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MANAGEMENT POLICY AND STRATEGY
SESSION - III (B)
Globalization and Global Strategy
Prof. Sushil
Department of Management Studies
Indian Institute of Technology, Delhi
INDIA
Email: [email protected]
Prof. Sushil\IITD\Session-III(B)
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IDENTIFYING THE TARGET
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Japanese present in or dominate most product categories in
consumer electronics
In less than 20 years Canon, Hitachi, Seiko and Honda have
established world wide reputation equal to those of Ford, Kodak and
Nestle
Strategic intent prevalent among global competitors
– Building a global presence
– Defending a Domestic Position
– Overcoming national fragmentation
World Television Industry
Japanese- global presence
US (RCA, GE and Zenith) - Defending domestic dominance
Europe (Philips, CSF Thomson) - overcoming national fragmentation
Prof. Sushil\IITD\Session-III(B)
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IDENTIFYIG THE TARGET
Contd….
Loose Bricks - In US
 Japanese Strategy
- late 1960s - established brand dominance in small screen and portable
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televisions ignored by US producers
1967 - Largest producer of B&W TVs
1970 - Closed the gap in colour sets
Labour and scale advantages
Labour cost change - as economies develop and exchange rate
fluctuates.
Low cost manufacturing location shifting - Japan to Korea - to
Singapore - Taiwan
Created strong distribution positions and brand franchises
Evolved into low-cost sourcing to world scale volume and world wide
brand positions across the spectrum of consumer electronics
products.
Prof. Sushil\IITD\Session-III(B)
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IDENTIFYIG THE TARGET
Contd….
US Producers
 Believed that Japanese did well due to low cost high quality
systems.
 Vulnerable as did not understand the changing nature of Japanese
competitive advantage.
 Did not have presence outside US, so they had to fight every
market share battle in US.
 Reduced prices at home affected 100% of their sales volume but
for Matsushita it was only a fraction.
Prof. Sushil\IITD\Session-III(B)
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IDENTIFYIG THE TARGET
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Contd….
Loose Bricks in Europe
Philips well known everywhere in the world international
distribution system, but has own problems
1970 Restriction in Europe on TV sets manufacturing - Japanese
supplied picture tubes.
Sony, Matsushita and Mitsubishi set up local manufacturing
operations in UK.
Toshiba and Hitachi found UK partners.
They had to pay price penalties in moving assembly from Far East
to Europe for establishing European distribution and brand
positions.
Found a loose brick in small screen portables, and picture tubes
in Europe
European market was more fragmented.
Prof. Sushil\IITD\Session-III(B)
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IDENTIFYIG THE TARGET
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Contd….
Nearly 3 million of total European market in 1976 Philips was the
only one could fund the automation of manufacturing and
rationalization of product lines. However, its tube manufacturing
spread over seven European countries.
By 1982 Philips was world’s largest colour TV maker and closed the
cost gap with Japanese.
Philips operated through national markets, country managers are
poorly placed to assess global vulnerability. Philips risk responding
on a local basis to global competition.
Prof. Sushil\IITD\Session-III(B)
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GLOBAL STRATEGY
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Cross - subsidization and retaliation in
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What determined whether competition was global or
national:
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Chemical
Audio
Aircraft engine
Computer
International cash flows rather than international product
flows
Scale economies
Homogeneous markets
Global Competition
–
Occurs when companies cross-subsidize national market share
battles in pursuit of global brand and distribution positions.
Prof. Sushil\IITD\Session-III(B)
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GLOBAL STRATEGY
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Global Businesses
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Contd…..
In which the minimum volume required for cost
efficiency is not available in the company’s home market.
Global Companies
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Which have distribution systems in key foreign markets
that enable cross-subsidization, international retaliation,
and world scale volume.
Prof. Sushil\IITD\Session-III(B)
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NEW CONCEPTS
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World-wide cost competitiveness - minimum world market share to
underwrite the appropriate manufacturing scale and productdevelopment effort.
Retaliation - minimum market share in a particular country to be able
to influence the behaviour of key global competitors.
(e.g. 2 to 3% share is too week).
