TUNGHAI UNIVERSITYDepartment of International Business - Taichung

Global StrategyCritical Concepts in Global Strategy II

Steve Varela

Rate of Change is AcceleratingCompetition is Everywhere

• Many have seen Firms “Restructure” and “Downsize”• Many firms have tried “Re-Engineering”

Problem: There are Diminishing Returns on Operational Effectiveness.

You can’t… “Save your way to Success”

• Successful Firms do Not Just Over-Execute, i.e. Japanese Firms 1970-1980’s

– they also Out Think and Out Innovate their Peers

Productivity Frontier

• Value Created– Left: What value you

provide– Bottom: At what cost

• Constantly moving outward..– New technologies– New management

approaches

• This cannot continue indefinitely…

Operational Effectiveness ≠ Strategy

Operational Effectiveness• Higher Quality• Higher Speed• Higher Productivity• Lower Defects• Lower Costs• Lower Inventory

“Performing similar activities better than rivals”

Strategic Positioning• Perform different activities than

competitors• Perform similar activities in

different ways

“Choosing a different set of activities to deliver a unique mix of value”

100’s of activities required to create, produce, sell and deliver products/services.

A firm can outperform its competitors only if it can establish a difference that it can preserve.

It Continues with ‘Fit’

• Fit as Consistency– Are the resources internally consistent (match)– Avoid Resource Acquisition and Management

Inconsistencies• I.E.

– Wal*Mart focuses primarily on those activities and resources that contribute to its position of cost advantage

– Dell Computer specializes in those activities that contribute to its cycle time, operations cost and price advantages

Fit as Reinforcing

• Do resources in one area reinforce resources in another area to build competitive advantages?– Location facilities reinforce distribution skills– Information processing resources complement

inventory control– Location and Distribution along with IT skills

reinforce inventory management competencies

Classic WalMart Example:

EACH STRENGTH IS SYMBIOTIC TO EACH OTHER

Fit as Optimizing: Are resources assembled where they exploit naturally occurring competitive

benefits?

SW Airlines: Exclusive use of 737’s

Maintenance (Cheaper), Parts (Cheaper)

Flight Crew Training/Availability (Cheaper)

Airport gate options , more flexibleAirport gate crews, more flexibility, backupFood Catering: Simple Box

= Lower costs system wide, each decision is related and benefits spread to other processes/costs.

Low Cost Structure allows them to attack markets by bringing down prices through greater utilization/efficiency of resource set.

Management Tactics:

• Focus attention on Key resources that possess a majority of desirable characteristics– I.e. Low Imitability, High Transferability)

• Deploy resources that conform to strategy, eliminate those that don't “Fit”.– Rethink Value Contribution / Process– GE’s “Work Out” Program

Questions?

Contradictory Forces in Global Competition

• Global firms are faced with a clear set of Contradictory Forces:

– The need for Global Rationalization– Scale and Scope Economies on a global basis

– The need for Local Responsiveness– Adaption to local governments, markets, standards

and tastes

Factors Favoring Global Rationalization

1. Asset Intensity: more capital needs (eats) more volume

2. Global Competitors: expansion, don’t be left out – fear

3. Global Customers (if you cant supply me everywhere, you cant anywhere)

4. Global Suppliers: enabler, since supply is global, you can purchase globally also

5. Technology Intensity (R&D): Needs to be spread around the world; economics

6. Universal Needs, Preferences, Tastes1. Real needs (washing machines, cellular phones, internet)

2. Created needs (McDonalds, Coca Cola, Starbucks in Brazil, China)

Factors Favoring Local Responsiveness

• Unique local needs, preferences, service• Government Intervention, Licensing• Industry Standards (sizes, protocols)

• Lack of Global Competitors (open door)

• Limited Economy of Scale Opportunities• Locally Specific Marketing Tastes

Marginal Incremental Benefit to Economies of Scale

The Contradictory Forces

Need for Global Rationalization– High Costs, Centralized, Big Factories, Heavy

Costs

Komatsu (high need) Phillips Electronics

Need for Local Responsiveness– Decentralized, market driven, power in local

markets.– Locally tailored products, little need for

collaboration

Caterpillar & Komatsu

The Contradictory Forces (cont)

• Most Firms are on one side or the other

Boeing (high centralized) iPhone (more local)

• Whirlpool

• A note on acquisitions– Work better in Local Responsive Organization,

Just a name change.

– Global/Centralized firms find employees/tacit knowledge rarely moves to HQ.

Popular Strategic Approaches

Need for Global Rationalization– “Global Firms” need massive economies of scale– Customers accept a standard product

Boeing (high need) Phillips Electronics (low need)

Need for Local Responsiveness– “Multi-Domestic” firms offer locally tailored

products– Benefits of local responsiveness outweigh the

inefficiencies

Broad International Strategy Types

High Global Rationalization

GLOBAL– Tight, hierarchical integrated chain of activities that span multiple markets– Production is standardized across all countries – same platforms– Global scale economies are stressed– Company will have one approach to markets irrespective of country location

REGIONAL– Operation's are integrated within a region– Regional decision making for production/marketing and sales functions– Country differences within region are downplayed– Company may have several regional strategies

MULTI-DOMESTIC– High degree of responsiveness to national markets

– National subsidiaries enjoy a high degree of autonomy– Efficiency emphasized on country by country basis

– Company will have multiple “Country Strategies”

High Local Responsiveness

Questions???

