STRATEGY IN THE GLOBAL Unit 2

ENVIRONMENT
INTRODUCTION TO
GLOBAL STRATEGY
• Definition: A global strategy is an approach
to international business that allows
companies to compete effectively in the
worldwide marketplace.
• Essential elements:
• Coordinated actions across countries
• Integration of competitive moves
• Leveraging Core Competencies Globally
• Importance:
• Expanding market opportunities
• Accessing resources and capabilities
• Achieving economies of scale and scope
GLOBAL AND NATIONAL
ENVIRONMENTS
Globalisation of Production and Markets
• Globalisation of production: Sourcing goods
and services from locations around the
globe to capitalise on national differences in
cost and quality of factors of production.
• Globalisation of markets: The merging of
historically distinct and separate national
markets into one huge global marketplace.
• Example: Apple Inc
• Design products in California
• Sources components from multiple countries
(e.g., displays from Samsung in South Korea,
chips from TSMC in Taiwan)
• Assembles products in China
• Sells in markets worldwide
NATIONAL COMPETITIVE
ADVANTAGE

• Porter's Diamond Model

components:
• Factor conditions
• Demand conditions
• Related and supporting
industries
• Firm strategy, structure, and
rivalry
PORTER – Factor Conditions: These are the nation's resources
and infrastructure, including skilled labour, natural
THE resources, technology, and capital. A strong
foundation in these factors provides the necessary

COMPETITIVE inputs for businesses to thrive.

Demand Conditions: The nature of domestic

ADVANTAGE demand for an industry's products or services plays a
crucial role. Sophisticated and demanding customers
OF NATIONS force companies to innovate and improve quality to
stay competitive.
Related and Supporting Industries: Strong related
and supporting industries create clusters of
excellence. These clusters foster a culture of
knowledge sharing and collaboration, where each
entity benefits from the collective knowledge and
expertise, enhancing overall competitiveness.
PORTER – THE COMPETITIVE
ADVANTAGE OF NATIONS
• Firm Strategy, Structure, and Rivalry: The
domestic competitive environment and how companies
are structured and managed influence their
performance. Intense rivalry at home forces companies
to strive for efficiency and innovation, preparing them
for global competition.
Example: German Automotive Industry
• Factor conditions: Skilled labor, advanced infrastructure
• Demand conditions: A sophisticated domestic market
demanding high-quality cars
• Related industries: Strong machine tool and component
manufacturers
• Firm strategy: Focus on engineering excellence and
innovation
• Result: Global leadership in luxury and high-
performance automobiles (e.g., Mercedes-Benz, BMW,
Porsche)
GLOBAL Firms that operate internationally can:
• Expand their markets for their domestic product offerings

EXPANSION, by selling those products in international markets

• One key benefit of international operations is the

PROFITABILIT realisation of location economies. Companies can ensure

optimal resource utilisation and cost-effectiveness by

Y, AND
strategically dispersing value-creation activities to
locations where they can be performed most efficiently.
• Realise more significant cost economies from experience
PROFIT effects(The experience effect states that the more
experience a firm has in producing a particular product or
GROWTH service, the lower its costs become) by serving an
expanded global market from a central location, thereby
reducing the costs of value creation.
• Earn a more significant return by leveraging valuable
skills developed in foreign operations and transferring
them to other entities within the firm’s global network of
operations.
GLOBAL Strategies for product
EXPANSION – Standardisation:leveraging:
Adaptation: Innovation:
Offering the Modifying Creating new

LEVERAGING
same product products for products for
globally local markets global markets

PRODUCTS

Case study: Netflix

Standardisation:
Adaptation:
The core Innovation:
Content
streaming Creating Netflix
libraries tailored
platform Originals for
to local
remains global and local
preferences and
consistent audiences
regulations
globally
REALISING COST ECONOMIES
FROM GLOBAL VOLUME
• Economies of scale: Reduction in per-unit cost
as the scale of output increases
• Economies of scope: Cost savings from
producing a wide range of products in one firm
• Example: Toyota Motor Corporation
• Global production network allowing for high-
volume manufacturing
• Shared platforms and components across
multiple models
• Just-in-time production system reducing inventory
costs
REALISING LOCATION
ECONOMIES
• Definition: Benefits firms derive from locating value-
creation activities in the optimal location
• Factors influencing location economies:
• Labor costs
• Availability of skills and knowledge
• Infrastructure quality
• Proximity to markets or resources
• Case study: Nike
• Design and marketing centred in Oregon, USA
• Manufacturing outsourced to countries with cost-
effective labour (e.g., Vietnam, Indonesia)
• Regional distribution centres are strategically
located for efficient market access
LEVERAGING COMPETENCIES OF GLOBAL SUBSIDIARIES
Importance: Utilising diverse skills and knowledge
across global operations

