Global Business

Module 2 Module 2 - Competitiveness, Global Strategies, Processes and Structure

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Course Overview

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Globalization Trends Macro Analysis – PESTLE

Culture – Globe, Hofstede Competitiveness (see side bar)

Competitiveness - Resources & Capabilities - Value Chain - VRIO - Porter’s 5 Forces

Context and Competitiveness

If yes, how to go global?

Global Strategy (see sidebar)

Functional Implications

Digital and Social Realities

Global Strategy - SPRO - Strategy, Process,

Resources and Org. - Where to go? Country

assessments. - How to go? Risk, Structure,

Non-Equity, Equity, etc.

Professional Standard – English and Grammar, Logic, Pyramid Structure, SCQA, Hypothesis and best medium for the message.

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3Strategy and Implementation

Competitiveness and Strategy

1. Firm Competitiveness and International Impacts • Resources and Capabilities • Value Chain • Porter’s Competitiveness Framework

2. Trade Fundamentals and Advantage 3. Becoming International 4. Managing and Succeeding

Internationally 5. Making Alliances Work

• This module will look at the international dynamics for start-ups and entrepreneurial companies as well as large international and MNCs.

• Critical to this module will be a deeper understanding of:

• Competitiveness • Trade • Alliances as a tool to enable

global growth

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Canadian Tomato Industry Goes Global • Each team will play a different company in the global tomato business. • Our starting point will be Canada and we will look at how the Canadian perspective changes as you go global.

Team 6 - Specialty Grocer

Team 5 - Costco

Wholesale

Team 4 - Vegetable

Distributors

Team 3 - Greenhouse

Growers

Team 2 - Seeds and Seedlings

Team 1 - Genetics and Laboratories

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Processes

How to think about strategy?

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Strategy

Resources Organisation

Strategy • Simplicity is better • Be strategy driven – what are you

trying to achieve? • What is your starting point?

• From the competitiveness tools

• Do not invert the pyramid • Set Strategy • Determine key processes (and resultant

behaviours) • Determine relative resources – Capital,

People/Talent, Technology and Capability • THEN, set the organisation structure

Source: Arthur D. Little

2.1 Global Competitiveness

How competitive are you?

• Are you struggling at home? • Are you profitable? • Is there innate interest?

Changing Global Dynamics

• What changes as you go global? • Can you extend those things that make you competitive at home?

• Are you “ready” to be global?

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1. Are you ready to compete? 2. Are you ready to compete internationally?

2.1 Global Competitiveness – Resources and Capabilities

Resources • Tangible and intangible assets • Financial

• Cash and Balance sheet strength • Cost of Capital

• Fixed Assets • Plant, Equipment and Distribution • Raw materials and processing capacity

• Technology – all aspects of IPR including trade secrets and corporate processes

• People – trained and competent staff, aligned and mobile executive

Capability • Unique ability to utilize resources

available for enhanced competitiveness • Financial

• Investor relations • Capital raising prowess • Innovative use of financial structures

• Branding • Create and grow brand(s)

• Project Management • Ability to execute including proprietary

processes for PM

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Globally competitive firms (organisations) have both a resource base and a capability base which are competitive and readied for execution.

2.1 Global Competitiveness – Exercise

Greenhouse • You are running a large greenhouse that

produces tomatoes. • You have lots of land, a large greenhouse

building and permits to grow tomatoes. • Your tomatoes are a variety that is

proprietary and you can also create other varieties from that genetic stock because of your partnership with a lab.

• You also have automated the greenhouse so that the labor costs are low and the risk of damage to the crops is very low.

• You are a preferred provider to Costco and Superstore today.

Capability

• Discuss the difference between resources and capabilities.

• Resources are what you “have” • What are your resources?

• Capabilities are what you are “good at doing”

• What are you good at doing?

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2.1 Global Competitiveness – Value Chain Considerations

What is a Value Chain?

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• Increasingly, value chains crisscross the globe. • Any of these activities can be done in NA or globally?

IT Infra Human Resources

Logistics & Supply ChainFinance

Raw Materials

R&D / Design

Manufacturing or Production Packaging Market-

ing

Functional Activities

Core Activities

Where is most of the money made in this business? Does this change in other countries?

Bain & Co. introduced the idea of value chain mapping and profit pools.

2.1 Global Competitiveness – Value Chain Considerations

Fully Integrated In House Value Chain

Outsource Value Chain

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• Increasingly, value chains crisscross the globe. • Any of these activities can be done in NA or globally?

IT Infra Human Resources

Logistics & Supply ChainFinance

Company ActivitiesOutsourced Activities

Raw Materials

R&D / Design

Manufacturing Packaging Market- ing

IT Infra Human Resources Logistics Finance

Raw Materials

R&D / Design

Manufacturing Packaging Market- ing

IT Infra Human ResourcesFinance

Raw Materials

R&D / Design Manufacturing Packaging Market-

ingv

Supply Chain

Exxon Mobil

Apple

Yeezy – Adidas and Kanye

Logistics Supply Chain

2.1 Global Competitiveness – Value Chain Example

Fully Integrated In House Value Chain

Company Profile

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• Hanky Panky Limited - https://www.hankypanky.com/ • Look at breaking down the value chain and where the cash sits.

