Mid-Term Review & Global Managers Toolbox - JC - 2015

4/24/2015
MID‐TERM REVIEW‐BBUS 480 GLOBAL
ENVIRONMENT OF BUSINESS – SPRING 2015
Mid‐Term Review & The Global Manager’s
Toolbox for Strategic Decision Making –
23RD April 2015
Professor Joydeep Chatterjee
The Mid‐Term Exam
 The mid‐term exam is scheduled to take place during the first
30 minutes of class on Tuesday April 28 (Arrive Early!!!)
 The exam is closed book
 Everything up to and including the content of today’s class
could appear on the exam
 There are 4 questions and you will have 30 minutes to answer
them
 The exam is meant to help me ensure that people are
absorbing the key conceptual ideas
 It is worth 15% of your grade
1
4/24/2015
How to Prepare for Exam
 Make sure you’ve read all course materials (cases &
readings in your course pack as well as the slides and
notes which are available on CANVAS)
 Make sure you understand the concepts & frameworks
we discussed in class
 Use these concepts & frameworks to improve your
thinking NOT to substitute for it
 Learn from the class discussion of individual cases as
you prepare
 When you read the case, what did you think?
 How did that change as you heard the class discussion evolve?
 What might you say if you had another chance to discuss the
case?
In the Exam, don’t forget to…
1. Begin by reading the brief scenario description (!) and
all of the questions
2. Answer the questions
3. Apply concepts introduced in the course to help
organize your analysis (not to substitute for it)
4. Make your assumptions clear
5. Use analytical logic – how you got to the answer is
important – no mental jumps
6. Observe the space limit for each answer
7. Write legibly so that I can grade easily
8. ANSWER THE QUESTIONS!
2
4/24/2015
Global Firm Analysis
Firm Resources and Capabilities > Liability of Foreignness???
Multinationals compete with local firms who do not face the following costs:
 Lower knowledge about local market conditions
 Legal, Institutional, Social, Cultural, Language diversities
 Communicating and Operating at a distance
Together these costs are referred to as Liability of Foreignness
Firm Level Tool
The firm specific advantage must lead to higher revenues and/or lower costs
to offset costs of operating in a foreign location
Fundamental Challenges of Global
Strategic Management
Industry
Nation
Region/World
Dynamic Fit over time…?
3
4/24/2015
Integration Responsiveness Framework
High
Global Integration
Low
Low High Firm Level Tool
National or Local Responsiveness
Adapted from Bartlett, 1986
Getting the Balance Right
• Pressures to Integrate • Pressures to Respond
– Scale economies – Differences in taste
– Standardized products – Differences in standards
– Transferable marketing – Distributional differences
– R&D intensive products – Advertising and promotion
– Global customers – Differences in levels of
– Distributed knowledge economic development
– Global Competition – Laws and regulations
4
4/24/2015
Generic Global Strategies
High
Pure Global Transnational
Global Integration
International Multidomestic
Low
• Emphasis on Global • Emphasis on Local
Integration Responsiveness
– Scale economies – Local Manufacturing
– Standardized products
– Customized Products
– Transferable marketing
– R&D intensive products – Tailored
– Global customers Advertisements/Promotion
– Distributed knowledge – Local Service/Support
– Global Competition – Local Expertise
– Local/Regional Customers
• Coordination across • Adaptation within Countries
Countries
5
4/24/2015
Pure Global: Highly integrated cross‐country strategy that capitalizes on high
coordination of activities such as scale‐intensive manufacturing or
transferable marketing to serve global markets
International: Neither highly integrated nor highly responsive; may exploit
some competitive advantage that doesn’t depend on the benefits of either
high global coordination or high local responsiveness in overseas markets
(e.g. new technology, raw materials)
Multidomestic: Highly responsive country‐by‐country strategy that capitalizes
on strong and resourceful subsidiaries that are responsive to local market
needs and opportunities through high customization of activities
Transnational: Exploits both the coordination efficiencies associated with global
integration in some activities (e.g., economies of scale) and the customization
capabilities associated with local responsiveness in other activities (e.g., local
marketing)
Mapping Global Strategies
High
Global Integration
Low
6
4/24/2015
International Strategy
Country Activities
R&D Design Purchasing Manufacturing Marketing Selling

