Strategy A view from the Top Chapter 8 Global Strategy Formulation Zane Barnes Nolan Bosworth Johnnie Davis Clay Jones Anna Sterling Kimberly Smith Shaina Weaver

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Strategy A view from the TopChapter 8Global
Strategy FormulationZane BarnesNolan
BosworthJohnnie DavisClay JonesAnna
SterlingKimberly SmithShaina Weaver
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Global Strategy Formulation

• Going global
• Gradual process
• Core competencies, mission, structure, culture,
  and processes of international corporations
  evolve in the creation of global corporations.
• Truly global Strategies are extremely rare.
• To create a vision a company must accurately
  define what globalization means for its
  particular business.
• Each company and industry will have very
  different requirements for global success.

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Globalization And Industrial Clustering

• Clustering- some countries or regions of the
  world are more efficient than others in producing
  particular goods which causes a clustering of
  competing firms.
• Reasons for clustering are natural resources,
  concentration of buyers, transportation cost,
  labor cost, local government laws, etc.

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Porters National Diamond
Porters National Diamond helps explain why
particular regions attract certain global
industries.
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Factor Conditions

• What is the degree in which the country or
  regions endowments match the characteristics and
  requirements of the industry.
• Two forms of endowments
• Natural conditions (ex climate, minerals)
• Created conditions (ex skill levels, capital,
  infrastructure)
• If a industry is highly profitable and barriers
  to entry are low, the forces of imitation and
  diffusion cause such and industry to spread
  across international borders.

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Industry Globalization Drivers
Industry Globalization Drivers are underlying
conditions that create the potential for an
industry to become more global.

• Economic Drivers (cost)
• Nature of industry
• Economies of scale/location
• Differences in country costs

• Market Drivers
• Evolution of customer needs
• Global customers
• Global channels
• Transferability of marketing

Industry Globalization Potential

• Competitive Drivers
• Interdependence between countries/regions
• Globalization of competitors

• Government Drivers
• Trade barriers
• Regulatory climate
• Technology/standards

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Market Drivers

• Market drivers are measures that define how
  customer behavior patterns evolve and converge.
• Market drivers are important because they
  indicate whether
• worldwide channels of distribution can develop
• market platforms are transferable
• lead countries can be identified in which most
  innovation takes place
• Many forces push companies to think more globally
  in order to
• meet foreign competition head on
• better serve an increasingly global customer base
  
• exploit diverse capabilities and cost advantages
• take advantage of an easing global environment
• Example HDTV

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Cost Drivers

• Cost drivers are factors that define the
  opportunity for global scale or scope economics,
  sourcing efficiencies reflecting differences in
  costs between countries and regions, and
  technology advances. They shape the economics of
  an industry.
• In many different industries, the minimum sales
  volume required for cost efficiency might not be
  available in a single country or region anymore.
• Example Pharmaceutical industry
• The development of many new drugs can no longer
  be justified on the basis of the economic returns
  from a single country.
• Exploiting differences in costs for product
  development, manufacturing, and sourcing in
  different parts of the world have become critical
  to success. (RD)
• Determining which parts of the value chain are
  your cost drivers also assists in assessing the
  need for mergers and acquisitions and guides the
  development of key alliances.

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Competitive Drivers

• Competitive drivers are defined by the actions of
  competing firms--the extent to which competitors
  from different continents enter the market,
  globalize their strategies and corporate
  capabilities, and create interdependence between
  geographical markets.
• The globalization potential of an industry is
  also influenced by competitive drivers such as
• (1) the degree to which total industry sales are
  made up by export/import volume
• (2) the diversity of competitors in terms of
  their national origin
• (3) the extent to which major players have
  globalized their operations and created an
  interdependence between their competitive
  strategies in different parts of the world
• Some useful questions to ask when analyzing
  global competitive drivers are
• How many competitive arenas does our company
  compete in?
• Do we mainly face the same competitors in
  different parts of the world?
• Do competitors employ similar strategies in the
  different arenas?
• How necessary is it to coordinate competitive
  responses on a global scale?

