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Lasserre, P
Globalization of markets and competition
Lasserre, P
Global strategic management, 3rd ed
2012 / ---- / ---Basingstoke : Palgrave Macmillan
ISBN / ISSN: 9780230293816
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chapter
GLOBALIZATION OF MARKETS
AND COMPETITION
1
Introduction
Chuptcr 1 ddines what globalization means for a business enterprise. lL differentiates global
ization from thc t.raditional process of setting up subsidiaries abroad and makes a distinction
between a
IIlU/liI/UliUlW/
Elevator Company, it looks at how a company having multiple international subsidiaries cun
move toward a global competitive configuration through which its international activities can
he strongly coordinated and integrated across bordcrs. 'I his Lransition from a multinational to
u global position was driven by various social, political, cconomic and technological factors
that arc described in the chapter. lhe benefits of globalization (Ire described, as well as the
constraints. Some factors are still pushing toward a local approach to management. on a
country-by-country basis. lind the fadors inducing this localization arc analyzed.
Finally. global/multi-local mapping is prescnted as a tool to position industries. companies
and businesses according to the relative importunce of global versus local approaches. 'nle
chapter ends by introducing some of the societal issues associated with globalization.
Learning objectives
At the end of the chapter yOIl will be able to:
define globalization, understand what a global finn is. and how it diflers from a
multinational company
identify the forces pushing toward globalization
identify the forces pushing for localization
position all
indu~Lry
11
common hrand across the globe. Factories that were prosperolls in the \I\festern
....
ll'lve been closed lind InlllsferreJ Lo low-cost countries. 'Ihe English language is now
( <
wo r Il
<"lcred as lhe lingua franca for major business transactions. Televised broadcast.~ of
cons
cl'cnL~ taking plac(~ ill one place on earth arc visible in real time everywhere. lhis is what is
fU5i;t2010~prif:es($billion)
1982
Average
2010
1990
growth rale
1982-2010
World GOP
Trade {export of goods and servicesl
FOI"cign direct investment (inward stockl
CrosS border M&A
Royalties
10.899
22,206
62,909
6.5%
2247
4382
18,713
7.9%
647
2081
19.141
12.9%
25
99
339
9.8%
2741
5101
32,960
9.3%
19,537
2H70
62,218
4.2%
647
1498
6239
8.4%
29
30
191
11.5%
4000
19.1%
Tilis refer,; to .llili.les of muflinotionaf comp,nies deflnod,s firms 11',.,nq maro II1.n SO% equity tn wl10lly awned
."terp"''' abroad or at least 10% equoty in Joi"t venlUres.
So,,,'"
In (oday's husiness world. managers, poliLicians, journalists and academics commonly usc
the cOJll::epls of 'glubalizaUoll', 'global industries" 'global competition', 'global strategies'
and 'global corporations', More and more companies arc confronted with the need to
globalize or die, While these concepts arc widely flsed, their exact meaning is often not
properly understood. For some people, glohalization means to expand the company's pres
ence ahroad, for oLhers iL means standardizing a product and selling iL 10 Ihe world, for yeL
others it denOLes an approach to management in which decision-making is centnrlized at
corporate headquarters, 'There arc many reasons for this confusion; one is due to the fact
that the concept of globalization is relatively new, Before the 1970s hardly anyone talked
about globalization: the most frequently used terminology, when referring to companies
operating ill various parLs of the world, was 'illlemaLional', 'llllflLinaLional' or occasionally
'trans-,national'. IllternaUollal ulld multinutionul companies huve
h~~n
years. Even if we ignore the East Indiu Company, which sturted in the curly
sevente~l1th
century, modern corporations like Unilever, Nestle and Procter & Gamble were operating
allover the world at the end of the nineteenth century, 'nleY arc known as multinational
companies, but nobody would have caJled them global. 11lC global concept appeared in
the early 1970s and progressively invaded boardrooms, classrooms and editorial offices,
What is the exact meaning of
consequences for firms?
globalization'~ What
prodllct.~,
defini
borders'. As a consequence, markeL'l may lend to converge, providing room for slllnrl;mliZll
lion of products. nnd production cenLres can he located at economical and convenient places
around the world. lhis implies. ;IS we will see, a more centralized management of firms. We
will look first at the macro-economic, tcchnological lind politicul factors that howe geller-lled
such a glob1environment and then look at how firms ha\'e ChUllgt"<.l their operations to take
udvantagcs of [,he Ilew opportunities offered by these fad Drs.
and Trade (GATI') (now replaced by the \Vorld Trade Organi:r.ation. \\ITO) aod the European
..
>
Union (EU). to which we lllay add the progrcssil'c opening of emerging nations to foreign
investments.
