2015/4/20

Global Strategy

The Purpose of Global Strategy

Bartlett and Ghoshal argue that managers should

look to develop, at one and the same time,
global scale in efficiency, multinational flexibility,
and the ability to develop innovations and
leverage knowledge on a worldwide basis.
These three strategic objectives efficiency,
flexibility, and learning must be sought
simultaneously by the firm that aspires to become
a globally competitive enterprise.
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Three Strategic Objectives

Efficiency lower
lower the cost of operations and
activities
Flexibility tap local resources and
opportunities to help keep the firm and its
products unique
Learning -- add to its proprietary technology,
brand name and management capabilities by
internalizing knowledge gained from
international ventures.
3

Activity Value Chain

Firm

as a chain of discrete value creating

activities
Primary
upstream activities, manufacturing
downstream activities: marketing, sales, after
sales service

Support
infrastructure (general and administrative)
human resources
research and development

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Pressures for Global Integration

& Local Responsiveness
High
Cost Reduction
(Global Integration)
Pressures
Low
Low

Local
Responsiveness
Pressures

Ball bearings,
wheat

Cosmetics, food,
household goods
High

Differences in
- consumer tastes/preferences
- infrastructure/practices
- distribution channels
- host government needs/requirements

2015/4/20

Strategic Choice
High

Global
Strategy

Transnational
Strategy

International
Strategy

Multidomestic
Strategy

Cost Reduction
(Global Integration)
Pressures

Low
Low

Local Responsiveness Pressures

High

Integration--Responsiveness Framework
Integration

The Integration-Responsiveness
Integration Responsiveness Framework
summarizes two basic strategic needs: to
integrate value chain activities globally, and to
create products and processes that are
responsive to local market needs.
Global integration
g
means coordinatingg the
firms value chain activities across many
markets to achieve worldwide efficiency and
synergy to take advantage of similarities across
countries.
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Pressures for Global Integration

Economies of Scale. Concentrating manufacturing in a few select

l
locations
i
to achieve
hi
economies
i off mass production.
d i
Capitalize on converging consumer trends and universal needs.
Companies such as Nike, Dell, ING, and Coca-Cola offer products that
appeal to customers everywhere.
Uniform service to global customers. Services are easiest to
standardize when firms can centralize their creation and delivery.
Global sourcing of raw materials, components, energy, and labor.
Sourcing of inputs from large-scale, centralized suppliers provides
benefits from economies of scale and consistent performance.
Global competitors. Global coordination is necessary to monitor and
respond to competitive threats in foreign and domestic markets.
Availability of media that reaches customers in multiple markets.
Firms now take advantage of the Internet and cross-national television
to advertise their offerings in numerous countries simultaneously.
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Pressures for Local Responsiveness

Unique resources and capabilities available to the firm. Each country

h national
has
i l endowments
d
that
h the
h foreign
f i firm
fi should
h ld access.
Diversity of local customer needs. Businesses, such as clothing and
food, require significant adaptation to local customer needs.
Differences in distribution channels. Small retailers in Japan
understand local customs and needs, so locally responsive MNEs use
them.
Local competition. When competing against numerous local rivals,
centrally-controlled MNEs will have difficulty gaining market share
with global products that are not adapted to local needs.
Cultural differences. For those products where cultural differences are
important, such as clothing and furniture, local managers require
considerable freedom from HQ to adapt the product and marketing.
Host government requirements and regulations. When governments
impose trade barriers or complex business regulations, it can halt or
reverse the competitive threat of foreign firms.
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Home Replication Strategy

(Export Strategy or International Strategy)

The firm views international business as separate

from, and secondary to, its domestic business.
Such a firm may view international business as an
opportunity to generate incremental sales for
domestic product lines.
Products are designed with domestic customers in
mind and international business is sought as a
mind,
way of extending the product lifecycle and
replicating its home market success.
The firm expects little knowledge flows from
foreign operations.
International Business: Strategy,
Management, and the New Realities

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Multi-Domestic Strategy
Multi(Multi--Local Strategy)
(Multi

Headquarters
eadqua te s delegates
de egates considerable
co s de ab e autonomy
auto o y to each
eac
country manager allowing him/her to operate
independently and pursue local responsiveness.
With this strategy, managers recognize and emphasize
differences among national markets. As a result, the
internationalizing company allows subsidiaries to vary
product and management practices by country.
C t managers tend
Country
t d to
t be
b highly
hi hl independent
i d
d t
entrepreneurs, often nationals of the host country. They
function independently and have little incentive to share
knowledge and experiences with managers elsewhere.
Products and services are carefully adapted to suit the
International
Business: Strategy,
unique needs of each
country.
Management, and the New Realities

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Advantages of MultiMulti-Domestic Strategies

If tthee foreign
o e g subsidiary
subs d a y includes
c udes a factory,
acto y, locally
oca y
produced goods and products can be better
adapted to local markets.
The approach places minimal pressure on
headquarters staff because management of country
operations is delegated to individual managers in
each country.
Firms with limited international experience often
find multi-domestic strategy an easy option as
they can delegate many tasks to their country
managers (or foreign distributors, franchisees, or
licensees, where they are used).
International Business: Strategy,
Management, and the New Realities

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Disadvantages of MultiMulti-Domestic Strategy