Home country vulnerability - competitive risks of national market
share leadership if not accomplished by international distribution.
Rather high market share may have opposite effect - support high
price levels - foreign competitor come under the price umbrella.
As part of the global strategy distinguish between objectives of
– low-cost sourcing
– minimum scale
– a national profile base
– retaliation against a global competitor
– benchmarking products and technology in a state-of-the art market
Prof. Sushil\IITD\Session-III(B)
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NEW CONCEPTS
Contd…..
Product Families
 Global competition requires a broader corporate concept of
product line- scrutinize all products moving through distribution
channels in which its products are sold.
Scope of Operations
 Cost advantage are less durable than brand and distribution
advantages.
 Investment in world-scale manufacturing not linked to global
distribution presents untenable risks.
 Support investment in core technologies
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Honda - Engine Technology
Automobiles,
Motorcycles,
Power
tillers,
Lawnmowers, Power generators
Prof. Sushil\IITD\Session-III(B)
Snow-mobiles,
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NEW CONCEPTS
Contd…..
Resource Allocation
 SBU Concept
(GE, 3M, HP)
 Separate manufacturing and marketing subsystems
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Manufacturing local - for global, or
Manufacturing global, marketing local
Global competition strategy - HQ
(Strategic mission, timing of launch, level of market share,
level of investment, expected cash flow)
Local marketing strategy - National Subsidiary (marketing
mix).
Slice the company in many ways
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one way for distribution investments
another for technology
another for manufacturing
Prof. Sushil\IITD\Session-III(B)
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GLOBAL INTEGRATION
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Global integration contrasts with the multinational approach whereby
companies set-up country subsidiaries that design, produce and market
products or services tailored to local needs.
Changes supporting global integration:
– growing similarity of what citizens of different countries want
– reduction in tariff and non-tariff barriers
– too expensive technology investments to amortize in one market only
– global competitors - rules of the game
Steps for developing global strategy
– Developing the core strategy - the basis of sustainable competitive
advantage. Unusually developed for the home country first.
– Internationalizing the core strategy- through international expansion
of activities and through adaptation.
– Globalizing- the international strategy by integrating the strategy
across countries
Prof. Sushil\IITD\Session-III(B)
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WHAT IS GLOBAL STRATEGY
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A multi-domestic strategy seeks to maximize
world wide performance by maximizing local
competitive advantage, revenues or profits.
A global strategy seeks to maximize world wide
performance through sharing and integration.
Global Strategy Forces
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Global strategy Levers
Position of Businesses and parent company
Industry globalisation drivers
Organisation’s ability to implant a global strategy
Benefits/costs of global strategy
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Multidomestic and Global Industries
A multidomestic industry is one in which
competition is essentially segmented from
country to country
A global industry is one in which competition
crosses national borders
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Framework of Global Strategy Forces
Position and
resources of business
and parent company
Appropriate setting for global
strategy levers
•Majors market participation
•Product standardization
•Activity concentration
Benefits/
costs of global
strategy
•Uniform marketing
•Integrated competitive moves
Industry globalization drivers
•Market factors
•Cost factors
Organization’s
ability to implement
a global strategy
•Environmental factors
•Competitive factors
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GLOBALIZATION DIMENSIONS
Dimensions
Multidomestic Strategy
Market Participation No Particular Pattern
Product Offering
Location of Valueadded activities
Marketing Approach
Competitive Moves
Fully customized in
each country
All activities in each
country
Local
Stand-alone by
country
Prof. Sushil\IITD\Session-III(B)
Global Strategy
Significant share in
major markets
Fully standardized
worldwide
Concentrated-one
activity
in
each
(different country)
Uniform worldwide
Integrated across
countries
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MARKET PARTICIPATION
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A pattern of major share in major markets - USA- Europe Japan “triad”.
Electrolux Group - Swedish
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Building significant share in major world markets.
Aims to be the first global appliance maker.
1986-acquired Zanussi Industries to become top producer of
appliances in Western Europe.
Later the year acquired White Consolidated Industries the
third largest American appliance manufacturer.
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PRODUCT OFFERING
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Product standardization to a greater or lesser extent.
Differing world wide needs can be met by adapting the
standardized core product.
