LUISS Guido Carli International Business (Foundations) Term 1 2009/10

1. LUISS Guido CarliInternational Business (Foundations) Term 1 2009/10 Professor John A. Mathews ENI Foundation Chair in Competitive Dynamics and Global Strategy Module 1: Introduction

2. Your presenter Professor of management at LUISS Guido Carli and formerly at MGSM, SydneyTeaches courses in international business and international management, with focus on Asia-Pacific Researches competition and strategy in Asia-Pacific Most recent books: Tiger Technology: The creation of a semiconductor industry in East Asia; Dragon Multinational: A New Model of Global Growth

3. Chinese translation of my Tiger Technology:Jishu Qiaodong Zhanlue: Technology Leverage Strategy

4. My new book Strategizing, Disequilibrium and Profit Stanford University Press (2006) “This fine book places firms squarely within an environment marked by Schumpeterian competition, and develops the implications regarding business strategies that can work in such a context. This reorientation of theorizing about business strategy is much needed, and very well done.”—Richard R. Nelson, Columbia University See:http://www.sup.org/book.cgi?book_id=5254%205483%20

5. Professor (cont) Former editor: Industry and Innovation Invited presentations to: OECD Knowledge Economy conference; ILO Asia-Pacific: comp & strategyUNCTAD: World Investment Report UNIDO: Industrial Development Report 2002 World Bank: Country Economic Memorandum (e.g. Mauritius CEM team 2005)

6. Your professor (cont) Recent papers: BICs: Tiger technologies, dragon multinationals and national systems of economic learning, Asian Business & Management Energizing industrial development, TNCs Journal (UNCTAD) Dragon Multinationals, Asia-Pacific Journal of Management National innovative capacity in East Asia (with Hu, Mei-Chih) Research Policy Strategy and the crystal cycle, California Management Review Schumpeterian competitive dynamics and economic learning (Industrial & Corporate Change 2003) Competitive advantages of the latecomer firms (Asia Pacific Journal of Management 2002) Please feel free to visit my website: http://www.mgsm.edu.au/wps/wcm/connect/Internet/root/faculty/directory/mathewsjohn

7. Competition and strategy Competitive dynamics -- of firms, industries, economies Competition: incumbents and challengers Strategy: how one firm differentiates itself from another Frameworks of analysis: pre-1980s Economic variables and industry characteristics 1980s Porter framework Determinants of sustainable competitive advantage 1990s The Resource-Based View (RBV) of competitive advantage 2000s External and internal perspective; creation as well as sustaining of advantage

8. Global business dynamics Sources of advantage of global firms Pressures on firms to internationalize • e.g. global firms seek global suppliers • e.g. internationalizing firms seeking global customers ‘Dragon Multinationals’ Competitive dynamics at global, regional, national levels The global giants (Fortune 500) – but also thousands of small but global firms Q: How many firms in the global economy?

9. Themes of the course • Rise of new industries and globalization of challengers • Technological and competitive dynamics of industry • interaction between technological dynamics and competition • eg rise of DRAMs as global industry and East Asian strategies; rise of FPDs industry • Global competitive processes • Foundations of dynamic capabilities • Latecomer firms – Dragon Multinationals

10. Themes (cont) • Industry dynamics and rise of MNEs • Internationalization as strategy • A resource-based view of competition • An activities-based view of competition (industry forces)’ • National competitive advantage and its sources Brazilian agribusiness sector • BPO and global strategy • Global networks • Latecomer strategy • India vs. China: BRICs

11. Texts • Mathews 2002 Dragon Multinational • Supplementary texts: Bartlett & Ghoshal -- Sets of readings and papers from B&G, two of the most influential scholars today • Delios and Singh 2005 Strategy for Success in Asia • Mathews & Cho Tiger Technology; • UNCTAD World Investment Report authoritative discussion of FDI, MNEs etc • UNIDO Industrial Development Report 2002/2005 comprehensive analysis utilizing a framework of “linkage, leverage and learning” UNCTAD and UNIDO – two of the most important sources for data

