1. Global Strategy: Competing Around the World
McGraw-Hill/Irwin
Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

2. Part 2 Strategy Formulation
2–2

3. LO 10-1 Define globalization, multinational enterprise (MNE),
LO Define globalization, multinational enterprise (MNE), foreign direct investment (FDI), and global strategy.
LO Explain why companies compete abroad and evaluate advantages and disadvantages.
LO Explain which countries MNEs target for FDI, and how they enter foreign markets.
LO Describe the characteristics of and critically evaluate the four different strategies MNEs can pursue when competing globally.
LO Explain why certain industries are more competitive in specific nations than in others.
LO Evaluate the relationship between location in a regional cluster and firm-level competitive advantage.

4. Hollywood Goes Global Chapter Case 10
Hollywood movie: The quintessential American product
However, non-US sales increased: 50% in 2000,
and 70% in 2010
Altered global strategic focus
Movies that fit the global market by adapting foreign scripts, hiring international actors/actresses…etc.
Treat emerging markets as focal targets
Not just filmmaking industries, but also the electronics industry (example: Korea, China), and auto industry (example: India)
Key questions: How can a company compete effectively in a global market place?

5. What Is Globalization?
Globalization is a process of closer integration and exchange between different countries and peoples worldwide.
Made possible by:
Falling trade and investment barriers
Advanced telecommunications
Reduced transportation costs
Importance of MNEs and FDIs

6. What Is Globalization? Multinational Enterprise (MNE)
Deploys resources and capabilities in the procurement, production, and distribution in at least two countries
Less than 1% of firms, BUT employ 19% of U.S. workforce
74% of private sector R&D spending
Foreign Direct Investment (FDI)
Investments in value chain activities abroad
Global Strategy
To sustain a competitive advantage
Competing against foreign and domestic companies around the world

7. Why Global? Gain access to a larger market
Capitalize on market potential, such as China, India, and emerging economies
Gain access to low-cost input factors
Labor, natural resources, technology, logistics
Managing corporate risk
Leverage core competencies
Develop new competencies
Location economies
Unique locational advantages
INSTRUCTOR: An Interactive video activity is available online through McGraw-Hill Connect on this section of the text. It covers Learning Objective 10.2.

8. Stages of Globalization
STRATEGY HIGHLIGHT 10.1
Stages of Globalization
Globalization 1.0: 1900–1941
Only sales and distribution took place overseas
Globalization 2.0: 1945–2000
Duplicating business functions overseas
Globalization 3.0: 21st century
MNEs become global collaboration networks (see Exhibit 10.2)

9. Globalization 3.0 - Collaboration Networks
EXHIBIT 10.2
Globalization Collaboration Networks
INSTRUCTOR: An Interactive video activity is available online through McGraw-Hill Connect on this section of the text. It covers Learning Objective 10.2.

10. International Sales as % of Total
EXHIBIT 10.3
Data from 2010

11. Does GM’s Future Reside in China?
STRATEGY HIGHLIGHT 10.2
Does GM’s Future Reside in China?
Market opportunity in China
1.4 billion population, only 1 in 100 people owns a vehicle
GM entered China in 1997
Joint venture with Shanghai Automotive Industrial Corp
China is 25% of GM’s revenues and GROWING fast
GM China factories are more productive than U.S. plants
GM’s future relies on China and other emerging economies
$ 250 million on a state-of-the-art R&D center…in Shanghai
Future of GM likely decided in their international HQ…in Shanghai
1–11 11

12. Disadvantages of Expanding Internationally
Liability of foreignness
Additional cost of doing business in an unfamiliar cultural and economic environment
Cost of coordinating across geographic distance
Economic development may increase the cost of doing business
Rising wages with improved living standards
Difficulty in protecting intellectual property

13. LO 10-1 Define globalization, multinational enterprise (MNE), foreign
LO Define globalization, multinational enterprise (MNE), foreign direct investment (FDI), and global strategy.
LO Explain why companies compete abroad and evaluate advantages and disadvantages.
LO Explain which countries MNEs target for FDI, and how they enter foreign markets.
LO Describe characteristics of and critically evaluate four different strategies MNEs pursue when competing globally.
LO Explain why certain industries are more competitive in specific nations than in others.
LO Evaluate the relationship between location in a regional cluster and firm-level competitive advantage.

14. Global Expansion: Where
How does an MNE decide where to go?
National institutions:
Well-established legal and ethical pillars as well as well- functioning economic institutions such as capital markets, banks, and infrastructures
National culture: "Programming of the mind"
Geert Hofstede’s Cultural Dimensions
Power distance
Individualism
Masculinity/femininity
Uncertainty-avoidance
Long-term orientation

15. Corporate Tax Rates
EXHIBIT 10.4
Institutional Difference Matters

16. Global Expansion: How
Exporting: producing goods in one country to sell in another country
Acquisition, strategic alliance are also popular vehicles for entry into foreign markets
MNEs sometime prefers greenfield operations or wholly-owned subsidiaries
Greenfield is building new factories/offices from scratch
Physically and organizationally building from the "ground up."