Boeing 737
1970 - sales began to level off.
Entered developing countries but product did not fit to new
environments
Shortness of run ways, greater softness, lower technical
expertise of pilots - planes tend to bounce during landing,
the brakes failed.
Modified the design - adding thrust to engines, redesigning
wings, landing gear, tires with lower pressure.
These adaptations to core product enabled 737 to be best
selling plane in history.
Prof. Sushil\IITD\Session-III(B)
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LOCATION OF VALUE ADDED
ACTIVITIES
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Costs are reduced by breaking up the value chain- so each
activity may be conducted in a different country.
One value chain strategy is partial concentration and partial
duplication
Electronics Companies
Locate part or all of manufacturing in Southeast Asia - low
cost, skilled labour - key component - chip is very cheap
US - Japan semi-conductor Agreement - Japanese agreed
not to sell chips in US -> Chips being sold below cost in South
East Asia.
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MARKETING APPROACH
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Uniform marketing approach around the worldalthough not all elements of marketing mix be
uniform.
Unilever
Great success with a fabric softener that used a
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global common positioning
advertising theme
symbol (a teddy bear)
But brand name varied by country
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COMPETITIVE MOVES
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A competitor is attacked in one country in order to drain its
resources for another country.
Competitive attack in one country is countered in another country
Counter attack in a competitor’s home market as a parry to an
attack on one’s home market.
Bridgestone Corporation - Japanese Tire
Action of Major competitors
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Continental AG’s acquisition of GenCorp's General Tire and Rubber
Company.
General Tire’s JV with two Japanese tire makers,
Sumitomo’s acquisition of an intent in Dunlop Tire.
Competitive move
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Establish the presence in major US market
Formed a JV to own and manage Firestone Corporation’s world wide tire
business - gained access to Firestone’s European plants.
Prof. Sushil\IITD\Session-III(B)
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INDUSTRY GLOBALISATION DRIVERS
Market Drivers
 Homogeneous Customer Needs - Understanding which
aspects can be standardized and which could be customized
in the key.
 Global customers - buy on a centralized or coordinated basis
for decentralized use (e.g. National defence agencies).
Having a single global account manager make it easier for
global customer for single global price - the lowest price.
 Global channels - Global channels are rare - but region wide
channels are increasing.
(e.g. European grocery distribution and retailing)
 Transferable Marketing - Brand names and advertising may
be requiring little local adaptation.
Prof. Sushil\IITD\Session-III(B)
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INDUSTRY GLOBALISATION DRIVERS
Contd…..
Cost Drivers
 Economics of Scale and Scope - corresponding risks are
rigidity and vulnerability to disruption.
Electronics Industry
 Cost of circuits have decreased - advantage goes to
companies that can produce lowest cost components. Size
has become a major asset.
 Thomson (France) - 1987 increased in operating scale and
global coverage by acquiring RCA television business from
GE.
 Learning and Experience - The steeper the learning and
experience curves greater the potential benefit.
 Sourcing Efficiencies - Centralized purchasing
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INDUSTRY GLOBALISATION DRIVERS
Contd…..
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Himont - Global Polypropylene Market
Global coordination among manufacturing facilities in purchase of
key raw material - monomer
Favourable Logistics - A favourable ratio of sales value to
transportation cost enhances the ability to concentrate production.
Other logistical factors are
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non perishability
absence of time urgency
little need for location close to customer facilities.
Differences in Country Costs and Skills
Concentration in low-cost or high-skill countries - increase
productivity and reduce cost.
The danger is of training future offshore competitors.
Prof. Sushil\IITD\Session-III(B)
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INDUSTRY GLOBALISATION DRIVERS
Contd…..
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Volkswagen
Hourly Labour cost
Germany DM 40
Spain
DM 20
Moved production of Polos from Wolfbury to Spain.
Product Development Costs - Developing few global or regional
products
Ford Motor Company
Centres of Excellence program - to reduce duplication
Ford of Europe - Common platform for all compacts
Ford of NA - replacement of midsized Taurus and Sable
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INDUSTRY GLOBALISATION DRIVERS
Contd…..
