Chapter 16

Global Strategy: an
Organizing Framework
by Ysanne
Carlisle

Introduction
S. Ghoshal states that "organizations are not born
international, they become international through specific
strategic. That is, the interactions between different
national markets developing economies of scale/scope.
He claims three main strategic objectives for firms
operating in international markets:
1. Achieving efficiency
2. Managing risks and improving their ability to innovate
3. Learn and adopt
These three objectives are against three sources of
competitive advantages:
1. national differences
2. scale economies
3. and scope economies

Introduction
Levitt (1983) the core of a global strategy lies in
developing a standardized product to be produced and
sold the same way throughout the world.
Hout et al (1982), Exploiting economies of scale through
global volume, taking pre-emptive positions through
quick and large investments, and managing inter
dependently to achieve synergies across different
activities
Hamel and Prahalad (1985) they recommend a broad
product portfolio with many product varieties, so that
investments on technologies and distribution channels
can be shared

The main points in the module

The module introduces an organizing framework
for global strategy (to help MNC managers in
reviewing and analyzing their strategies) he
notes that: The interactions between different national
markets arise from actions aimed at developing
attributes such as synergies and economics of
scale/scope, not from natural characteristics of
those markets.
Firms are different from each other not only on
account of the particular markets in which they
operate but also, and especially, because of their
firm-specific capabilities and strategies.

Sources of competitive advantage

Strategic
objectives

National differences

Scale economies

Scope economies

achieving
efficiency in
current
operations

Benefiting from
differences in factor
costs-wages and cost of
capital
(Fiat)(Nike)

Expanding and
exploiting potential
scale economies in
each activity
(Toyota)

Sharing of
investment and
costs across
products, markets
and business.
(Volkswagen)

Managing risks

Managing different kinds Balancing scale with Portfolio

of risks arising from
strategic and
diversification of
market or policy-induced operational flexibility. risk and creation
changes in comparative
of options and sideadvantages of different
bets.
countries

Innovation,
learning and

Learning from societal

differences in
organizational and
managerial processes

adaptation

and systems.

Benefiting from
experience-cost
reduction and
innovation

Shared learning
across
organizational
components in
different products,
markets or

 There is no right or wrong box in the matrix for a firm to

operate in. different firms in a given industry might find
themselves in a different box. For example, consider
how different firms in the car industry differ in their ways
of achieving efficiency in current operations: a firm like
Toyota, which exploits the advantages of global
integration through centralized production, would be
placed in the first box under scale economies. Another
firm, like Fiat, which takes advantages of national
differentiation, would be in the first box under national
differences. Some companies will find themselves in
more than one box.
Note that the strategic task of managing globally is to
use all three sources of competitive advantages to
optimize efficiency, risk and learning simultaneously. In a
world-wide business. The key to a successful global
strategy is to manage the interactions between these
different goals and means.

:Advantages of The framework

1. It can help managers in generating a
comprehensive checklist of factors and
issues that must be considered in reviewing
different strategic alternatives.
2. It can highlight the contradictions between
the different goals and between different
means, and thereby make salient the
strategic dilemmas that may otherwise get
resolved through omission.

The Goals: strategic objectives

Achieving efficiency
Firms competing in imperfect markets earn different
'efficiency rents' from the use of their resources (Caves,
1980). The objective of strategy, given this perspective, is
to enhance such efficiency rents. Viewing a firm broadly as
an input-output, the overall efficiency of the firm can be
defined as the ratio of the value of its outputs to the costs
of all its inputs. The field of strategic management is
currently dominated by this efficiency perspective.
In the field of global strategy this efficiency perspective has
been reflected in the widespread use of the integrationresponsiveness framework. The framework is a conceptual
lens for visualizing the cost advantages of global integration
of certain tasks in relation to the differentiation benefits of
responding to national differences in tastes, industry
structures, distribution systems, and government
regulations.

The Goals: strategic objectives

Managing risks
MNC may face four different types of risk:

1. Macroeconomic risks: non-diversifiable, such as wars and

natural climates (completely outside the firms control).
2. Political (policy) risks: risks that arise from policy actions of
national government (at least partially controllable).
3. Competitive risks: arising from the uncertainties of
competitors responses to its strategies, such as
technological risk.
4. Resource risks: the risk that the adopted strategy will
require resources that the firm does not have, cannot
acquire.
The strategic task is to consider these different kinds of
risks jointly in the context of particular strategic decision.
However, it is only those risks which cannot be diversified
that are of concern at the strategic level.

The Goals: strategic objectives

Innovation, learning and adoption
A key asset of the MNC is the diversity of
environments in which it operates. This diversity
allows it to develop diverse capabilities, and
provides it with a broader learning opportunity
than is available to a purely domestic firm.
However, the simple existence of diversity does
not enhance learning. It only creates the
potential for learning. To exploit this potential,
the organization must consider learning as
explicit objective, and must create mechanisms
and systems for such learning to take place.

The means: source of

competitive advantage
National Differences

A firm can gain cost advantages by configuring its value

chain so that each activity is located in the country which
has the least cost for the factor that the activity uses
most intensely.
Comparative advantage is limited to factors that an
economist admits into the production function, such as
the costs of labor and capital.
Relative advantage conferred on a society by the quality,
quantity and configuration of its material, human and
institutional resources, including 'soft' resources such as
inter-organizational linkages, the nature of its educational
system, and organizational and managerial know-how.
There is increasing evidence that comparative
advantage of countries can provide competitive
advantages to firms.