'Ole liArI'. which was founded in 1946 by 23 nations, initialed a series uf negotiations,
culled 'rounds', :limed at reducing tariff concessions to create liberalization of trade. The
GI\'l~r
became the WTO ill 1995. '1l1C Kennedy Round ill the mid-I%Os, the Tokyo Round in
Ihe carly 1970s and Ihe Uruguay round ill the late 19ROs created an environment Ihnt. fostered
international trndc; during t.he period following the Kennedy Bound the average lVeighted
tari(fraLe among GATT members decreased by 34% and aftcr the TokJ'0 round by 60%.
'Ilw European Economic Community (EEe) was established on 25 Mnfch 1957 by thc Treaty
of Rome. signcd by Bclgillm, France, Italy. Germany, Luxembourg and the NeLherlands. with
the aim of creating a COllllllOll market and ecollomic and political inLegration among the six
membcr st.ul.es. '\s a result, gnods, people and financial flows could movc frcely across eoun
t.ries. During t.he
1970.~,
the EEC was cnlarged with the cntry of the United h:.ingdom, Ireland
and Denmark. folluwed by Spain. Portugal and Greece in the 1980s and by Swcden, Austria
and Finland in the I990s. Companies like OLis could take advantage of European integration
to create their own integrated Lrading network.
Finally, in parallel with what was happening in the illdustrialized countries, developing
nat.ions progressively adopted more positive attit.udes toward foreign direct investment. (FIJI).
At first,
il\ve.~tJlleot
to pruduce 10l;ully, but. over the years the legislation has evolved Loward a more open stance.
favuuring cruss-border investments. Between 1991 lind 2004 the number uf regul<l1ory changes
favourable to PDI totalled 2006 wurldwide while unfavourable changes numbered just 150.
100
Cost index
r''C'=ic--.;----o::-,------,
80
__ Ocean freight
__ Air transport
60
__ Tl:'Ll:'phool:'
40
20
-------------~----~-~-----
_Satellite
_CIF-FOBlndex
o
Figure 1.1 International transportation and communication costs, 1920-90
Source, World Bank, World {kvelopmenl Reporl, 1995,
th~
use
lhe cost of shipping g;oods from country to country as well as, in the case of air transport,
favoring the travel of managers. "lhe development oftelecomlTlunicatiolls has reduced the cost
of information exchange between business units scattered around the globe. Between 1950
and J 990, the transportatioll costs of air trall.~porl, ocean freight and transatlantic phone calls
decreased by some 56%, 14% and 29%. respectively. Fur satellite charges. there was an approxi
mate decrease 01'90% between 1970 and 1990 (Figure 1,1).
I'rngress in manufacturing technology gave a trelllendous impcl.llS t.o the Ileed to concen
trate producLion in world-class factories benefiting from huge economics of scale, Lllus
encouraging Lhe ratiollali,.;aLion and integration of production systems.
Beside
manllf~lclurillg conccnLraLioll,
services from low-cost. countries, either by setting up their own operations or by purchasing
locally.
A.nother soun:e of ct;ll1lomies of scale
Table 1.2 Illustrations of the shortening of product life cycles
General product
category
Electric motor
65
TV
52
Vacuum tube
OJ
Zip-f<lstener
30
X-ray lube
18
Frozen foods
15
Nuclear reactors
10
htldgeL~
proJ1Jcl.~
and
Radar
Solar batteries
Appliance category
life~tyles
by
ll1(lvie~
Period 1922-"2
12.5
Period 1945-/,4
Period 1965-79
Intel microprocessor
products
286
386
486
Pentium
Angele~
Sources, Baker and Harl 1'999, p. 1151: Ml(h,,"ls, O!shoysky and [luaU..
pp.77 81: Miche', Salle arid valla 11996, p.1781.
11981,
tllC
product,
standl1rdi~,ed
and
. ---------------
toB" I A
NO
MARK rAND
,.
appel,l to masses of(:onsumers in all countries: DVIJs. PCs, mobile phones or elevators, c ....lnes
lmd robols lire
prodllCL~
Competitive factors
'Ihe 19(108 So'!\\' Ihe emergence ofJap.'lnesc COrlll>elitors in markets that lmditionally had 1x..'Cn
duminulLod by American or European COIllI>ctitors. Japanese firms. and laler Korean firms,
adopted a global approach al the vcry beginning ofthcir international expansion. One orillc
reasons is thatlllcy did nol ha\'c many national subsidiaries and their international expansion
WllS occllrril\g at Ule lilllc ofthe opcnillg oft rllde barriers. Bighl. lit the beginning the)' designed
products for the world market, creating global bralltls stich as 'Sony' or 'anllsonie', and their
cflident produdion systcm gave them a cost advanluge in e1eelronics alHlaut,omntive parls.