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Governmental Drivers
Favourable Trade Policies - Import tariffs and quotas, non
tariff barriers, export subsidies, local content requirements,
currency and capital flow restrictions, requirements on
technology transfer.
European Community - Banking and Financial Services
Decision to permit free flow of capital along member countries
Deutsche Bank had only 15 offices outside Germany established major presence in French market.
1987 - moved to Italian market by acquiring Bank of America’s
100 branches.
J.P. Morgan - US, Swiss Bank Corporation and SP Warburg
Group - Britain - increased their participation in major
European markets.
Prof. Sushil\IITD\Session-III(B)
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INDUSTRY GLOBALISATION DRIVERS
Contd…..
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Compatible Technical Standards - often standards are set
with protectionism in mind
(e.g. Motorola - electronics products excluded from
Japanese market - operated at a higher frequency than was
permitted in Japan).
Common Marketing Regulations - Certain type of media may
be prohibited or restricted
(e.g. - US is for more liberal than Europe about advertising
claims on TV.
–
British TV do not allow scenes of children pestering their
parents to buy a product).
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INDUSTRY GLOBALISATION DRIVERS
Contd…..
Competitive Drivers
 Inter dependence of Countries - When activities are shared
among countries a competitor’s market share in one country affects
its scale and overall cost position in the shared activities.
 (e.g. companies promote product as “the leading brand in US”.)
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Automobile Industry
Ford and Volkswagen- concentrate production and more competitive
Toyota - pressured to enter more markets to reach the volume.
1984-87 doubled the number of cars for German market.
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INDUSTRY GLOBALISATION DRIVERS
Contd…..
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Globalized competitors - The need to preempt a global competitor can
spur increased market participation.
Unilever - European Consumer Product
Launched a hostile take over bid for Richardson - Vicks Inc.
Global archrival P&G saw the threat on its home turf and out bid Unilever.
With Richardson - Vicks European system P&G strengthened the
European position.
Changes Over Time
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European Major Appliance Industry
Globalisation forces seem to have reversed
1960s and 70s - regional standardization strategy was successful
1980s - the most successful strategies seem to be national
Prof. Sushil\IITD\Session-III(B)
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BENEFITS OF A GLOBAL STRATEGY
Cost Reductions
 Economies of scale by pooling production or other activities
for two or more countries
(Sony - concentrated its CD production in Terre Haute,
Indiana, and Saizburg, Austria)
 Exploiting lower factor costs by moving manufacturing or
other activities to low-cost countries.
(Mexican side of the US - Mexico border is crowded with
manufacturing plants of US companies using Mexican labour)
 Exploiting flexibility
(Moving production from location to location on short notice
to take advantage of lowest cost at a given time).
Prof. Sushil\IITD\Session-III(B)
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BENEFITS OF A GLOBAL STRATEGY
Contd…...
Dow Chemical
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LP model for best production using by location
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exchange rates
tax rates
transportation cost
labour cost
Enhancing bargaining power - can switch production to
different location increases bargaining power with suppliers,
workers, and host governments.
(European labour Union- single European market allow
switching production)
Prof. Sushil\IITD\Session-III(B)
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BENEFITS OF A GLOBAL STRATEGY
Contd…...
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Improved Quality of Products and Programs
Toyota
Markets a far smaller number of models than GM.
Concentrated on improving its few models, while GM fragmented
developmental funds.
Toyota Camry in US rated as the best in class of medium - sized
cars.
Enhanced Customer Preference
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Through reinforcement
(e.g. soft drinks, food companies, financial services - credit cards)
For industrial products - a multinational customer with a standard
product around the world gains from world wide familiarity
(e.g. Computer manufacturers)
Prof. Sushil\IITD\Session-III(B)
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BENEFITS OF A GLOBAL STRATEGY
Contd…...
Increased Competitive Leverage
 More points from which to attack or counter
attack
Becton Dickinson - US Medical Products
 To prevent Japanese becoming a competitive
nuisance in disposable syringes - enter three
markets in Japan’s backyard to prevent Japanese
expansion
–
Hong kong, Singapore, Philippine
Prof. Sushil\IITD\Session-III(B)
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DRAWBACKS OF GLOBAL STRATEGY
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Significant management costs - increased coordination, reporting
requirements, added staff.
