prodigiousopportunity for the world’s wealthiest

companies. But it requires a radical newapproach to business strategy”approach to business strategy”

C.K. Prahalad and Stuart Hart“The Fortune at the Bottom of the Pyramid”Strategy+Business, January 2002

Early Lessons Existing mental models prevent success

BOP is not a homogeneous market Understand real needs of end-users and customers Systemic understanding may redefine industry

categories

Need both technology optimization and innovation Product features include durability, ruggedness, Product features include durability, ruggedness,

consistency Disruptive innovation is not bad if it works

Requires business model innovation Small scale, distributed, fragmented distribution Co-development, local partners, new brands Capital efficiency, employment intensiveness

Avoid dependence upon centralized institutions National governments Technological infrastructure

Source: Prof. Stuart Hart, UNC Chapel Hill

Differences in Business ModelsDeveloped markets versus BOP markets

“Developed” MarketBusiness Model Rapid innovation

Obsolecence

“BOP” MarketBusiness Model Durability

Consistency Fine segmentation

High margins

Labor efficiency

Mass media

Top down

Consistency

Coarse segmentation

High volume

Capital efficiency

Direct selling

Bottom up

Source: Prof. Stuart Hart, UNC Chapel Hill

This is great for MNCs.How about startups?

Low Cost Eyeglasses2001

URL: http://www.lowcosteyeglasses.net

WINNERS - Harvard Business School Social Enterprise Business Plan Contest

Low Cost Eyeglasses2001

Low Cost Eyeglasses is a social enterprise for theone billion people in the developing world who needeyeglasses yet currently do not have them.

Unlike existing eyeglasses that are difficult topurchase and very expensive, we are designing

URL: http://www.lowcosteyeglasses.net

purchase and very expensive, we are designingeyeglass systems that make eyeglassesinexpensive and easy to purchase.

We believe low cost and availability can beachieved through product designs that eliminatecomplexity and channel designs that rely on localoutlets such as micro-entrepreneurs.

Gyaana2003

Gyaana’s vision is to eliminate functionalilliteracy in India

Gyaana believes that:•By providing funds

URL: http://www.gyaana.org

WINNERS - Harvard Business School Social Enterprise Business Plan Contest

•By providing funds•By making education economically relevant•By fostering community commitment to education

Families will further invest in their children’s education,thereby fostering a virtuous cycle of empowerment,opportunity, and poverty alleviation.

Other Resources

University of MichiganServing the Bottom of the Pyramidhttp://www.bus.umich.edu/BottomOfThePyramid/xMAP2003.htm

Social Enterprise @HBS Social Enterprise @HBShttp://www.hbs.edu/socialenterprise/bplan/entrants.html

Business for Social Responsibilitywww.bsr.org

World Bank – Documents and Projectshttp://www-wds.worldbank.org/

Grameen BankGroup Discussion Questions

•What were the success factors behindGrameen Bank’s performance inGrameen Bank’s performance inBangladesh?

•What are the key incentives for participantsin Grameen’s microlending system? Whatare the checks and balances (i.e. controls)?

•Suggest two new areas where Grameencould expand to using a similar businessmodel.

Grameen Bank: Banking for thepoor Started out providing “tiny loans” (microcredit) to the

poorest of the poor in rural Bangladesh (1976);officially converted as an independent bank (1983).

96% of its borrowers (3.36 million) are women.

93% of equity owned by borrowers, remaining 7%owned by the government.owned by the government.

No collateral required against micro-loans.

Loan recovery rate of 98.69%.

Approximately 1200+ branches, servicing 45,000villages, with a staff of 12,000.

Total disbursed: $4.27 billion (197 billion Taka).

Founded by Muhammad Yunus in Jobra,Bangladesh. Yunus became guarantor of loans topoor ($300, 10,000 Taka).

The 16 decisions: We shall follow and advance the four principles of Grameen Bank

--- Discipline, Unity, Courage and Hard work – in all walks of ourlives.

Prosperity we shall bring to our families.

We shall not live in dilapidated houses. We shall repair our housesand work towards constructing new houses at the earliest.

We shall grow vegetables all the year round. We shall eat plenty of We shall grow vegetables all the year round. We shall eat plenty ofthem and sell the surplus.

During the plantation seasons, we shall plant as many seedlingsas possible.

We shall plan to keep our families small. We shall minimize ourexpenditures. We shall look after our health.

We shall educate our children and ensure that they can earn topay for their education.

We shall always keep our children and the environment clean.

The Grameen NetworkThe Grameen Bank Family has grown to over twodozen organizations.

The major groups are:

Grameen Trust

Grameen Fund

Grameen Communications

Grameen Phone Ltd.

Grameen Software Ltd.

Grameen IT Park

Grameen Shakti/Energy

Grameen Shikkha/Education

Grameen Telecom

Grameen Knitwear Ltd.

Grameen Cybernet Ltd.

Grameen Byabosa Bikash(Business Promotion )

Grameen InformationHighways Ltd.

Grameen Star Education Ltd.

Grameen Bitek Ltd.

Grameen Uddog (Enterprise)

Gonoshasthaya GrameenTextile Mills Ltd.