A
B Selling
C
Selling
*
*
*
*
Z Selling
Pure Global Strategy
Country Activities
R&D Selling
A
Design
B Selling
Purchasing
C
Selling
* Manufacturing
*
*
Assembly Selling
*
Z Selling
7
4/24/2015
Multidomestic Strategy
Country Activities
R&D Design Purchasing Manu- Marketing Selling Distrib- Service

A facturing ution
C R&D Design Purchasing Manu- Marketing Selling Distrib- Service

facturing ution
*
*
*
*
Z R&D Design Purchasing Manu- Marketing Selling Distrib- Service

facturing ution
Global Strategic Management
Motivations for going Global
Industry Globalization Firm Resources and
Potential Capabilities
Global Integration &
Local Responsiveness
Adapted from Tallman & Yip, 2009
8
4/24/2015
Global Industry Analysis
Globalization Potential – Yip Framework
• Economies of scale and scope Market Drivers • Homogeneous customer needs
• Learning and experience • Global customers
• Sourcing efficiencies • Global distribution channels
• Favorable logistics • Transferable marketing
• Differences in country costs and skills
• High Product development costs
Industry
Government
Cost Drivers Globalization
Drivers
Potential
• Favorable trade policies (low trade barriers)
• Compatible technical standards
• Common marketing regulations
• Interdependence of countries • Common distributional regulations
• Globalized or Globalizing
competitors Competitive Drivers Industry‐level
tool
Adapted from: G. S. Yip, “Global Strategy… in a World of
Nations?” Sloan Management Review 31(1) (Fall 1989), pp. 29-41.
Swatch ‐ Role of Nations in Global
Competition
9
4/24/2015
Comparative Advantage of Nations ‐ Porter’s Dynamic Diamond
Context for Firm

Strategy, Structure,
Rivalry
Factor Conditions Demand Conditions
Related and
Supporting
Country‐level
Industries
tool
A local context and
Porter’s Dynamic Diamond

rules that encourage
investment and
sustained upgrading
Context for Firm  Meritocratic
incentive systems
Strategy, Structure,
across all major
Rivalry institutions
 Open and vigorous
local competition
Related and
Supporting  Sophisticated and demanding local
customer(s)
Industries  Local customer needs that anticipate
those elsewhere
 Access to capable, locally based  Unusual local demand in specialized
suppliers and firms in related segments that can be served nationally
fields and globally
 Presence of clusters instead of
isolated industries
10
4/24/2015
Porter’s Diamond ‐ Switzerland
1. Factors 3. Rivalry
Skilled labour
Availability of home workers. Willing to work Geneva versus Neuchâtel
because could extract only modest revenues Rivalry with British too
from farming. But even more crucial that they Companies pursued a strategy of
had been educated through a close‐knit system technological leadership, making
important advances in process
of community schools technology, setting up world’s first
mechanized factory by 1839 (British left
far behind due to government
Technical workers – Swiss invested heavily in protectionism) because of developments
research (CEH), education and training to in standardization
overcome early British supremacy establishing
watch making academies abroad (and watch‐
repair schools in major foreign markets). 4. Related and Supporting Industries
Geneva had been a centre of jewelry
2. Demand making and with John Calvin’s
Sittenmandate edicts goldsmiths applied
their skills in jewelry making and artistic
Sophisticated Swiss demand for medium and flair to watchmaking
luxury watches and jewelry Machine tools
About 50% of domestic demand was tourists – Components
rich people coming to Switzerland on holiday Assembly
Global Industry Analysis‐Watch Industry
• Large Economies of scale Market Drivers • Homogeneous customer needs
• Learning and experience economies • Anywhere you go…24‐60‐60 rule
• Sourcing efficiencies • Similar Global distribution channels
• Low transportation costs • Transferable marketing know‐how
• Differences in country costs and skills
• High Product development costs
Industry
Globalization Government
Cost Drivers
Potential Drivers
‐ HIGH
• Favorable trade policies (trade
• Interdependence of countries barriers declining)
• Cross border strategic moves • Compatible technical standards
• Cross border learning • Common marketing regulations
• Globalized or Globalizing • Compatible taxes
competitors • Some Govt. mandated distributional
Competitive Drivers
regulations (e.g. Swiss Made)