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Government Drivers

• Government drivers include such factors as
  favorable trade policies, a benign regulatory
  climate, and common product and technology
  standards. The presence or absence of these
  factors have a direct influence on a companys
  global strategic options.
• As the politics and economics of global
  competition have become more closely intertwined,
  companies are paying greater attention to the
  nonmarket dimensions of their global strategies
  in an attempt to shape the global competitive
  environment to their advantage.
• EXAMPLE Telecommunications industry
• -Falling trade barriers and other deregulatory
  moves have encouraged companies to pursue more
  global approaches to their business. (
  Outsourcing)

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Global Strategy Formulation

• Four types
• Multinational
• International
• Global
• Transnational

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Global Strategy Formulation

• Multinational
• Applicable when customer needs and industry
  conditions vary considerably from country to
  country, and a high degree of localization is
  required
• Ex Nestle- Allows the company to adapt to
  differences in local taste preferences and
  distribution structures
• Most strategic and operating decisions are made
  at the local level

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Global Strategy Formulation

• International
• Industries in which global strategic advantage
  depends on
• 1. Effectively developing new products in home
  market
• 2. Diffuse innovations to foreign markets through
  affiliate organizations
• Example High Technology Companies
• Global or Transnational
• When some degree of standardization is possible
• Example Coca-Cola, McDonalds
• Some parts of the value chain are standard and
  others are tailored to local needs
• Implementation can be hard due to difficult
  coordination

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Global Strategy Dimensions

• 1. Market Participation
• 2. Standardization/Positioning
• 3. Activity Concentration
• 4. Coordination of decision making
• 5. Non-market factors

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Market Participation

• It is too expensive to enter every market
  available
• Companies must weigh the relative advantages of a
  direct or indirect presence
• Midsize companies- key is to create a worldwide
  resource network through alliances
• Good strategies- highly selective in
  participation, realistic target market and profit
  objectives, and balance stretch with current
  capabilities

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Market Participation, Continued

• Must Markets
• Markets in which a company must compete to
  realize its global ambitions
• Nice-to-be-in Markets
• Desirable, not critical
• Other factors
• Developing global presence takes time resources
• Pace of international expansion depends on
  customer demand

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Standardization/Positioning

• Motivations for standardization
• Reducing cost enhancing quality
• Adopting a more global market positioning is
  another form of standardization
• Ex Disney, IBM Global Branding

Global Mix Global Offer
Global Message Global Change
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Global Branding Matrix
MESSAGE
Standardized
Tailored
Global Mix Global Offer
Global Message Global Change
Standardized
OFFER
Tailored
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Activity Concentration

• Companies must ask themselves 3 questions
• What parts of the value-creation process to keep
  in-house and which to outsource?
• Can we streamline our value-creation process by
  eliminating duplicate operations in other parts
  of the world?
• Can we relocate value added activities to more
  cost-effective locations?

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Coordination of Decision Making

• Involves aligning company resources (management,
  capital, and personnel) to work towards a common
  goal in order to collectively answer important
  questions
• What markets do we participate in?
• How should resources be allocated?
• How do we compete?
• Many companies have found that integrating and
  coordinating activity on a global scale is at
  least as important as control (SAVFTT pg. 188)

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Nonmarket Demensions

• Increasingly, global corporate success is
  influenced by nonmarket factors that are governed
  by social, political, and legal arrangements.
  Different countries have vastly different
  political, economic, and legal systems. An
  effective global strategy addresses both
  elements it has market dimensions that seek to
  create value through economic performance and
  nonmarket strategy dimensions aimed at unlocking
  competitive opportunity.

