202 Part 3 . Formulating and Implernenting Strategy fbr International and Global Operations
Sometimes just the plospect of shifting production overseas improves competitiveness at home. When Xerox Corporation started moving copier-rebuilding operations to Mexico, the”union agreed to needed changes in work style and productivity to keep the jobs at home. Lower opera- tional costs in other areas-power, transportation, and financing-frequently prove attractive.
INCENTIVES Covernments in countries such as Poland seeking new infusions of capital, technol- ogy, and know-how willingly provide incentives-tax exemptions, tax holidays, subsidies, loans, and the use of property. Because they both decrcase risk and increase profits, these incentives are attractive to foreign companies. Russia, for example, has a number of special economic zones, both
for industrial production and for technical research, offering various tax concessions such as exemption from property and land taxes for the first five years, as well as customs privileges.2a
In February 2009, for example, companies were rushing to conclude M&A deals in Brazil while a tax break rvhich allows companies to deduct 34 percent of the premium paid in an acqui- sition is still guaranteed, amid fears that it would be rescinded. This kind of tax incentive is rare, so it attracts considerable interest from foreign investors. Coupled with the recent devaluation of the Brazilian real, which made acquisitions cheaper for foreign bidders, tax deductions are cur- rently one of the great attractions for acquisition deals in Brazil.2s
One study surveyed 103 experienced managers concerning the relative attractiveness of various incentives for expansion into the Caribbean region (primarily Mexico, Venezuela, Colomtria, Dominican Republic, and Guatemala). The results indicate the opinion of those man-
agers about which incentives are rrost important; however, the most desirable mix would depend on the nature of the particular company and its operations. The first two issues reflect managers’ concerns about limiting foreign exchange risk, where restrictions often change overnight and limit the abiiity of the firm to repatriate prolits. Other concerns are those of political instability and the possibility of expropriation, and those of tax concessions.26 Nor att those incentives lim- ited to emerging economies. The state of Alabama in the United States has spent hundrcds of rnillions to attract the Honda, Hyundai, and Toyota plants.27
STRATEGIC FONMULATION PFSCESS
Typically, the strategic formulation process is necessary both at the headquarters of the corpora-
tion and at each of the subsidiaries. Most organizations operate on planning cycles of five or more years, with intermediate reviews.
The global strategic formulation process, as part of overall corporate strategic management, parallels the prccess followed in domestic companies. However, the variables, and therefore the process itself, are far more complex because of the greater difficulty in gaining accurate and timely
information, the diversity of geographic locations, and the differences in political, legal, cultural,
market, and financial processes. These factors introduce a greater level of risk in strategic deci-
sions. However, for firms that have not yet engaged in international operations (as well as for those
that do), an ongoing strategic planning process with a global orientation identifies potential oppor-
tunities for (1) appropriate market expansion, (2) increased profitability, and (3) new ventures by
which the firm can exploit its sffategic advantages. Even in the absence of immediate oppoffunities,
monitoring rhe global environment for trends and competition is important for domestic planning.
The strategic formulation process is part of the strategic management process in which
most firms engage, either formally or informally. The planning modes range from a proactive,
Iong-range format to a reactive, more seat-of-the-pants method, whereby the day-by-day deci-
sions of key managers, in particular owner-managers, accumulate to what can be discerned retroactively as the new strategic direction.28 The stages in the strategic management process are
shown in Exhibit 6-1. In reality, these stages seldom follow such a linear format. Rather, the process is continuous and intertwined, with data and results from earlier stages providing infor-
mation for the next stage. The first phase of the strategic management’process-the planning phase-sta*s with the
company establishing (or clarifying) its mission and its overall objectives. The next two steps
comprise an assessment of the extcrnal environment that the firm faces in the future and an analysis of the firm’s relative capabilities to deal successfully with that environment. Strategic alternatives are then considered, and plans are made based on the strategic choice’ These five
steps constitute the planning phase, which will be further explained in this $apter. The second part of the strategic management process is the implementation phase,
Successful implementation requires the establishment of the structure’ systems, and processes
fi .t
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*
Chapter 6 . Formulating Strategl W
ExHtBlT 6-1 The Strategic Management Process
. . Define/dqrrty .,,,, .,.:.. ., .:.
