Managing Global Expansion
Managing Global Expansion: A Conceptual Framework.
Business Horizons
| March 01, 2000 | Gupta, Anil K.; Govindarajan, Vijay | COPYRIGHT 1989 JAI Press, Inc. (Hide copyright information)Copyright [pic]
There are at least five reasons why the need to become global has ceased to be a discretionary option and become a strategic imperative for virtually any medium-sized to large corporation.
1. The Growth Imperative. Companies have no choice but to persist in a neverending quest for growth if they wish to garner rewards from the capital markets and attract and retain top talent. For many industries, developed country markets are quite mature. Thus, the growth imperative generally requires companies to look to emerging markets for fresh opportunities.
Consider a supposedly mature industry such as paper. Per capita paper consumption in such developed markets as North America and Western Europe is around 600 pounds. In contrast, per capita consumption of paper in China and India is around 30 pounds. If you are a dominant European paper manufacturer such as UPM-Kymmene, can you really afford not to build market presence in places like China or India? If per capita paper consumption in both countries increased by just one pound over the next five years, demand would increase by 2.2 billion pounds, an amount that can keep five state-of-the-art paper mills running at peak capacity.
2. The Efficiency Imperative. Whenever the value chain sustains one or more activities in which the minimum efficient scale (of research facilities, production centers, and so on) exceeds the sales volume feasible within one country, a company with global presence will have the potential to create a cost advantage relative to a domestic player within that industry. The case of Mercedes-Benz now a unit of DaimlerChrysler, illustrates this principle. Historically, Mercedes-Benz has concentrated its research and manufacturing operations in Germany and has derived around 20 percent of its revenues
Business Horizons
| March 01, 2000 | Gupta, Anil K.; Govindarajan, Vijay | COPYRIGHT 1989 JAI Press, Inc. (Hide copyright information)Copyright [pic]
There are at least five reasons why the need to become global has ceased to be a discretionary option and become a strategic imperative for virtually any medium-sized to large corporation.
1. The Growth Imperative. Companies have no choice but to persist in a neverending quest for growth if they wish to garner rewards from the capital markets and attract and retain top talent. For many industries, developed country markets are quite mature. Thus, the growth imperative generally requires companies to look to emerging markets for fresh opportunities.
Consider a supposedly mature industry such as paper. Per capita paper consumption in such developed markets as North America and Western Europe is around 600 pounds. In contrast, per capita consumption of paper in China and India is around 30 pounds. If you are a dominant European paper manufacturer such as UPM-Kymmene, can you really afford not to build market presence in places like China or India? If per capita paper consumption in both countries increased by just one pound over the next five years, demand would increase by 2.2 billion pounds, an amount that can keep five state-of-the-art paper mills running at peak capacity.
2. The Efficiency Imperative. Whenever the value chain sustains one or more activities in which the minimum efficient scale (of research facilities, production centers, and so on) exceeds the sales volume feasible within one country, a company with global presence will have the potential to create a cost advantage relative to a domestic player within that industry. The case of Mercedes-Benz now a unit of DaimlerChrysler, illustrates this principle. Historically, Mercedes-Benz has concentrated its research and manufacturing operations in Germany and has derived around 20 percent of its revenues
References: D.A. Blackmon and D. Brady, "Just How Hard Should a U.S. Company Woo a Big Foreign Market?" Wall Street Journal, April 6, 1998, p. A1. V. Govindarajan, "Note on the Global Paper Industry," case study, Dartmouth College, 1999. K. Iverson and T. Varian, Plain Talk: Lessons from a Business Maverick (New York: Wiley, 1997). J.P. Jeannet and H.D. Hennessy, Global Marketing Strategies (Boston: Houghton Mifflin, 1998). Jonathan Karp and Kathryn Kranhold, "Enron 's Plant in India was Dead: This Month, It Will Go on Stream," Wall Street Journal, February 5, 1999, p. A1. T. Khanna, R. Gulati, and N. Nohria, "Alliances as Learning Races," Proceedings of the Academy of Management Annual Meetings, 1994, pp. 42-46. G. Steinmetz and C. Quintanilla, "Whirlpool Expected Easy Going in Europe, and It Got a Big Shock," Wall Street Journal, April 10, 1998, p. A1. S. Sugawara, "Japanese Shaken by Business U.S.-Style," Washington Post, February 9, 1999, p. E1. R. Tomkins, "Battered PepsiCo Licks Its Wounds," Financial Times, May 30, 1997, p. 26.