Competitors had to adopt a similar strill cgie stance if they wished to survive.
Another compctitive force that flushed companies to
';lIstoIl/CI'~'. During
g[oba1i~.IJ
is the t:!obalizatioll of
J.~
Lo
service
SIIIIH1Hlrizcs these
EEC
FDI
Social
lactors
Technological
lactors
Transport
M~nuI;Kluring
TelecommUnication R&D
Red<Ke the C051 or
coord/flallOfl
rfICrea5e economJes
01 scale
Globalization
<,--"I
Corwergence 01
customcrs' nel"d5
TraW!'!. TV. ~5
F{JVf)r 5landardlza/<on
and global bnmd/fl9
Competilive
faclors
, Japl\nc$c and I<ore~n
, Mullonational customers
Induce integra/lOll
and coordmatlon
l-'COllomic benefits and costs of gJobaJi:r.ation will be inclll(k.od laler in Ule chapter. while this
(I) CostlJlmejils. lhcsc come. on the one hand, from economics of scale ill product/process
standardization as well as im;reased bargaining powers over suppliers of raw materials.
components. equipmellt and services and. on the other hand. from the ahility to organ
ize a logist.ic UIll! sourcing network based on location (,lclors. Examples of economics of
scale through standardization arc llllnlcrnllS; in the cxurnplc mentioned earlier, Oris W(lS
able to lower the cosl of elevators in Europe by 30% after inlroducing a pan-European
mun ufactllring systelll.
(2) Timing bemifiL<;. 111esc are due to the coordinat<:d approach to product launching in the
early stage of the product life cycle. [n a multinational setting. each subsidillry is more
or less frec to lldopt products for its own market. This is sometimes called 'the shopping
caddy' approach to product adoption. Such an approach gencmtes inefficiencies in the
m:umgcmenl of tile producllifc cycle sincc the optimal volume is obtained only after a
lengthy process of product adoption by all subsidi:lrit:s. A classic examplc ofthe deficiency
of the 'shopping cuddy' approach is the refusal of Philips America to adopt the video
system, the V2000, developed by Philips's mother company in the Netherlands, In the late
tl)(iUs a theory of mult inational product introduction, known
ltS
11(;1 life cycle' theory, postulated a progressiv!! adoption of products ovcr time according
to the level of economic ;.Ind scientific development of countries (sec rigure Ill. I. p. 285),
Such 1I theory is no longer v:llid when industries globali:f.e: waiting too long 10 laullch a
product can be fatal, particularly if the product has a short life cycle, which is more and
more frequently the c....se, Microsoft.launchro Windows 2000 at the smnc timc c,'crywhcre
in the world.
(3)
J,~(lrllillg
practi,:e and peoplc across suhsidiaries. '(his transfcr eliminates thc ,.'ostly 'reinvcntion
of the wheel' and facilitates the accumulation of cxperience and knowlt:dge. In 'Ihailand.
Unilcvcr formulated lind implcmented nn innovative strategy to l)I'odllCC and market ice
creams. 'Ihc 'Ihai experience served as n tcmplate for olher ctllllliries in the Asia Pacific
region. ~iving 10 the company a firsl-nllwer advantage. 'I his example illustrales the
hcnclit.s that can he gained from a coordinated transfer of besl praci icc.
(4) Arbilrtlgc benefits, llu:sc come from the advalltagc.'i Lhat a compan)' managed glolmll)'
C:lIl gain ill using resources in olle country for the bcnefit of another c.;ountry subsidiary.
'Ihese ad\':mt:lges can be direct compelilivc ad,'ant:tges or indin:ct cost advantugcs. A
compctitive advantage can be gained by playing a 'glohal chess g..'lmc: for instance, engag
ing in a price war in one (.'ountry in order to Illobilize the resources of(.'OIllI;lelitors in that
country, deprh'ing thcm of cash now which could be u~ elsewhere. This stnltegy was
used by Goodyear.lhe US tyrc giallt, when in the carly J970s, Michelin from France moved
ill
Europe. engaged
ill II
price waf that Michelin was obliged to counter by lowering its prices. amI de facto reduc
ing it.s financing scope for its American expansion. !\nother type of arbitrage comes from
(!irfcrcl1!.iaJ cost clemenlS such as t.axes. interest and possibly risk reduction through the
pooling of currencies.
1hosc four bCllcfits are real hut achieving them is subject to certain conditions. and their
~ldopt.ion has
to be measured against the rcal cOlllpetitive advantage they provide La the firms
adopting them.
'111C benefits ill cost reduction obtained by economies 01' scale are contingent upon the
market responsivencss to standardization and whether customers are pricc sensitivc. If, on
the contrary, customers arc not responsive aud prefer tailored products and scrviccs to stand
ardizat.ion, a global approach is less appropriate. A similar reasoning applies to the benefits
of timing. As for purchasing power, it may be limited for culturally sensitive services such as
advertising.