Assess internol strengtls
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v
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-suieb&r9^xraFe.rbe-.:s.egFv.,Ye$’-]!rss”.rElgPJS::.3′..Yftk1-{g:119#1J9J.”1″?[1T.eJi’LT” explored rl detail in the remaining qhapters on organizing, leading, and staffing. At this point, however, it is i*gortant to notqlthat the strategic planning process by itself does not change the posture.g{JLhe fifrn until. the plaps are implemented. In addition, feedback from the interim and long-teffiults of suc$ implbmentation, along with continuous environmental monitoring, flows diffily back into the planning process. *’.
STEPS IN DEVELOPING INTERNATIONAL IIND GLOBAT STRATEGIES In the planning phase of strategic management-strategic formulation-managers need to care- fully evaluate dynamic factors, as described in the stages that follow. However, as discussed ear- Iier, managers seldom consecutively move through these phases; rather, changing events and variables prompt them to combine and reconsider thek evaluations on an ongoing basis.
Mission and Objectives
The mission of an organization is its overall raison d’€tre or the function it performs in society. This mission charts the direction of the company and provides a basis for strategic decision mak- ing’ It also conveys the cultural values that are important to the company, as contrasted in the fol- lowing two mission statements:
E o g8 lo gE ar& o. E
Assess environment br
Set up cqntrol ond groluotion
:”i.iiti;xi Sanyo{,\,{,ep6p-.secompany)
. .ftlV-eW6pnilosophy: to make products qnd services indispensable for peo-ple. all over thffiorld, offering a more enjoyable tife. Digital teittnologl. atd’care
i:&[ :-.:: -r ” Fonlulating and Implementing Strategy for Intemafion al and Globa] Operations
cotnpeten(:e (the source of our cornpetitivertess) generate joy’ e.tcitement, ctnd inlpact, G nrore confrtrtctbte tife in harmony with the globctl env’ironnrcnt’Z9
Siemens (A German comPany) Syccess clepentls oft success. of our custonrcrs. We provide experience cutd
solutions so thal can achieve their objectives fast cnd ffictivel1,. We turn our people’s
imagination and best practices in succes,sfu! technologies and products. This nakes
us a prerttiutrt investmentfor our shcrrclrclders. Our ideas, technologies and activities
lzelp create a better worlcl.3o
While both mission statements indicate a focus on customers, Sanyo ofTers them a more
enjoyabie lii’e, is more relationship-oriented, and emphasizes harmony and the environment,
inAicating a long-term focus, factors typical of Japanese culture. Siemens of}’ers efficiency to its
customerls and a premiurn return to its shareholders; this mission statelnent is explicit and deci-
sive, typical of Gemran communication; this compares with the more descriptive and implicit
stateme;t given by Sanyo.31 A company’s overall objectit,es flow from its mission, and both guide the formulation of
international corporate strategy. Because we ar€ focusing on issues of internaiional strategy, we
will assume that one of the overall ob.iectives of the corporation is some ibrm of international operation (or expansion). The objectives of the firm’s intemationai affiliates should also be part
of the global colporate objectives. A firm’s global objectives usually lall into the areas of market-
ing, profitability, finance,-production, and research and development’ among others, as shown in
gi6iUt 6-2. Goals for maiket volume and for profitability are usually set higher lor internation-
al than for domestic operations because of the greater risk involved. In addition, financial objec-
tives on the global levil must take into account diff’ering tax regulations in various countries and
how to minimize overall losses liom exchange rate fluctuations’
SnvinsRrnenta ! Assessnlent
Afler clarifying the corporate mission and objectives, the lirst major step in weighing interna-
tional strategic options ii the environmental assessment. This assessment includes environmen- tai scanning and continuous monitoring to keep abreast of variables around the world that are
EXFIIE$T 6-2 Global Corporate Objectives