12. Texts (cont) Hobday 1995 Innovation in East Asia the first book to employ a “latecomer firm” perspective Kim 1997 Imitation to Innovation: Dynamics of Korea’s technological learning Korea’s foremost industry scholar Amsden 2001 The Rise of ‘The Rest’ -- a non-standard treatment McKendrick, Doner and Haggard, 2000 From Silicon Valley to Singapore: Location and Comp Advantage in the HDDs Industry Murtha, Lenway & Hart 2002 Managing New Industry Creation (flat panel display industry) Q: What is remarkable about global FPD industry?

13. The crystal cycle – and strategic initiatives

14. Major economies share of world GDP (0-2005) 1 Source: Angus Maddison (2001) in Saul Eslaske

15. Dragons at your Door Dragons at your Door: How Chinese cost innovation is disrupting global competition Ming Zeng and Peter Williamson 2007 HBSP Cost innovation: High quality, customization and advanced technology at low cost Cases: Dawning (IT servers); Goodbaby (advanced product range); speciality products at low prices: Haier (bar fridges); CIMC (specialty shipping containers)

16. CIMC: A Chinese Dragon MNE CIMC: China International Marine Containers Group Began 1980 as Sino-foreign JV with Danish East Asiatic Co.) Began producing containers in 1982 – in middle of downturn; false start Restructured, new CEO 1991; floated company with IPO and bought up competitors during downturn of 1993 Relentless squeezing of costs 1996: #1 in China, and global #1 by volume 1997-98 Asian financial crisis – bought Asian rivals Then use low-cost platform as basis for expansion into higher value-added segments

17. CIMC: A Chinese Dragon MNE (2) Refrigerated containers – new specialist co. Shanghai Reefers Licensed technology from Graaf Transportsysteme (Ger); appointed Graaf expert as CEO of Shanghai Reefers Absorbed German technology then scaled it up Acquired Hyundai plant at Qingdao at low price Then found way to substitute steel for aluminium – further cost savings 1997-2003: CIMC becomes global leader in refrigerated containers (2005: Buys patents from bankrupt Graaf) Then did same for tanker containers (defeating South African incumbents) Corporate slogan: learn, improve, disrupt

18. International expansion a major transformation of firms Moving into the international domain: becoming integrated with international economic activities - Push or pull? Typical case of MNC moving a tested product offshore to new markets then, moving a business offshore, and expanding its functional responsibilities But with Dragon MNEs, the expansion provides opportunity to access new markets, new resources, new capabilities Compare Haier with two Dragon MNEs from Latin America and Central Asia (Turkey)

19. Globalization Globalization vs internationalization Globalization of markets consumer trends worldwide dismantling of market barriers Globalization of production Global value chains Globalization of logistics Globalization of firms: MNEs MNEs the driving force behind dynamics of global economy

20. Key drivers of globalization • One view of globalization • Globalization of technology • IT, PCs, WANs, wireless comms • Globalization of information • www • Globalization of finance • share trading; global financial instns • Common denominator: • Democratization; liberalization • Thomas Friedman: The Lexus and the Olive Tree, 1999 • Cf Gilpin 2000. The Challenge of Global Capitalism • Other views?

21. Global firms The driving force of globalization as uniformity? Shaping the world in their own image? 1970s: The spectre of the MNC Ray Vernon: Storm Over the Multinationals 1980s: The Japanese challenge Bartlett and Ghoshal: The Transnational Corporation 1990s: Downsizing, restructuring Ray Vernon: The Eye of the Storm 2000s: Who are the global firms now?

22. Features of global industries • Global industries: competitive advantages with global dynamics • Multinational corporations: global reach • global customers, global production, global logistics • But MNCs also retain national characteristics • Limits to globalization in form of national systems • Social limits to globalization • What is a global industry? • Is it technology or markets – or strategy -- that determines global character of competition?