17. Modes of Foreign Market Entry Investment and Control Continuum
EXHIBIT 10.5
Market Entry along the
Investment and Control Continuum

19. Strategy around the World: Cost Reduction vs. Local Responsiveness
Tailor product and service offerings to fit local consumer preferences and host-country requirements
Higher cost
Example: McDonald’s uses mutton in India
Cost reduction:
MNEs enter global marketplace with the intention to reduce operation cost
Example: Toyota Prius
INSTRUCTOR: An Interactive activity is available online through McGraw-Hill Connect on this section of the text. It covers Learning Objective 10.4.

20. The Integration-Responsiveness Framework
EXHIBIT 10.6
The Integration-Responsiveness Framework
INSTRUCTOR: An Interactive activity is available online through McGraw-Hill Connect on this section of the text. It covers Learning Objective 10.4.

21. Four Global Strategies
International strategy
Leveraging home-based core competencies
Selling the same products or services in both domestic and foreign markets
Example: Selling Starbucks coffee internationally
Localization (product differentiation) strategy
Maximize local responsiveness via a multi-domestic strategy
Consumers will perceive them to be domestic companies
Example: Nestlé’s customized product offerings in international markets

22. Four Global Strategies
Global standardization (cost leadership) strategy
Economies of scale and location economies
Pursuing a global division of labor based on best-of-class capabilities reside at the lowest cost
Example: Lenovo’s R&D in Beijing, Shanghai, and Raleigh; production center in Mexico, India, and China
Transnational strategy
Combination of localization strategy (high responsiveness) with global standardization strategy (lowest cost position attainable)
Example: German multimedia conglomerate Bertelsmann
: Caterpillar’s earth-moving equipment

23. Characteristics, Benefits, and Risks of Four Types of Global Strategy
EXHIBIT 10.7
Characteristics
Benefits
Risk
• Often the first step in
• Leveraging core
• No or limited local
internationalizing.
competence.
responsiveness.
• Used by MNEs with relatively large
• Economies of scale.
• Highly affected
domestic markets (e.g., MNEs from
• Low-cost implementation
by exchange rate
U.S., Germany, Japan).
through:
fluctuations.
International
• Well-suited for high-end products
• Exporting or licensing
• IP embedded in product
Strategy
(such as machine tools) and luxury
(for products)
or service could be
goods that can be shipped across
• Franchising (for services)
expropriated.
the globe.
• Licensing (for trademarks)
• Products and services tend to have
strong brands.
• Main competitive strategy tends to
be differentiation since exporting,
licensing, and franchising add
additional costs.
• Used by MNEs to compete in
• Highest-possible local
• Duplication of key
host countries with large and/or
business functions
lucrative but idiosyncratic domestic
• Reduced exchange-rate
in multiple countries
Localization
markets (e.g., Germany, Japan,
exposure.
leads to high cost of
(Multidomestic)
Saudi Arabia).
implementation.
• Often used in consumer products
• Little or no economies of
and food industries.
scale.
• Main competitive strategy is
• Little or no learning across
differentiation.
different regions.
• MNE wants to be perceived as local
• Higher risk of IP
company.
Expropriation.
INSTRUCTOR: An Interactive activity is available online through McGraw-Hill Connect on this section of the text. It covers Learning Objective 10.4.

24. Characteristics, Benefits, and Risks of Four Types of Global Strategy
EXHIBIT 10.7
Characteristics
Benefits
Risk
Global-
• Used by MNEs that are offering
• Location economies:
• No local responsiveness.
Standardization
standardized products and services
global division of labor
• Little or no product
Strategy
(e.g., computer hardware or
based on wherever best-of-
differentiation.
business process outsourcing).
class capabilities
• Some exchange-rate
• Main competitive strategy is price.
reside at lowest cost.
exposure.
• Economies of scale.
• “Race to the bottom” as
wages increase.
• Some risk of IP
expropriation.
Transnational
• Used by MNEs that pursue an
• Attempts to combine
• Global matrix structure
(Glocalization)
integration strategy at the business
benefits of localization and
is costly and difficult to
level by simultaneously focusing on
standardization strategies
implement, leading to high
product differentiation and low cost.
simultaneously by creating
failure rate.
• Mantra: Think globally, act locally.
a global matrix structure.
• Economies of scale,
location, and learning.
• Higher risk of IP expropriation.
INSTRUCTOR: An Interactive activity is available online through McGraw-Hill Connect on this section of the text. It covers Learning Objective 10.4.