'Ole henelits of learning arc positive if the experience gaine{l ill one COllntry is applicable to
~lIlother.
[f it is not the case, thcrc is a liming dfjici/: the time it takes til rculize that you have
made a mistake, plus the timc to learn about the new environment.. AI. Disneyland Paris', two
years were lost because the transfer of knowledge from Florida and California did not help the
European operation.
The benefits of arbitrage can be offset by the cost of managing the arbitrage and the legal
balTiers tlmt. may exist in onler to prcvent such arbitrage. In the case of tax arbitrage, govern
ments are very careful to make sllre that global companies do not abuse their arbitrage power.
Despite tllose limitatiolls, more and more companies recognize the competitive benefits
of globalization. However. you should he aware there are still some factors that work against
globalization and this is what we will consider aller the following example of globalization.
globa1i~,aUon
In each COllntry of Europe, different firms fought for a share or the elevator market. Competi
tors were either local companies or subsidiaries 01' large multinational companies like Otis or
Schindler. Each competitor designed, marketed, manu(uclured, installed and serviced eleva
tors for their respective
the value chain (marketing, design. production. instullation and service) under their control.
The French subsidiary of OUs designed elevators for the French market, manufactured them
in French llletories, sold them with a French sales force and maintained them with a French
arr.er~sales
manufactured, sold, installed and serviced elevators for the German market; and so on in nearly
every major country. In smaller coulltries products or components were exported from major
<
"mc
10
countries' subsidiaries. 'lhe 0l'craLiolls were .I'clfcolliaillcd in each country and the resulLq
wcrc evaluated on a coull/ry-hy-country hasis. Such a situation had prevaileJ since the [RHOs. It.
corresponds to what. was referred to as a multinat.ional or multi-domestic world, in which multi
national companies like Otis were compelingill.';cpara1.e domestic
markcL~ around
the world.
By the end of t.he 19605 several key clements p1<lycd a rule in changing this competitive
structure. One national manager at Otis perceived that the Eurupean business context was
changing. First, the Treaty of Rome in 1957 had created the European Economic Community
(EEC), at that time called the Common Market. 'Olis meant that tariff barriers across Europe
were coming down; it became possible to produce components in one country and export
them to other countries. lhis allowed companies to concentrate on the production of compo
nents in one specialized flldory and to have a network of specialized factnries across Europe,
eHch of them making one product category or olle componenL. CornpOllenl<; would be cross
shipped fur ultimate installatiun in t.he variuus client count.ries.
OTIS UK
OTIS GERMANY
>DeSign/roductiO'/JrkClin~crv,c')
>oe5ign/roduclion/arketin~ervic')
Compete against
Compete against
German and multinational
competitors
UK and multin<:ltional
competitors
foe
foe
the UK market
OTIS FRANCE
OTIS ITALY
>Des'9r/roductien/arkCI,n~er'iC/
Compete against
French and multin<:ltional
competitors
)DeSi9n'jrodlKlionJarkelin9Jervice)
Compete against
Italian and multinational
competitors
foe
foe
Cll ie henefits of' such 11 system were ohvious - lly concentrating production the company could
benefit frum economics of scale and some cost savings could be passed to the cuslomer in the
form of price reductions. leading to higher market share. Products could be designed for the
whole market (standardized): instead of having country segmentation you would have pan
European segmentatioll hased on lise,
i.I~.
.--------------
1
ell;, -
be like. Despite the differences in housing orgunizutiOIl across coulltries, elevators wcre CSSCll
ti.dly technictl! products with vcry little cultural content and therefore able to be standard
ilCU. Only selling methods would vary from
thi.~
as
Ull
COUll try
to country.
'nlC
strategy depicted in Figure IA in which design centres and fUdorics were speciulized alld
inter-dependent.
From a management point of view this was a radical change; national managers were no
longer responsihle for the whole value chain as before, but only for part of it. lhey were obliged
to coordinllle with other countries and they were dependent on a coordinating organization
called the Europenn headquarters. 'Ihis led to a very successful out.come. By 1975, Otis had
captured 40% of thc !::uropellll market, containing Japanese pelletration, and competitors
if they wanted lo survive were obliged to adopt a similar strategy. 'Ihis (;ollcept
expanded and today Otis is
organi~ed
WHS
further
counlry subsidiaries, which take care of installation, maintenance, public relations and
personnel. but otherwise product development and manufacturing is coordinat.ed globally by
rroducl.lines. From being a 'multinational'. Otis has become a 'global' company.