Earlier or greater commitment to a market than warranted.
(American co. - Motorola - penetrate Japan more to enhance global
competitiveness position than making money in Japan).
Product standardization may result in a product that does not satisfy
any customer.
Procter & Gamble
Stumbled - introduced Cheer laundry detergent in Japan without
changing US product or marketing message (the detergent was
effective in all temp.)
Two instances of insufficient adaptation
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detergent did not suds up as Japanese use a great deal of fabric softener.
Japanese usually work cloths in cold tap/bath water.
Cheer become successful in Japan - after reformulating the product
and marketing messages.
Prof. Sushil\IITD\Session-III(B)
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DRAWBACKS OF GLOBAL STRATEGY
Contd…..
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Canon
Sacrificed the ability to copy certain Japanese paper sizes
when it first designed a photocopier for the global market
Activity concentration distances customers and can result in
lower responsiveness and flexibility. Also increases currency
risk.
Uniform marketing can reduce adaptation to local customer
behaviour.
(British Airways - Telecommercial - “Manhattan Landing”)
Prof. Sushil\IITD\Session-III(B)
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What is Globalization?
The strategy of approaching worldwide
markets with standardized products.
Prof. Sushil\IITD\Session-III(B)
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Projected Economic Growth
Prof. Sushil\IITD\Session-III(B)
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Development of a Global Corporation
1. Export-import activity
Evolution
of a global
firm entails
progressivel
y involved
strategy
levels
2. Foreign licensing and technology
transfer
3. Direct investment in overseas
operations (manufacturing plants
and global management skills)
4. Substantial increase in foreign
investment (foreign assets
comprise significant portion of
total assets)
Prof. Sushil\IITD\Session-III(B)
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Strategic Orientation of Global Firms
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Ethnocentric
– Values and priorities of parent organization should guide
strategic decision making of all operations
Polycentric
– Culture of company in which strategy is implemented
dominates decision making
Regiocentric
– Parent firm attempts to blend its own predispositions
with those of region under consideration
Geocentric
– Parent firm adopts global systems approach to decision
making, emphasizing global integration
Prof. Sushil\IITD\Session-III(B)
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Beginning to Globalize: Key Steps
Scan global situation
Make connections
with academia and
research
organizations
Increase firm’s
global visibility
Undertake cooperative
research projects
Prof. Sushil\IITD\Session-III(B)
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Strategic Management Planning in Global
Industries
Increased scope
of global
management task
Breeds managerial
confidence
Rapid development
of technology
Strategic
management
planning must
be global
because . . .
Increase in
global
competition
Prof. Sushil\IITD\Session-III(B)
Increased
globalization of
firms
Information
explosion
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The Global Challenge
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Few “pure” cases of either global or multidomestic
industries exist
The challenge -- global firms must
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Decide which activities will be performed in how
many and which locations
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Determine degree to which activities are
coordinated across locations
Prof. Sushil\IITD\Session-III(B)
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Market Requirements and Product
Characteristics
Success in foreign markets requires assessment
of two key dimensions of customer demand
Acceptance of
standardized products
Rate of
product innovation
desired
Prof. Sushil\IITD\Session-III(B)
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Coordination of activities
International Strategy Options
High
is a foreign
reward investment
and a
High
with reinforcement
extensive
positive
coordination among
subsidiaries
Low
Country-centered
is punishment
strategy by
multinationals
with a number of
domestic firms operating
in only one country
is punishment
Global strategy
is a reward and a
Export-based strategy
negative reinforcement
with decentralized
marketing
Geographically
Geographically
dispersed
concentrated
Location of activities
Prof. Sushil\IITD\Session-III(B)
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International Strategy Options
Product diversity
High
Low
Joint
venture
Foreign
branch
Foreign
subsidiary
Licensing,
contract
manufacturing,
franchising
Joint
venture
Foreign
branch
Export
Licensing,
contract
manufacturing,
franchising
Joint
venture
Market complexity
Prof. Sushil\IITD\Session-III(B)
High
45