Marketing Total company market share*worldwide, regional, national
Annual percentage sales growth 1r .,: Annual percentage market share growth ., :r;, .. ti,. .t t,,/ Coordination of regional markets for economies of scale
Prtduction ”$’:’ Relative foreign versus domestic production volume
Economies of scale through global production integration
Quality and cost control Introduction of cost-efficient production methods
Finance Effective financing of overseas subsidiaries or allies
Thxation-globally minimizing tax burden Optimum capital structure
Foreign-exchange management
Profrtability Long-term profit growth Return on investment, equity, and assets
Annual rate of Profit growth
Research and DeveloPment Develop new products with global patents
Develop proprietary production technologies :itf#i€s#{‘.r Worldwide research and development labs rj; ‘ ‘
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ChaPter 6
pertinent to the tirm and that have the potential to shape its future by posing new opportunities
ior threats). Firms must adapt to their environment to survive’ The focus of strategic planning
is how to adapt. The process of gathering information and forecasting relevant trends, competitive actions’
and circumstances that will alfect operations in geographic areas of potential interest is called
environmental scanning. This activiiy should be ionducted on ttree levels-global, regional’ and
national (discussed in Oeiait later in this chapter). Scanning should focus on the t’uture interests of
the firm and should cover the fbllowing major variables 1as discussed by Phatak32 and others):
, political ittstability. This variable represents a volatile and uncontrollabie risk to the multi- national corporation, as illustrated by the upheaval in the Middle East in recent years’
MNCs must carefully assess such risk because it may resuit in a loss of profitability or
even ownership. , Cttrretrcy rnstiuitity. This variable represents another risk; inflation and fluctuations in the
exchange rates ofcunencies can dramatically affect profitability when operating overseas’
For example, both foreign and local firms got a painful reminder of this risk when the
Mexican feso declinecl by about 30 percent against the U’S. dollar in 2008.
. Nationalisnr. This variabje, representing the home government’s goals for independence and economic improvement, o{len influences fbreign companies. The home government
may impose restrictive policies-import controls, equity requirements, local content
,.quir”*”ntr, limitations on the repatriation of profits, and so forth. Japan, for example,
protects its home markets with these kinds of restrictive policies’ Other forms of national-
ir* *uy be exerted through the following: (1) pressu.e from national governments- exemplified by the United States putting pi”ttutt on Japan to, curtail unfair competition; (2) lax patent and trademark protection laws, such as those in China in recent years,
which
erode a fim’s proprietary technology through insufficient protection; and (3) the suitability
of infrastructure, such as roads and telecommunications’ , Irienmtional contpetitiorr. Conducting a global competitor analysis is perhaps the most
important task in environmental assessment and strategy formulatiol’ The first step in
analyzing the competition is to assess the relevant industry structures as they influence the
competitive u.”nu in the particular country (or region) being considered. For example, will
the infiastructure suppoi new companies in that industry? Is there room for additional
competition? What is ihe relative supply and demand for the proposed product or service?
The ultimate profit potential in thelndustry in that location will be determined by these
kinds of factors.33 . Enttircnmental Scanning. Managers must also specifically assess their current competitors*
global and local-for the propoied market. They must ask some important questions: What
ir” ou. ro-petitors’ positi’ons, their goals and strategies, and their strengths and weaknesses’ relative to those of our. firm? What arc the likely competitor reactions to our strategic moves?