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Entry Strategies

• Exporting low risk, but has high costs when
  compared to the small amount of control over
  marketing and distribution. Does not allow
  firsthand experience in staking out a competitive
  position abroad.
• Licensing low cost and carries limited risk,
  but issuing firm has low control and limited
  returns.
• Joint Ventures allow risk sharing and give the
  firm some degree of flexibility. Profits must
  also be shared.
• Acquisitions/Startups the ultimate commitment.
  Firm has all the risk, but if successful enjoys
  all the return.

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International Entry Strategies
Start-up
Joint Ventures
Ownership
Licensing
Exports
Entry Cost
SAVFTT Page 190
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Region/Country Analysis

• Political and Social Systems
• Openness
• Product Markets
• Labor Markets
• Capital Markets

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Wal-Mart Global Opportunity

• Driven by need to grow.
• Relation between employees and stock.
• Two key resources that aided global expansion.

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Wal-Mart Target Markets

• Stages of expansion.
• Stage 1 1991-1995
• Stage 2 1996 to present

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Mode of Entry

• Wal-Mart
• Chose an acquisition to enter Canada.
• Very similar markets.
• Used a 50-50 Joint venture to enter Mexico
• Needed to expertise of Mexicos largest retailer,
  Cifra, due to the income and cultural
  differences.
• Chose two different strategies in South America.
  Went with a 60-40 joint venture in Brazil and a
  wholly owned subsidiary in Argentina.

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Global Transfer of Skills

• Wal-Mart was able to get Canadas Woolco out of
  the red by using a US model. Within three years,
  they were the leading discount retailer in
  Canada.
• The transition included Wal-Mart sending a team
  to help employees understand the Wal-Mart way,
  renovating every store, and familiarizing
  customers with low prices, good customer service,
  and a broad mix.

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Local Adaptation

• Wal-Mart had many difficulties in China and had
  to experiment many different approaches that
  would best align with the Chinese culture.
• There were low levels of disposable income and
  unpredictable government policies and regulations
  they had to deal with.
• Adaptations was vital. Wal-Mart created smaller
  stores, hybrid stores, carried more products and
  different foods.

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Local Competition

• Acquiring a dominant player.
• Wetkauf hypermarket chain in Germany. Competing
  against them would not have been a good strategy.
• Acquiring a weak player.
• Woolco in Canada. Is a good strategy if the
  company can turn the weak player into a strong
  player.
• Launching a frontal attack on the incumbent.
• Carrefour in Brazil. Created a price war,
  especially with food, so Wal-Mart had to focus on
  customer service and merchandise mix. Only a good
  strategy if you have a huge competitive
  advantage.

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Gains and Setbacks

• Wal-Marts international stores account for
  around 40 of their stores, but less than 25 of
  their profits. Its a huge playground so to
  speak. Their global strategies have not always
  been successful though
• Wal-Mart in Germany. Had to sell its stores and
  lost over 1 billion because they were not able
  to achieve the economies of scale they needed.

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Global Strategy and Risk

• Political Risk relates to politically induced
  actions and policies initiated by a foreign
  government
• Can be broken into two sub-categories Global
  risk and country-specific risk
• Legal Risk is assessed by analyzing the
  foundations of a countrys legal system and
  determining whether or not the laws are properly
  enforced
• Numerous countries have laws protecting
  multinationals rights, but are rarely enforced

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Global Strategy and Risk

• Financial/Economic Risk comparable to operating
  and financial risk at home
• Currency competitiveness and fluctuation
• Societal/Cultural Risk involves understanding
  elements such as the standard of living,
  patriotism, religious factors, or the presence of
  charismatic leaders.

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Global Strategy and Risk

• Exploiting Similarities and Differences
• How much to adapt the business modelhow much to
  standardize from country to country versus how
  much to localize to respond to local
  differencesdefines global strategy in terms of
  exploiting similarities.
• A single focus on possible tradeoffs between
  global scale economies and local considerations
  obscures strategic opportunities bases on the
  exploitation of differences.
• arbitrage