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Chapter 2 Strategies in the global economy

2

What is strategy?A coherent set of choices guiding investment decisions

3

Businesses

Global business

strategy

Regional strategy Regions

Countries

Global corporate strategy

Different strategic levels in global firms

4

Different strategic levels in global firms cont.

5

Different strategic levels in global firms cont.

6

• Market/ resource driven• Relative importance of

region and key countries in corporate portfolio

• Decomposition of the value chain

• Global logistics• Alliance & acquisitions• Development paths

• Degree of autonomy and integration

• Global structure and systems• Global HRM

• Geographical positioning

• Competitive positioning• Degree of standardization

7

Global ambition: market driven/ resources driven

Market driven Resources driven

Capture growth opportunities of the region to expand global sales

Capture resources (natural, human, knowledge) for globalcompetitiveness

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8

GDP2010 (current

US$)

GDP per capita

(current US$)Population

(million)

Average Growth (1990-2010) % of GDP

North America 15390 45152 341 1,0% 24,4%Europe 17340 33000 523 4,1% 27,3%

Asia and Pacific 17650 16650 3670 6,7% 28,0%Latin America 4630 8230 623 7,3% 7,3%

Africa 1590 1630 974 4,0% 2,5%Middle East 1880 15000 120 6,8% 3,0%

Transition ex USSR 1910 7107 363 5,4% 3,0%

World 63120 9227 6840 5,4% 100,0%

Global ambition: the world in 2010

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24% GDP20% PPP

28% GDP33% PPP

7% GDP8% PPP

3% GDP4% PPP

27% GDP22% PPP 3% GDP

5% PPP

GDP 2010 (current US$)

GDP, PPP (current $)

North America 15390 15390Europe 17340 16645

Asia and Pacific 17650 25500Latin

America 4630 6230Africa 1590 2850

Middle East 1880 2560Transition ex USSR 1910 3630

World 63120 76650

3% GDP3% PPP

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Average growth yearly rate (1990-2010)

GDP /Capita (2010)

Global ambition: countries life cycle

0 5000 10000 15000 20000 25000 30000 35000 40000 45000 5000000%

01%

02%

03%

04%

05%

06%

07%

08%

Africa

Transition Economies

Latin AmericaMiddle East

Asia and Pacific

Europe

North America

Bubbles proportional to GDP 2010

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Europe North America Asia Pacific Rest of the world(%) (%) (%) (%)

Advertising 19 57 23 1Clothing & footwear 32 27 25 15Computer hardware 27 27 39 7Construction materials 18 9 63 10Consumer electronics 30 23 38 9Cosmetics 37 22 27 14Data processing services 29 52 14 9Electrical appliances 28 27 34 10Electrical equipment 23 20 42 15Environment services 31 39 23 7Healthcare equipment 34 46 18 2Home furnishings 44 22 18 15Insurance 34 38 25 3Mobile phones 30 25 42 3Paint & coatings 26 27 35 12Pharmaceuticals 28 48 18 6RetaiI 32 30 23 15Specialty chemicals 45 39 11 4

Global ambition: global distribution of markets (2005)

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12

Global ambition: Ciba fine chemicals

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Ciba fine chemicals

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SalesNumber of countries

Productionand supplies

Global ambition: what kind of global player?Global companies mapping

Sourcer

Domestic

Global

Exporter

Regional

Key

15

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0% 20% 40% 60% 80% 100%

NORTEL

NOKIA

MOTOROLA ALCATEL

ERICSSON

Ratio of foreign sales/ total sales

Ratio of foreign assets/total assets

Circle proportional to total sales

Global ambition: Global companies mapping cont.

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KEY COUNTRIES: Have to be there

EMERGING COUNTRIES (WINDOW OF OPPORTUNITIES) : It’s time to go there

PLATFORM COUNTRIES: Entry and support

MARKETING COUNTRIES : No need to invest/only sales

SOURCING COUNTRIES: Manufacturing base/source of raw materials or purchasing office

Global ambition: countries portfolio

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• Market/ resource driven• Relative importance of

region and key countries in corporate portfolio

• Decomposition of the value chain

• Global logistics• Alliance & acquisitions• Development paths

• Degree of autonomy and integration

• Global structure and systems• Global HRM

• Geographical positioning

• Competitive positioning• Degree of standardization

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Global positioning: countries choice

Business opportunities

Market sizeMarket growthMarket qualityResources qualityResources costsGeographical facilitiesInfrastructuresEase of doing business

Risks of doing businessPolitical Economical Competitive Operational

H

L

H L

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Global positioning: Foreign Direct Investments 2000-2008Inflows in billions USD

USA 1666

UK 881

France 656

China 591

Germany 486

Canada 362

Belgium 357

China, Hong Kong SAR 339

Netherlands 337

Spain 313

Brazil 214

Mexico 202

Russian Federation 200

Italy 192

Australia 171

Singapore 166

Sweden 166

Switzerland 148

India 119

Poland 106

World 10070

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Global positioning: the 3 dimensions of global competitive positioning

Global standardization

Local adaptationCompeteon costs/priceadvantages

Competeon differentiated/valueadvantages

Multiple segments

Single segment

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Global positioning: the 3 dimensions of global competitive positioning cont.

