Session 2: Understanding the International Context Responding to Conflicting Environmental Forces

Three Often Conflicting Sets of External Demands Forces for national differentiation and responsiveness Forces for cross-border integration and coordination Forces for worldwide innovation and learning

Forces for Local Responsiveness Cultural differences Consumer tastes and preferences Ways of doing business National infrastructure Technical standards (e.g., voltage, TV broadcast, etc.) Distribution channels (e.g., supermarkets vs. bazaars) Government demands National laws and regulations (e.g., advertising of certain products) Host country pressures and demands (e.g., trade barriers, local content requirements) Local competitors Appeal to nationalism (e.g., buy local)

Forces for Global Integration and Coordination Economies of Scale Economies of Scope Factor Costs Increasingly Liberalized Environment for Trade Technological and Competitive Disruptions

Forces for Worldwide Innovation and Learning Increased need for rapid and coordinated worldwide innovation driven by: Shortening product life-cycles (e.g., PDAs) Increased cost of R&D (e.g., aircraft) Emergence of global technology standards (e.g., ISO, Bluetooth) Competitors’ ability to develop and diffuse innovation globally

Responding to Diverse Forces Strength of forces vary by industry; three typical models Global industries > global standardization strategy (consumer electronics, semiconductors, aerospace) Multinational industries > localization strategy (branded packaged goods) International industries > home replication strategy (telecom, some software products)

Global & National Forces: Integration/Responsiveness Framework Pressures for Global Integration Pressures for National Responsiveness Aerospace; consumer electronics Telecom switching Branded packaged goods Purely domestic industries?

Transition to Transnationality By 1990s environmental forces undergoing change New bases of competition emerging New competitors rising on the basis of different competitive capabilities Increasingly industries were becoming transnational Companies needing to respond to all three diverse and competing sets of forces: global integration, national responsiveness, and worldwide learning

Evolving Strategic Perspectives High Global Transnational Global Integration International Multinational Low Low High National Responsiveness

Evolving Strategic Perspectives : International to Transnational International Perspective: Leverages its domestic capabilities worldwide; managed as a coordinated federation; R&D, product development centralized, some manufacturing, marketing decentralized; minimal local customization. Multinational Perspective: Overseas markets viewed as a portfolio of local opportunities; managed as a decentralized federation; customized products/services matched to tastes/preferences of national markets. Global Perspective: Views world as a single marketplace; operations managed centrally; global standardization of products/services to achieve economies of scale, lower costs. Transnational Perspective: Simultaneously responds to local needs, global demands, and cross-border learning opportunities; managed as an integrated network.

Class Exercise: Evolution of strategy at Procter & Gamble Read the mini-case on P&G and answer the following: What strategic perspective did P&G adopt when it first entered foreign markets in the period up until the 1980s? Why do you think this strategy became less viable in the 1990s? What strategic perspective does P&G appear to be moving toward? What are the benefits of this strategy? What are the potential risks?

Global Wine Wars: Teaching objectives Analysis of a globalizing industry. Links between industry transformation and competitive strategy. How strategies of new entrants can change the “rules of the game” in an industry. Importance of competitive clusters; linkages between firms, industries and governments.

Case discussion: Some key issues For France: Subsidies? AOC designations? Government regulations? For Australia: “Cheap & cheerful” image? Low cost competitors (Argentina, Chile)? For the US: How to defend the market? Lack of cost competitiveness? How to recapture the loyalty of Generation Y?

Global Wine Wars: Key Lessons Virtually all industries (not just scale intensive or hi-tech ones), are being transformed by globalizing forces that change industry structure and dynamics, often in just a few years. These forces reflect a mix of pressures for cross-border integration and coordination of activities, pressures for national differentiation and responsiveness, and pressures for rapid innovation and learning (I/R framework). Environmental pressures often shift over time, sometimes quickly, driven by changes in technology, consumer preferences, and competitive moves by incumbent firms These shifts cause competitive clusters to evolve over time; new clusters often emerge while old ones decline. Using the I/R framework’s 2 x 2 matrix, trace the movement of the wine industry from the mid-18th century to the present time. In what direction has it moved on the 2 x 2 matrix?