BN926 Strategy and Management of Change

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BN926 Strategy and Management of Change

• Globalisation, Global and International
  Strategy
• Professor Julian Lowe

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Focus Questions
What is globalization? What are the recent
trends in globalization? Compare the different
influences of local responsiveness, global
integration, worldwide learning? What markets
does it affect most? How does it influence
competitive strategy? Do global strategies
require new forms of global organization?
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Examples

• Steel, ICT, Auto, Banking,Retailing, (fast) food
• Early drivers
• Changes over the past decade in their patterns of
  globalisation

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The big stories

• Emerging economies their increasing impact
• Globalization of production
• Global strategies
• Global organization

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Some recent data

• From the McKinsey Quarterly no 3 2006, the
  Economist September 14 2006

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Globalisation

• Traditional Reasoning
• Market Access
• Technology Sharing
• Specialisation of Assets
• Low Cost / Efficient Inputs
• Serve Homogeneous Markets
• Trends in World Trade
• ..Facilitation through Information Age

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What Does It Mean?

• Strategic interdependence
• Global sourcing
• Converging tastes and technologies

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Analyzing Competitive Advantage within an
International Context The Basic Framework
THE INDUSTRY ENVIRONMENT Key Success Factors
FIRM RESOURCES CAPABILITIES -- Financial
resources -- Physical resources -- Technology --
Reputation -- Functional capabilities -- General
management capabilities
COMPETITIVE ADVANTAGE
THE NATIONAL ENVIRONMENT -- National resources
and capabilities (raw materials national
culture human resources transportation,
communication legal infrastructure --
Domestic market conditions -- Government
policies -- Exchange rates -- Related and
supporting industries
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Changing Patterns of Globalisation
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Changing Patterns of Globalisation (Continued)
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The new millennium

• Increasingly borderless world but not as global
  as we might think. Of the top 25 largest US
  multinationals, 22 have over 50 of their sales
  in North America
• Flight from manufacturing
• Growth of alliances although not as marked in
  China where the growth has been in wholly owned
  foreign enterprises
• FDI from developing countries resources,
  Oil/Gas, electronics
• Cultural convergence in some markets
• Growth of regional agglomerations clusters.
  But sometime through a double cluster MNEs get
  advantage from a home AND an overseas cluster.

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Different types of Internationalisation
The Process of Internationalization
International Global Industries
Industries --aerospace --automobiles
--military hardware --oil --diamond mining
--semiconductors --agriculture --consumer
electronics Domestic Multinational/
Industries Multidomestic --railroads
Industries --laundries/dry cleaning
--retail banking --hairdressing --hotels
-milk --consulting
HIGH
International Trade
LO W
LOW
HIGH
Foreign Direct Investment
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Industry Drivers (Yip)

• Market
• Homogenous customer needsGlobal (B2B) customers
  / middlemen Transferable marketing
• Cost
• Scale and scopeLearning and experienceCountry
  costsSourcing efficienciesProduct development

• Government
• Trade policies Regulations
  Technical standard
• Competitive
• Interdependence by country Global
  competitors Changes over time

• .So what are the levers to align with drivers?

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International Location of Production

• 3 considerations
• National resource conditions What are the major
  resources which the product requires? Where are
  these available at low cost?
• Firm-specific advantages to what extent is the
  companys competitive advantage based upon
  firm-specific resources and capabilities, and are
  these transferable?
• Tradability issues Can the product be
  transported at economic cost? If not, or if trade
  restrictions exist, then production must be close
  to the market.

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Drivers of Global Strategy in a Knowledge Economy
Global Integration
Organisational Learning
National Responsiveness
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Limits to Globalisation
Change Readiness
Lo Govt. / Societal Involvement Hi
Tendency to Globalise
Hi
dynamic
Lo
Stakeholders interest
Industry Scope
Hi Scale Benefits Lo
static
local transnational
Lo
Hi
Similarity of Demand
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How global is Unilever?
Businesses
Functions
Tasks
Chemicals Packaged Foods
Research Product Development
Manufacturing Sales
Product Policy Advertising
Pricing Distribution Promotion
Need for Global Coordination and Integration
Detergents
Low High
Personal Products
Marketing
Low High
Low High
Low High
Need for National Differentiation and
Responsiveness
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Other frameworks

• Stages of development Ohmae,
• The small firm perspective - Oviatt and McDougall
• Porter competitive diamond

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Five Stages of Globalisation (Ohmae)

• The Five Stages of Globalisation
• Export-Orientated Company
• Overseas Branches
• Relocating Production
• Insiderisation
• The Global Company

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The Five Stages of Globalisation
Kenichi Ohmae explains his theory of the five
stages of globalisation Stage one
Export-Orientated Company A company which expands
from its home production base to export markets
using dealers, distributors or agents. Stage two
Overseas Branches The company starts to set up
its own sales, marketing and, perhaps,
after-sales services in foreign markets. Stage
three Relocating Production The company
relocates production to key markets
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The Five Stages of Globalisation
Kenichi Ohmae explains his theory of the five
stages of globalisation (cont..) Stage four
Insiderisation The company creates complete
clone models of the parent in overseas markets,
enabling a complete local response to local
consumers by being able both to analyse consumers
and tailor local products to their needs. Stage
five The Global Company Ohmae says that at this
stage some common core functions consolidate
back to the centre to provide the business with
common shard values the global aspect
whilst maintaining the ability to provide a
specific local service. Operation remains
dedicated to local management, but there is
global control of areas such as RD, brand
development and so on.
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Global Success Factors