OTIS UK
OTIS GERMANY,c-_ _,
~---,~,,~===;::--t-J"'>De5igy
~
"D"i,~
~
)L . , - '
.. 7""-
>arkeli3>)serviY
Local market
'"
S"i"
Local market
OTIS
EUROPE
~
y
",)ProdUCliO;>
>arketi3>>servi~
Local market
OTIS FRANCE
Local market
OTIS ITALY
11
12
1his
plu~nomenon of
the world is what 'glohal company' means. It is important to ollM'f\'c that this change gave
Otis
11
or
best duscribed as in Figure 1.5. It has cvolvc{] ill three steps: (I) international lrude:
export alld sourcing. (2) lllull.inaLionaJ investments: seiLing up valllc:,ddillg activities in
different countries and (3) inl.t:gration and coonlination of activities m.:ross regions and
cOllntries.
J
!
Internationalization
Imultinational!
Export
Itrade)
Cenlunes ago
SA 12:ATlON
I MAliK
ANO COMP
lION
working ag.'linSl sJobaliz.ation. \\'c can group Ihose factors into four main clItcgorics: cultural,
commercial. l.t..c1mical and legal.
religious values. glohal standardiz,,'ltiOI1 is not cffccti\'c. Some products - for instance.
....retek (tobacco and dove) cigarellcs in Indonesia, or the I'llcllinko (pinball) game in
j'lpan - are ullique to one society and their globalization is ncurly impos-'liblc. although
it could be argued that with inllOVl.livc marketing it Illay be possible. Examples are the
MrivuJ of'Beaujolais nouveau" wine. typically a Burgundy and Parisian bistro event before
I,he 19705. now available in Tokyo, Paris or New York on Lhesame day. and Jlalloween trick
or treating, a typical US festivity. is now celebrated in Eurnpc. 'I his shows that even some
highly cultuml goods alld customs can be appreciated by eustomcrs all over thc world, but
it rClllflins Uwt tastes ill food and <trillk. social interactions in sales negotiations, attitudes
toward hygiene, cosmetics or gifts vary rrom culture to culture, !llIlS hampering a global
product dcsign or approach. In t.he Asill-Pacilic region, for instance, personal relationship
buildillg rather than legal conl.nu;t'i is lhe normal way to conduct
busincs.~.
Time and
efforture required to build thcse pcrsunlll ties. which in a US contcxt woul(1 be considered
a waslc of Iimc.
(2) CommcrclldftlClur.;: dislrUmlion, Cllstomi:;aUQ/llIIlll res/Jol1sil'l!/ICSS
III somc sectors. distribution networks and prnctices differ from country to country and
as a consequcnce the wuys of managing thc nel\....ork,
moti\~dUng dealers
and distributors.
pricing and ncgotiation are hardly amcnable to global coordination. For instancc, thc
markeling and distribution of pharmaceutical products diffcr according to the country's
hculth system. In some countrics, like J:IP:lI1. doctors sell medicinc, while in other coun
trics phllrmacists are selling to paticnts who gt!t a refund (or not) from their insurance
company. while in yet other cases pharmaccutical
producl~ are
the patient.
Itesponsiveness to customers' demands as wcll as cuslomizaUon are othcr factors
which almost. by dcfinition dcfcat standardization. Private sa....ings or currcnt accounts for
individlwls. [nans to small and medium-size enterprises (SMEs), mortgages, consulting
activitics nmlindividual architectural designs arc services for which u local presence and
a fast reaction to customcrs' requircmcnts nrc nccded for competitivc succcss. Although
some practiccs. processes or methodologics can bc standMdizcd on a worldwide basis
(consultants, engint.'Cring, architects or auditors, for example), it rcmains that spccific
customer requcsts ha\'c to be taken into considcratioll, thus limiting globaliz.'ltion.
(3) TedmiclllftlCIOrs: stmldards, spatllli pre.'il!lIce, lrallsporlallo" ami ilmgfll1ge
liS.
for instance, in
13
14
prouuct~
European countries. SEeM] for France and the Middle East. und NTSC for the USA does
not represent a major hurdle for global manufacturing. In other instances, stundards arc
not that easy to accommodate and require specific
loc~t1
OJ"
basic
chemicals are more economically produced in local plants rather thau in global cent.ral
il,ed units, despite the scale economies that could he gained: t.he cost and the risks of
t.ransport cancel out the benefits of ccn!.raliz,ed production. Similarly, when production
systems arc not sl:ule-intcnsive and small pro(luction units can achieve similar cos!.s to
large plants - in plastic moulding. for instance - there are no major benefits in building a
global production system.