Global standardization

Local adaptationCompeteon costs/priceadvantages

Competeon differentiated/valueadvantages

Multiple segments

Single segment

Ikea

Dairy Farm(in Asia)

Apple (stores)

Hermes

Wal-Mart

Carrefour

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Customers Requirements and Competitive Contexts

Little Difference across the World (Global Segments)

Countries specific (Local Segments)

Minimum Size Of

Production

High (Global Scale)

Low (Local Scale)

GLOBALSTANDARDISATION

Aircraft Microprocessors

BasicChemicals Pulp and paper Electronic Components Example: Intel, Dell

MODULARSTANDARDISATIONAnd MULTIBRANDS

ElevatorsIT ServicesHandphones

LOCALADAPTATION

Consumer Banking Consulting Services Mobile Telephone Services

PROCESSSTANDARDISATION

Cement

Example: Otis, Nokia

Example: Cemex Example: Vodafone

Standardized or Localized ?GLOBAL POSITIONING

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• Market/ Resource Driven• Relative importance of region

and key countries in corporate portfolio

• Decomposition of the value chain

• Global logistics• Alliance & Acquisitions• Development paths

• Degree of autonomy and integration

• Global structure and systems• Global HRM

• Geographical positioning

• Competitive positioning• Degree of standardization

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R & D Procurement ManufacturingMarketing

Sales anddistribution

Capabilities and sources of competitive advantages

Resources based

Assets based

Competenciesbased

Generalmanagement

Investments in a global business system

Higher quality scientists and technologistsBetter database Higher amount of funding for R&D More creative designers

Better suppliers Larger suppliers base Cheaper sources of supplies Higher quality supplies

Better locationand infrastructure Higher qualification of work force Lower labour costs?

Good qualitychannel partners Superior strategicand marketing Intelligence Higher quality marketing and sales personnel

Higher quality managerial personnel Cheaper cost of capital Strong “sponsors”Privileged access to licenses from authorities

Superior existing products linePatents More efficient CAD

More effective warehousing & inventories management Electronic data purchasing Economies of scale due to high volume of purchase

Economies of scale due to volume Better quality/costprocesses More advanced CAMProprietary equipments

Well established brand/reputation Density and scope of distribution

Better electronic data management and transmission network

Proprietary scientific/technological know-how Superior product development Superior research techniqueFaster products development

More effective supply chain mgt (JIT) More effective suppliers relationships management

Better quality plant management Better process management Better time management

Superior product andbrand management Superior customer relationship management

Better financial management Better HRM Superiority in strategizing More effective, timely, responsiveOrganisational mechanisms “Better” corporate culture

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Building global competitive advantages

Transerability of competitive advantages What is the value of our existing advantages on local

markets? To what extent do we need to adapt our products and

management approaches? What new capabilities need to be acquired and how?

Our competitiveadvantages

To what extentare they

transferable?

Which newcapabilities to create and how?

Investments in a global business system

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R & D Procurement Manufacturing Marketing Generalmanagement

What capabilitiesare needed to compete?

What capabilitiesdo we bring andcan transfer?

What capabilitiesdo we bring but need to adapt?

What capabilitiesdo we need to create?

How do a firm’s capabilities apply to regional/local markets? Transfer, Adapt, Create Model

Investments in a global business system

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Source ofcompetitive advantages

TechnicalTRANSFER withLittle or No adaptation

TRANSFER and

ADAPT

ADAPT andRECREATE

TRANSFER and doRelevant ADAPTATION

Example: Unilever

Example: McDonald’s Example: KFC

Transferability of competitive advantages and business model ?

Social, culturalpolitical, contextual

Example: Dell, Intel

Customers’ requirements and competitive contexts

(global segments)

Country specific

(local segments)

Little difference across the world

Investments in a global business system

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• Market/ resource driven• Relative importance of region

and key countries in corporate portfolio

• Decomposition of the value chain

• Global logistics• Alliance and

acquisitions• Development paths

• Degree of autonomy and integration

• Global structure and systems• Global HRM

• Geographical positioning

• Competitive positioning• Degree of standardization

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ResearchDevelopment

SourcingProduction Marketing Customers

Services

Global

Regional

Local

- Central R & D- Technology Strategy- Core Technology- Core Products- Technology conferences- Technological intelligence

- Regional Products development- Regional intelligence - Regional seminars

- Local Laboratories

- Global factories- Global materials flow- Process Engineering- Central sourcing

- Regional factories- Regional sourcing

- Local production- Local sourcing

- Global marketing strategy- Global communication - Global products Management- Regional Accounts- Regional Bidding

Regional: - Distribution- Promotion- Sales

Finances H.R.M

- Policies- Procedures- Information system

- Regional customers support- Logistics- Maintenance

- After sales services

- Corporate Finance- Global Treasury- Control

- Regional Debt financing- Regional Control

- Local borrowing

- International H.R.M

- Regional careers- Training

- Local careers- Local

GIS 35

Components of a global value chainGlobal organization

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Structures

HQ

R & D Production

HQ

BusinessA

FUNCTIONAL PRODUCT

HQ

Region Region Region

GEOGRAPHICALHQ

MATRIX

Marketing

BusinessB

BusinessC

Countries Countries

CountriesCountriesCountries

Business A

Business B

Business D

Business E

Business C

Region

Region

Global organization

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COREInternationalManagers

Local Managers

Local Managers

Local Managers

Local ManagersLocal Managers

Local Managers

Local Managers

Local Managers

Local Managers

Local Managers

Global organization The global human resources wheel