Strategies:

• Knowledge sharing platforms

• Global talent mobility programs
• Cross-functional and cross-regional teams

Example: Unilever

• Global innovation centres (e.g., UK, Netherlands, India, China)

• Local market research teams feeding insights to global product
development
• Cross-pollination of ideas through employee rotation programs
COST PRESSURES IN
GLOBAL STRATEGY
• Sources of cost pressure:
• Global competition
• Technological advancements
• Consumer expectations for value
• Strategies for cost reduction:
• Economies of scale and scope
• Offshoring and outsourcing
• Process optimisation and automation
• Example: Walmart
• Leveraging enormous buying power
to negotiate with suppliers
• Investing in supply chain efficiency
and automation
• Developing private-label brands to
offer lower-cost alternatives
 PRESSURES FOR LOCAL
RESPONSIVENESS
• Factors driving local responsiveness:
• Differences in consumer tastes and preferences
• Variations in infrastructure and traditional
practices
• Host government demands
• Strategies for local responsiveness:
• Product customisation
• Marketing adaptation
• Localised decision-making
• Case study: McDonald's
• Menu adaptations: Teriyaki McBurger in Japan,
McVeggie in India
• Marketing campaigns tailored to local cultures and
events
• Localised sourcing and partnerships (e.g., Halal
meat in Muslim countries)
Complex
Strategic
Challenges as
they face
high pressure
on both
dimensions
 CHOOSING A GLOBAL STRATEGY
Given the need to balance the cost and differentiation sides of a
company’s business model, how do differences in the strength of
pressures for cost reductions versus those for local responsiveness
affect the choice of a company’s strategy?

Global Standardisation Strategy

Companies typically choose among
Localisation Strategy
four main strategic postures when
Transnational Strategy
competing internationally:
International Strategy

The appropriateness of each strategy varies with the extent of

pressures for cost reductions and local responsiveness
GLOBAL STANDARDIZATION STRATEGY

• Definition: Offering a standardised product or

service globally to achieve maximum
efficiency
• Pros:
• Economies of scale
• Consistent brand image
• Simplified operations
• Cons:
• It may not meet local preferences
• Potential for missing market opportunities
• Example: Coca-Cola
• Consistent recipe and branding worldwide
• Standardised marketing themes adapted
locally
• Global sponsorships (e.g., Olympics, FIFA
World Cup)
LOCALISATION STRATEGY
• Definition: Tailoring products, services, and
operations to specific local markets
• Benefits:
• Better meets local customer needs
• Improved market acceptance
• Ability to leverage local strengths
• Challenges:
• Higher costs due to customisation
• Potential loss of economies of scale
• Complexity in managing diverse
operations
• Case study: Starbucks
• Localised store designs (e.g., tatami
rooms in Japan)
• Menu adaptations (e.g., red bean
frappuccinos in China)
• Partnering with local companies (e.g.,
Tata in India)
TRANSNATIONAL STRATEGY
• Definition: Balancing global integration and local
responsiveness
• Core Characteristics:
• Global efficiency
• Multinational flexibility
• Worldwide learning and innovation diffusion
• Example: Procter & Gamble (P&G)
• Global brands with local adaptations
• Leveraging global R&D with local insights
• "Connect + Develop" program for global open
innovation (P&G's Connect+Develop program fosters
open innovation by actively seeking external
partnerships to collaborate on and accelerate the
development of new products, technologies, and
solutions. Olay Regenerist: This famous anti-ageing
skincare line was co-developed with external partners,
incorporating innovative ingredients and technologies
to deliver visible results.)
 INTERNATIONAL STRATEGY
Definition: Leveraging
home-country
advantages and core
competencies in
international markets
• Centralised R&D and core functions in the home country
Key features: • Some adaption to local markets
• Transfer of knowledge from home to foreign operations

