450 words
8954r8m5m
Module7-Globalizingstrategy.pptChapter 7
Global Strategy
*
*
Chapter Objectives
- Learn about the integration- responsiveness framework
- Distinctive MNE strategies emerging from the framework
- Understanding how to build a transnational MNE
*
*
Opening Case –
IKEA’s Global Strategy
- IKEA’s operations encompass 35 nations, 240 stores, 100000 employees, 20 franchises, 2,000 suppliers
- IKEA’s strategy
- offers Scandinavian design quality furniture at low prices.
- 90 percent of the product line is standardized around the world,
- the product development, purchasing, and warehousing are consolidated at its headquarters in Sweden.
- target segment is families with limited income and limited living space
- IKEA’s Organization
- has an informal corporate culture, with few titles
- stores maintain direct contact with IKEA headquarters for speedy decision making and easy globalization.
- Managers rely on a consensus building approach, and readily share their knowledge and skills with coworkers.
*
*
The Role of Strategy in International Context
- Three Objectives (Bartlett and Ghoshal)
- Efficiency: achieving cost leadership.
- Flexibility: developing responsiveness to the diversity and volatility of different country environments.
- Learning: the ability to learn from international exposure and leverage learning on a worldwide basis.
- MNEs find it challenging to achieve all three objectives
- The US firms have excelled in achieving efficiency via scale economies and standardized products, building on the large domestic market base.
- The European firms have succeeded by being locally responsive, building on the diversity of the European nations.
- The East Asian firms have succeeded by tapping international learning from and across various nations, and leveraging that worldwide.
*
*
The Integration- Responsiveness Framework
- Global integration:
- coordination of the MNE’s value chain activities across nations to achieve worldwide efficiency, synergy, and cross-fertilization.
- focus is on convergent customer needs, competitive environments, functional imperatives, and operating systems across nations.
- strategic decisions are made on a global basis, to avoid the costs of adapting to local situations.
- Local responsiveness:
- flexibility towards country-specific situations, needs, and opportunities.
- focus is on adaptation, accommodation, and adjustment to country-specific customer needs, competitive environment, functional imperatives, technological capabilities, and operating systems.
- strategic decisions made on a local basis, to assure entrepreneurial flexibility and cultural responsiveness.
*
*
Global business strategies
Home replication
Strategy
Global
Strategy
Transnational
Strategy
Multi-local
Strategy
High
High
Low
Low
Pressures for
Local Responsiveness
Pressures for
Global Integration/
Cost Reduction
*
Globalization Drivers in an Industry (George Yip, 2003)
- Market Drivers: Consumer lifestyles around the world are converging – global media, global advertising, global brands, MNEs as global customers, and rising middle class
- Cost Drivers: Opportunities for cost-effectiveness through global coordination are increasing, - emerging markets with low cost productive capability; funding and quickly recovering the cost of technological innovations; revolution in IT, communication, travel, & transportation systems; and global financial markets.
- Competitive Drivers: Need for a coordinated response to competitors is increasing – rise in the global value chains in different industries, emerging market MNEs, international collaborations and FDI, web-based “born global” MNEs, and the MNEs having coordinated global strategies.
- Government Drivers: Governments are reducing tariff and non-tariff barriers, adopting open market systems, encouraging their firms to participate globally, and supporting world trade institutions, such as the World Trade Organization.
*
*
Customer
Drivers
Competitive
Drivers
Government
Drivers
Cost
Drivers
Trade policies – tariff/non-tariff
barriers
Trading blocs
Global technical standards
Regulations – labor laws, role of govt
as producer and consumer
Common customer needs
Global customers
Global channels
Transferable marketing know-how
and global brands
Global competitors
Global alliances and
multiple battlegrounds
Competitors leveraging
global position (i.e. cross
subsidizing.
Location of strategic resources
Differences in country costs
Potential for economies of
scale, innovation, flexibility
Cost of shipping (value/bulk)
Evaluating the Strength of Globalization Drivers in an Inbdustry
Industry
globalization
potential
*
Strategic Levers for Conforming to Globalization Drivers (Yip, 2003)
- Market participation: stronger participation in larger markets, and in markets where needs are similar to those around the world.
- Functional strategies: standardized or similar functional strategies across nations. E.g. in marketing, there is standardization or similarity across nations in product/ service, promotion, pricing, channels of distribution, and positioning.
- Value-chain configuration: the entire value-added chain – from research to production to after-sales services – is broken up and each activity may be conducted in a different country
- Competitive strategy: competitive moves in individual markets as part of a global competitive strategy.
Alongside, each driver of globalization is also experiencing a drive for localization. Importantly, these localization elements of strategy offer opportunities for new learning and for the out-of-box approaches for dramatic cost reduction and efficiencies.
*
*
Distinctive MNE Strategies
- Home replication strategy: When drive for global integration is low & drive for local responsiveness is low.
- the MNEs who are early in the internationalization process.
- view international business as secondary to their domestic business - to generate incremental revenues for the products designed with domestic customers in mind.
- Multi-local strategy: When drive for global integration is low, but for local responsiveness is high.
- emphasize differences among national markets, and delegate autonomy for local decision-making to each country manager.
- products, business practices, and functional strategies are adapted to each nation, and vary across nations.
*
*
Distinctive MNE Strategies
- Global strategy: When drive for global integration is high, but for local responsiveness is low.
- Grant worldwide responsibilities or mandates to various product or business managers.
- Upstream functions, such as R&D, IT, and manufacturing, are centralized in the HQ or in the centers of excellence worldwide
- Emphasis is on worldwide efficiency and on cross-national learning and cross-fertilization of the knowledge base.
- To address local needs, the focus is on adapting the worldwide products, policies, and strategies, with limited local autonomy.
*
Distinctive MNE Strategies
- Transnational strategy: When drive for global integration is high and for local responsiveness is also high.
- standardize across nations where feasible
- Some value chain activities on a global scale, based on the regional comparative advantages / global centers of excellence.
- Standardize some functional strategies, e.g. some core products or positioning.
- Global knowledge sharing and learning, shared global corporate culture
- adapt locally where appropriate
- Duplicate some value chain activities to experiment and to cater to the emergent and distinct local needs and opportunities.
- Local managers have some autonomy to develop local competitive tactics, and adopt local functional strategies.
- may be complemented with a regional approach
- may also involve shared responsibility of subsidiaries and headquarters
*
Building a Transnational Firm
- Transnational Leadership
- Promote global mindset, i.e. openness to and awareness of diversity of cultures.
- Articulate global strategic vision, i.e. the future of the MNE and how it will get there.
- Show willingness to commit resources to achieve the global strategic vision
- Invest in human assets capable of operating globally, and in local communities
- Transnational Organizational Culture
- Emphasize global competence and cross-cultural skills
- Promote global exchange and communication between the HQ and the subsidiaries
- Have sustainable business orientation, to serve the planet, people, and prosperity
- Align their practices with the locally as well as globally endorsed values.
- Transnational Organizational Processes
- mobilize people of different expertise and nations into teams who work virtually or otherwise for global mandates
- enable various nations to share and learn from each other
- promote global careers and talent development.
- Appreciate, recognize, protect, develop, exploit and share the unique knowledge bases of different regions.
*
*