• Design led • Wholesale history • Strong reliance on one supplier – little

understanding of global quotas, tax and tariffs

• Cuts and some sewing in-house • Wholesale is “outsourced customers” • DTC growing fast • International has never been a focus –

distributors and agents

2.1 Global Competitiveness – Value Chain Example

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2.1 Exercise – Value Chain Tomato Industry 1. Seed Genetics (R&D) 2. Seeds and Seedlings 3. Greenhouse Operations 4. Vegetable Marketing /

Wholesale Distribution 5. Costco 6. Specialty Grocer

• Break into your [six] teams • Consider the tomato retail price of $2.99 per box of mini-tomatoes specialty grocer

• Sketch the value chain back • Where do you think the most money is made? Cash resides? Why?

• How would that change in other markets? E.g.) Mexico

TWU - MBA 662: R. Ian Angell Oct. 2020 14

2.1 Porter Industry Competitiveness Four Measures

1. Bargaining Power of Suppliers • Extent of suppliers ability to dictate price and terms?

• Can they forward integrate? 2. Threat of Substitutes

• How quickly and strongly can substitute products come into the market?

• Be clear that substitutes are different than New Entrants

3. Bargaining Power of Buyers • How many and how strong are the buyers? Can they control the price and terms? Are certain aspects controlled by regulation, etc.?

4. Threat of New Entrants • How easily and quickly can

competitors enter the market?

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How does this change in a new global market?

1. Bargaining Power of Suppliers • Are suppliers protected or

preferentially enabled (licenses, domestic production, etc.) – bad

• Is there more competition? (good) 2. Threat of Substitutes

• Is there anything different in this market that could change the industry product/service mix?

3. Bargaining Power of Buyers • Again, what changes in the buying

structure in the new market? 4. Threat of New Entrants

• Is there a more open or favorable market for new entrants in this new market?

2.1 Exercise – Porter

Tomato Industry 1. Seed Genetics (R&D) 2. Seeds and Seedlings 3. Greenhouse Operations 4. Vegetable Marketing /

Wholesale Distribution 5. Costco 6. Specialty Grocer

• Break into six teams • Think about the vegetable production business.

• Are there any of the components where the industry rivalry may be less intense and, therefore, more attractive?

• Pick Mexico and compare that to Canada. Is the competitive intensity greater or lesser?

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2.2 International Trade Fundamentals

Classical Trade Theories • Mercantilism

• Trade is good and generates foreign currency… • …but self reliance is better as it preserves

reserves • Absolute Advantage

• Nations are endowed with resources and have natural advantages

• Comparative Advantage • Nations are relatively better off to trade even if

they are not the “best” in the world in a given resource or activity

• Encourages optimization – produce as much of you can of that which you are best at and then produce alternatives

• What is the country endowed with? People, manufacturing capacity, PhD’s, etc.

Modern Trade Theories • Product Life Cycle

• Creation and innovation is an endowment (New Products)

• Demand is satiated in home country (Mature Product) • As a product commoditizes, production shifts

elsewhere, as does demand (Standard Product) • E.g.) clothes washing machines

• Does this still work as a construct? • Basic Android phones • Trade in used clothing and vintage market development

• Strategic Trade • Industrial policy actively encourages investment in

innovation and the control of the “next” segment • Governments are notoriously bad a predicting winners

and losers and which segments will emerge • National Competitive Advantage

• See next page

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2.2 Investment and Going Global

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Key Concepts – National Level • Foreign Direct Investment- brings in cash to a country/region • Vertical (Upstream, downstream) and Horizontal Investment (adjacent markets – segments or geographies. Typically less attractive.)

• Trade Surplus / Deficit (Income Statement) • Investment Surplus / Deficit (Balance Sheet) • Advantages of Investment

• Ownership • Location • Internalization

• Licensing and Support

2.3 Becoming International – Strategic Assessment and Options

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How to assess whether and how to go global? • Basics apply to any growth or

expansion strategy? • Information is scarce. • Key factors are new to the

management team (and you). • Domestic or regional markets are

almost always unknown and misunderstood.

• This gets us to yes/no and, broadly as to how

• (capital exposed or not?)

