Strategy Implementation Session 11 – Global Implementation

1. Image not licensed for web distribution: Link here. Strategy ImplementationSession 11 – Global Implementation

2. Agenda • Quiz • Globalization • AES-Telasi Discussion • Break • AES Update • Global Implementation

3. Globalization’s cruel reality √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ 47% (9/19) 52% (10/19)

4. Globalization’s cruel reality • Many sales subsidiaries report below expectations performance, mainly in less developed countries • GM and Whirlpool in China • Star TV in Asia • In some cases, divestment is the only option. In others, the international expansion mistakes cause the fall of the company back home • Tyco Toys • Higher success rates if a subsidiary’s main goal to be a piece of “production network” • Most successful MNEs had their own private Waterloo • McDonald’s vs. JollyBee in the Philippines • Wal-Mart in Germany International

5. Why? Benefits are overestimated and costs are underestimated Liability of foreignness Costs of doing business abroad that result in a competitive disadvantage for a multinational vis-a vis local competitors (or MNEs from another country) International

6. Origins of Liability of Foreignness • Host government restrictions • Unfamiliarity with local environment • Inappropriate business practices • Not knowing who to buy from and sell to • Not understanding local laws • Lack of legitimacy in the host country • Buyer / supplier unfamiliarity, not wanting to buy from or sell to • Economic nationalism

7. Origins of Liability of Foreignness • Distance (geographic, administrative and political, cultural and economic). • CAGE framework • Culture: language, social capital, religion, social norms

8. Culture and Social Behavior Culture: set of implicit and explicit rules that direct social behavior Role of firms & government in society is also cultural

9. CAGE framework • Distance (geographic, administrative and political, cultural and economic). • CAGE framework • Culture: language, social capital, religion, social norms • Administrative: common institutions (colonial ties, trade agreements, monetary agreements), government policies, judicial system, instituions • Geographic: remoteness, lack of common border or ports, country size, within-country transportation • Economic: difference in incomes, spending patterns

10. CAGE factors affect industries differently • Products where language is key (media) • Products with or that affect national identity (wine, foods, toys) • Unique products consumed for generations (food) • Industries in service or with strong local competitors (health, baking) • “Strategic industries” (farming, oil, defense, airlines) • Industries related to infrastructure (telecom, utilities, roads) • Products with high transportation-to-value ratios (cement, beer, soft drinks) • Industries with after-purchase service • Industries with minimum market size • Products with value added is low (cost based competition) • Income level determines preferences Culture Administrative Geographic Economic

11. Some Evidence • Flow of goods within 100 miles US-Canada << US-US or Canada-Canada • Levels of international trade (Frankel & Rose) • Administrative and Political variables have strongest impact • Colony-colonizer relationship (+900%), common colonizer (+190%), common currency (340%), common regional trade bloc (+330%) • Cultural variables • Common language (+200%) • Geographical and economic variables • GDP per capita (+0.7 for 1% increase), GDP (+0.8 for 1% increase), physical distance (-1.1 for 1% increase) International

12. Survival and distance/experience Similar Experienced Firms 77% (7/9) 20% (2/10) Non-experienced Firms 22% (2/9) 80% (8/10)

13. AES: Do they seem like they’re having fun? • Image not licensed for web distribution • Link here.

14. Global Implementation, AES • Could AES’ management style and organizational structure work in a post-communist state such as Georgia? Why or why not? • Who were Sculley's allies and opponents in making Telasi a viable company? Why did they support or oppose AES’ interests? • This is a political process. Would Kotter’s steps apply here?

15. AES-Telasi Allies/Opponents(1999-2000)

16. Do Kotter’s steps apply to AES’ problems? * John P. Kotter HBR 1995

17. AES-Telasi: PowerTrip meets PowerPlay

18. AES My Take

19. How do firms handle these forces? Global competition • Scale & efficiency • Innovation & knowledge • Competition & flexibility • Local responsiveness • - FDI outpaces institutional change • - New suppliers & competitors • - Emerging world of consumers Dispersion Concentration Global Supply Chains • New Markets & Competition Disintegration • Clusters Concentration

20. Processes: firms focus on specific advantage. Sources of Competitive Advantage Strategic Objectives

21. Capabilities in Multinationals* • Configuration Where and in how many countries each activity in the value chain is performed. • Coordination How dispersed activities are linked or coordinated. Coordination of Activities high Transnational Global International Multi-National low dispersed concentrated Configuration of Activities *Michael Porter in BGB Reading 3-3 International

22. Structuring for Integration-Responsiveness High Global Transnational Need for integration International Multinational Low Low High Need for responsiveness

23. Structure & Coordination:Advantages and Disadvantages

24. International

25. International

26. People: global forces affect all the major roles in the MNE. • Global Business  Roles affected by all the global forces requiring global integration • Functional  Roles affected by global forces for efficiency & innovation • Corporate  Roles affected by all the global forces • Country/Regional Manager • The geographic manager needs to implement the corporate strategy while advocating/explaining the local perspective. This is the fulcrum between global and local forces. International

27. Knowledge Complexity of Market Knowledge High Move information about the technology to where the market knowledge resides Move knowledge by rotating people and temporary co-location Exchange information (arm’s length, digital transfer is sufficient) Move information about the market to where the technology resides Low High Low Complexity of Technological Knowledge

28. Partners: Approaches to foreign market entry Wholly-owned subsidiary Joint venture with local partner Control over foreign activities Franchising Export through agent or distributor Licensing Indirect Export Resources committed to foreign market

29. Do I have to invest to get the benefits of internationalization? • Increasingly the answer is no! • Outsourcing, offshoring • Network of firms • Control without ownership • Licensing • Franchising International

30. Success= Benefits > Costs Benefits • Secure key supplies • Market-seeking behavior • Access to low-cost factors • Economies of scale • Shorter product life cycles • Learning • Competitive advantage Costs • Liability of being foreigner • Political risk • More complexity to manage different environments • Harder to mange a larger organization

31. International Issues • Our understanding of globalization is driven by a few myths. • International companies will continue to face a strong liability of foreignness. • Need significant advantages to outweigh this • Advantages of international firms built from demand, supply & organization • International strategies face simultaneous, competing forces for global competition and local responsiveness. • Multinational mentalities represent different approaches to these forces. • Supported by firms approaches to people, processes, knowledge, partners & structure. International

32. International Missteps • Going international to respond to international competitors in home market • If you can’t beat them at home where they face a liability of foreignness, you certainly won’t be able to handle competitors abroad. • Firms can build international advantage, but it takes time and experience. • World is flat strategies: firms aren’t always prepared for the partially globalized world. • Tradeoffs: firms haven’t chosen focused on one approach to international advantages. • Failing to use people, processes, structure & partners to support international strategy.

33. Next Up: Project Expo • Image not licensed for web. • Link here. Come early for setup