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International Business activities – strategic analyses

Lecture 4

David Litteljohn

Events in a Globalising World

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REFERENCESAbdela, R and Tedlow, 2003, R Theodore Levitt's 'The Globalization of Markets': An Evaluation after Two Decades, Harvard NOM Working Paper No. 03-20; Harvard Business School Working Paper No. 03-082. The paper can be downloaded free of charge from: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=383242

Segal-Horn S, 2002, Global firms – heroes or villains? How and why companies globalize?, European Business Journal, 14: 1 pp 8-19http://find.galegroup.com/itx/retrieve.do?contentSet=IAC-Documents&resultListType=RESULT_LIST&qrySerId=Locale%28en%2C%2C%29%3AFQE%3D%28au%2CNone%2C10%29Segal+Horn%3AAnd%3AFQE%3D%28ke%2CNone%2C6%29Global%3AAnd%3ALQE%3D%28DA%2CNone%2C10%29%3E+20020101%24&sgHitCountType=None&inPS=true&sort=DateDescend&searchType=AdvancedSearchForm&tabID=T002&prodId=SPJ.SP00&searchId=R1&currentPosition=1&userGroupName=gcal_itc&docId=A85103346&docType=IAC

(NB a synopsis will be posted on the BB site)

Rugman A and Verbeke A, 2004, A perspective on regional and global strategies of multinational enterprises, Journal of International Business Studies, Vol 35 pp 3-18http://proquest.umi.com/pqdweb?RQT=572&TS=1202461288&clientId=6297&VType=PQD&VName=PQD&VInst=PROD&PMID=22140&PCID=9090061&SrtM=0&SrchMode=3&aid=2

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Aims of the session

•To ground notions of international business and globalisation within a strategic a set of business frameworks:

– Generic (Levitt)– Industry (Segal-Horn)– National competitiveness (Porter)

•International business and concentrated flowsIn order a start a debate on the application of business market globalisation for events

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Levitt’s (1983) globalisation strategies

From• Home/(foreign) adaptationTo • Mass-market/ Specialisation/niche

HOME MKT GLOBAL MKTS

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What did Levitt (1983) say ..?

• Levitt approached the need to ensure that companies were efficient and developed their competitive advantage

• He saw the main drivers for global, homogenised markets coming from communications and technological development

• He says at one point: do we give customers what they say they want rather than trying to understand exactly what they would like ?

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Consumer Homogenisation; Implication

• Consumer standardisation• Coca Cola• TV• Cigarettes• Digital watches• Electronic goods• Rock music• Pizza• Chinese food• Cosmetics

Companies

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Local adaptation

• It costs money (see example on washing machines) - should minimise costs

• People’s preferences are dynamic (German demand for smaller washing machines)

• They may respond to clear messages (Revlon in Japan): a clear MES important, also communication/advertising

• Its good! ‘Cosmopolitanism is no longer the monopoly of the intellectual and leisure class’

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Segal Horn 2002 - corporate issues globalisation

• Not all globalisation is successful– IBM - problems in the past and currently– Japanese investment in Hotels (1980s)– BMW/Rover

• Big is not always beautiful!• Need to ensure there is a

sustainable strategy

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GLOBALINDUSTRIES

NATIONAL/LOCALINDUSTRIES

Low High

Low

High

Source: Segal Horn, 2002

Strong Local Tastes and PreferencesLocal regulation, high transport costs

Scale economies, homogeneous tastes,deregulation …

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GLOBAL

NATIONAL/LOCAL

Low High

Low

High

Corrugated cardboard Food Drink

Utilities

Insurance

Razorblades

Batteries

Consumer electronics

Telecommunications

Construction

Source: Segal Horn, 2002

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Porter’s firm value chain

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Michael Porter’s FIVE FORCES model

Source: M. Porter, 1985, Competitive Advantage, New York, Free Pressand M. Porter, 1980 Competitive strategy : techniques for analyzing industries

and competitors, New York : Free Press

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Michael Porter’s Diamond - determinantsof national advantage

Firm strategy, structure & rivalry

Demandconditions

Related &supportingindustries

Factorconditions

Factors:•Physical resources•Knowledge resources•Capital resources•Infrastructure resources

CHANCE

ROLE OF GOVT

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Stopford & Wells (1972) international structure stage model

Foreign sales as a %of total sales

International Division

Alternatepaths of Development

Worldwideproducts division

AreaDivision

Global or gridMatrix

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Organisational types

• ethnocentric

• polycentric

• geocentric

Regiocentric

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What is a firm in a globalised world?

• Franchise• Management Contract• Alliance• Joint venture

• In addition to subsidiaries, cross national investments (sovereign investment companies)

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Rugman and Verbeke, 2004

• Triad nations (TNs) rather than individual companies

• Uses a mass of secondary details at firm (not subsidiary) level

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TRIAD Economics

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Triad areas (Ohmae, 1985)

• Low economic growth• Similar technological base• Presence of large, capital and knowledge

intensive firms• Homogenisation of demand (convergence

required by key product attributes)• Proctectionism (N.B. Role of WTO)

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Rugman and Verbeke, 2004

• Concentrated on large companies - Fortune 500 (430 of these have HQs in TNs, 2000)

• The had detailed information on 380 -365 companies inter-regional sales

• Wanted to test Ohmae’s observation that there were few companies with any real global reach

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Rugman and Verbeke conclusions re Top 500

• Home region orientated (50% and + sales) in home region - 325 MNEs

• Bi-regional (at least 20% in each region, but less than 50% in any one region) - 25 MNEs

• Host region orientated (50% of sales in a triad market other than home region) - 11 MNEs

• Global (20% or more in each region, but less than 50% in any one region) - 9 MNEs

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TRIAD Economics

Flows of FDI

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Rugman and Verbeke conclusions - top 500

•Global companies include – Coca-Cola– LVMH

•Bi-regional– Diageo– McDonald’s

i.e. few tourism/travel companies in this analysis and no global (but airlines and methods may have understated international money flows)

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But below the 500

• Different trends

• E.g. Nike - outsourcing of production

• Other different types of companies - non capital intensive

Question

• To what extent do you feel that the business approaches discussed in the lecture either– Reflect general attitudes to the nature or process

of globalisation

OR– Shape attitudes of executives and societies to

the nature of globalisation

?

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