global strategy hw

MGT 272 GLOBAL STRATEGY &

MANAGEMENT

Professor Haibo LIU

The Imperative to Globalize

•What are the drivers for firms to pursue global expansion

The Imperative to Globalize

•What are the drivers for firms to pursue global expansion oNew markets (N ↑) oImprove competencies (P ↑) oLower cost (C ↓) oReduce risk (σ↓)

6 Key Issues for Global Presence

•Choice of products •Choice of strategic markets •Mode of entry •Transplanting the corporate DNA •Winning the local battle •Speed of global expansion

Economies of Global Scope - Risks

• One global network serves another global network

• The tension between two conflicting needs: oThe need for central coordination of most elements of the

marketing mix oThe need for local autonomy in the actual delivery of products

and services

Objective

• Covert global presence into global competitive advantage

Choice of Optimal Locations - Benefits

• Given heterogeneity among countries and regions, every firm has to make decisions such as where the activities will take place

• Performance enhancement (efficiency, capabilities) oMicrosoft chose Cambridge (UK) as one of its research centers

• Cost reduction (labor cost, infrastructure, tax, corruption)

• Risk reduction (currency risk, political risk, supply chain)

Choice of Optimal Locations - Challenges

• Advantage of location is captured and internalized oEg. Ford has benefited from lower labor costs in Mexico, but

also managed to have a higher productivity that in the U.S.

• In a dynamic world, any particular choice of location may no longer be optimal later on. oEg. Nike is known to continuously assess the relative

attractiveness of manufacturing locations

• How?

Knowledge Transfer in an Organization

• What is a company?

Knowledge Transfer in an Organization

• Resource based view: A company or a subsidiary can be viewed as a buddle of tangible assets, such as buildings, equipment, capital, talents, etc.

• Knowledge based view: A company or a subsidiary can be viewed as a reservoir of knowledge and know-how, such as R&D capabilities, marketing strategies, revenue management, etc. oCodified knowledge oTacit knowledge

Maximizing Knowledge Transfer - Benefits • It is possible that locally created knowledge may be relevant

across multiple countries.

• Sharing of best practices could lead to faster and better innovations.

Maximizing Knowledge Transfer - Challenges

• Most companies tap only a fraction of the full potential in the transfer and leveraging knowledge across boarder.

• Do you think that transfer of knowledge from one unit to another unit within the same company in the same location is challenging?

• Why is that the case?

Maximizing Knowledge Transfer - Challenges

• Most companies tap only a fraction of the full potential in the transfer and leveraging knowledge across boarder.

• Even transfer of knowledge from one unit to another unit within the same company in the same location has been found to be difficult: o Who has the knowledge (search process) o Initiation of transfer (set up cost, get approval, etc) o During the transfer (source’s cooperation and willingness to do so) o Assimilation (is the recipient able to apply it?) o Everything becomes even more complicated if tacit knowledge is

involved

Locational competencies

• Firms need to build the requisite competencies at those locations.

• The more a business depends on a particular location, the greater the need to have world-class competencies in the relevant activities that take place in that location.

Playing the Global Chess Game

• View global organization as analogous to a chess game: coordinated action of all available resources

• The value-creation opportunities vary across industries, products

• Analysis to be done not only at the overall corporate level, but also at the level of individual business unit

Corporate Globality

Activity architecture

• Number of locations in which an activity is performed, their locations, and their charters.

• The most common are concentration in one location; differentiated centers of excellence; dispersion to regional or local units.

• This is a dynamic process: what is optimal today may not be desirable tomorrow due to: changes in tariff, trends in demand patterns, change in production technologies, etc.

Activity architecture

Activity architecture and organizational structure

• Which choice is less reversible?

Activity Architecture vs. Organizational Structure • Activity architecture will shape organizational structure

• Activity architecture choices are less reversible than those pertaining to organizational structure

• For example, oHonda decides whether to set up a design center in Italy oWho should have direct control over the Italian design center

Creating Global Competitive Advantage: Action Implications

• The firm should evaluate the optimality of the global network for each activity in the value chain along three dimensions: oActivity architecture oLocational competencies oGlobal coordination

• Then (re)design and execute actions to eliminate or at least to reduce the suboptimalities.

Global coordination

• Firm needs to develop and maintain smooth coordination across the various locations, including units performing similar as well as complementary activities

• Promoting the transfer of knowledge and skills across locations o links managers’ rewards to the business’s regional or global performance o compares the performance of relevant subsidiaries o give high visibility to people who achieve excellent results

• Adopting rules and procedures that enhance communication o create global or regional teams o invest in cultivating interpersonal familiarity and trust among key

managers

Six opportunities to create global competitive advantage • Adapting to local markets (language, culture, income levels, customer

preferences, and distribution systemsN)

• Capturing economies of global scale (convert “scale” into “economies of scale”C)

• Capturing economies of global scope (coordinated services to global customers and leveraging their market powerP)

• Optimizing the choice of locations for activities and resources (PCϬ)

• Leveraging knowledge across subsidiaries (leverage portfolio of knowledge centersPCϬ)

• Playing the global chess game (strategic coordination across countriesNPCϬ)