Chapter 3

Current Status and the trend of Global Strategy:

Key Theories and Concepts

Presented by Prof. (Dr. ) Kao Kveng Hong

Contents

2November 25, 2014

❖ Purpose of globalization▸ Why companies go global? --- beyond financial growth of the company

❖ Possibilities and challenges of companies in emerging and developing countries▸ Impact of “reverse innovation”▸ Learning through globalization

❖ Globalization of small and medium-sized companies▸ Toward “Global niche top”▸ How to explore foreign customers?▸ Globalization of service companies

❖ Role of top management for sustainable growth of the company▸ Required conditions of top management▸ Upbringing the successor of the company

Why Firms Go Global?❖ADDING (Ghemawat, 2007)

▸ Adding volume▸ Decreasing costs▸ Differentiating/Increasing WTP▸ Improving industrial attractiveness▸ Normalizing risk▸ Gaining Knowledge

• Acquisition of new technological knowledge

• Contact with new market needs• Reinterpretation of the value of

firm’sstrength and competence

VolumeMargin

Risk Hedge

Knowledge

Cost↓WTP ↑Industry

Attractiveness+

INNOVATION = “New Combination”

Economic Value

+

3November 25, 2014 WTP: Women's Technology Program

Strategic Issues of Globalization

4November 25, 2014

❖Traditional perspective▸For maximizing profit from globalization…

• Pursuing global efficiency- Global integration- Standardization- Economy of scale- Cost down

• Adapting to local market needs- Local responsiveness- Customization- Increasing the

willingness to pay- Creating value

Typology of Global Strategy❖Global Integration vs. Local Responsiveness

Global Transnational

International Multi-domestic

Responsiveness to local needs

Low High

Global Integration

Source ： Bartlett and Ghoshal 䠄1989 䠅

Import and export, with noinvestment outside of the

home country

High

Low

Coordinated by HQ, offer the same products/services in all

markets, emphasizing on volume, cost and efficiency

Coordinated by HQ, but give decision-making, R&D andmarketing powers to each individual foreign offices

Focus on adapting products/ services to each individual

local market, without coordinating product

offerings in each country

November 25, 2014 5

From Transnational to Meta-national❖Transnational strategy (Bartlett & Ghoshal, 1989)

▸ Combining the benefits of global-scale efficiencies with thebenefits of local responsiveness

▸ Ideal type of global strategy

❖Meta-national strategy (Yves Doz, et.al., 2001)

▸ Accessing and combining critical knowledge and resources which are dispersed in the world

▸ Creating knowledge and values not only in home country, but also in all over the world, including emerging & developing countries

▸ Sharing and deploying new knowledge and values globally

▶ Considering global innovation basedon knowledge-creation perspective

▶ Paying more attention to knowledge- link including global alliances

▶ Emphasizing not on typology, but ondynamic process

6November 25, 2014

Doz, Santos and Williamson 䠄 2001 䠅

Present Trend of Globalization❖ From the linear perspective to the multiple perspective

▸ Past• Export products/services or transfer knowledge/competence to

other countries which were originally developed or created in a certain country, especially home country

▸ Now• Develop products/services or create

knowledge/competence across various countries in the world, and deploy them globally

• “from Multi to Multi”

7November 25, 2014

Reverse Innovation❖ What is the Reverse Innovation

▸ Innovation firstly born in developing countries, then transferred and used in developed countries

❖ Traditional approach of globalizationinto developing countries▸ Innovation has already established

▸ Add necessary modifications to adapt in developing countries by reducing functional performance (scale-down)

▸ Trickle-down from upstream to downstream

❖ Knowledge and value can be created all over the world including the developing countries as well as developed countries

❖ Sharing and utilizing globally new knowledge and values created all over the world

Govindarajan & Trimble (2012)

8November 25, 2014

Evolution of Global Strategy

Selling products and services to markets all over theworld, that are originally developed in home country

Modifying products and services to meet each country’s local needs , that were originally developed in home country,