The firms foreign

g managers
g tend to developp strategic
g vision,,
culture, and processes that differ substantially from those of
headquarters.
Managers have little incentive to share knowledge and
experience with those in other countries, leading to
duplication of activities and reduced economies of scale.
Limited information sharing also reduces the possibility of
developing knowledge-based competitive advantage.
Competition may escalate among the subsidiaries for the
firms resources because subsidiary managers do not share a
common corporate vision.
It leads to inefficient manufacturing, redundant operations, a
proliferation of products designed to meet local needs, and
generally higher costs of international operations than other
International Business: Strategy,
strategies
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Management, and the New Realities

Global Strategy

With global strategy, the headquarters seeks substantial

control over its country operations in an effort to
minimize redundancy, and achieve maximum efficiency,
learning, and integration worldwide.
In the extreme case, global strategy asks why not make
the same thing, the same way, everywhere? It favors
greater central coordination and control than multid
domestic
i strategy, with
i h various
i
product
d or business
b i
managers having worldwide responsibility.
Activities such as R&D and manufacturing are
centralized at headquarters, and management tends to
view the world as one large marketplace.
International Business: Strategy,
Management, and the New Realities

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Advantages of Global Strategy

Global strategy
gy pprovides management
g
with a ggreater
capability to respond to worldwide opportunities
Increases opportunities for cross-national learning and
cross-fertilization of the firms knowledge base among
all the subsidiaries
Creates economies of scale, which results in lower
operational costs.
Can also improve the quality of products and processes - primarily by simplifying manufacturing and other
processes. High-quality products promote global brand
recognition and give rise to customer preference and
efficient international marketing programs.
International Business: Strategy,
Management, and the New Realities

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Limitations of Global Strategy

It is challenging for management, particularly in highly

centralized organizations, to closely coordinate the
activities of a large number of widely-dispersed
international operations.
The firm must maintain ongoing communication
between headquarters and the subsidiaries, as well as
among the subsidiaries.
When carried to an extreme, global strategy results in a
loss of responsiveness and flexibility in local markets.
Local managers who are stripped of autonomy over their
country operations may become demoralized, and lose
their entrepreneurial
spirit.
International Business: Strategy,
Management, and the New Realities

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Transnational Strategy: A Tug of War

A coordinated approach to internationalization

in which the firm strives to be more responsive
to local needs while retaining sufficient central
control of operations to ensure efficiency and
learning.
Transnational strategy combines the major
advantages of multi-domestic
multi domestic and global
strategies, while minimizing their
disadvantages.
Transnational strategy implies a flexible
approach: standardize where feasible; adapt
International Business: Strategy,
where appropriate.
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Management, and the New Realities

What Transnational Strategy Implies

Exploiting scale economies by sourcing from a
reduced set of global suppliers; concentrating the
production of offerings in relatively few locations
where competitive advantage can be maximized.
Organizing production, marketing, and other valuechain activities on a global scale.
Optimizing local responsiveness and flexibility.
Facilitating global learning and knowledge transfer.
Coordinating competitive moves --how
how the firm deals
with its competitors, on a global, integrated basis.

International Business: Strategy,

Management, and the New Realities

20

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GMs Global Brand Hierarchy

Global

International

Europe, Middle East,

Asia

North America,
Middle East, Europe

North America

North America, Asia

North America

Local
United Kingdom

Australia

Korea

International Business
Strategies (1)

International Strategy low cost

pressures, low local responsiveness
pressures. Centralised core competencies
with minimum local adjustments

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International MNC
HK
UK

Chile
USA
India

Japan
Mexico

Coordinated
C
di t d Federation
F d
ti - Key
K assets,
t responsibilities
ibiliti d
decisions
i i
llocalized
li d
Administrative Control - Centralized HQ control, formal planning and
control, tight HQ-Sub linkage
International Mentality - Management sees overseas operations as
appendages to a domestic operation

International Business
Strategies (2)

Multidomestic Strategy low cost

pressures, high local responsivesness
pressures. Geographically dispersed core
competencies with extensive local
adjustments
Transnational Strategy high cost
pressures, high local responsiveness
pressures. Geographically dispersed stages
of a unified value chain

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Multidomestic MNC
HK
UK

Chile
USA
India

Japan
Mexico

D
Decentralized
t li d Federation
F d
ti - Many
M
key
k assets,
t responsibilities
ibiliti
and decisions localized
Personal Control - Informal HQ-Sub relationship, simple financial controls
Multidomestic Mentality - Management sees overseas operations as
portfolio of independent businesses

Transnational MNC
HK
Chile

UK
USA

Japan

India
Mexico

Networked Organization - Distributed, specialized resources and capabilities

Interdependent Units - large flows of components, products, resources,
people, and information
Transnational Mentality - Complex process of coordination and
cooperation in an environment of shared decision making

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International Business
Strategies (3)

Global Strategy high cost pressures,

pressures low
local responsiveness pressures.
Geographically centralised value chain for
standardised products

Global MNC
HK
Chile

UK
USA

India

Japan
Mexico

Centralized Hub - Most strategic assets, resources, responsibilities

and decisions centralized
Operational Control - Tight HQ control of decisions, resources, information
Global Mentality - Management sees overseas operations as delivery
pipelines to a unified global market

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