The firm can also choose varying levels of environmental scanning’ To reduce risk and
investment, many trtms take on the role of the “follower,” meaning that they limit their own in-
vestigations. Insiead, they simply watch their competitors’ moves and go where they go’ assum-
ing that the competito6 t ru. Aon, their hornework’ Other firms go to considerable lengths to
carelully gather data and examine options in the global arena’
Ideally, the fim should conduct global environmental analysis on three different levels:
multinational, regional, and national. Analysis on the multinational level provides a broad
assessment of signi{icant worldwicle trends-through identihcation, forecasting, and monitoring
activities. These trends would include the political and economic developments of nations
around the world, as well as global technological progress’ From this information’ managers can
choose certain appropriate rcgions of the world to consider further’
Next, at the regional lJvel, the analysis focuses in more detail on critical environmental
factors to identify opportunities (and risks) for marketing the company’s products’ services’ or
technology. For example, one such regional location ripe for investigation by a lirrn seeking new
matkets is the EU. Having zeroed in on one or more regions, the llrm must, as its next step, analyze at the
national level. Such an analysis explores in depth specific countries within the desired region for
economic, legal, political. and cultural factors significant to the company’ For example’ the
:nalysis could focus on the size and nature af the market, along u’ith any possible operational
. Formulating Strategy 205
206 Part 3 . Formulating and Implementing Strategy for lntemational and Global Operations
problems, to consider how best to enter the market. In many volatile countries, continuous monitoring of such environmental factors is a vital part of ongoing strategic planning. Other important factors which must be considered in the environmental assessment at all levels is that of how institutions might affect potentiai opportunities to compete.
tru5Tl’t’UTl$zu.&i- EFFECTS OIU INTERNATIONAL COMPFllT,8ru34 Various institutions can create opportunities or constraints for firms considering entry into specific global markets. Recently, researchers such as Peng have argued that ” . . . fum strategies and performance are, to a large degree, determined by institutions popularly known as the ‘rules of the game’ in a society.”3s Institutions include both those fotmal institutions that promulgate laws, regulations and rules, as well as informal ones that exert influence thlough norms, cultures, and ethics (discussed elsewhere in this book.)36
Specific ways in which formal institutions affect international competition are (1) the attrac- tiveness of overseas markets, (2) entry bamiers and industry attractiveness, (3) antidumping, and (4) competitiveness of indian ITiBPO firms.37
Attractiveness of Overseas Markets The extent to which countries have institutions to promote the rule of law affects the attractiveness of those economies to outside investors. Specifically, institutions provide a broad fiamework of liberty and democracy, as well as human rights protections. In addition, institutions contribute to a stable environment for firms by creating specific laws such as those protecting property rights. Countries with more devel- oped insdtutions are seen as more stable and attractive to foreign firms.3s
Intry Barriers and lndustry Attractiveness Institutions create barriers to entry in certain industries and hertce make those industries more attractive (profitable) for incumbent firms. For example, in the U.S. pharmaceutical industry, bariers are created by rhe U.S. Food and Drug Administration in the form of sffingent drug approval requirements. Since new entrants (with potentially cheaper drugs) are restricted, Americans pay double what Canadians and Europeans pay for the same drugs produced in the United States. Americans spend about $240 billion a year on drugs, more than Britain, Canada, France, Germany, Italy, and Japan combined. In turn, U.S. firms in this industry earn above-ayerage profits as the institutional barriers restrict entrants and reduce rivalry.3g
