STRATEGY IN A GLOBAL CONTEXT

1. STRATEGY IN A GLOBAL CONTEXT “Anything can be made anywhere, everything can be sold everywhere” Lester Thurow Globalisation and its impact on strategy is an area on which much has been written. In order to clarify this complicated area, this lecture has 4 objectives: • An analysis of the drivers and underlying forces for globalisation • An examination of the perspectives on and aims of global strategy • An analysis of the prescriptions for and benefits of a global strategy • An analysis of some strategic models that help analyse the global context

2. THE FORCES UNDERLYING GLOBALISATION There are a series of underlying forces underpinning the advent of the global economy. These can be demonstrated through a PEST analysis using the writings of specific authors. Thus: Political - Francis Fukyama “The End of History” Economic - Lester Thurow “The Future of Capitalism” Socio-Cultural - Theodore Levitt “The Globalisation of Markets” Technological - John Naisbitt “The Global Paradox”

3. THE FORCES UNDERLYING GLOBALISATION These forces underlying globalisation can also be analysed from the perspective of push and pull factors: Push factors: Factors that force a firm to contemplate moving from their home market. These include: • Saturated home markets • Limited home market growth • Increased competition in home market • increasing cost of regulation • Negative social settlement conditions Pull Factors: Factors that attract firms into international markets. These include: • New markets/Customers • Market liberalisation • Internationalisation of industry • favourable social settlement conditions

4. PERSPECTIVES ON GLOBAL STRATEGY Whilst organisations have been urged to globalise, there is a great deal of ambiguity surrounding what global strategy actually means. For example: Kanter posits 4 keys to strategic success in the global economy: • Diversity based on core skills • Expansions and upgrades • Entrepreneurship and innovation • Assimilation into local cultures Ohmae, puts forward 3: • Senior managers ability to think globally • Focusing on delivering value to customers • The deep penetration of international markets

5. THE AIMS OF GLOBAL STRATEGY Whilst these are very general propositions, a more concrete set of strategic proposals have been put forward, stemming from the aims of: • Gaining scale and scope benefits • Gaining synergistic benefits across markets • Sharing cost and resources across markets The above can be achieved through a variety of strategies, depending on the global strategic prescriptions followed

6. GLOBAL STRATEGY PRESCRIPTIONS From the above aims of globalisation the following are 2 of the prescriptions that have emerged: Levitt: - Effective global strategy is based on the successful practice of product standardisation Hamel and Prahalad: - Effective global strategy is not based on mastering one trick (standardisation), but about mastering many in a broad product portfolio

7. BENEFITS OF A GLOBAL STRATEGY Benefits of global expansion: • Benefit more from core competencies: Apply unique skills in different markets Issues: maintaining and possessing the necessary core competencies • Gain from location economies: Benefit from global division of labour, i.e., NAFTA Issues: Trade barriers, transportation costs, political and economic risk, and new competition, i.e., local content agreements • Realise greater experience curve economies: Learning effects and economies of scale Issues:old economics, market maturity and oversupply We now examine the strategic theories and models put forward to assist strategists in understanding and dealing with the increasing complexity of the environment in which organisations have to operate

8. STRATEGY MODELS AND TOOLS: THE INTERNATIONL PRODUCT LIFE CYCLE (IPLC) IPLC theory contends that certain products go through a cycle: Introduction: First mover strategy, based on innovation • Growth: Increased competition, product standardisation, exporting and FDI • Maturity: Nature and location of demand starts to change, industry shake-out and cost reduction strategies come to the fore. • Decline: Maturity trends continue, production and most consumption shifts to developing economies. Issues • Impact of technology and innovation • Do markets mature? • Strategic implications

9. STRATEGY MODELS AND TOOLS: PORTER’S DIAMOND For Porter, organisational strategic success is based on the international competitiveness of nations, of which there are 4 determinants: Factor conditions, Demand conditions,Related and supporting industries and Firm strategy, structure and rivalry Two other variables play a significant role: Chance and Government There are, however, a number of issues with this model: Its generic nature The role of chance The application of the model

10. STRATEGY MODELS AND TOOLS: THE BCG MATRIX The BCG matrix is a strategic tool that allows strategist to evaluate sales potential in a market Uses: • Global overview • Performance comparisons • Aid for formulating other objectives Issues • Interdependence • Other strategic objectives

11. BCG MATRIX High Market A Market B Market attractiveness Market C Market D Low Low Company strength High

12. STRATEGY MODELS AND TOOLS: STRATEGIC ORIENTATION Localisation advantage % 100 Mutilocal model Multilocal and global model Polycentric Eclectocentric International structures and processes Global type/model 0 Ethnocentric Geocentric 100 Globalisation advantage %

13. STRATEGY MODELS AND TOOLS: MARKET ENTRY STRATEGIES The strategic orientation adopted is closely related to the market entry strategy employed. Here a progressive process can be seen as the firm adopts an increasingly global outlook: • Indirect exporting • Direct exporting • Licensing • Joint ventures • Direct investment

14. STRATEGY MODELS AND TOOLS: MARKET ENTRY STRATEGIES There are a number of key factors affecting which foreign market entry mode is chosen. These include: • External factors: - Target country market factors - Target country production factors - Target country environmental factors - Home country factors • Internal Factors: - The firms strategic orientation - The firms product factors - The firms resource commitment factors