Developing and selling products and services “in country, for country” for meeting each country’s local needs

Developing and selling products and services “in country, for the world” (Developing them in local country, adapting and scaling up for worldwide use)

Source ： Govindarajan 䠄 2009 䠅 , “What is Reverse Innovation?” (http://www.vijaygovindarajan.com/2009/10/what_is_reverse_innovation.htm)

Globalization

Glocalization

Local Innovation

Reverse Innovation

9November 25, 2014

From Globalization to Reverse Innovation

10November 25, 2014

❖Phase 1: Globalization▸Companies built economies of scale by selling products

and services to markets all around the world. Innovation happened at home, and then the new offerings were distributed everywhere.

❖Phase 2: Glocalization▸Companies focused on winning market share by adapting

global offerings to meet local needs. Innovation still originated with home-country needs, but products and services were later modified to win in each market. In developing countries, they sometimes de-featured existing products to meet the budgets of the customers.

Souece ： Govindarajan 䠄 2009 䠅 , “What is Reverse Innovation?” (http://www.vijaygovindarajan.com/2009/10/what_is_reverse_innovation.htm)

❖Phase 3: Local Innovation▸Companies are focusing on developing

product “in-country, for country”. That is, they are starting with a zero-based assessment of customer’s needs, rather than assuming that they will only make alterations to the products

s

they already have. First half of reverse innovation process.

❖Phase 4: Reverse Innovation (or trickle-up innovation)

▸If Phase 3 is “in country, for country”, this Phase 4 is “in country, for the world”. Companies complete the reverse innovation process by taking the innovations originally chartered for developing countries, adapting them, and scaling them up for worldwide use.

From Globalization to Reverse Innovation

11November 25, 2014

Souece ： Govindarajan 䠄 2009 䠅 , “What is Reverse Innovation?” (http://www.vijaygovindarajan.com/2009/10/what_is_reverse_innovation.htm)

LG’s Mecca Phone

Examples of Reverse Innovation❖ GE Healthcare is now selling an ultra-

portable electro-cardiograph machine in the US at an 80% markdown for similar products. The machine was originally built for doctors in rural area of India and China.

❖ Nestle learned that it could sell its low-cost, low-fat dried noodles, Maggi, originally created for rural India and position the same product as a healthy alternative in Australia and New Zealand.

❖ Procter & Gamble found that a honey-based cold remedy, Vicks Honey Cough , created for Mexico also had a profitable market in Europe and the US.

12November 25, 2014

Reverse Innovation by Asian Company❖ Reverse innovation is not just a strategy for companies

in developed countries, but also for companies in emerging and developing countries▸ Tata Motors is planning to sell an upgraded version of the “Tata

Nano” in western markets; it's called “Tata Europa”.

TATA Nano

13November 25, 2014

TATA Europa

Japan’s Compact Car:An Old Reverse Innovation?❖ Compact and economy cars in 1970s were innovations

originally developed in Japan, still then a developing country, which were accepted and swept over the market in a developed country, the United States.

Num

ber o

f Exp

orts

(10

thou

sand

)

14November 25, 2014

Application of Reverse Innovation to Japan❖ Ultra-portable electro-cardiograph machine which

wasdeveloped for doctors in rural area of India and China

❖ The solar lantern which was introduced into the BOP layer of the developing countries (e.g. Africa)

❖ Used in the stricken areas after the East Japan greatearthquake disaster

15November 25, 2014

Global Strategy for Companies in Emerging and Developing Countries

16November 25, 2014

❖Generating local innovations▸ Identifying core competence

• What is the “real strength” of the company?

▸ Committing to develop distinctive values• Recognizing idiosyncratic local needs and problems• Taking advantage of “institutional voids ” or handicaps

- “Turning the disadvantage and weakness to the advantage and strengths”

❖Global deployment of local innovation▸ Developing local innovation into reverse innovation

• Scaling-up: improvement of quality and reliability…

▸ Building partnership with peoples and companies in developedcountries

What’s the Real Strength of the Firm?❖ Episode

▸ When I visited a small metalworking company located in a regional area of Japan, the company president told me that…

“Welcome to our company, Professor. Now, I will introduce our company to you, but at first let me guide you to a new factory which was established recently. There is the strength of our company which we feel proud of. It is a highly precise machine tool made in Switzerland, introduced with the establishment of the new factory!”