Finally, languages can add constraints to global approaches. These constraints can be
significant when it comes to services to individual customers: training services, personal
banking and personal telecommunication or retailing are possible examples. However,
there are two major trends that can reduce language constraillts. English has become
more and more a 'global language' and industries such as grn(luate business training or
high-level consuJlallcy ClUJ usc English wit.houl.the need for tnlllsialion.
p
1
O,'cr the yeafS.thanks to the GA'rr and now the \V1'O and also mullil:ltcral agrcemcnL'l
(Eurol>C1UI Union (EU). ASEAN. NAFTA. etc.) and International Monetary Fund (1l\'(F)
re<juesls. go\'cmmcnl legislation is leaning loward more open legislative context.~ thai fa,,'or
g1ob.'llb.lItion. Uowe\"er. some conslrninlS still cxisl:. Some sectors such as 1,c1l..'COrmmmK:a
lions.. media. hanking and insurance ure stilt tightly controlled and some countries (such as
China and India) or regional blocks (the EU). still impose local content n.'t!uircments.
Finally. go\'ernments are mLlch concerned with national security and will pre\'cnl
foreigners guilling 100 much control orlheir defence or strategic seclor industries. In the
defence sector, for insLam.:e. where H&D costs arc huge and economies ofsClIlc significant
g1ohaJizlItion would be fully justified, hili is in facl Iirnil,ed because of naUonal security
constraints. Figure 1.6 summarizes Ihe loculization push.
Culturallactors
IIltitudes. tastes
BehaVIor
SOCial codes
RtKJucc lI,c bene firs
of slandardJlit~"~"~"_~
Technical
factors
Commercial
factors
Standards
Transport.:lhon
Spattal presence
liIngu;og~
Reduce fhe bctlf'fifs of
Localization
O,stnbutlOfl networks
Customlzatlon
ResponSl'W'enus
Reqlllf'e d,ft..-MllilftKJ
<lppro;'Khn to SiI/es
md mMkelmg
of 5UIe.
cenfr1lbzallOfl md
KotlOt7Ne5
Sl~al...
Legallactors
R~ulatlons
Naltonal sec:unty
L,m,' IrH flow 01 pelJplf'.
goods.d.Jta. cash ,tnpOW
locMJZal1Oll CClnSlra"'ts
curve.
15
16
Quick response time is the ability to rc:;pOIlU at once to specific customers' demands.
Proximity, flexibility and quick response lime arc very much related to each other: proximity
provides the basis for llexibility and flexibility provides the basis for a quick response. All three
give a competitive advantage when
JOel,]
Global/multi-local mapping
"[ he two
sel.~ of fon;cs
of industries und inducing companies to COIl figure their worldwide business systems with the
right mix of coordination. inLegraLion or deccnLf(llizaUoll, Global/multi-local mapping is a
tool that has been developed to position industrics and industry segments according to the
relative importance of each set of forces. Figure 1.7 represcnts the mapping for various indus
tries, while Figure 1.8 shows II similar rcprescntation for various
segJllel1L~
of thc finandul
sector.
Global industries
in which firms carl suslaill
competitive advantages
only if:
they preselll in the key
counlries of the world
alld
they integrate arld
coordirlale their
activities across the
world ill a celltralized
marmer.
No
Civil alrcralt
Microprocessors
Institutional banking
Bulk chemicals
Nahonal
public services
No
Telecommunication
eqUipment
Corporate banking
Automotive
Pain!
Package lours
Retail banking
Caler",g
Food
relail
Yes
Multi-local illdustries in which firms carl sustain
competitive advantages independerlily wilhin
the boundaries 01 countries in which they operate
Figure 1.7 Global/multi-local mapping: different industries have different competitive requirements
Thc mapping in Figures 1.7 and 1.8 reveals that industries and segments call be broadly
posilioned into three types of competitive situations:
Type I: Globalforces dominate and firms in those industries I;an sustain compdiU\'c
advantage by operating across the world in a coordinated way. 'Ihere are few advantages
to pushing for local adaptation ofproduClS. services and approaches. What matters is
efficiency, speed, arbitrage and learning. 111ese indust.ries (Ire global, as in the casc of the
microchip, bulk chemical or civil aircraf"l. industries.
Type II: Localjim;es dominate and ficxibility, proximity and quick response are determining
capllhilities for competitive advantage. Firms can operat.e independently in different
.--------------------
l08AlilATtON OF MARK T
AND
DMPE 11
17
(;UUlIlries; their approaches are different from country 10 country. 1:00d retailing. consumer
Ttl>e III: In these industries there is a mix ojgfobtll and localfarccs al "/(/1 lmd oompetiti\'cm.."SS
(;.'Innol be achieved without achieving the henefits of global coorrlimtlion (md. at the !mille
lime, the benefits ofOcxibility. proximity and quick response time. 'Ihis !>ositioning is
incrc;lSingly becoming the dominant (;ompctith'c battleground for a vast nmjorily ofsectors.