The means: source of

competitive advantage
Scale economies
(the more you produce the less it will cost)
Microeconomic theory provides a strong
theoretical and empirical basis for evaluating the
effect of scale on cost reduction, and the use of
scale as a competitive tool. Its primary
implications for strategy is that a firm must
expand the volume of its output so as to achieve
available scale benefits.

The means: source of

competitive advantage
Scope economies
Certain economies of scope arise from the fact
that the cost of the joint production of two or
more products can be less than the cost of
producing them separately. The strategic
importance of scope economies arises from a
diversified firms ability to share investments and
costs across the same or different value chains
that competitors, not possessing such internal
and external diversity, cannot

Sources of scope economies

Product

Market diversification

diversification
Shared physical
assets

Factory automation with flexibility to Global brand name (Coca-Cola)

produce multiple products (Ford)

Shared external

Using common distribution channel

relation

for multiple products (Matsushita)

Shared learning Sharing R&D in computer and

communications business (NEC)

Servicing multinational
customers world-wide (Citibank)

Pooling knowledge developed

in different markets (Procter
and Gamble)

Chapter 18
Global Strategy in the TwentyFirst Century
by George S. Yip

Introduction
G. Yib talks about when a home country
competency become less important, while global
is the most relevant in the 'information age'
where internet-based 'new economy' is the ideal
model
This chapter looks at different ways in which a
company can become global in which networks
and alliances between firms are very important.
The main point in this chapter is that
globalization occurs via the link between strategy
and organization.

Overall global strategy and

organizational forms

Today, multinational companies can take

one of the three main forms :1. Internationalist
2. Federalist
3. Or global maximizer

The internationalist

It is a home business that have spread

internationally such as Chrysler.
Home market activities dominate and foreign
activities are often opportunistic, without too
much investment and adaptation.
Some companies are stuck in this from
because they compete in regulated industries
that allow only limited internationalization such
as defense

The internationalist

For internationally blocked industries, there are

three main paths for globalization:
1. They can make acquisition of foreign
participants in the same industry, if allowed.
2. They can form international strategic alliances.
3. They can hire out their expertise to foreign
partners or customers or globalize in
unrestricted activities .

The Federalist
This is the classical MNCs form. In this
model each international subsidiary
operates most, if not all, of the value
chain, and has considerable autonomy.
The home market becomes just another
country and the head office primarily a
holding company

The Federalist
The success formula for these companies was:
1. The transfer of home country competencies
(e.g. products, technology, etc.)
2. A globally uniform management system
3. set of standards
4. use of local managers leavened by expatriates
5. significant independence in local business
decision
advantages:
Adaptation to the local environment, including
customer tastes and government rules is critical.

The Global Maximizer

. The global network maximizer (GNM)

In this form, MNCs break up the value chain and

locate individual activities in as few locations as
possible. No part of the organization, whether
headquarters or subsidiary, is self-sufficient.
Instead all work together in a network.
The internet and the web have consolidated the
dominance of this form as the key model for MNCs
Advantage:
Reduce duplication of activities

Globalization of individual
activities
Global R&D: means being able to access new
knowledge and capabilities anywhere in the world and
develop globally appealing products that can be
produced on a globally competitive basis
Global products and services: the output of global
R&D should be global products, but these are rarely
totally standardized worldwide. Instead, such products
are designed with global markets in mind, and they have
as large a common core as possible
Global logistics: the challenge for global companies to
deliver their intermediate and final products anywhere in
the world in a cost-effective and timely manner.) Such as
FedEx, DHL (

Globalization of individual
activities
Global marketing and selling: the appropriate balance
of global uniformity and local adaptation in all elements
of the marketing mix, but with a probable bias in a favor
of uniformity, unless a good case can be made for local
exceptions. (Mc Donald)
Global customer service: customers require service
anytime, anywhere (retail bank, Citibank, ATMs, HP )
Global capital & financial management: MNCs seek to
diversify their shareholders bases geographically by
listing on multiple exchanges and doing other things to
encourage foreign shareholders. Adv. (increase demand
for the companys shares).

Globalization of individual
activities

1.
2.
3.

Global HRM:
In the internationalist model companies tend to rely on
expatriates.
In the federalist model they aim to have as many as
local managers as possible.
The GNM model requires a balance of global, regional,
and national managers.
Global governance and leadership: means getting
the best top executive and board members from
anywhere in the world
Global sourcing and production: It have to reconcile
several conflicting objectives: cost, productivity, quality,
reliability, protection of expertise, and trade barriers

Globalization of individual
activities
Global companies need to invest in building
a portfolio of the necessary capabilities,
not just in technical or business terms, but
in terms of languages and cultural
capabilities and types of international
experience.

The global challenge

MNCs need to be globally excellent in nearly
every activity, and find the right balance of
global, regional, and national solutions.
Beiersdorf said that
As global as possible, As local as necessary.
That is the global company does not have to be
every where, but it has the capability to go
anywhere, deploy any assets, and access any
resources, and it maximizes profits on a global
basis

The global challenge

Network enterprise
specific from of enterprise whose system of
means is constituted by the intersection of
segments of autonomous systems of goals.
Thus, the components of the network are both
autonomous and dependent vis--vis the
network, and may be a part of other networks,
and therefore of other systems of means aimed
at other goals.

The global challenge

Network enterprise
The performance of a given network will
then depend on two fundamental
attributes of the network:
Its connectedness: its structural ability to
facilitate noise-free communication between
its components.
Its consistency: the extent to which there is
sharing of interests between the networks
goals and the goals of its components.