I 1

cchapter r h ap t e

Strategizing Around the Globe

Part I: Foundations of Global Strategy

Global Strategy
Mike W. Peng
Copyright 2009 Cengage. All rights reserved. PowerPoint Presentation by John Bowen, Columbus State Community College

Outline
Why study global strategy? What is strategy? Fundamental questions in strategy What is global strategy? What is globalization? Global strategy and globalization at a
crossroads

Copyright 2009 Cengage. All rights reserved.

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Why Study Global Strategy?

Job and career aspiration opportunities Awareness of what is going on in the world Avoid downside risks of globalization

Copyright 2009 Cengage. All rights reserved.

13

Why Globalise?
Converging consumer preferences Increased competition Reduction of barriers to trade "Globally integrating the enterprise means you
disregard boundaries and conduct work using skill and resource wherever you find it. That concept is now expanding because of the level playing field created by the web. Doug Elix [IBM] (Nason 21 June 2006)

Globalisation
Four groups of industry globalisation drivers (market, cost, government, and competition) represent the industry conditions that determine the potential and need for competing with a global strategy George Yip 2002

Industries may be forced into competing with a

global strategy to survive. Or may gain a competitive advantage by competing with a global strategy.

Four Main Globalisation Drivers

Market Cost Government Competitive Other
Behaviour, distribution, marketing Economics of the business Governmental rules Competitors actions Technological advancements

Planning to Plan

Implementation Considerations

Values Audit

Environmental Scanning

Start Again

Vision Formulation

Mission Formulation

Contingency Planning

Strategic Plan Formulation

Integrating Functional Plans

Implementation

Strategic Planning Model

Organisation Objectives Start Again

Internal Corporate Appraisal Start Again

Environment Analysis

Consideration of Alternative Strategies Choice of Best Strategy Implementation of Chosen Strategy Evaluation of Strategy

Individual Values Organisational Values Philosophy of Operations Organisational Culture Stakeholder Analysis

Excellent leaders begin with a vision. You have a vision of something new. Without a vision there is not sufficient energy to carry on in the face of insurmountable objects. It is the vision that creates the spark to start the motor, but it is the practical act of planning that actually gets things running. BUT Political supporters and financial backers do not lend support on the basis of a dream

Ultimately, vision gets translated into profits but the numbers come after the vision, like at lend lease here. In older style companies, the numbers are the vision. Dick Dusseldorp, Chairman and Founder of Lend Lease

My vision for Qantas is the development of a very positive and distinct way of behaving and working within our own structure, and outwards towards customers, which will create such a level of enthusiasm and personal participation that everyone of our people will look forward to coming to work every day, anticipating playing their important individual part within a large and complex operation, and at the end of the day feel satisfaction, recognition and pride in the results provided for customers by their own contribution and the group as a whole James Strong Chief Executive, Qantas

Mission What Business am I in? What Business should I be in? How do I want to do business? What would happen if my organisation ceased to exist? Would anybody know?

Relevance Practicality Challenge Measurability Schedulability Balance

Flexibility Timeliness State of the art Growth Cost Effectiveness Accountability

It is useful to consider the extent to which organisations differ in terms of characteristics such as:
Technological leadership

R&D capability Cost position

(extent of innovation in product or process)

(extent of investment in cost reduction)

Utilisation of capacity Pricing policy Level of gearing Ownership structure

(separate company or relationship with parent) (e.g.government, the City)

Relationship to influence groups Size of organisation

What is Strategy?
Origin-Greek word (strategos)-art of the general
 Sun Tzu, Chinese military strategist in 500 B.C.  Alexander the Great, military Genius in about same time B.C.  Modern-day application to business and competition dates to the 1960s

Strategy should give coherence to decisions and actions Managers must exert effective strategic leadership Plan versus Action - strategy is explicit, rigorous formal
planning versus a set of flexible, goal-oriented actions

Strategy as Theory-how to compete successfully

 Firms have both intended and emergent strategies  One firm s strategies may not work in all situations  Past success does not guarantee future success  It is often difficult to change strategy
Copyright 2009 Cengage. All rights reserved. 118

Strategy
STRATEGY AS PLAN
 Concerned with drafting the plan of war and shaping the individual campaigns and, within these, deciding on the individual engagements (Von Clausewitz, 1976)1  A set of concrete plans to help the organization accomplish its goal (Oster, 1994)2