23. Global competitive processes How do global firms achieve advantages over domestic rivals? What are the features of a global industry that make it different from domestic industries? How do these features shape competitive strategies? Can we see these processes operating in the global semiconductor industry and FPD industry? Case: Rise of FPD industry in Japan in 1990s then Korea, Taiwan and now Chinaics?

24. Foundations of dynamic capabilities – Christensen and Overdorf Christensen and Overdorf 2000 In general, strategic capabilities reside at three levels (or: rest on three foundations) Resources Processes/routines Values/strategic choice criteria All firms need to manipulate these in order to become players

25. Latecomer firms – Dragon multinationals Mathews 2006 What are the potential advantages of latecomer firms seeking to internationalize in a time of globalization? Latecomer MNEs from Asia-Pacific – Dragon MNEs How do they turn disadvantages into sources of advantage? • Now consider course topics

26. Module 2: Industry dynamics and the emergence of MNCs • How companies secure advantages as global firms • Resolving dilemma, e.g. Global integration/local responsiveness (GI/LR) • The tortuous evolution of the MNC (Perlmutter 1969) • Hamel & Prahalad (1993) Strategy as stretch and leverage All powerful sources of insights Apply them in the setting of a global industry that is very important in Asia-Pacific: the FPD industry

27. Session 2 (cont) • How is strategy shaped by cyclical industrial dynamics • When to enter an industry – during upturn or downturn? • Strategizing by incumbents • Strategizing by challengers • Strategizing by nations • Frameworks of competitive analysis • At a point in time • Dynamic – where history and time matters • Clusters • Latecomer strategies

28. Module 3: Strategy as dynamic response • Strategic initiative and strategic adaptation at global level • Global integration as a strategic goal (vs. local responsiveness) • Late mover strategic adaptations • Porter’s framework and its importance • Going global: lessons from late movers (B&G 2000) • Application to Asia-Pacific? • Case: Ispat International

29. Ispat International Small company, origins in India Rapid expansion in NICs Late 1990s: penetration into US, Europe

30. Ispat now a global player? 1989 2003 2005 Nova Hut, Czech RepublicIspat Nova Hut 36.67% Stake in HunanValin Steel Tube & WireChina ISG Acquisition Completed Created Mittal Steel Europe Mining Development Agreementwith Liberian Government KryvorizhstalUkraine - Mittal Steel Kryviy Rih MoU with State of Jharkhand, India Acquired Stelco subsidiaries in Canada Iron & Steel Company of Trinidad & TobagoCaribbean Ispat 2001 1995 Alfasid – Ispat Annaba, Algeria Ispat Hamburger-Stahlwerker, Germany Iron Ore Mines purchased from FERFOS, Ouenza and El Boukhadra Sidex – Ispat Sidex, Romania FormedIspat InternationalIspat Shipping 1998 Inland Steel Group ISG), USA Ispat Karmet, Kazahkstan Unimetal,France Formed Mittal Steel 2006 2 MillsSkopje, MacedoniaMittal Steel Skopje 1999 Ispat WalzdrachtHochfeld Germany ListedNew York & AmsterdamStock Exchange BH Steel, BosniaMittal Steel Zenica Ispat StahlwerkRurhort, Germany Polskie Huty Stali, PolandIspat Polska Stal 1997 Sidbec-Dosco, CanadaIspat Sidbec 2004 BusinessAssistance Agreementwith Iscor, South Africa 1994 Sibalsa, MexicoIspat Mexicana 2002 1992

31. Merger with #1 Steel Producer320,000 employees in 60 countries Equiv. AUD $102.7 bn Source: Arcelor Mittal Brochure 2006

32. Module 4: National competitive advantage • The sources of national competitive vs. comparative advantage • How countries can shape their competitive advantages • The “Porter diamond” • factor conditions demand conditions • related and supporting industries • firm strategy, structure and rivalry

33. National competitive advantage (cont) • The rise of the BRICs – Brazil, India, China (+ Russia) • Clusters and regional competitive advantage • Case: Haier • An early Chinese ‘Dragon MNE’

34. Another Chinese Dragon MNE: Haier • From the beginning of its globalization, in 1995, Haier was active in more than five countries within five years (including USA). By 2006 it had has set up 10 industrial parks worldwide and 22 plants overseas.

