International Business activities – strategic analyses Lecture 4 David Litteljohn Events in a Globalising World 1 REFERENCES Abdela, 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 8-19 http://find.galegroup.com/itx/retrieve.do?contentSet=IACDocuments&resultListType=RESULT_LIST&qrySerId=Locale%28en%2C%2C%29%3AFQE%3D %28au%2CNone%2C10%29Segal+Horn%3AAnd%3AFQE%3D%28ke%2CNone%2C6%29Globa l%3AAnd%3ALQE%3D%28DA%2CNone%2C10%29%3E+20020101%24&sgHitCountType=No ne&inPS=true&sort=DateDescend&searchType=AdvancedSearchForm&tabID=T002&prodId=SP J.SP00&searchId=R1&currentPosition=1&userGroupName=gcal_itc&docId=A85103346&docTyp e=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 3-18 http://proquest.umi.com/pqdweb?RQT=572&TS=1202461288&clientId=6297&VType=PQD&V Name=PQD&VInst=PROD&PMID=22140&PCID=9090061&SrtM=0&SrchMode=3&aid=2 2 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 flows In order a start a debate on the application of business market globalisation for events 3 Levitt’s (1983) globalisation strategies HOME MKT GLOBAL MKTS From • Home/(foreign) adaptation To • Mass-market/ Specialisation/niche 4 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 ? 5 Consumer Homogenisation; Implication • • • • • • • • • • Consumer standardisation Coca Cola TV Cigarettes Digital watches Electronic goods Rock music Pizza Chinese food Cosmetics Companies 6 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’ 7 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 8 High Scale economies, homogeneous tastes, deregulation … GLOBAL INDUSTRIES Strong Local Tastes and Preferences Local regulation, high transport costs Low Low High NATIONAL/LOCAL INDUSTRIES Source: Segal Horn, 2002 9 High Batteries Razor blades Consumer electronics Telecommunications Construction GLOBAL Insurance Utilities Low Corrugated cardboard Low Food Drink High NATIONAL/LOCAL Source: Segal Horn, 2002 10 Porter’s firm value chain 11 Michael Porter’s FIVE FORCES model Source: M. Porter, 1985, Competitive Advantage, New York, Free Press and M. Porter, 1980 Competitive strategy : techniques for analyzing industries and competitors, New York : Free Press 12 Michael Porter’s Diamond - determinants of national advantage CHANCE Firm strategy, structure & rivalry Factor conditions Factors: •Physical resources •Knowledge resources •Capital resources •Infrastructure resources Demand conditions Related & supporting industries ROLE OF GOVT 13 Stopford & Wells (1972) international structure stage model Worldwide products division Global or grid Matrix Alternate paths of Development International Division Area Division Foreign sales as a % of total sales 14 Organisational types • ethnocentric • polycentric Regiocentric • geocentric 15 What is a firm in a globalised world? • • • • Franchise Management Contract Alliance Joint venture • In addition to subsidiaries, cross national investments (sovereign investment companies) 16 Rugman and Verbeke, 2004 • Triad nations (TNs) rather than individual companies • Uses a mass of secondary details at firm (not subsidiary) level 17 TRIAD Economics 18 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) 19 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 20 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 21 TRIAD Economics Flows of FDI 22 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) 23 But below the 500 • Different trends • E.g. Nike - outsourcing of production • Other different types of companies - non capital intensive 24 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 ? 25