STRATEGY AS ACTION
 The art of distributing and applying military means to fulfill the ends of policy (Liddel Hart, 1967)3  A pattern in a stream of actions or decisions (Mintzberg, 1978)4  The creation of a unique and valuable position, involving a different set of activities ... making trade-offs in competing ...creating fit among a companys activities (Porter, 1996)5

STRATEGY AS INTEGRATION
 The determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals (Chandler, 1962)6  An integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage (Hitt, Ireland, and Hoskisson, 2003)7
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The Essence of Strategy

Figure 1.2
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Our definition: Strategy as theory

Integrating both planning and action schools Leveraging the concept of theory
 A theory serves two purposes: Explanation and prediction

Requiring replications and experimentations

 To establish the temporal (time-related) and geographic limits of an existing theory

Understanding the difficulty of strategic change

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121

Fundamental Four Questions in Strategy

Why do firms differ?
 Cultural differences between Western firms and Japanese companies  Networks of relationships have powerful effect - keiretsu, guanxi, chaebol, blat

How do firms behave?

 Industry-based view - focus on competitive forces within an industry that
impact all firms  Resource-based (capabilities) view - focus on internal strengths and weaknesses, firm specific resources and capabilities  Institution-based view - focus on government and societal forces

What determines the scope of the firm? What determines the international success or failure of firms?
 Industry-based view - degree of competitiveness in the industry  Resource-based view - firm specific differences in capabilities  Institution-based view - institutional forces, such as economic reforms and government policy
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The Strategy Tripod Three Leading Perspectives on Strategy

Figure 1.3
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What Is Global Strategy?

Provide standardized products and/or services
on a worldwide basis (i.e., traditional view) Any strategy outside ones home country Our definition of global strategy:
 Strategies of firms around the globe  Both international and non-international (domestic)  Both developed and emerging economies

Copyright 2009 Cengage. All rights reserved.

124

What is Globalization?
A new phenomenon since the late 20th century? A part of long-run human history? A pendulum view: Transportation and
communication revolutions + breakdown of artificial barriers in trade and investment
A

process similar to the swing of a pendulum: Postwar history  Semiglobalization?

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125

Global Strategy and Globalization at a Crossroads

Four Defining Events - have brought corporate
social responsibility, ethics, and governance to the forefront of strategic decisions
 Anti-globalization protests - lost jobs, downward pressure on wages for unskilled labor, environmental destruction  Terrorist attacks  Corporate governance crisis (Asian financial crisis, U.S. scandals)  Financial Melt down and the Sub-Prime Credit in USA
Copyright 2009 Cengage. All rights reserved. 126

Global Strategy and Globalization at a Crossroads, Contd.

Know Yourself, Know Your Opponents
 Understand strengths AND limitations  Recognize the social, political, and environmental costs associated with globalization  Current business school students exhibit values and beliefs different from the general public  Be aware of bias and strategic blind spots  Do not ignore non-government organizations (NGOs)view them as partners
Copyright 2009 Cengage. All rights reserved. 127

Anthropocentric worldview
Most common worldview in industrialconsumer societies;

Typically includes the following beliefs:

we are most important species & in charge of the rest of nature; there is always more (unlimited resources); all economic growth is good & limitless; our success depends on how well we can understand & manage the earth for our benefit.
Copyright 2009 Cengage. All rights reserved. 128

Total Global Strategy

Global strategy is defined as the strategy of firms around the globe (Peng, M. W., 2006) and is essentially a firms strategy on how to compete successfully. A successful total global strategy consists of three essential components:

1. Developing the Core Strategy 2. Internationalising the Core Strategy 3. Globalising the International Strategy

1. Developing the Core Strategy

A core strategy includes several elements:
 Selection of product/service(s) to offer  Types of customer the business serves  Geographical markets  Sources of sustainable advantage  Functional strategy for most important value-adding activities  Competition to target  Investment strategy

it is better to devote limited resources to sustaining an advantage in a narrowly defined business than to overspread resources so that no advantage is sustained.