YES
INVESTMENT
"'"""'
GLOBAL CORPORATI:
ACCOUNTS
CREDIT CARDS
Global
approach
dominates
TRADE FINANCE
COMt-IERCw.emKlNG
RETAIL BANIQNG
SAVlNQ5ACCOUNTS
PERSON,tlLINSURMIcE
NO
NO
YES
Figure 1.8 Global/multi-local mapping for the fmancial sector: different segments have dillerenl
competitive requirements
18
global setting where goods. people, dala and moncy flow freely, companies can adopt an inte
grated ~Lnd coordinated approach to their operations and the competitive battlefield would be the
world. Since Hieardo's time, partisans and adversaries offrcc tntdc have exchanged heated debates
about the pro ami cons ofglohalization for sodety. Table 1.3 summarizes those arguments.
'I his debate gained political visibility during the J 990s. In Europe, the Treaty of Maastricht
(signed in 1')92) adopted the curo as a single currcncy, generating a heated debate on the loss
of sovereignt.y and the advantages of fmthcr political and economic integration. III North
America. t.he NAFTA agreement (1995) created similar discussion. In Asia, after Lhe 1997
financial crisis, globali7,ation was called into question and, at the end of that decade, t.he W'I"O
at the Seattle ministerial conference could not set up an agenda for launching unother trade
rO\lnd because of public criticism of the whole concept of globalization. Since 200 I, there
has been a growing debate about the fuLure 01" glohllli~,aUon. Some, like Alan Rugman, have
announced the 'end of globali:t.ation'," an issue Lhal. will be discllssed in Chapter 16,
Table 1,3 The societal effects of globalization
~------
corporations
Despite all this polil.ical t.~rmoi1, some analysts think that the world is becoming progressively
more int.egrat.ed. According to the consulting firm McKinsey,S by 1997, truly global markets
represenLed approximat.c1y US$6 trillion out of a total world output of US$28 trillion (21%),
'Ihe firm anticipates that by 2030 the proporLion of global markets will alllount to US$73 tril
lioll out of US$91 trillion (80%), However, as 'I'll! he secn in Chaptcr 16, this forecast lIlay he
challcngcd,
Pragmatically, companies adopt. a competiLive positioning which tends to !()sLer I"urt.her
globnlization. l1w development
or inl"ormaLion
the creation of mcgHlllergers in the telecoms, computer, oil. pharmaceutical, powcr and car
industries dcmonstrate that business firms are increasingly bchaving as if they were already
living in a global world.
______ 'I!@A11
Mobile Telephony Services
Mobile telephony expanded rapidly during the two decades of the 19905 and 2000s. By
2011 there were around 5.2 billion mobile subscribers in the world (77% of the world's
population).
Around the world, mobile services are operated mainly by local telephone companies with
their own national brands. Some operators such as Vodaphone {UK} or Orange (France)
have developed their presence internationally by acquiring or participating in the capital of
local operators.
Most consumers use pre-paid services for the use of mobile phones. Various packages of
pre-paid services as well as additional add-ons (Internet access, mobile banking. email,
games ... ) are offered by the operators according to the characteristics of their markets.
Customers are divided between personal accounts (roughly 65 to 90%. according to the
country) and corporate accounts (from 10 to 35%). Some of the corporate accounts are
multinational firms that want to benefit from a 'global' offer.
Mobile operators purchase their own network equipment and control its installation. They
also procure large quantities of handsets that they include in their pre"paid contracts at
discounted prices.
The key activities of mobile phone operators are:
Procurement of network hardware and software: suppliers are multinational firms such
as Nokia, Erikson and Alcatel-Lucent. There are two major standards used in the world:
Global Standard Mobile with around 80% penetration and CDMA (15%). Japan and Korea
use a standard of their own.
Procurement of handsets. The major manufacturers of handsets are Nokia (23% global
market share). Samsung (16%), LG (7.5%), BlackBerry (3%) and Apple (4.6%).
Network installation and maintenance carried out by equipment suppliers plus local
infrastructure companies under the control of the service provider.
Software developments for new applications and services. From 2008 to 2011 around
300,000 applications for mobile phones and smartphones have been developed in the
world. The main applications are games, news and social networking.
Marketing and brand management. Products are marketed under a variety of local brands.
Multinational players try to use their global brand (such as Orange). although advertising
is country specific.
Sales and distribution are organized differently from country to country.
Billing is done according to local standards.
Regulation with local authorities. Operators have to comply with local regulations.
Finance and controL Treasury is managed centrally while day-to-day transactions are the
duties of local managers.