• Developed in Austria, maintaining core product globally

• Centralised marketing strategy with local execution
Case study: Red Bull • Consistent brand positioning across markets with tailored
promotional activities
WHEN TO ADOPT AN INTERNATIONAL STRATEGY?
The firm's products or services have universal appeal and require minimal
adaptation.
There is a strong demand for the firm's offerings in foreign markets.
The firm possesses unique competencies or advantages that are difficult
to replicate.
The firm wants to expand its market presence with minimal investment
and risk.
Examples
• High-end luxury brands often adopt an international strategy, maintaining their exclusivity
and prestige by offering largely standardised products across markets.
• Technology companies with unique software or platforms may also utilise an international
strategy to leverage their core competencies and expand their reach.
RECAP: THE FOUR STRATEGIES
Global Standardisation Strategy: A business model based on pursuing a low-cost strategy
on a global scale

Localisation Strategy: a strategy focused on increasing profitability by customising a

company’s goods or services so that they provide a favourable match to tastes and
preferences in different national or regional markets

Transnational Strategy: a business model that simultaneously achieves low costs,

differentiates the product offering across geographic markets, and fosters a flow of skills
between different subsidiaries in the company’s global network of operations
The international strategy involves a company leveraging its core competencies and
home-country advantages to expand its operations into foreign markets. It focuses on
transferring and adapting existing products or services to cater to the needs of
international customers with minimal modifications.
CHANGES Factors influencing strategy
IN evolution:
STRATEGY • Market maturity
OVER TIME • Competitive landscape changes
• Technological advancements
• Organisational learning and
capabilities
Stages of internationalisation:
• Domestic focus
• International expansion
• Global rationalisation
• Transnational integration
EXAMPLE: IBM’S
TRANSFORMATI
ON Focused on
Shift towards
tabulating
services and
machines and
software
early computers

1911-1950s 1990s

1960s-
2000s
1980s
Global expansion Onwards: Focus
of mainframe on cloud
business computing, AI,
and quantum
computing
 CHOICE OF ENTRY MODE
Any firm contemplating entering a different national market must
determine the best mode or vehicle for such entry

There are five primary choices of entry mode:

• Exporting
• Licensing
• Franchising
• Entering a joint venture with a host-country company
• Setting up a wholly-owned subsidiary in the host country

Each mode has advantages and disadvantages, and managers must

weight these carefully when deciding which mode to use
 ENTRY MODE - EXPORTING
• Definition: Selling goods or services to customers in
another country
• Types:
• Direct exporting: Selling directly to foreign
customers
• Indirect exporting: Using intermediaries
• Pros:
• Low-risk and investment
• Quick market entry
• Cons:
• Limited market control
• Potential trade barriers
• Example: Boeing
• Exports commercial aircraft to airlines worldwide
• Faces challenges like trade disputes and
currency fluctuations
ENTRY MODE - LICENSING
• Definition: Granting permission to a foreign company to use
intellectual property for a fee
• Key components:
• Licensor: Owner of the intellectual property
• Licensee: Company purchasing the right to use the IP
• Licensing agreement: Terms and conditions of use
• Benefits:
• Low-risk market entry
• Additional revenue stream
• Risks:
• Limited control over licensee
• Potential creation of competitors
• Case study: The Coca-Cola Company
• Licenses its syrup concentrate to bottlers worldwide
• Maintains control over the brand and formula
• Allows for rapid global expansion with limited capital
investment
 • Definition: Granting rights to use a company's business
ENTRY MODE - model and brand for a fee
• Key elements:
FRANCHISING • The franchisor: Company granting the franchise rights
• Franchisee: Individual or company operating the
franchise
• Franchise agreement: Contract outlining rights and
responsibilities
• Advantages:
• Rapid expansion with limited capital
• Leveraging local market knowledge
• Challenges:
• Quality control across franchises
• Potential conflicts with franchisees
• Example: Subway
• World's largest restaurant chain by number of locations
• Rapid global expansion through franchising
• Standardised operations with some local menu
adaptations
FRANCHISING VERSUS
LICENSING
• Franchising tends to involve longer-term commitments
than licensing
• Licensing is a strategy pursued primarily by
manufacturing companies, and franchising is employed
chiefly by service companies
• The advantages of franchising are like those of licensing
(no need to bear the development costs and risk
associated with opening a foreign market on its own)
• Because service companies use franchising, there is no
reason to consider the need for coordination of
manufacturing to achieve experience curve and location
economies
• A more significant disadvantage of franchising is quality
control. The geographical distance of the firm from its
foreign franchisees can make poor quality challenging to
detect.
 • Definition: Partnership between two or more companies
to create a new business entity