2. Developing an Internationalisation Strategy

When a business expands outside its home market it needs to internationalise its core business strategy. Issues include:

Identifying and evaluating new markets Analyzing the effect of expansion on organisational structure Barriers to trade (tariffs, foreign ownership rules, laws) Cultural differences (language, taste, behavior) Problems relating to adaptation of strategy

Companies usually end up with large differences in their strategies between countries; these can weaken their worldwide cost position, quality, customer preference and competitive leverage.

3. Developing a Globalisation Strategy

Ways to differentiate a global strategy are know as global strategy levers. E.g. Use of globally standardised products. A worldwide business must set its global strategy levers appropriately relative to the industry drivers, and relative to the position and resources of the business and its parent company. Ability to implement the formulated global strategy also affects how well benefits can be achieved.

Global Strategy Levers

There are five dimensions which can be used to customise strategy known as Levers, these are:
    

Market participation. Products and Services. Activity Location. Marketing. Competitive modes.

These allow the business to find a balance between:  Multi-local (flexible)  Global (efficient)

Multi-Local Strategy
(Decentralised)

Market Participation: Countries are selected based

on their potential revenues and profits. Products and Services: Tailored to local needs. Lacks the cost reduction of a standardised system. Activity Location: All or most of the value chain is reproduced in every country (unlike exporting). Marketing: Tailored marketing and brand name strategies. Solutions can contain a mixture of both Global and Multi-local strategies. Competitive Modes: Strategies are implemented to battle with competitors individually for each country.

Global Strategy
(Centralised)

Market Participation: Countries are selected based on their

potential contribution to globalisation benefits. This may mean entering a market that is unattractive but has a global significance. Products and Services: Generally a global product standardisation to benefit from economies of scale. Activity Location: Value chain is broken up and is performed in whichever country it can be done most efficiently. Marketing: Uniform marketing approach is applied around the world. Global branding offers recognition and quality assurance, allowing for easier market penetration. Competitive Modes: Competitive moves are integrated across countries. Moves are made at the same time or in sequence across all countries.

Benefits of Global Strategy

1. 2. 3. 4. Cost Reduction Improved Quality of Products and Programs Enhanced Customer Preference Increased Competitive Leverage

1. Cost Reduction
Economies of Scale Lower Factor Costs Focused Production Flexibility Increased Bargaining Power

2. Improved Quality of Products and Programs

Global strategy reduces the variety of products Allows firms to focus on its core competencies Improves quality

3. Enhanced Customer Preference

A supplier that provides the customer with a
standard product around the world benefits from the worldwide familiarity

Enhancing customer preference results from

Global availability Global Serviceability Global recognition

4. Increasing Competitive Leverage

Global strategy better prepares business against

competition

Enter new markets

Flexibility
Move production

Drawbacks

Increased costs Unsatisfied customers Currency risk Over standardisation Forced to compete unprofitably

Finding A Balance

National Strategic Disadvantage

too globalised relative to the potential of the industry

Global Strategic Disadvantage

Under globalised relative to the potential of the industry (more prevalent problem)

Globalisation Backlash
Protests against large multinational companies
and globalisation Must take into account social, economical and cultural impact Must endeavour to act global but talk local

Globalisation Challenges

Globalisation placed in question Demography Asymetric Development Emerging Economies Regional blocks Ethnical , religious and cultural frictions Global Criminal Activities, Security Natural Resources and Environment Pandemic Security Global Risks Technological Developments

Scenarios

The Future of the Global Firm

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Globalisation in Question Joseph Stiglitz

Despite a booming China and an on-the-make India, growth has been slower than expected in much of the rest of the world. Globalization was expected to lead to greater worldwide stablity. What it has resulted in instead has been dozens of financial crises. Globalization was supposed to encourage money to flow from the rich world to the poor one. In fact, money has been flowing in the opposite direction. Globalization was expected to be an equalizer of incomes. As things have played out, though, inequality has increased dramatically not only between countries but within countries. The income of the U.S.'s lower classes, for instance, has actually decreased over the last 30 years.