17November 25, 2014

Discussion

18November 25, 2014

❖ Does the machine tool made in Switzerland that thepresident mentioned the strength of the company?

❖ What conditions are needed for the machine tool to be the

strength?

Conditions for the “Real Strength”

19November 25, 2014

❖ It is the key element for pushing product and businessdevelopment successfully (Key success factor)

❖ Other companies do not have a same or similar thing

❖ Other companies can not easily obtain or imitate it

❖ There is not substitution that plays the same function

❖ It is durable for a certain period of time (Not extinct immediately or worn out)

etc…

VRIO Analysis❖ Value

▸ Is the resource valuable for product and business development and implementation of your company?

❖ Rareness▸ Does the resource have the rarity in that other companies do not

have?

❖ Inimitability▸ Can’t the resource be copied from other companies easily?

❖ Organization▸ Are organization, human resource and management system prepared

for improving, strengthening and utilizing the resource?

“Real Strength” have to meet all the conditions above20November 25, 2014

Haier (海爾 )❖ Haier

▸ Leading company in China’s white goods market inteeth of competition from GE, Electrolux, etc.

❖ Haier developed products and services networks tailored to the needs of Chinese customers▸ New washing machine that meets needs

of rural Chinese customers, who have used washing machines to clean vegetables like sweet potatoes

▸ Tiny washing machine that cleans a single set of clothes, which meets customer needs to change clothes frequently in humid Chinese cities like Shanghai and Shenzhen

▸ Established a distribution and service network that covers semi-urban and rural areas in China

21November 25, 2014

Contents

22November 25, 2014

❖ Purpose of globalization▸ Why companies go global? --- beyond financial growth of the company

❖ Possibilities and challenges of companies in emerging and developing countries▸ Impact of “reverse innovation”▸ Learning through globalization

❖ Globalization of small and medium-sized companies▸ Toward “Global niche top”▸ How to explore foreign customers?▸ Globalization of service companies

❖ Role of top management for sustainable growth of the company▸ Required conditions of top management▸ Upbringing the successor of the company

Worldwide Sales and Share of JapaneseMajor Products and Parts/materials (2008)

Global Market Size (JPY)

Market Share of Japanese Companies

Industrial Fields where Japan has competitiveness

November 25, 2014 23

Components and Materials❖ Worldwide market share of Japanese companies (2005)

▸ LCD/Semiconductor-related materials

▸

▸November 25, 2014 24

• Color filter 100%• Encapsulant 100%• glass substrates 98%• Plastic substrates 92%• Bonding wire 83%• Lead frame 81%• Silicon wafer 74%• polarizing plate 73%• Photo mask 70%

Cellular phone-related materials• ceramic capacitors 76%• lithium-ion battery 77%• Crystal components 58%• Display 43%

Carbon Fibers・・・70%

Industrial Fields where Korea has competitiveness

Worldwide Sales and Share of KoreanMajor Products and Parts/materials (2008)

Global Market Size (JPY)

Market Share of Korean Companies

November 25, 2014 25

“Global Niche Top” companies

26November 25, 2014

❖ What’s the GNT company?▸ Company that have top share in world market in a specific field

of product or service

❖ Merits of GNT company▸ Relatively small market within a country, but collectively large in

the world▸ By gathering small sales volume, company can earn big sales in the

world (multi-niche)▸ There is no or few competitors in niche market which leads

high profitability▸ Top share company can get fresh information about the market

and customer needs ahead of competitors

Hidden Champions in the 21st Century❖Harmann Simon (2009)

▸ Hidden Champions in the 21st Century: The Success Strategies of Unknown World Market Leaders, Springer