Source: International Management, Helen Deresky, p. 250

2.3 Becoming International – Entry Modes

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*

Other: • Offsets and Countertrade

Direct Sales

Agent

Distributors Auctions/Clearance Enabling Platforms

https://www.global-e.com/

& BOOT

JV - <50%, 50/50, >50%

Strategic Investment

Cross Shareholding

Accelerator - WPIC

& Mgt. Contracts

2.5 Alliance Evolution – Case Study

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Canadian Oil Company and Japanese Trading House • Talisman Confirms PNG Strategy Acquiring Rift Oil and Others

• Pandora field was “stranded” – sell or grow • Numerous transactions lined up like dominoes • https://www.ft.com/content/936a72b6-5a67-11de-8c14-00144feabdc0, • https://www.ogj.com/home/article/17276512/talisman-farms-into-horizon-pap

ua-new-guinea-permits

• Talisman developed a strategic plan (mid-scale export LNG) and required partners to execute plan

• Global partnership search short-listed a few players – Mitsubishi selected • 3 years and $280 million +++ received • https://www.mitsubishicorp.com/jp/en/pr/archive/2012/html/0000014215.html • Progress made swiftly thereafter • http://country.eiu.com/article.aspx?articleid=1911901175&Country=Papua%2

0New%20Guinea&topic=Econo_6

• MC to market LNG, JV structure over-arching including secondees, working and steering committees and deadlock voting procedures

• Ultimately, unsuccessful in exploration to progress and Mitsubishi and Talisman (Repsol) sold

2.6 Strategy in the International Context

• How does the strategy process vary from domestic business to international?

• What are the different options for strategy to underpin international growth?

• What are the advantages and disadvantages of these various options? • What are the organisation structures which are more “naturally” aligned with the strategic internationalisation planning constructs?

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2.6 Global growth strategy – inherently more complex

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Degrees of complexity

• Sheer numbers of regions and markets to assess

• Tendency to simplify is greatest risk – e.g.) GDP per capital, size of market, language, etc.

• In most cases, single product/service analyses is insufficient

• Intelligence gathering, even with internet, is mammoth

More steps… …more risks

Source: International Management, Helen Deresky, p. 248. 245

Growth Strategies

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• Home Replication Strategy • Most standard place to start • Exports and / or agents • Hard to unravel

• Global Standardization of Products/Services • Works well for ubiquitous ideas and where segments or niches

are large enough to justify a global footprint • Lends itself well to centres of excellence or specialities • Consistent with web and social media sales – @tinydogpaintings

• Localization – or multi-local • Nothing wrong with this • Brand-driven but tailored for taste, practice, religion, etc. • E.g.) MacDonalds

• Transnational Strategy – “best of all worlds” • Ubiquity around processes, functions and economies of scale • Key products are global for technological or proprietary reasons • Localization around customer-centricity and regulatory

requirements • Typically achievable among only the largest firms

Considerations – Advantages and Disadvantages

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2.7 Strategy and Structure Considerations

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1. International Division • Separate focus for emerging international

activities 2. Global Product or Service Structure

• Supports global segments with limited differentiation locally

• Kotter view of the world 3. Geographic or Regional Structure

• Multi-local structure views every region as different

4. Global Matrix – “best of all worlds” • Matrix structures with attendant

complexity

Exploring and Understanding the importance of structure – “The International Division”

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Structure Benefits and Constraints – International Division Structure • Mysterious “rest of world” focus, often leads to out-of-sight, out-of-mind mentality which fosters neglect, maverick behaviours, deals that are hard to get

out of, etc. • Kindergarten organisation structure - good for nascent or immaterial international segments • International division managers often rotate through this to “tick-the-box” on career development which can lead to them “playing to HQ” as objectives

are often not clear or important • International customers often feel inferior leading to limited success in overseas markets (chicken and egg challenge) • Overseas staff and suppliers/partners feel like second-class citizens

Exploring and Understanding the importance of structure – “Geographic Organisation”

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Structure Benefits and Constraints – Geographic Organisation Structure

• Creates adequate focus on the importance of international markets

• Creates internal competition for funds, people, product, etc. and resultant “fiefdoms” and over-reliance on regional chiefs

• Allows for regional (and national) differentiation

• Assumes heterogeneity among countries and / or segments in each region – major flaw

Exploring and Understanding the importance of structure – “Global Product Structure”

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Structure Benefits and Constraints – Global Product Structure

• Very common in technical companies where there is little/no commonality across divisions

• Local or regional cooperation is limited

• Customers and Distribution in countries often send confusing messages impacting branding

• Margin and market share • Customer friendliness and positioning • Regulatory and other related postures

• Ascendant structure even amongst global firms • Importance of understanding the “segment” • Very strong amongst conglomerate or mutli-product businesses like

GE and Honeywell

Exploring and Understanding the importance of structure – “The Matrix Structure”

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Structure Benefits and Constraints – International Division Structure

• Matrix structures are inherently complex • Necessity to have strong “ligaments”

(processes or principles)to reinforce the “bones” (matrix)

• Criticality elements • Transfer pricing • Rules of engagement and behaviours • Common language and alignment around strategy and

objectives • Follow the money – capital allocation,

profitability/cash flow and bonuses • E.g. ) Schlumberger

• Management by Objectives Culture • Material bonuses associated with both dimensions of

the matrix

Tomato Industry – Presentation #3 Every team should analyze their company against Mexico: • Resources vs Capabilities – what are the resources and capabilities you have and how would they change as you look at Mexico

• Value Chain – How would you re-think your value chain positioning to compete in Mexico

• Assess Porter’s Competitive Intensity - Canada vs Mexico • Entry Strategy – what entry would you recommend for Mexico and why?

• Organization structure – how would you organize your business to set-up for Mexico?

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