25. Wal-mart Retreats from Germany
STRATEGY HIGHLIGHT 10.3
Wal-mart entered Germany
Acquisition of 21 stores and 74 hypermarkets
Wal-mart duplicated its U.S. policies and applied them in Germany
Employees refused to accept those policies
Wal-mart faced significant cultural differences
Wal-mart could not develop efficient economies of scale and distribution centers to drive cost down
The result is a defeated Wal-mart that sold its stores to Metro, Wal-mart’s key rival in Germany
ALDI, another of Wal-mart’s competitors in Germany, is now expanding aggressively in the U.S.
1–25 25

26. LO 10-1 Define globalization, multinational enterprise (MNE), foreign
LO Define globalization, multinational enterprise (MNE), foreign direct investment (FDI), and global strategy.
LO Explain why companies compete abroad and evaluate advantages and disadvantages.
LO Explain which countries MNEs target for FDI, and how they enter foreign markets.
LO Describe the characteristics of and critically evaluate the four different strategies MNEs can pursue when competing globally.
LO Explain why certain industries are more competitive in specific nations than in others.
LO Evaluate the relationship between location in a regional cluster and firm-level competitive advantage.

27. National Competitive Advantage
Death-of-distance hypothesis
Geographic location alone should not lead to firm-level competitive advantage because firms are now more able to source inputs globally (ex: capital, commodities, etc.) Labor markets also have become more global.
Computer manufacturers – China & Taiwan
Consumer electronics – Japan & South Korea
Mining companies – Australia
Why are certain industries in some countries more competitive than in others?
Answer: National Competitive Advantage
INSTRUCTOR: An Interactive video activity is available online through McGraw-Hill Connect on this section of the text. It covers Learning Objective 10.5.

28. Porter’s Diamond Model of National Competitive Advantage
EXHIBIT 10.8
An embedded video at the bottom of this slide is a five-minute section of an interview with Michael Porter in which he states he is optimistic about America’s future in the world. This video is also available on the DVD available with the textbook.
Porter American
Future Video

29. National Competitive Advantage Framework
Factor conditions
A nation’s endowments in terms of national, human, and other resources as well as supportive infrastructure and institutions.
Demand conditions
Specific characteristics of demand in a firm’s domestic market
Competitive intensity
Highly competitive environments tend to stimulate firms to outperform others (e.g., German car industry)
Related and supporting industry
Leadership in related and supporting industries can also foster world-class competitors in downstream industry
Complementarity
INSTRUCTOR: An Interactive video activity is available online through McGraw-Hill Connect on this section of the text. It covers Learning Objective 10.5.

30. Regional Clusters Regional cluster
A group of interconnected companies and institutions in a specific industry, located near each other geographically and linked by common characteristics
Knowledge spillover
Positive externalities that are regionally constrained
Exchange of ideas among firms in a cluster

31. Mapping a Regional Cluster: Research Triangle
EXHIBIT 10.9
Mapping a Regional Cluster: Research Triangle
INSTRUCTOR: An Interactive activity is available online through McGraw-Hill Connect on this section of the text.

32. Geographical Distribution of Clusters
Boise
Information Tech
Farm Machinery
Wisconsin / Iowa / Illinois
Agricultural Equipment
Boston
Mutual Funds
Medical Devices
Mgmt. Consulting
Biotechnology
Software and
Networking
Venture Capital
Minneapolis
Cardio-vascular
Equipment
and Services
West Michigan
Office and Institutional
Furniture
Western Massachusetts
Polymers
Omaha
Telemarketing
Hotel Reservations
Credit Card Processing
Seattle
Aircraft Equipment and Design
Software
Coffee Retailers
Rochester
Imaging Equipment
Michigan
Clocks
Warsaw, Indiana
Orthopedic Devices
Detroit
Auto Equipment and Parts
Hartford
Insurance
Oregon
Electrical Measuring Equipment
Woodworking Equipment
Logging / Lumber Supplies
Providence
Jewelry
Marine Equipment
New York City
Financial Services
Advertising
Publishing
Multimedia
Silicon Valley
Microelectronics
Biotechnology
Venture Capital
Pennsylvania / New Jersey
Pharmaceuticals
Las Vegas
Amusement / Casinos
Small Airlines
Pittsburgh
Advanced Materials
Energy
North Carolina
Household Furniture
Synthetic Fibers
Hosiery
Los Angeles Area
Defense Aerospace
Entertainment
Wichita
Light Aircraft
Farm Equipment
Cleveland / Louisville
Paints & Coatings
San Diego
Golf Equipment
Biotech/Pharma
Baton Rouge /
New Orleans
Specialty Foods
Dalton, Georgia
Carpets
Dallas
Real Estate Development
Southeast Texas / Louisiana
Chemicals
Nashville / Louisville
Hospital Management
Colorado
Computer Integrated Systems / Programming
Engineering Services
Mining / Oil and Gas Exploration
South Florida
Health Technology Computers
Source: Adapted from Professor Michael E. Porter, Harvard Business School