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Globalisation in Question Arguments Against Globalisation

Imposes massive strain on labour force both in developed countries (job destruction) and developing countries (sweatshops, child labour) Standardises customer tastes. Reduces diversity Induces concentration of power in a few global corporations Introduces a jungle leading to the domination of the strongest multinational Introduces a jungle leading to the domination of the strongest multinational Reduces capacity for nations to protect their national interests, cultures and values 46

Globalisation in Question (RISKS)

World Economic Forum, Global Risk 2007: A Global Risk Network Report, (2007) 47

But Globalisation is supposed to go on: International Trade is likely to Grow Faster than World GDP
80
Growth of World GDP 2005-2030 2.9%

72
70 World GDP at 2005 PPP Value (US trilions)

60

57

50

41
40

35
World Exports (US trilions) 27 20
45%

Growth of World Trade 2005-2030 3.6 %

30

20 11
68% 32%

Developed Countries Share of Export (%)

13
55%

10

Developing Countries Share of Export (%)

0 2005 2012 2020 2030

Source: World Bank, Global Economic Prospects: Managing the Next Wave of Globalization, 2007

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The Demographic and Poverty Challenges

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The Demographic Challenges

World Population increases From 6.5 Billion in 2005 to 8 Billions in 2025 and age Population increases

Source: United Nations: Department of Economics and Social Affairs (http://esa.un.org/unpp/) 50

The Demographic Challenges: Urbanisation

Source: National Intelligence Council, Global Trends 2015, 2000

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The Poverty Challenges: Income gap

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The Poverty Challenges: Inequalities

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The Security Challenges: Armed conflicts

Source: United Nations University: 2003 State of the Future, Millenium Project, Chap 1, p 319 54

The Security Challenges: WMD

Countries with Nuclear Weapons Capability Acknowledged: Britain, China, France, India, Pakistan, Russia, United States Unacknowledged: Israel Seeking: Iran, North Korea1 Abandoned: South Africa Constructed but then voluntarily dismantled six uranium bombs. Belarus, Kazakhstan, Ukraine When Soviet Union broke up, these former states possessed nuclear warheads and have since given up.
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The Security Challenges: Terrorism

Total Number of International Terrorist Attacks in 2003

Patterns of Global Terrorism 2003 US Department of State

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The Security Challenges: Money Laundering

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The Cultural Challenges: Clash of Civilizations

The fundamental source of conflict in this new world will not be primarily ideological or primarily economic. The great divisions among humankind and the dominating source of conflict will be cultural ( Samuel Huntington)

Eight major civilizations. Western (European, No. American) Confucian (China and most of SE Asia) Japanese (Shinto, Buddhist, Confucian) Islamic (Arab, Turkic, Malay) Hindu Slavic-Orthodox Latin American African
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The Innovation Challenges: How to improve human conditions?

Benefits?
Controversies?

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The Natural Resources Challenge

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The Global Warming Challenges: How to reduce Carbon Emission?

Source: United Nations University: 2003 State of the Future, Millenium Project, Chap 1, p 11 61

The Global Warming Challenges: How to use renewable energy?

1990-2000 growth (% pa)
10

0 Coal -2 Oil Gas Hydro Nuclear Renewables

Source:Shell
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The rise of modern Management

 End

of the Cold War.  Increased emphasis on domestic issues.  Large organisations downsizing and redefining their missions, functions, and institutions.  Senior Management must now develop strategies for the 2000s and beyond.  Will result in greater effectiveness and efficiency in all organisational activities.  Greater range of global and/or threats and challenges, to achieve their objectives.  Strategic agility to respond rapidly and effectively to global competitiveness.
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Modern Management Challenges

y y y y

Greater risks. Minimizing potential adverse consequences. Maximizing use of scarce resources. Focus on areas where there is a "competitive advantage" over potential competitors. Greater interoperability, flexibility, effectiveness and efficiency through continuous process improvements based on measurable goals. Better management practices applied across all operations, and continuous gains in missioneffectiveness, cost-efficiency, and contribution to organisational objectives.

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Management Levels

Management Levels Management Levels

Strategic Management
Corporate Planning Strategic Processes

Middle Management
Business Planning Tactical Processes

Lower Management
Business Operations Operational Processes
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Five Management Functions

Directing. Planning. Organizing. Controlling. Staffing.

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Lower management

Staffing 40%

Planning 10% Controlling 10%

Directing 10%
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Organising 30%

167

Middle management

Staffing 20% Directing 15% Organising 15%

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Planning 30%

Controlling 20%
168

Top management

Staffing 10% Directing 30% Organising 10%

Planning 20%

Controlling 30%

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169