Case Studies 1

SUPPLY CHAIN MANAGEMENT WEEK 1-LECTURE 2

CHAPTER 2

DR. ISMAIL CIVELEK

DIAGNOSING INDUSTRY GLOBALIZATION POTENTIAL • To achieve the benefits of globalization, the managers of a

worldwide business need to recognize when industry conditions provide the opportunity to use global strategy levers.

• The five-forces model affects profitability for industry players while the industry globalization drivers causes the worldwide market for a product/service to coalesce toward a common boundary.

2

GLOBALIZATION DRIVERS FOR SERVICE BUSINESSES • Nature of the output (performance rather than an object)

• Customer involvement in production

• People as part of the service experience

• Greater likelihood of quality control problems

• Harder for customers to evaluate

• Lack of inventories for services

• Greater importance of the time factor

• Availability of electronic channel of distribution

3

GLOBALIZATION DRIVERS FOR SERVICE BUSINESSES

There are three broad types of service businesses:

• People-processing services (airliner, hotel, etc.) involve tangible actions to customers in person.

• Possession-processing services (laundry, car repair, etc.) involve tangible actions to physical objects to improve their value to customers.

• Information-based services (accounting, banking, etc.) depend on collecting, manipulating, interpreting, and transmitting data to create value.

4

MARKET GLOBALIZATION DRIVERS

The principal market globalization drivers are:

• Common customer needs and tastes • Global customers • Global channels • Transferable marketing • Lead countries

5

MARKET GLOBALIZATION DRIVERS

The less the involvement of the customer (for example, fast food versus education), whether physical or psychological, the better the opportunity for a global approach.

The Internet has increased global commonality in customer needs and tastes by exposing customers to global offerings and other lifestyles.

Global customers buy on a centralized or coordinated basis for decentralized use, or at least they select vendors centrally.

• Wal-Mart is a global customer for a vendor such as Procter and Gamble.

6

MARKET GLOBALIZATION DRIVERS • As large corporate customers become global, they seek to do

business with providers of standardized service worldwide.

• Transferable marketing makes it easier to expand participation in geographical markets.

• Transferability here means the ability to use uniform marketing strategies.

• Transferable marketing can create entry barriers (it is difficult for a newcomer to counter Coca-Cola’s global marketing), but also allow entrants to enter new markets with transferable marketing.

7

MARKET GLOBALIZATION DRIVERS • The Internet has both enabled and demanded global transferable

marketing.

• Internet-based marketing has inherent global reach – a website can be accessed from anywhere.

• The Internet mandates that vendors use globally standard brand names.

8

MARKET GLOBALIZATION DRIVERS • Lead countries are those in which the most important product or

process innovations occur.

• Japan  consumer electronics • Germany  industrial control equipment • U.S.A.  technology and services.

• The existence of lead countries can increase threat of entry (lead countries become prized targets for entry) and increase competitive rivalry because of importance of financial and strategic success in such locations.

9

COST GLOBALIZATION DRIVERS

The principal cost globalization drivers are:

• Global scale economies • Steep experience curve effect • Sourcing efficiencies • Favorable logistics • Differences in country costs (that includes exchange rates) • High product development • Fast-changing technology

1 0

COST GLOBALIZATION DRIVERS • Technology generally reduces the minimum efficient scale for a

given industry and has often led to the “deconstruction” of value chains.

• While technology may take away economies of scale as a motivation to globalize, the ability to replicate successful business models across markets may lead companies to globalize.

• Expanded market participation, product standardization, and activity concentration (all features of globalization) may help firms benefit from experience and learning curve benefits.

1 1

COST GLOBALIZATION DRIVERS • High product development costs relative to the size of national

markets act as a driver to globalization.

• The Internet reduces product development costs to varying degrees.

• Fast-changing technology, both in products as well as in processes, usually accompanies high product development costs, and thus is a key driver of globalization.

1 2

GOVERNMENT GLOBALIZATION DRIVERS The principal government globalization drivers are:

• Favorable trade policies • Compatible technical standards • Common marketing regulations • Government-owned competitors and customers • Host government concerns

Host governments affect globalization potential in a number of major ways:

• Import tariffs and quotas • Nontariff barriers • Export subsidies • Local content requirements • Currency and capital flow restrictions • Ownership requirements • Requirements on technology transfer

1 3

GOVERNMENT GLOBALIZATION DRIVERS

Government exercise of these trade barriers makes it difficult for companies to use the other global levers.

• Media, oil and telecommunication industries

Differences in technical standards among countries (as the Motorola situation in Japan points out) affect the extent to which products can be standardized.

• Government restrictions in terms of technical standards can make or break efforts at product standardization.

• The Internet spurred global technical standards (Japan lobbied other G8 nations for unified global rules on electronic financial trading).

1 4

GOVERNMENT GLOBALIZATION DRIVERS

The marketing environment of individual countries affects the extent to which uniform global marketing approaches can be used.

• The Internet allows companies to confront diverse marketing regulations effectively.

While government-owned competitors can increase globalization, the presence of government-owned customers provides a barrier to globalization.

• This is because such customers usually favor national suppliers.

Host government concerns

• To reduce tax liability, to keep key value chain competencies outside their countries, and to make it difficult for host governments to control them by moving the decision making capability overseas.

1 5

COMPETITIVE GLOBALIZATION DRIVERS

Globalization is driven by the global transferability of competitive advantage.

• Technology-based competitive advantages are easily transferable.

The Internet increases the intensity of global competition in many ways:

• Increasing the need for speed in response • Enabling global signaling • Allowing competitive comparisons among companies by customers • Allowing easy transferability of competitive advantage • Enabling companies to go global early.

The starting point in developing an effective total global strategy is in understanding the globalization potential of the industry.

1 6