❖What’s the “HiddenChampion”?▸In the certain product/ service field,

• Global Top 3 or European No. 1• Under 4 billion US dollars in

sales volume• Not well-known to the public

27November 25, 2014

“Hidden Champions” of the World

49

67

68

75

76

110

116

220

366

500

0 100 200 300 400 500

Sweden

UK

China

France

Italy

Switzerland

Austria

Japan

USA

Germany

Number of "Hidden Champions" by Countries

1307

Source: Hermann Simon (2009) 28November 25, 2014

Characteristics of “Hidden Champions”❖ Strong leadership with ambitious target❖ Distinctive technological capabilities as base

of business (active R&D investment)❖ Language and communication capacity for

globalization (e.g. hiring foreign students)

❖ Raising employees with high capabilities and loyalty to the company

❖ Building a direct business relationship with customers

❖ Pursuing customer-oriented development and sales (grasping tacit customer needs)

❖ Focusing and deepening business on its own field of expertise

❖ Providing services as well as hardware as a total solution

29November 25, 2014

How to explore foreign customers?

30November 25, 2014

❖ Making use of public supports and intermediaries▸ Public services for global expansion (e.g. JETRO, Organization

for Small & Medium Enterprises and Regional Innovation in Japan, Supports by regional government, etc.)

▸ Bank in which company has its account

❖ Participating in overseas exhibitions▸ Staffing a booth at exhibitions

❖ Creating company’s homepage in English, Chinese, etc.

▸ Employing staffs who are proficient in foreign languages to respond to questions and inquiries to the company is prerequisite.

❖ Sending information on charms of the region to attractforeign interests

▸ Demonstrating technological and market attractiveness to increase orders from foreign countries

Active Dissemination of Informationthrough Internet

31November 25, 2014

❖ Creating user-friendly homepage▸ Easy to search and has detailed information of products and services▸ English and Chinese translation is necessary

❖ Preparing for creating effective homepage▸ Measurement and analysis of the products and services

• e.g. size, shape, strength, durability, etc.▸ Collaboration with university and public research institution▸ Identification of the technological causation and establishment of

reproduciblity▸ Staffing personnel who are proficient in foreign languages to create and

respond to questions and inquiries• e.g. employment of foreign students

Tenhiko Industrial Co. Ltd.❖ Manufacturing and sales company

of special steels established in 1944❖ In 2008, the company started the

web sale business for foreign countries

❖ Created a user-friendly homepage where potential customers can find appropriate goods by searching from material name and usage

❖ Inquiries came from pharmaceutical and food industries in which the company has not had any business relations

❖ The overseas sales ratios that were 15% increased to more than 30%, and the width of the oversea business was expanded

32November 25, 2014

“Bobsleigh Project” in Ota Ward, Tokyo❖ Project started in 2012❖ Aim

▸ To develop final product to demonstrate high technological capabilities of small factories in Ota

▸ Final aim is to get orders of high-tech parts in the field of aerospace and the medical equipment

❖ Why bobsleigh?▸ Sochi Olympic Games 2014 which the whole

world pays attention to is the target goal▸ High PR effects is expected▸ Bobsleigh is a complex product which needs

various technologies❖ Process of development and promotion

▸ Developing the product through collaboration among more than 100 small companies in Ota

▸ Making debut of the product at the international machine tool exhibition in Japan and the medical equipment exhibition in Germany as well as participating in Bobsleigh cup tournaments

33November 25, 2014

Grasping “Subconscious Needs”

❖Market/Customer needs▸ Visible needs

• Overt• Conscious• Explicit• “Needs”

▸Invisible needs• Latent• Subconscious• Tacit• “Wants”

Visible・ Explicit・ present/existing customer needs・ Easy to grasp by

competitors

34November 25, 2014

Custom

ers’Satisfaction

Invisible・ Tacit・ Beyond the customer needs・ Source of distinctive competitive advantage

Low

High

Discussion

35November 25, 2014

❖How can you grasp invisible, latent and tacitcustomers’ needs? How do you do for this?▸ Listen to the customers’ voice carefully?▸ Comprehend deeply about customers?

