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Globalization Strategy
International Business Strategy
Lecture 1: Globalization. Perspectives on strategy.

Module Themes and Learning Objectives
• International Business Environment module is focused on the external environment of the firm and how the external environment impacted firm operations and strategy.
• INTERNATIONAL BUSINESS STRATEGY is about international business from a firm perspective:
– We will examine the strategies that firms use to engage in international business
– We will also look at how firms decide on and implement international strategies

Learning Objectives ‐ 1


Examining strategy from a broad perspective:
– What is strategy?
– How is it formed?
– Who formulates strategy?

2

1

Module Themes and Learning Objectives
Learning Objectives ‐ 2


What kind of strategies do international firms engage in?
– How do they formulate these strategies?
– What are potential advantages and disadvantages of various strategies?
– How are various strategies implemented?




What are the opportunities and challenges associated with the control of a multinational enterprise?
The theoretical explanations of international business activity

Learning Objectives – 3


The place and role of international business enterprise in broader society:
– The impact of international business activities on economic and social welfare
– The challenges posed by new business formats (e.g. outsourcing, footloose FDI)
– Business ethics (e.g. corruption, exploitation of information imbalances between businesses and consumers)
– The multinational enterprise as a provider of social welfare
3

Module Structure & Readings


Lectures:
– Used to introduce students to a variety of literature
– Assigned textbook chapters are for preparation for lectures
– For a large part, lectures will not follow the textbook



Tutorials:
– Used to expose students to academic literature and debate
– Opportunities for students to apply theory to real‐life situations
– Preparation is essential, if students do not do the readings, the tutorials will not take place



Readings:
- Core textbook: Hill, C. (2010) International Business: Competing in the Global
Marketplace, 8th ed., McGraw‐Hill; ALSO: Peng, M.W. (2012), GLOBAL, 2nd ed., Cengage Learning.
- Module outline lists other useful readings
- Lectures will have reference lists
- Tutorial materials: Academic articles, Case studies
4

2

Module Structure & Readings
#
1
2

3

4

LECTURE TOPICS
TUTORIAL READINGS
AND READINGS
1.1 Globalisation
1.2 Perspectives on strategy
Internationalization • Reading1: “The internationalization process of born globals” process and location • Reading 2: “Global Wine War 2009: New World versus Old” choices • Reading 3:. “Preserve the luxury or extend the brand?”
Global integration
• Reading 4: “Emerging giants: Building world‐class companies in vs local developing countries'” responsiveness • Reading 5: ”Shisheido: making China Beautiful”
• Reading 6: “The global brand face‐off”
MNE structures,
• Reading 7: “International expansion through flexible replication: control mechanisms
Learning from the internationalization experience of IKEA” and innovation
• Reading 8: "Creating and Managing a High‐Performance
Knowledge‐Sharing Network: The Toyota Case"

Module Structure & Readings
#
5

LECTURE TOPICS
AND READINGS
Modes of foreign market servicing

6

Offshore outsourcing 7

International business ethics.
Multinationals and their stakeholders.

TUTORIAL READINGS








8

Reading 9: “Beyond entry mode choice: Explaining the conversion of joint ventures into wholly owned subsidiaries in the PRC”
Reading 10: “Go global or no?”
Reading 11: “USTech – eliminate the middleman?”
Reading 12: Silvio Napoli at Schindler India.
Reading 13: “Aids is not a business: A study in global corporate responsibility – securing access to low‐cost HIV medications.”
Reading 14: “The false developmental promise of Corporate Social
Responsibility: Evidence from multinational oil companies”
Reading 15: “The Shakedown”

Final test
For details (TUTORIAL ASSIGNMENTS) see Module Handbook.

3

Assessment
• Group project: 50% of final mark
– Work in groups of 4‐5 people
– Write a business report on internationalisation strategies in a particular industry (3000 words)
Deadline: 20.11.2012
For details see Module Handbook.