Antidumping as an Entry Earrier A second example of an entry ban’ier is illustrated by culTent U.S. antidumping laws which place a foreign enlrant at a disadvantage if accused of “dumping” (defined as selling a product below the cost of producing that product with the intent to later raise prices). Where a dumping charge is filed by a domestic firm with the International Trade Administration (a division of the U.S. Depafiment of Commerce) against a fbreign competitor, that foreign competitor will frequently lose the case. Many accused foreign firms fail to properly complete a questionnaire which is required as part of the legal proccedings. This questionnaire is lengthy and requires the foreign firm to submit extensive and sometimes propri- etary information about its costs. In contrast, if a similar practice occurs domestically (predatory pricing), it is generally diffrcult to prove that the firm was selling below cost and engaging in predatory pricing. As such, while antidumping laws are a frequent deterrent to foreign entrants, the domestic equivalent strategy ofpredatory pricing is rarely a barrier for that new entrant. The suggestion here is that U.S. antidumping laws strongly favor domestic firms and place interna- tional firms at a disadvantage.ao
eompetitiveness of lndian lTlBPO Firms What explains the competitive advantages of the Indian IT/BPO industry compared to U.S. competitors? One explanation is that institutional
changes in India, such as a greater emphasis on higher education, and legal and regulatory reforms
that liberalized the economy, created a more open and competitive atmosphere in which these
firms could flourish. These institutional changes have, however, created opportunities for Western
firms which began to locate subsidiaries in India to take advantage of skilled but less costly human
resources. This i1 turn forced the Indian IT/BPO companies to become more competitive to take
on the new entrants.4l Clearly, there are many formal institutions affect international strategy. But, what explains
successes of’companies despite the failure or absence of rhese formal institutions? China is a
common illustration of where domestic firms have built competitive advantages despite poorly
Chapter 6
developed formal institutions. The ansu.er iies in the extensive use of informal institutions or networks ofinterpersonal connections knou,n in Chinese as guanxi. These networks function as
substitutes for the weaknesses of the formal institutions. Research has shown that these infonnal networks are common in a variety of ernerging markets with different cultural traditions and are
a response to transitions in many emerging markets where formal institutions are evolving.42 This process of environmental scanning, from the broad global level down to the local
specifics of entry planning, is illustrated in Exhibit 6-3. The first broad scan of all potential wolld markets results in the firm being able to eliminate from its list those markets that are closed or insignificant or do not have reasonable entry conditions. The second scan of remaining regions, and then countries, is done in greater detail-perhaps eliminating some countries based on political instability, for example. Remaining countries are then assessed for competitor strengths, suitability of products, and so on. This analysis leads to serious entry planning in selected countries; managers start to work on operational plans, such as negotiations and legal arrangements.
EXFIIBIT 6-3 Global Environmental Scanning and Strategic Decision-Making Process
Decision to Enler Globol Mqrkets
* Select geogrophic regions to evoluoie
* Eliminote regions nol suiioble {or product/service
+ Scon environmenk {or politicol ond economic risk;moior technologicol, legol, physicol
conslroints
V Evqluote infrqstruciure constroints
!
Y Norrovr choice to suibble countries
* fusess inveslment incentives qnd mqrket potentiol in those countries
,l Nqrrow choice to select counlries
i Evoluole locol mqrkets {or culiurql, sociol, technologicol suitobility
* Conduci competitive onolysis (MNC ond locol firms)
* Evoluqte morket otlrqctiveness ond competitive poteniiol
* Selecl countries {or entry
i Consider whether/how rnuch lo locq lize products,/services
* Assess ond decide on entry stralegy/strotegies
f Set limeloble for imphnenlalion: Negotiations wik allies, suWliea dislribulors, and so on.
f, Lounch edry
* Coniinue environmenbl sconning process
FormulatingStrategy 2O7
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liil
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, sl#es of Environsnental lnforrnatian
The success of envir.onmental scanning depends on the ability of managers to take a global per-
spective and to ensure that theiru orrlru of it{ornwtion and business intelligence are globa}’
A variety of public resources are available to provide information’ In the united states aione’
more than 2,000 business information services are available on computer databases tailored to
specific industries and regions. Other resources include corporate “clipping” services and infor-
mation packages. Ho*euer, internal sources of inlbrmation are usually preferable-especialll
aler-t field personnel who, with firsthand observations, can provide up-to-date and relevant infor-
mation tbr the firm. Extensively using its own internal resources, Mitsubishi Trading Companl.