Strategy Types x Organizational Structure

• Organizational Structure should be constructed to facilitate the Strategy…

– Nurture– Facilitate– Expedite

Broad Organizational Structures

Regional

Centralized: HQ, Finance Controls and Portfolio & Core R&D

Decentralized: Product Choices, Sourcing, Production, Marketing, Sales and HRM, R&D

Globally Integrated

Centralized: R&D, Production, Marketing, Planning, Resource mgmt, HRM, and Finance

Regional/Local: Sales & Distribution

Multi-Domestic/LocalCentralized: HQ, Finance Controls and Portfolio Choice

Decentralized: Product Choices, Sourcing, Production, Marketing, Sales, R&D and HRM

Some Characteristics of Successful Global Firms

• Coordinated World Strategy• Global Organization and Management• Global Management of Cash Flows• Global Resource Mgmt & Allocation• Focus on Core Competencies• Global Transfer of Learning

Coordinated World Strategy

• In global industry, more firms coordinate their activities on a worldwide bases

• 3 or 4 bosses, both product and geographic markets

• Results on a 3 or 4 dimensional matrix within the company

• Strategy and Tactics must be consistent to each other AND across all major product and geographic markets

• The Strategic position of a global firm in a single geographic market may be substantially determined by the firms overall global position– May be defensive– Strategy may dominate, easy economic decision.

L.M. Ericcson: all employees speak English because it is difficult to find good international talent willing to learn to speak Swedish.

Global Organization and Management

• Build and sustain a global organization structure– Create formal reasons to think globally (meetings, events, awards)

– Track your competition on a global basis

• Encourage Communication across formal boundaries– Good ideas can originate almost anywhere– Cycle time also applies to implementation of new ideas

• Reinforce the need for Cultural Awareness and Sensitivity– You need to understand all significant markets and players– A successful multicultural team can be a competitive

advantage

Global Management of Cash Flows

• Build and Sustain Global Cost Advantage– Scale, Scope or Experience Advantages– Low (total) Cost Locations

• Build and Sustain Profit Sanctuaries or Market Fortresses– Geographic Region– Home Country

• Strategically coordinate international cash flows– International Cross Subsidiaries– Minimize tax Obligations

Global Resource Allocation: Tie Resource Allocation to Strategic

Goals• Will expenditure further firms broad corporate goals?

– You need to send consistent signals over time– Continually re-calibrate environment/goals/behavior combination

• Don’t Rely solely on Financial Returns– Need time to build profit sanctuaries– May need presence in a specific geographic center of research

• Some manufacturing flexibility is important; Hedge currency flow with capital assets– To offset government or FX pressures– To learn techniques or processes from others

• Define Human Resources Broadly (Globally)– Human resources should flow through organization– Cultural Biases will emerge, – Long term planning is essential here

Focus on Core Competence

• Core competence at the heart and soul of a firm– Consist of collective organizational learning in a critical area– Core products, business units and end products flow from

them– Few firms will have more than a few of these such

competencies• Traditionally originate from Asia

– Honda Engines, Canon Imaging • Dominating an area of core competence may offer

unforeseen benefits– Should lead to domination of core products– May shape evolution of applications and end markets

Get in or Start the Standards Body and you are: Google / Bill Gates / Garmin (GPS)

Global Transfer of Learning

• Organizations Learn: Basic Principle of Core Competence– Local Knowledge Bases within the firm are real assets– Measurement systems do not capture them (I.e income

statement, balance sheet)

• Knowledge, like money has Velocity– The more the user gets it, the greater the effect– Unlike physical assets, use may enhance this asset

• A global firm needs to transfer learning from around the world– Real economies of scope are possible– Cycle Time is important here also

Learning's from Brazil must flow to Mexico, Thailand, US, Japan… Otherwise, What’s the advantage of being Global?

Symptoms of Successful Globalization

• Debates with managers from other countries• Fewer total basic products• More variants on basic products• More worldwide products• Foreign exchange rates are often an issue

– Global managers must understand the idea of FX risk

• Increased interaction with managers from other countries

• Increased travel time; more time in field• More discussion about customers, competitors,

technology and suppliers with counterparts in other countries

• Multiple reporting relationships

Life in the 21st Century…

Questions???

Summary

• Fit: it’s the unique way we put together our resources to deliver our product/service

• Global / Local Strategic Choices'

• People are incentivized to collaborate, share knowledge across firm 24x7, continuously…

RECENT NEWS, QUOTES & ORGANIZATION EXAMPLES

Appendix

A Simplified View of Distributing Autonomy

Corporate Headquarters

Regional Centers

National Units

World Product

Regionally based or Adapted product

Nation based or adapted product

• Product characteristics

• Strategic positioning vs. operational implementation

GlobalStrategy

Regional Strategy

National Strategy

Considerations

• Strength of globalization drivers

Global BusinessManagement

Commercial OperationsWestern Hemisphere

Commercial OperationsEastern Hemisphere

Responsible for alltrade marketing and

sales in North Americaand Latin America

Responsible for alltrade marketing andsales in Europe, Asia,

Africa, Oceania

Responsible worldwidefor all product lines:• Manufacturing• R&D• Strategic Marketing

“I want my business in Brazil to be run by Brazilians, the business in Japan by Japanese, the German operation by the Germans…”

Senior VP, Dow Chemical Company

“From the early 1950s through the late 1970s, Caterpillar placed thousands of employees abroad. As a result, five out of six top managers have had international experience and are well equipped to deal with global competition.

Recently, however, there has been a marked reduction in the use of expatriates. How will the future generations of Caterpillar managers gain the expertise that is, and will continue to be, a key factor in the company’s competitive success?”

Lee MorganRetired CEO and Chairman

Caterpillar Corporation