• Exam: 50% of final mark
– One‐hour long
• 5 open questions (50%)
• A set of 10 test quesions (50%)
Questions will be based on both lecture and tutorial material

• BONUS points: up to 15% of final mark (contribution to class discussions ‐ preparation for tutorials required).

7

Practical Skills


At the end of the module, you should not only have knowledge of various IB topics, but also be able to apply them to real‐life situations, e.g.:
– To analyse and deconstruct the strategy‐making process
– To identify an appropriate strategy based on an assessment of a firm’s situation
– To identify various factors that impact the strategy choice and shape
– To see the multinational enterprise as one of the actors within the society and analyse the interactions between the MNE and other social actors



The module will also provide you with an opportunity to acquire a number of transferable skills:
– An ability to use theory to interpret and make sense of the world and events around you
– To work effectively in groups
– To improve your critical reading and writing skills, including the reading of academic literature, which will be crucial for the writing of the dissertation

8

4

Lecture 1.1
Globalization

International business & global business





International business ‐ (1) a business (or firm) that engages in international (cross‐border) economic activities or (2) the action of doing business abroad.
Global business ‐ business around the globe.
Multinational enterprise (MNE) – a firm that engages in foreign direct investments.
Foreign direct investment (FDI) – investing in, controlling, and managing value‐added activities in other countries.

Three views on globalization
1. A new force sweeping through the world in recent times
2. A long‐run historical evolution since the dawn of human history
3. A pendulum that swings from one extreme to another from time to time

Of the three views, the pendulum view probably makes the most sense, because it can help us understand the ups and downs of globalization.

What Is Globalization?
• The world is moving away from self‐contained national economies toward an interdependent, integrated global economic system.
• Globalization refers to the shift toward a more integrated and interdependent world economy.
⇒ Globalization of markets
⇒ Globalization of production
1‐10

5

Globalization of Markets




Historically distinct and separate national markets are merging
It no longer makes sense to talk about the “German market” or the “American market” Instead, there is the “global market”
– falling trade barriers make it easier to sell globally
– consumers’ tastes and preferences are converging on some global norm
– firms promote the trend by offering the same basic products worldwide

Globalization of Production




Firms source goods and services from locations around the globe to capitalize on national differences in the cost and quality of factors of production like land, labor, and capital
Companies can
– lower their overall cost structure
– improve the quality or functionality of their product offering
1‐11

Global Institutions:
Why do we need them & what do they do?
Institutions
– help manage, regulate, and police the global marketplace
– promote the establishment of multinational treaties to govern the global business system

The World Trade Organization (like its predecessor GATT)
– polices the world trading system
– makes sure that nation‐states adhere to the rules laid down in trade treaties
– promotes lower barriers to trade and investment

The International Monetary Fund (1944)
– maintains order in the international monetary system

The World Bank (1944)
– promotes economic development

The United Nations (1945)





maintains international peace and security develops friendly relations among nations cooperates in solving international problems and in promoting respect for human rights is a center for harmonizing the actions of nations
1‐12

6

What Is Driving Globalization?


The decline in barriers to the free flow of goods, services, and capital that has occurred since the end of World War II
– since 1950, average tariffs have fallen significantly and are now at 4%
– countries have opened their markets to FDI

Declining Trade And
Investment Barriers:
Average Tariff Rates on
Manufactured Products as Percent of Value



Technological change
– microprocessors and telecommunications
– the Internet and World Wide Web
– transportation technology
1‐13

What Does Globalization Mean For Firms?
Lower barriers to trade and investment mean firms can
• view the world, rather than a single country, as their market • base production in the optimal location for that activity
Technological change means
• lower transportation costs (containerization, super freighetrs) ‐ firms can disperse production to economical, geographically separate locations
-



low‐cost transportation ‐ help create global markets

lower information processing and communication costs ‐ firms can create and manage globally dispersed production systems -

-

low cost global communications networks ‐ help create an electronic global marketplace global communication networks and global media ‐ create a worldwide culture, and a global market for consumer products Internet growth – 1990‐1 million users, 2009 – 1,6 billion

Dell’s globally dispersed production system.
• When a customer submits an order via the company ’s web site, it’s immediately transmitted to the suppliers of the various components, wherever they are located in the world.
• Suppliers have real time access to Dell’s order flows, and can then adjust their production accordingly.
• Dell uses inexpensive airfreight to transport its products to meet demand as needed.
• The company maintains a customer service operation in India where English speaking personnel handle calls from the U.S.