employs worldwide more than io,ooo peopte in 50 countries, as of January 2009, many of whom
,”‘**.k”, analysts, whose job it is to gather, analyze, and feed market information to the parent
“”*;;;.;ih;*ut ,our.”, of information help to eliminate unreliable information from sec-
ondary sources, particuiarly in a”u”toping count.ies. As Garsombke points out, the “official”
data frorr such countries can be misleading: “Census data can be tampered with by government
officialsfbrpropagandapurposesoritmayberestricted…’lnSouthKorea,fbrinstance,even officialfigurescanbeconflictingdependingonthesource.”–
lnternal AnalYsis
Atier the environmental assessment, the second major step in weighing.international strategic
options is the internal analysis. This analysis determines which areas of the flrm’s operations
represent strengths or *eaknesses (currently or potentially) compared to competitors, so that the
firm may use that information to its strategic advantage’
The internal analysis focuses on the compuny;* r”rour”es and operations and on global
synergies. The strengths and weaknesses of tne firm’s tinancial and managerial expertise and
functional capabilities are evaluated to determine what key success factors (KSFs) the company
hasandhowwell*,eycant,etpthefirmexpioitforeignopportunities..Thoset”*^.]”.’:.1-:11i1l involve superior t”rtrnotogirui capability (as with Microsoft and
Intel), as well as other strateglc
ua”ur*g* such as effectivedisrlbution channels (as with wal-Mart), superior promotion capa-
bilities (Disney), low-cost production and-sourcing position (as with Tay’ota}, superior patent and
new producr pipeline (M*.;ti, and so on. Using such operational sfengths,to advantage is exem-
plified by Japanese “* *unriu”rurers’ Their ptoautUin quality and etficiency have catapulted
them into world mzu’kets’
AllcompanieshaveStrengthsandweaknesses’Management’schallengeistoidentifybothand take appropriate uction. ruany oiugnostic-tools
ur” ^uuituotr”tor
conducting an intemal resource audit’
Financial ratios, fbr **u*ptJ, *”i ,”*”r an ineffrcient use of assets that is restricting profitability; a
sales-force analysis *uv .”*uiirru, the sales force is an area of distinct competence for the fitm’ If a
company is conducring tt i, uuoiito determine whether to start international ventures or to improve
its
ongoing operarions uurouol “otuin operarional iszues must ue taten 1111.account’
These issues
include (i) the difficulry “i;;i”i”g marketing information in many countries,
(2) the often poorly
developed financial **f.”r*llJfil’rfr”.o*pGxities of exctrange 1?tes and government controls’
eompetitive AnalYsis
At this point, the firm,s managers perform a.c.ompetitive ana$sis.:
1-”-“” the fir.m’s capabilities
and key success tacto.. ;;;;; io th-or” of its competirors. They must juAa_e.r h’>$ E:Fe sai rNTs3l-
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212 Part 3 ‘ Formulating and Implementing Strategy for International and Clobal Operations
industry. Other companies, such as Caterpillar, ICI, and Sony, have fared well with global strate- gies. Another company bent on a global strategy is Lenovo, a Chinese computer-maker’which became a global brand when it bought IBM’s PC business in 2005 for $1.75 billion. Says Mr.Yang, Lenovo’s Chairman:
we are proud of our chine.se roors, but we no longer want to be positioned as a Chinese compqny. We want to be a truty gtobat company.”s4
As a result, Lenovo has no headquarters and its senior managers rotate meetings around the world. The company’s global marketing department is in Bangalore, and its development teams comprise people in several centers around the world, often meeting virtually. Mr. Yang himself moved his family to North Carolina in order to immerse himself in the culture and language of global business.s-5
One of the quickest and cheapest ways to develop a global strategy is through strategic alliances. Many firms are trying to go global faster by forming alliances with rivals, suppliers, and customers. The rapidly developing information technologies are spawning cross-national business alliances from short-term virtual corporations to long-term strategic partnerships.
Alliances are also somelimes fbrmed in difflcult times as a result of government interfer’- ence. In April 2009, the U.S. government insisted that Chrysler accept the alliance with Fiat as a precondition to government financial assistance to remain viable. The new company would be set up with the best assets of Chrysler. Fiat of Italy would own 20 percent to 35 percent of the new Chrysler, with the government also holding a stake. Some of the equity in the new company would also be given to Chrysler’s creditors as repayment, after Chrysler emerged from bankuptcy proceedings.s6 istrategic alliances are discussed further in Chapter 7.)