19
20
"!!''12\11
A global company:
can be defined as a company that operates in the main markets ofllle world in an
integrated and coordinaLed way
carries out one activity (e.g. manufacturing) or a component orthe uctivity (e.g.
manufacturing olle sub-part only) of the value chain in one country. which serves the
company's worldwide market.
;\ multinational company:
operates in many markets oCthe world with little or no integration or coordination among
operations.
GLobalization:
Is the phenomenon of the progressive transition of industries from a nlliltinational to a
global competitive structure
Four factors arc pushing companies 1.0 glohalize:
- Political: reduces trade barriers
- Technological: reduces the cost. of coordination and increases economics of scale
- Social: encourages standardization and global branding
- Competitive: induces integration and coordination
Going global has four competitive bendits:
- Cost: economics of scale and increased bargaining powers
- Timing: reaches the optimal production volume and increases the reach of a product
with a short product life cycle
Learning: facilitates best practices to be adopted across suhsidiaries through the
experience eITect and the transfer of knowledge
Arbitrage: is derived when H globul company uses resources in oue country for the benefit
of a subsidiary in another country.
Localization
Four driving forces reduce the need to globalize:
- CII/tllml; re(luces the benefits ofstandardizaLion
p----------------
21
proximity
Ho:ibility
lo'~
~T:
countries
---
I Very dlffCfl!nt
Low proportion of
standard components
Buying locally
=--J
Very similar
High proportion
of st,)Ildard
components
- i
Buying centrally
High economies
of scale
Speed is very
important
Highly cultural
Highly technical
No great benefits
Yes, highly
beneficial
Competitors are
localizing
Competitors
are successful
in standardized
;;Ipproaches
dysfunctionality
Pricing has to be
coherent across
borders
Pricing can be
very different
Not so different
Yes. very
different
I To what
~-~
-------
22
I-
--
To what e
dent business regulations and
contexts d
,ller from country 10 country
requlnrog
Oil high degree of locaL practices
Towna! e
Xlenl products or sel'Vlces require
a h'9h deg
fee of Interaction with customers
3
HIghly different
ILow,",,,mi~I'OO
!custom'lallOnl
High
cuSlornlzahon
Not so high
Very hl9h
Not critical
Very cntlcal
for succes
scor~
to
th~ bo~
Global
approach
dominates
(Questions lto BJ
IllDiltH:"::'11
Among the enterprises that you know, can you identify one that can be classed a g10bul
compllllY? Why?
ps-------------------
1
,
I
Why. in Figure 1.8. are savings accounts positioned low on global approaches and high
ol11oc ll i approach while investment banking is high on global approllch and 10won local
approach?
III Figure 1.7, food retailing is positioned as a local business. with a very low glob.1.lizalion
S(;orc. Ilo\\'cver. in the press. companies like Tesco. Wal-Marl ami Carrefollt arc classed
as 'global rcl:tilers". Explain this discrep,'lIJcy.
Whal arc the social factors thai hm'e been pushing for globaliz....tion and which hu\'c
heen pushing llg.'linsl.?
When the Otis Elevator Company inl rodllCt.-'d the change descrlbt.od at Ihe beginning
of the chapter. there was a lot of resisl:lncc from the various heads of tile EUropCllll
suhsidiuries. Why'! What argulTlents do yOlllhink Lhe people hoslile 10 globa1i7AIt.i01l used'!
,,
ArbitnLge benefits
Comparative advanlage
Globnl companies
Global industries
Global/multi-Ioc<llmupping
Glob.tli7,ation
International producllife cycle
~'Iultinational companies
<hUp://knowledge.inscad.cdu/homc.cfm>
<http://www.l)llsinessweek.com/mcdiucenter/>
<11 tI p://www.lIlckillsc}"(luarterly.com/>
McKiluey Quarterly - Globalization.
<hup://WWW.Il11to.int>
<http://www.wlo.org/>
<http://www.imf.org!>
Provides statistics and papers from the Inlernlltional Monetary Fund (IMF).
<http://data.\\Iorldbank.org/>
<http://www.unclad.org/>
23
24
<htlp:llwww.occd.org!>
DECO resources.
<hu 1':/1cpp.curoslllLcc.curopll.cu!>
w{'b~il(' al
Gl..'Orgc Yip (1992) gives four globalization drivers: cost, market. cornl>elition and
2 Ohmac (1985).
:~
Ricardo (1967).
HUglTlllll (2000).
L aAUlATION
F MARK
SAND
DMPUll ON
j(JllrlUt!.s
BUSINESS
Busincss week
Iorllllle
""cO/wlllist.
flllel'l/u/imlflf Mallagcmelll
SEMI-ACADEMIC
ACAoeMIC
Fimll/cial
Time.~
MullillationallJusillcss
J/arll(lrd Busincss Review
25