The microprocessor that facilitates high‐power, low‐cost computing is perhaps the most important of these developments.

7

The Changing Demographics Of The Global Economy



There has been a drastic change in the demographics of the world economy in the last 30 years
Four trends are important:
1. the Changing World Output and World Trade Picture
2. the Changing Foreign Direct Investment Picture
3. the Changing Nature of the Multinational Enterprise
4. the Changing World Order

1‐15

Ad 1. How Has World Output And World Trade Changed?





In 1960, the US accounted for over 40% of world economic activity
By 2008, the US accounted for just over 20% of world economic activity
A similar trend occurred in other developed countries
The share of world output accounted for by developing nations is rising and is expected to account for more than 60% of world economic activity by 2020

The Changing
Demographics
of World GDP and Trade

1‐16

8

Ad 2. How Has Foreign Direct
Investment Changed Over Time?










In the 1960s, U.S. firms accounted for about two‐ thirds of worldwide FDI flows Today, the US accounts for less than one‐fifth of worldwide FDI flows
Other developed countries have followed a similar pattern
In contrast, the share of
FDI accounted for by developing countries has risen Developing countries, especially China, have also become popular destinations for FDI

Percentage Share of Total FDI Stock 1980‐2007

FDI Inflows 1988‐2008

1‐17

Ad. 1 &2: THE CONTRIBUTIONS OF EMERGING ECONOMIES

Sources: Data extracted from International Monetary Fund, World Economic Outlook: Sustaining the
Recovery (Washington: IMF) 162; United Nations, World Investment Report 2010 (New York and Geneva:
UN) xiii ; World Bank, World Development Indicators database (Washington: World Bank). All data refer to
2010.

© 2013 Cengage Learning. All rights reserved.

18

9

Ad. 1 &2: EMERGING ECONOMIES IN THE GLOBAL MARKET

Source: C. K. Prahalad and S. Hart, “The fortune at the bottom of the pyramid,”
Strategy+Business 26 (2002): 54–67 and
S. Hart, Capitalism at the Crossroads
(Philadelphia: Wharton School
Publishing, 2005) 111

19

© 2013 Cengage Learning. All rights reserved.

Ad3. What Is A Multinational Enterprise?


A multinational enterprise
(MNE) is any business that has productive activities in two or more countries



Recent Changes in the Fortune Global 500

Since the 1960s, there has been a rise in non‐U.S. multinationals, and a growth of mini‐ multinationals Source: Fortune Global 500, accessed online on July 7, 2011 at www.money.cnn.com/magazines/fortune/global500/2010/countrie s/US.html
1‐20

10

Ad4. The Changing World Order




Many former Communist nations in Europe and Asia are now committed to democratic politics and free market economies
– so, there are new opportunities for international businesses
– but, there are signs of growing unrest and totalitarian tendencies in some countries like Russia
China and Latin America are also moving toward greater free market reforms
– between 1983 and 2008, FDI in China increased from less than $2 billion to
$90 billion annually
– but, China also has many new strong companies that could threaten Western firms 1‐21

How Will The Global Economy Of The 21st Century Look?




The world is moving toward a more global economic system…But globalization is not inevitable ‐ there are signs of a retreat from liberal economic ideology in e.g.
Russia
Globalization brings risks

SOME LESSONS FROM A RECESSION
Whether rightly or wrongly, many people have blamed globalization for the recent global economic crisis termed the Great Recession. A key lesson from this crisis has been the underscoring of the importance of risk management and scenario planning.

– the financial crisis that swept through South East Asia in the late
1990s
– the recent financial crisis that started in the U.S. in 2008, and moved around the world

Risk management – the identification and assessment of risks and the preparation to minimize the impact of high‐risk, unfortunate events.
Scenario planning – a technique to prepare and plan for multiple scenarios
(either high or low risk).