11
4/24/2015
Mapping Global Strategies‐Swatch
High
Global Integration
Low
Takeaways from Swatch
Competition is very Global in the watch industry and leading firms compete
with Pure Global Strategies
However –
Historically some of the leading global watch makers were geographically
concentrated in a few nations…When leadership shifted, it moved from one
nation to another (Switzerland, USA, Japan)
… showing that even in highly global industries, home location matters!!!
12
4/24/2015
Insights from Swatch
 The origins of clusters within particular countries reflect historical
circumstances and are often influenced by chance as well as effort
 Clusters are self‐reinforcing:
― Home location influences competitive advantage over long periods of
time
― Home location can turn from advantage to disadvantage when
discontinuous changes in business activity occur
 But firm‐specific resources and capabilities remain crucial,
especially in times of change:
― Strong firms may benefit despite – and even transform – an
unfavorable home location
CEMEX
13
4/24/2015
Global Industry Analysis‐Cement
• Economies of scale not important globally Market Drivers • Homogeneous customer needs
• High transportation costs • Few Global customers yet
• Differences in country costs and skills • Transferable marketing know‐how
• No Product/Process Innovation in the past of limited usefulness
20 years
Industry
Globalization
Government
Cost Drivers Potential
Drivers
‐
LOW/MEDIUM
• Protectionism is a concern (e.g. US)
• Limited role for advertisement/R&D
• Some Govt. dictated foreign
• Major differences in concentration
ownership concerns (e.g. Indonesia)
across nations
• Cross border strategic moves
• Globalized or Globalizing
competitors Competitive Drivers

Evolution of CEMEX’s Global Strategy
Emphasis on
systematization of best
High
practices and their
integration across global
operations
Global Integration
Begins with entry into
US, then Spain.
Emphasis on responding
to local conditions
Low
Low High
14
4/24/2015
The OLI Framework
 Ownership: How to Operate? How can we organize to
take advantage of firm‐specific resources/capabilities
(e.g. patent, technology, process, organizational
routines)?
 Location: Where to Locate while going abroad? (Access
to low‐cost inputs; bypass tariffs; innovative milieu)
 Internalization: When to Internalize? Which mode of
entry to choose while entering foreign markets
(Greenfield, Alliance, JV, Wholly‐owned subsidiary
through M&A)?
Firm‐Level
tool
What accounts for CEMEX’s Success to date?
The OLI Framework applied to CEMEX –
 Ownership: Does CEMEX have sources of
competitive advantage that can be exploited
internationally?
 Location: What are the advantages & disadvantages
of operating in locations outside of Mexico?
 Internalization: How should CEMEX undertake
international expansion to ensure it reaps its
rewards?
15
4/24/2015
OLI
 Ownership: It has succeeded in creating intangibles, that
are different from the traditional ones (R&D/ marketing),
which create a rationale for its global strategy
 Location: Given high transportation costs, it has to be
present in different locations to exploit these advantages;
that presence also allows it to arbitrage differences in
financing costs across countries
 Internalization: Almost impossible to exploit its
advantages, especially ‘O’ advantages, through arm’s
length contracts
Country‐to‐Country Analysis
“CAGE Distance Framework”
Cultural Administrative Geographic Economic