ENTRY MODE –
• Types:
• Equity joint ventures: Partners contribute capital
and share ownership
JOINT VENTURE • Contractual joint ventures: Collaboration without
equity sharing
• Benefits:
• Shared risks and resources
• Access to local partner's knowledge and networks
• Risks:
• Potential conflicts between partners
• Complexity in decision-making
• Case study: Sony-Ericsson (2001-2012)
• Joint venture between Sony (Japan) and Ericsson
(Sweden) in cell phones
• Combined Ericsson's telecom expertise with Sony's
consumer electronics experience
• Eventually, it dissolved, with Sony buying out
Ericsson's share
 ENTRY MODE – WHOLLY-OWNED
SUBSIDIARY
• Definition: Full ownership and control of a foreign business
operation
• Types:
• Greenfield investment: Building operations from
scratch
• Acquisition: Purchasing an existing company
• Advantages:
• Complete control over operations and strategy
• Full claim on profits
• Disadvantages:
• High-risk and resource commitment
• Potential challenges in understanding the local market
• Example: Volkswagen in China
• Established wholly-owned subsidiary: Volkswagen
(China) Investment Co., Ltd.
• Significant investments in manufacturing facilities
• Adapted vehicles for Chinese market preferences
CHOOSING AN
ENTRY STRATEGY
• Factors influencing entry
mode choice:
• Company goals and
resources
• Target market
characteristics
• Level of control desired
• Risk tolerance
• Competitive landscape
GLOBAL STRATEGIC ALLIANCES

Strategic alliances range from

formal joint ventures in which
These are cooperative two or more companies have
agreements between an equity stake, to short-term
companies from different contractual agreements in
countries that are actual or which two companies may
potential competitors agree to cooperate on a
particular problem (such as
developing a new product)
ADVANTAGES – GLOBAL STRATEGIC
ALLIANCES • Resource pooling: Combining complementary
strengths
• Risk sharing: Distributing costs and risks of major
projects
Advantages: • Market access: Gaining entry to new markets or
segments
• Learning opportunities: Acquiring new skills and
knowledge
Example:
• Shared vehicle platforms and technologies
Renault-Nissan- • Joint purchasing to leverage economies of scale
Mitsubishi • Cross-shareholding structure

Alliance
DISADVANTAGES – Potential drawbacks:
GLOBAL STRATEGIC • Loss of autonomy in decision-making
ALLIANCE
• Risk of knowledge leakage to partners
• Cultural and operational differences leading
to conflicts
• Unequal contribution or benefit-sharing
Case study: Lessons from failed
alliances
• Daimler-Chrysler merger (1998-2007)
• Clash of corporate cultures
• Failure to realise expected synergies
• Resulted in demerger and significant
financial losses
MAKING STRATEGIC
ALLIANCES WORK
Critical success factors:
• Clear objectives and expectations
• Complementary strengths and
resources
• Cultural compatibility and mutual
respect
• Effective communication and
conflict resolution mechanisms
• Flexibility to adapt to changing
circumstances
 • Conduct thorough
MAKING due diligence on
STRATEGIC potential partners
• Establish clear
ALLIANCES governance
structures
WORK Best • Develop a detailed
Practic alliance agreement
es • Invest in relationship-
building at multiple
levels
• Regularly review and
adjust alliance
strategy
EXAMPLES OF SUCCESSFUL
STRATEGIC ALLIANCES

Disney-Pixar (now a
complete acquisition)
Google-Samsung
(Android ecosystem)
Boeing-Embraer
(commercial aviation
joint venture)
 THE FUTURE OF GLOBAL STRATEGY
Increasing focus on innovation and R&D

Embracing digital transformation

Adapting to changing global trade dynamics

Addressing sustainability and social responsibility

Successful global strategy requires continuous learning, adaptation, and

balancing global vision and local execution.
THE END