1‐22

11

Is An Interdependent Global Economy A Good Thing?
Supporters believe that increased trade and cross‐border investment mean
– lower prices for goods and services
– greater economic growth
– higher consumer income, and more jobs
Critics worry that globalization will cause
– job losses
– environmental degradation
– the cultural imperialism of global media and MNEs
Anti‐globalization protesters now regularly show up at most major meetings of global institutions •





THE GLOBALIZATION DEBATE AND YOU
Sources: A. Bernstein, “Backlash against globalization,”
BusinessWeek, 24 April 2000: 43; M. W. Peng and H. Shin,
“How do future business leaders view globalization?,”
Thunderbird International Business Review 50, no. 3 (2008):
179. [#] All differences are statistically significant.

1‐23

How Does Globalization Affect Jobs And Income?



Critics argue that falling barriers to trade are destroying manufacturing jobs in advanced countries
Supporters contend that the benefits of this trend outweigh the costs
– countries will specialize in what they do most efficiently and trade for other goods—and all countries will benefit

How Does Globalization Affect Labor Policies And The
Environment?




Critics argue that firms avoid costly efforts to adhere to labor and environmental regulations by moving production to countries where such regulations do not exist, or are not enforced
Supporters claim that tougher environmental and labor standards are associated with economic progress
– as countries get richer from free trade, they implement tougher environmental and labor regulations
1‐24

12

How Does Globalization Affect National Sovereignty?





Is today’s interdependent global economy shifting economic power away from national governments toward supranational organizations like the WTO, the EU, and the UN?
Critics argue that unelected bureaucrats have the power to impose policies on the democratically elected governments of nation‐states
Supporters claim that the power of these organizations is limited to what nation‐ states agree to grant


the power of the organizations lies in their ability to get countries to agree to follow certain actions

How Is Globalization Affecting The World’s Poor?




Is the gap between rich nations and poor nations is getting wider?
Critics believe that if globalization was beneficial there should not be a divergence between rich and poor nations
Supporters claim that the best way for the poor nations to improve their situation is to
– reduce barriers to trade and investment
– implement economic policies based on free market economies
– receive debt forgiveness for debts incurred under totalitarian regimes
1‐25

How Does The Global Marketplace Affect Managers?
Managing an international business differs from managing a domestic business because
– countries are different
– the range of problems confronted in an international business is wider and the problems more complex than those in a domestic business
– firms have to find ways to work within the limits imposed by government intervention in the international trade and investment system
– international transactions involve converting money into different currencies

WHY STUDY GLOBAL BUSINESS?
1. EMPLOYABILITY: Mastering global business knowledge helps advance your employability and career in an increasingly competitive global economy. An ignorant individual is unlikely to emerge as a winner in global competition.

2. CAREER ADVANCEMENT: Expertise in global business is often a prerequisite to join the top ranks of firms. In order to set yourself apart as an ideal candidate, you will need a mastery of global business knowledge. 3. GLOBALIZATION: This is an age of extensive global interaction and competition. Understanding how global business decisions are made may facilitate your own career in global firms.
1‐26

13

THE FUNDAMENTAL QUESTION
A leading perspective in global business that suggests that firm performance is, at least in part, determined by the institutional frameworks governing firm behavior around the world.

A leading perspective in global business that suggests that firm performance is, at least in part, determined by its internal resources and capabilities.

27
© 2013 Cengage Learning. All rights reserved.