Example of a Tableware Washing Machine Manufacture (Winterhalter Gastronom)

❖ A manufacture understands that it has a strength in tableware washing machine for hotel and restaurant.

❖ In this case, the “Hidden Champion” does not expand its business to the customers like hospital, school, company and other various organizations, but focus on hotel and restaurant.

❖ But, the “Hidden Champion” offers associated businesses: water purifier, a detergent and services to the customer as well as the tableware washing machine.

❖ Through NOT involving customers widely and shallow, but involving narrowly and deeply, the “Hidden Champion” can provide product and service with high quality that is not possible forcompetitors to imitate.

Tableware Washing Machine

for Hospital

Tableware Washing Machine

for School

Tableware Washing Machine System for Hotel and Restaurant

Tableware Washing Machine

for Company

Tableware Washing Machine

for other organizations

Dedicated Tableware

Washing Machine

Dedicated Water Treatment Tool

Dedicated Detergents

Complementary Services

X X

Focus & Exploit thoroughly

Source: Based on Harmann Simon (2009)

November 25, 2014 36

Before and After Services❖ Total solution does not merely include “after service”, but

also include “before service”.▸ Yamaha

• Establish financial service (installment system) to sell motorcycles inrural area in Indonesia

37November 25, 2014

Globalization of Service companies❖ Muji (SPA, retail sales)

▸ Paying attention to commonality of long-seller goods (simple and functional) and providing them globally in one brand

▸ Product development and marketing based on tacit needs of customers

▸ Systematic personnel training and staffing▸ Alliance with local partners

❖ Kumon (Education service)▸ Paying attention to basic learning skills (reading,

writing, and calculating ability that are common all around the world

▸ Common learning materials with manor modifications by countries

▸ Training the teachers and sharing of teaching skills❖ Gokuraku-yu (Luxurious bathhouse)

▸ Systematic training of Chinese staffs who was employed in

Japan and transferred to China▸ Establishment of collaboration with local partners

to respond to local safety, hygiene and public security regulations 38November 25, 2014

7Ps for Service Marketing❖ 4Ps

▸ Product:▸ Price:▸ Place:

value providing for the customer amount and the way of payment distribution channels▸ Promotion: advertising,

PR…

+❖ 3Ps▸ People:

▸ Process:

service providerthe way and procedure to deliver the service▸ Physical

evidence:Facilities and equipment for providing service

39November 25, 2014

Contents

40November 25, 2014

❖ Purpose of globalization▸ Why companies go global? --- beyond financial growth of the company

❖ Possibilities and challenges of companies in emerging and developing countries▸ Impact of “reverse innovation”▸ Learning through globalization

❖ Globalization of small and medium-sized companies▸ Toward “Global niche top”▸ How to explore foreign customers?▸ Globalization of service companies

❖ Role of top management for sustainable growth of the company▸ Required conditions of top management▸ Upbringing the successor of the company

Importance of Top Management❖ White Paper on Small and Medium Enterprises in Japan (2009)

▸ “SMEs are placing the most emphasis on “creativity by management” for innovation. Compared to large enterprises, there is more emphasis on “the challenging spirit of management” and “quick decision-making by management,” all of which lay stress on the nature and leadership skills of the management”

41November 25, 2014

Discussion

42November 25, 2014

❖ What are the Required Conditions of Top Management?

How to Raise Next Successor

43November 25, 2014

❖ Early selection of the successor candidates▸ Based on the required conditions of the next-generation top management

which meet the situation of the company▸ Fist selection is around 40 years old (depending on the companies)

❖ Impose “shambles experience” on the candidates▸ Let the candidate experience the project of new product development

and its market introduction▸ Let the candidates experience the setup of the new business

▸ Let the candidate experience a project for building new management system and company-wide reforming

▸ Let the candidates experience the president of affiliated company (especially, overseas subsidiary, newly established subsidiary and jointly established subsidiary with other companies)