35. 20 years ago • Founded in 1984 as Qingdao Refrigerator Plant • Post a loss of RMB 1.47 million in 1984 • Today • Revenue RMB 103.4 billion • Over 30% market share in China Refrigerators, refrigerating cabinets, air conditioners and washing machines • Over 240 subsidiary companies throughout the world • Over 50,000 employees throughout the world CHINA’s General Electric

36. Product Direction • Manufacturer of a wide range of home-appliances – over 15,100 different specifications under 96 categories.

37. Haier Group Haier Group Internationalization Process Source : Institute for Manufacturing http://www.ifm.eng.cam.ac.uk/cim/chimnet/research/projects/ kaimei_haier.html

38. Revenue relation with Globalization

39. Module 5: Global strategy and BPO • Globalization and Business process outsourcing • India in the global economy – “back-office to the world” • Contract manufacturing and BPO • The sources of advantage of latecomer firms in the services sector • Case: Infosys Technologies

40. Module 6: Global networks • Globalization and global value chain formation • The sources of advantage (and disadvantage) of networks • Networks: between markets and hierarchies (Thorelli 1986) • Global value chains (Gereffi et al199; 2005) • Case: Zara - a global network firm Rapid international expansion; cellular structure

41. Module 7: India vs. China • The two giants of 21st century development from Asia-Pacific • Sources of latecomer advantage (Gerschenkron) • The rise of the BICs (Goldman Sachs) • How are India and China exploiting their latecomer advantages? • What institutions are they forming to facilitate their emergence as global powerhouses?

42. Module 8: Newcomers and latecomers: Strategy as international catchup • Strategy from a challenger perspective • The concept of the latecomer firm • Learning the technologies of electronics (Hobday 1995) • Latecomer strategies of Korean firms in semiconductors (Cho, Kim and Rhee 1998) • Case: Samsung (Korea) (Kim 1997) The dynamics of technological learning

43. IC industry cycles

44. IC market size and investment fluctuations Source: IC Insights

45. DRAM Generations Source: IC Insights

46. Module 9: The process of internationalization • The process of internationalization; strategy as internationalization • cf the sources of advantage of the firm that is already global • Strategic choices of modes of entry into new markets • eg greenfield investment vs. partnership • Concept of accelerated internationalization • Case: Cemex Utilizing global strategic advantages as latecomer

47. Module 10: The management of the MNE • The process of internationalization; strategy as internationalization • cf the sources of advantage of the firm that is already global • Strategic choices of modes of entry into new markets • eg greenfield investment vs. partnership • Concept of accelerated internationalization

48. Module 11: The ‘Big questions’ in International Business • Buckley 2002 JIBS: What are the ‘Big questions’ in International Business? • The 1970s: Emergence of MNEs • 1980s • 1990s • Today in the 21st century: the rise of the BRICs? • Debate: Peng 2004 JIBS; Buckley and Ghauri 2004 JIBS; Mathews 2006 APJM

49. Syndicate presentations • A chance for class participants to test the theories and frameworks • A chance to apply theories in specified cases • Cases: bring out the dynamics of a particular case • place it in its competitive context • use readings as background for case analysis • Group presentations are the way that business works: a “model” of the world -- so make them lively!

50. Individual assignments • Individual minor assignment: some business story (current) • An opportunity to individually test understanding • Each assignment or question designed to test some theoretical framework in some real organization or industry • Demonstrate learning through excellent assignments!