14

Lecture 1.2
Introducing Strategy
Perspectives on Strategy

Lecture Overview





The basic strategy development process
Definitions of strategy
Benefits and dangers of having a strategy
Perspectives on strategy development

15

Free Writing Exercise
In “free writing” a person writes down any and all thoughts related to a topic. Such writing is done in a non self‐judgmental manner. Any and all thoughts are written down immediately without discriminating between thoughts. Pick up your pen and write down everything that comes to mind when you think of the word ’strategy ’. Do this for 5 min.
__________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
_________________________________________________________________
__________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________

Strategic Management
Paradigm
Analysis/Context:
The situation in which and for which strategy develops Alternatives/Content:
Aims, objectives and actions expected of those influencing and influenced by developing strategy Action/Process: The way in which strategy develops and is implemented 16

Levels of Strategy
ABC Group Ltd
Y Ltd

Z Ltd

Marketing

Marketing

Marketing

Operations

Operations

Operations

Finance

Finance

Finance

Personnel

OPERATIONAL STRATEGIES

BUSINESS LEVEL STRATEGY

CORPORATE LEVEL STRATEGY

X Ltd

Personnel

Personnel

Exporting

© Mintzberg, Ahlstrand and Lampel, Strategy Safari, 2nd Edition.

The many faces of strategy: The Five P’s
Intuitive Meaning

Plan

Pattern

Position

The creation of a close relationship between actions and preferred outcomes

Perspective Ploy

1. Strategy as plan: ‘a consciously intended course of action’.
2. Strategy as ploy: ‘a manoeuvre intended to outwit an opponent or competitor ’.
3. Strategy as pattern: ‘a pattern in a stream of decisions over time’.
4. Strategy as position: ‘a means of locating an organization in its environment’.
5. Strategy as perspective: ‘an ingrained way of seeing the world

© Mintzberg, Ahlstrand and Lampel, Strategy Safari, 2nd Edition.

17

PLAN





Specify future choices
Made in advance of action
Calculated towards achieving objectives

PATTERN





Without preconception
Driven by actions; not design
Consistency in behavior
(whether or not intended)

POSITION
PERSPECTIVE

• A match between organization and context
• A unique place in the environment
• Finding and sustaining rent creating situations • Collective concept
• A world view ; Intensely shared
• The “character” of an organization

Mintzberg’s Concept of Strategy
Deliberate and emergent strategies

© Mintzberg, Ahlstrand and Lampel, Strategy Safari, 2nd Edition.

18

The strategy beast: Areas of agreement
• Strategy affects overall welfare of the organization.
• Strategy concerns both organizations and their environments.
• Strategy involves complex tradeoffs.
• Strategy forms on different levels.
• Strategy involves issues of both content and process.
• Strategy is a “two‐edged” sword.

Pro’s and Con’s of Having a Strategy
STRATEGY...

+

... sets direction • Chart a course
• Create and maintain cohesion

...focuses effort • Promotes coordination


• Wrong direction
• Hides unanticipated dangers

• Reduces disorder

• No peripheral vision
• “Groupthink”

...defines the organization • Captures essential meaning
• Creates shared identity

• Loss of richness
• stereotyping

...provides consistency • Reduces ambiguity
• Explains the world

•Can reduce creativity
• Simplify to the point of distortion © Mintzberg, Ahlstrand and Lampel, Strategy Safari, 2nd Edition.

19

Why ten schools?
“The test of a ‘first‐rate intelligence’ is the ability to hold two opposed ideas in mind at the same time and still retain the ability to function”.

• Organizations can vary widely.
• Organizations can change greatly.
• Theories of dynamic systems are often either too simple or too complex.
• Understanding social systems requires understanding not only outcomes, but also intentions. • Contingency is crucial.

© Mintzberg, Ahlstrand and Lampel, Strategy Safari, 2nd Edition.

The Strategy Elephant: Ten Schools of Strategy
SCHOOL

Strategy formation as ...

Strategy as..

DESIGN

a process of conception

A CAREFUL, EXPLICIT PLAN

PLANNING

a formal process

A SYSTEMATIC PLAN FOR FIVE TO TEN YEARS.

POSITIONING

an analytical process

A TANGIBLE POSITION FITTED TO CONTEXT

ENTREPRENEURIAL

a visionary process

A LEADER’S PERSPECTIVE OF SOME DESIRED
FUTURE STATE.