Distance Distance Distance Distance
Attributes  Languages  Colonial ties  Physical  Consumer
 Ethnicities  Shared distance incomes
 Religions monetary and  Common  Resource
 Social norms political ties borders endowments
 Social  Political stability  Climates  Knowledge
networks  Government  Transportation and
policies links information
 Institutional
Infrastructure
Country‐to‐Country
tool
Source: P. Ghemawat, Distance Still Matters, HBR, Sep. 2001
16
4/24/2015
Picking Host Countries‐CEMEX
 Until the late 1990s, largely explicable using the CAGE
framework
– Cultural (language, religion)
– Administrative (colonial ties, trade areas)
– Geographic (US, Caribbean, L. America)
– Economic (mostly developing countries)
 But Indonesia and Egypt were more “distant”
Cultural Administrative Geographic Economic
USA
Spain
Venezuela
Colombia
Philippines
Indonesia
Egypt
TakeAways from CEMEX
 Foundations:
 Even in industries with apparently low globalization
potential, companies sometimes pursue aggressive global
strategies
 But such global strategies require local responsiveness
 And to compete successfully against domestic players,
global companies must have firm‐specific resources and
capabilities that enable them to overcome their liabilities
of foreignness
 To compete successfully against other global players, they
must also think carefully about their Operational, Location,
and Internalization decisions
 Location: The success of global strategies depends on host
country choices
17
4/24/2015
Insights from CEMEX
 Designing a global strategy is not a mechanical exercise – it is a
creative response to the global potential of an industry
 Understanding that distance and proximity have varied
meanings can provide important insight in the design of global
strategy
 Innovative global strategies, based on novel ownership
advantages, can sometimes work in, and eventually transform,
industries with apparently low global potential
 However, we should always ask how particular global strategies
generate sustainable competitive advantage – the fact that
companies pursue such strategies doesn’t necessarily mean
they do.
 Distance matters – but when thinking about how distance
matters to our firm, we need to consider our firm‐specific
resources and capabilities.
 Global Managers often display excessive confidence in their
own distinctive capabilities
Mapping Global Strategies: Simplified Examples
Global Industry Analysis Company’s Global Strategy
WATCHES: pressures favor Pure Global strategies SWATCH: Pure Global strategy
• high integration: • high integration:
• Global economies of scale in production • Centralized efficient production
• Homogeneous customer tastes • Centralized R&D
• Low transportation costs • Global branding etc
• low responsiveness: • low responsiveness
• Same products in different countries • Local stores but same products, same branding/marketing
• Similar marketing in different countries strategies, etc
CEMENT: pressures favor local responsiveness – CEMEX: Transnational strategy

Multidomestic or Transnational strategies • high responsiveness:
•high responsiveness: • Local plants
• High transportation costs • Local government relationships
• National/regional not global economies of scale • Big local presence
• Government barriers • high integration
•low integration: • Standardized management processes across countries (PMI, IT,
• If let local operations function independently HR, reporting systems)
• high integration • Cemex branding on all plants and products
• If make local operations function interdependently
HOLCIM: Multidomestic strategy
• high responsiveness
• As for Cemex
• low integration
• Management processes differ across countries (e.g., IT, HR)
• Brands on plants and products often local
18
4/24/2015
SESSION 7 – Dispersion and Coordination of Activities
‐ ACER
A local context that
Taiwan’s Strengths in IT Products

encourages small
entrepreneurial firms
(government policy)
and sustained
Context for Firm upgrading of
Strategy, Structure, 
technology
Family Ownership
Rivalry  Open and vigorous
local competition
Presence of High  Close ties with Silicon Valley
Quality/Specialized Inputs  Chinese/Taiwanese
available to firms Related and Diaspora
• Educated/Talented Workers
• Low Wages
Supporting
Industries
 Access to capable, locally based suppliers
and firms in related fields
 Close ties with Universities and Govt. R&D
 Hsinchu Science Park (1979)
19
4/24/2015
Fundamental Challenges of Global
Strategic Management
Now the focus is…
Does the organization “fit”
So far the focus was… the strategy?
 Acer
Does the strategy “fit” the
environment?  Philips & Matsushita
 The Industry (Mondavi)  P&G Japan
 The National Location (Swatch &

