Globalisation and Strategy Business Strategy

Defining Globalisation Globalisation: A Preliminary Definition “an unprecedented compression of time and space reflected in the tremendous intensification of social, political, economic, and cultural interconnections and interdependencies on a global scale.” Stegler, p. ix

Defining Globalisation The dictionary definition is a great deal drier. Globalisation (n) is the "process enabling financial and investment markets to operate internationally, largely as a result of deregulation and improved communications" (Collins) or - from the US - to "make worldwide in scope or application" (Webster).

Distance mattered—space often measured in time Territorial boundaries more or less kept things in and out Society and culture had spatial referents Everything had its “place” (literally) One way to approach this: think about the world before globalization

In a Globalised world Distance becomes almost irrelevant (the end of distance) Boundaries are increasingly permeable. Groups and cultures increasingly don’t have a territorial basis (deterritorialization) A new kind of non-physical “place” is emerging (supraterritoriality)

Globalisation Definition: –An economic phenomenon? –A social phenomenon? –A cultural phenomenon? The movement towards the expansion of economic and social ties between countries through the spread of corporate institutions and the capitalist philosophy that leads to the shrinking of the world in economic terms.

The increasing reliance of economies on each other The opportunities to be able to buy and sell in any country in the world The opportunities for labour and capital to locate anywhere in the world The growth of global markets in finance Integration of Economies

Question. If a British firm decided to expand its operation to France, by opening bases, shops and employing French workers. Would the organisation need to change at all? Could the organisation operate in the same way as in the UK? What would be different?

Answer What could be different? –Laws and Legislation (min wage, employment law, working hours) –Employee Culture –Management Styles –Consumer trends –Lifestyles

Integration of Economies Made possible by: –Technology –Communication networks –Internet access –Growth of economic cooperation – trading blocs (EU, NAFTA, etc.) –Collapse of ‘communism’ –Movement to free trade

Drivers of Globalisation Technological Basic technologies: Sea, Rail, Road, Air travel used for commerce and leisure.Basic technologies: Sea, Rail, Road, Air travel used for commerce and leisure. Communication technologies reduce relevance of physical place - dispersed value chains, virtual working.Communication technologies reduce relevance of physical place - dispersed value chains, virtual working. Internet and ICT convergence - access to global markets.Internet and ICT convergence - access to global markets. Television - creation of mass markets, branding.Television - creation of mass markets, branding. Technological enabling of mass production techniques.Technological enabling of mass production techniques.

Drivers of Globalisation Economic and Financial Financial flows enabled by technology.Financial flows enabled by technology. Organisational development - e.g. M&A activity.Organisational development - e.g. M&A activity. Increased competition.Increased competition. Foreign Direct Investment incentives.Foreign Direct Investment incentives. Economic development of eastern Europe - acceptance of free market economics.Economic development of eastern Europe - acceptance of free market economics. Demand factors - convergence of consumer needs?Demand factors - convergence of consumer needs?

Drivers of Globalisation Political and Legal Political and historical expansion of Europe.Political and historical expansion of Europe. Role of nation state - is globalisation a post-modern phenomenon?Role of nation state - is globalisation a post-modern phenomenon? De-regulation of western and formerly controlled economies.De-regulation of western and formerly controlled economies. Privatisation.Privatisation. Political and legal recognition of IPR.Political and legal recognition of IPR. Regulatory homogenisation of technical standards.Regulatory homogenisation of technical standards. Trans-national actors - IMF, WTO. NAFTA, EU - exertion of pressures.Trans-national actors - IMF, WTO. NAFTA, EU - exertion of pressures.

Drivers of Globalisation Socio-Cultural Factors Communication Media - Internet; Television; Mobiles.Communication Media - Internet; Television; Mobiles. Increased migration between societies.Increased migration between societies. Increased tourism.Increased tourism. Consumerism.Consumerism. Breaking down of traditional identity.Breaking down of traditional identity. Commodification of culture.Commodification of culture. McDonaldisation (Ritzer, 1993).McDonaldisation (Ritzer, 1993). Homogenisation or Hybridisation?Homogenisation or Hybridisation?

–Increased choice –Greater potential for growth –Increase international economies of scale –Greater employment opportunities Trade Advantages of TradeDisadvantages of trade: –Increase in gap between the rich and the poor –Dominance of global trade by the rich, northern hemisphere countries –Lack of opportunities for the poor to be able to have access to markets –Exploitation of workers and growers

Corporate Expansion Multi-national or trans-national corporations (MNCs or TNCs) – businesses with a headquarters in one country but with business operations in a number of others. BP Royal Dutch Shell Wal-Mart etc

Corporate Expansion Characteristics: –Expanding revenue –Lowering costs –Sourcing raw materials –Controlling key supplies –Control of processing –Global economies of scale Controlling supplies may be one reason for global expansion. Copyright: rsvstks, stock.xchng

Corporate Domination Key Issues: –Damage to the environment? –Exploitation of labour? –Monopoly power –Economic degradation –Non-renewable resources –Damage to cultures Shell and Nike’s activities have come under severe criticism in some quarters. Copyright: Homsel, stock.xchng

Other Issues: Accountability of Global businesses? Increased gap between rich and poor fuels potential terrorist reaction Ethical responsibility of business? Efforts to remove trade barriers There are plenty of people who believe that globalisation is a negative development, protests at the G8 summits, pollution, poverty and concern over GM crops are just some of the issues.

Fundamental Issues in Strategy Around the Globe Why do firms differ? How do firms behave? What determines the scope of the firm? What determines the international success or failure of firms?

Why Do Firms Differ? Western firms (US/UK vs. German/French) –Have different (shorter- versus longer-term) planning horizons. Japanese firms –Are different from Western firms. Firms from emerging economies (e.g., China, Korea, Russia) –Are also different. The challenge is to understand the roots of these differences when trying to compete globally.

What Determines the International Success or Failure of Firms? Acquiring and leveraging competitive advantage The Key: Sustaining such an advantage over time and across countries (regions) through replication and innovation.

Market Globalization Drivers Common customer needs Global customers Global market channels Transferable marketing

Strength of Market Drivers High Baked Goods Retail Banking Toothpaste Soft Drinks Automobiles Computers Aircraft Multidomestic Global Beer?

Government Globalization Drivers Unrestrictive trade and investment policies Compatible technical standards Common marketing regulations

Competitive Globalization Drivers High two-way trade / cross-border FDI Global competitors Interdependence among countries –Policy Link –Trade/Investment Link –Management Link

Globalisation and Localisation Local responsiveness - differences in: - –Market structure –Customer needs –Buying behaviour –Substitutes –Distribution channels –Media structure –Infrastructure –Supply structure –Government regulations

Perspectives on the International Context Global convergence –Driven by the ease, low cost and frequency of international communication, transport and travel –Globalising companies are both the consequence and a driver of further global convergence International diversity –Although there is global convergence, new systems and developments create international divergence –An opportunity to be exploited as each country’s differences may create innovations

Global Convergence versus International Diversity Emphasis on Globalisation over localisation Localisation over globalisation International varietyGrowing similarityRemaining diversity International linkagesGrowing integrationRemaining fragmentation Major driversTechnology and communication Cultural and institutional identity Diversity and fragmentation Costly, convergence can be encouraged Reality, can be exploited Strategic focusGlobal scale synergiesLocal responsiveness Organisational preference Standardise/centraliseAdapt/decentralise Innovation processCentre for globalLocally leveraged Organisational structureGlobal (centralised hub)Transnational (integrated network)