COGNITIVE

a judgmental process

A SIMPLIFIED PERSPECTIVE OF WHAT IS
HAPPENING OR MUST HAPPEN

LEARNING

an emergent process

A PATTERN THAT EMERGES FROM BEHAVIOUR

POLITICAL/POWER

a process of negotiation

AN AGENDA. A COMPROMISED POSITION,
OFTEN A PLOY RESULTING FROM BARGAINING
AMONG COMPETING ACTORS

CULTURAL

a collective process

A PERSPECTIVE AS A SET OF KEY VALUES AND
BELIEFS ABOUT ’THE WAY WE DO THINGS
AROUND HERE’

ENVIRONMENTAL

a reactive process

A POSITION AS A NECESSARY RESPONSE TO
EXTERNAL FACTORS

CONFIGURATION

a process of transformation

ANY OF THE ABOVE, AT THE PROPER TIME

© Mintzberg, Ahlstrand and Lampel, Strategy Safari, 2nd Edition.

20

The Prescriptive Approach
• Focus: How strategy should be formed
• Strategic management as
– Design
– Planning or
– Positioning

• Strategy should be a formal, deliberate process of conscious thought
• Is based on objective and on‐going analysis of external environment and internal capabilities and missions
• Responsibility lies with top management or dedicated planning teams

Strategic planning model


There are hundreds of different strategic planning models, however, most can be reduced to the same basic ideas: set the objectives – take the SWOT model – divide it into neatly delineated steps – articulate each of these with lots of checklists and techniques ‐ elaborate the budgets and operating plans.
The Steiner model of strategic planning (1969).

© Mintzberg, Ahlstrand and Lampel, Strategy Safari, 2nd Edition.

21

The basic stages in the planning process
Objective‐setting

Quantify goals into numerical objectives; the quantified goals serve as a means of control.

External audit

Forecasts about future conditions; extensive checklists, myriad of techniques.

Internal audit

Strengths and weaknesses checklist, (because the assessment of distinctive competences is judgemental, simpler checklists and tables of various kinds are employed)

Evaluation

Use of formal, financial measures e.g. ROI, EVA, MVA, ROCE, SVA, cost of equity capital,...

Operationalization

Scheduling

Decomposition into substrategies: „All strategies must be broken down into substrategies for succesful implementation” ‐> the hierarchies of objectives, budgets, strategisand programms, existing on different levels, together refferred to as the ‘master plan’.
Planning the plan; the timetable by which the steps in the planning process are carried out has to be programmed e.g. GE

© Mintzberg, Ahlstrand and Lampel, Strategy Safari, 2nd Edition.

The Descriptive Approach
• Focus: How strategy is actually formed
• Strategy is:
– Visionary (entrepreneurial perspective)
– Incremental (learning perspective)
– Reactive (environmental perspective)
– A negotiation (political perspective)
– A social construction (cognitive and cultural perspectives)

• Challenge to notions of strategy as objective, deliberate, far‐reaching, formal and non‐conflictual

22

Power Dynamics in Strategy
Individual manager’s balancing act
• Job/task
• Career Aspirations
• Outside interest

The political process
Use frameworks and assumptions that shape thinking Environmental ambiguity Favourable interpretation interpretation of reality

Appeal to selfinterest Play on emotions Stakeholders/ Interest Groups
• Shareholders
• Suppliers
• Workers
• Customers
• General Public
• Government
• Non‐Profit Organisation

Action

Rely on temporal and cognitive limits

Conclusions




Strategy is a contradictory and multi‐disciplinary academic discipline
Strategic processes are complex and can be examined from different perspectives
There is a wide gap between what we would like strategy to be and what it actually is

CORE AREAS OF STRATEGY FOR INTERNATIONAL BUSINESS:
Corporate strategy
– How to approach foreign markets?
– Key sources of competitive advantage?
– Degree of standardisation and customisation for product/service and marketing mix?
– Degree of centralisation versus decentralisation within decision‐making?
– Organisational structure?
Entry strategy
– Which entry and operating mode for servicing foreign markets?
– At what pace do you internationalise?
– Where do internationalise?
– When do enter foreign markets? First or late mover?

23

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