• Ohmae Vision and values
• Strategy breadth, scope, focus, cost,
  differentiation
• People Training and Development
• Location, Delegation, Control
• Government

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Oviatt and McDougall (Journal of International
Business Studies,1994 and 2003)

• Challenge the Process Theory of
  Internationalization (PTI) (Johanson and Vahlne,
  1977) which states that young or small firms
  start internationalizing by going through a
  process whereby they start with activities in
  countries that are psychically close and then
  move outwards.
• Instead Oviatt and McDougal suggest that
  increasingly SMEs and INVs (international new
  ventures), more or less start international from
  the beginning. These firms are typified by
  ownership of
• A scarce and difficult to imitate resource that
  is transferable internationally
• A network to help manage and monitor the
  relationship
• A initial client who provides them with some
  immediate experience

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International New Ventures

• The whole process is facilitated by
• The internet and better communications
• Available information and converging economies
  and tastes
• More managers and entrepreneurs with some
  international experience
• Improved mechanisms for managing networks

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Porters Competitive Advantage of Nations

• Extends and modifies traditional theory of
  comparative advantage to take account of the
  following factors
• Competitive advantage is about companies --- the
  importance of the national environment is
  providing a home base for the company
• Sustained competitive advantage depends upon
  dynamic factors-- innovation and the upgrading of
  firms resources and capabilities
• The critical role of the national environment is
  its influence upon the dynamics of innovation and
  upgrading

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Porters National Diamond Framework

• 1. FACTOR CONDITIONS. Home grown resources and
  capabilities more important than natural
  endowments
• 2. RELATED AND SUPPORTING INDUSTRIES.
  Competitive advantage occurs in industry
  clusters (e.g. semiconductors-computers-software
  in the U.S.)
• 3. DEMAND CONDITIONS. Discerning domestic
  customers drive quality and innovation (e.g.
  Japanese camera industry)
• 4. STRATEGY, STRUCTURE, RIVALRY. E.g. domestic
  rivalry drives innovation and upgrading

FACTOR CONDITIONS
RELATING AND SUPPORTING INDUSTRIES
DEMAND CONDITIONS
STRATEGY, STRUCTURE, AND RIVALRY
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Who manages global organizations?

• Matrix organizations (structural)
• Matrix managers
• Development of managers (training
• Deployment of managers (providing managers with
  international experience)
• Recruitment of managers (with experience)

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Analysing Management Roles
Considering each of the capabilities and roles in
order, who currently carries out these roles in
your organisation? What specific things are they
doing to address the key capability with which
they are matched?
Global Integration and Efficiency National
Responsiveness Global Integration and Efficiency
Worldwide Business Managers Country /Regional
Managers WorldwideFunctional Managers
Where are they constrained from performing their
roles? What barriers or impediments limit their
effectiveness?
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Overseas Market Entry Alternative Modes

• TRANSACTIONS DIRECT INVESTMENT
• Exporting Exporting Exporting Licensing
  Franchising Joint
  Wholly owned
• Spot Long-term with foreign
  technology venture
  subsidiary
  
• trans- contract distributor/
  and Marketing
  Fully Marketing Fully
• actions agent trademarks
  distribution integral- sales
  integral-
• only ted only
  ted
• Key issues
• Is the firms competitive advantages based upon
  firm-specific or country-specific resources and
  capabilities?
• Is the product tradable and what are the barriers
  to/ costs of trade?
• Does the firm possess the full range of resources
  and capabilities needed to serve the overseas
  market?

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Entry modes

• These entry modes depend on transaction costs,
  and the need for risk reduction and control
• These factors also help explain the different
  MNE/Transnational structures that follow

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Strategy and Organization of the MNCThe
Evolution of Multinational Strategies and
Structures (1) Pre 2nd WW Era of the Europeans

• The European MNC as Decentralized Federation
• National subsidiaries self-sufficient and
  autonomous
• Parent control through appointment of
  subsidiaries senior management
• Organization and management systems reflect
  conditions of transport and communications at the
  time e.g. Unilever, Phillips, Courtaulds, Royal
  Dutch/Shell

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Strategy and Organization of the MNC The
Evolution of Multinational Strategies and
Structures (2) Post 2nd WW U.S. Dominance

• American MNCs as Coordinated Federations
• National subsidiaries fairly autonomous
• Dominant role as U.S. parent-- especially in
  developing new technology and products
• Parent-subsidiary relations involved flows of
  technology and finance, and appointment of top
  management.e.g. Ford, GM, Coca Cola, IBM

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Strategy and Organization of the MNC The
Evolution of Multinational Strategies and
Structures (3) 1970s and 1980s The Japanese
Challenge

• The Japanese MNC as Centralized Hub
• Pursuit of global strategy from home base
• Strategy, technology development, and manufacture
  concentrated at home
• National subsidiaries primarily sales and
  distribution companies with limited autonomy.
  e.g. Toyota, NEC, Matsushita

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Reconciling Global Integration with National
Differentiation The Transnational Corporation
Tight complex controls and coordination and a
shared strategic decision process.
Heavy flows of technology, finances, people, and
materials between interdependent units.

• The Transnational an integrated network of
  distributed interdependent resources and
  capabilities.
• Each national unit and source of ideas, skills
  and capabilities that can be harnessed to
  benefit whole corporation.
• National units become world sources for
  particular products, components, and activities.
• Corporate center involved in orchestrating
  collaboration through creating the right
  organizational context.

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Questions

• Outline Porters, Ohmaes, Oviatt and
  McDougalls, and Yips theories of globalisation
  and strategy
• How would you design a global strategy and
  organisation in
• Healthcare?
• IT?
• Mining and primary production?
• Software?