Switzerland)
 Regional & Global Distance
(Cemex)
How to Organize a Global Firm?
Source: Saloner, Shepard, Podolny: Strategic Management © 2001, John Wiley & Sons, Inc.
20
4/24/2015
ARC
 Architecture—Includes how the how firm is divided in subunits;
the reporting among them, hierarchical structure; formal roles and
responsibilities, compensation;
 Routines—Generally accepted methods for doing things (many
times organized as processes involving project teams, task forces,
committees, ad hoc groups)
 Culture—Commonly held values and beliefs of individuals within
the organization (“the smell of the place”)
Global Organization Structures
High
Emphasis on Global Integration
Product Matrix
International Area
division(s)
Low
Low High
Emphasis on Local Responsiveness
21
4/24/2015
Global Organization & Global Strategy
 The critical challenge is to align your global organization with your global
strategy, so they fit each other
 There are managerial guidelines for getting the organizational structures
right (Int’l division, Product, Area, Matrix, etc.)
 But organization has multiple dimensions including:
 Structure (Formal lines of reporting and accountability)
 Systems (Reward systems, Career Mgmt., etc.)
 Culture (“the way we do things around here”)
Strategic Alignment
The critical challenge is to align your global organization
with your global strategy, so they fit each other
22
4/24/2015
ACER’s problems in the late 1980s
 Partly due to external conditions (margins dropped 10%)
 Partly due to internal problems
 Shih handed over management to Liu, ex‐IBM manager
 Strategic initiatives (position in high‐end market) failed
 Acquisition of Altos, minicomputers
 Organizational initiatives (professionalize the company) struggled
 Introduced SBU/RBU
 P/L responsibilities
 Layoffs
 New strategy too ambitious for old organization
ACER’s Global Strategy
 The PC manufacturing industry has high globalization potential
 Market drivers: standardized product
 Cost drivers: global economies of scale
 High level of global integration is required to achieve low costs
and consistent quality
 Shifting assembly to RBUs was a sensible strategy for increasing local
responsiveness without decreasing global integration (i.e. cost and quality)
 Shifting product development to RBUs was sensible for increasing local
responsiveness but came at the expense of global integration
23
4/24/2015
Evolution of ACER’s Global Strategy
1992 Fast Food Concept
Stan’s Smiling Curve 
High
1990-
Liu’s SBU/RBU
Growing Global Power of
SBUs Stan Shih’s Client
Global Integration
Server Model
1986
3 major initiatives
- International Expansion
- Global Brand
- Tech Innovation
1978
Low
Low High
Local Responsiveness
Takeaway’s from ACER
 To manage global organizations successfully,
managers must pay attention to organizational
culture, systems, and structure
 Managing the alignment between global
strategy and global organization is an ongoing
challenge
24
4/24/2015
Takeaway’s from ACER
 To manage global organizations successfully, managers must pay
attention to organizational culture, systems, and structure
 International expansion heightens the attention required as:
 Cultures become more diverse or clash
 Systems become more complex
 Formal structures become more unavoidable
 Managing the alignment between global strategy and global
organization is an ongoing challenge
 Both strategic logic & organizational logic must make sense
 Don’t expect spontaneous “fit” – must be actively managed
All the best with preparations!!!
25

Mid-Term Review & Global Managers Toolbox - JC - 2015

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Mid-Term Review & Global Managers Toolbox - JC - 2015

Uploaded by

Copyright:

Available Formats

4/24/2015

R&D Design Purchasing Manufacturing Marketing Selling

R&D Design Purchasing Manu- Marketing Selling Distrib- Service

C R&D Design Purchasing Manu- Marketing Selling Distrib- Service

Z R&D Design Purchasing Manu- Marketing Selling Distrib- Service

Context for Firm

Factor Conditions Demand Conditions

Factor Conditions Demand Conditions

Adapted from: G. S. Yip, “Global Strategy… in a World of

Adapted from: G. S. Yip, “Global Strategy… in a World of

Cultural Administrative Geographic Economic

CEMENT: pressures favor local responsiveness – CEMEX: Transnational strategy

Factor Conditions Demand Conditions

 The Industry (Mondavi)  P&G Japan

 The National Location (Swatch &

You might also like