A global strategy is inherently more vulnerable to environmental risk, however, than a regionalization (or “multi-local”) strategy. Global organizations are difficult to manage because doing so requires the coordination of broadly divergent national cultures. It also means that firms must lose some of their original identity-they must “denationalize operations and replace home-country loyalties with a system of common corporate values and loyalties.”s7 In other words, the global strategy necessarily treats all countries similarly, regardless of their dilTerences in cultures and syslems. Problems often result, such as a lack of local flexibility and responsiveness and a neglect of the need for differentiated products. Many companies now feel that regionalization/ localization is a more manageable and less risky approach, one that allows them to capitalize on local competencies as long as the parent organization and each subsidiary retain a flexible approach to each other. Wal-Mart is one global company that has learned the hard way that it should have acted more o’local” in some regions of the world, including Germany and South Korea, where it has had to abandon operations.
REG IONALIZATIONILOCALIZATION
Nokia, Nestle, Google, and Wal-Mctrt have failed to adjust to the tastes of South Korean cofisturners. In contrast, the British rctailer Tesco is a rcmarkable case of succeeding in localizing. Samsung Tesco is 89 percent atvned by the British retail giant, but has relied heavily on local managersfrom Samsung. It is one of Tesco’s biggest oversees st4ccess stories, genercting a third of its overseas sales.
Nn HoNc Seor, Analyst in Seoul, South Korca, March B,2A06.sg
For those firms in multidomestic industries-those industries in which competitiveness is determined on a country-by-country basis rather than a global basis-regional sfrategies are more appropriate than globalization. The regionalization strategy [multidomestic (or multi- local) strategyl is one in which local markets are linked together within a region, allowing more local responsiveness and specialization. Top managers within each region decide on their own investment locations, product mixes, and competitive positioning; in other words, they run their subsidiaries as quasi-independent organizations.
While there are pressures to globalize*such as the need for econonries of scale to com- pete on cost-there are opposing pressures to regionalize, especially for newly developed economies (NDEs) and developing economies. These localization pressures include unique v
i iii :
ChaPter 6
consumer preferences resulting from cultural or national differences (perhaps something as sim-
ple as righi-hand-drive cars for Japan), domestic subsidies, and new production technologies that
iacilitate product variation for less cost than before.5e By “acting local,” firms can focus individ-
ually in each country or region on the locai market needs for product or service characteristics,
distribution, customer support, and so on.
Ghemawat argues that strategy cannot be decided either on a country-by-country basis or
on a one-size-fits-all-countries basis, but rather that both the differences and the similarities
between countries must be taken into account. He bases his perspectives on the cultural adminis-
trative, geographic, and economic (CAGE) distances between countries, He concludes:
A sertiglobalized perspective helps companies rcsist a variety of delusion’s derived
from visions of the gtobalization apocalypse: gtowth feve4 the nornt of enormity, statelessness, ubiquity, and one- siry-fits-all.
Semiglobalization is what offers room for cross-border strategy to have c o nte nt d i s t itrc t from s ing le – c o unt ry s t,ate 8y’
PlNra,l GHsulwar’ 2007.64
As with any management f’unction, the strategic choice as to where a company should posi-
tion itself along ihe globalization-regionalization continuum is contingent on the nature of the
industry, the type of company, the company’s goals and strengths (or weaknesses), and the nature of
its subsidiaries, among many factors. In addition, each company’s strategic approach should be
unique in adapting to iis own environment. Many firms may try to “Go Global, Act Local” to trade
off the best advantages of each strategy. Matsushita, which grew to be Japan’s largest electronics
firm, and renamed itielf the Panasonic Corporation in October 2008, is one firm with considerable
expertise at being a “GLOCAL” firm (GLObal, LoCAL). Panasonic has operations in 60 coun-
tries and employs 305,828 people in its 556 domain companies; those companies follow policies
to develop tocai nAn to tailor products to markets, to let plants set their own rules, and to be a good corporate citizen in every country.6l Toyota, cleady a globally successful Japanese company,
iaw the value of being “Glocal” from early on and adopted regionalization as the basis of its
strategy, subsequently passing General Motors as the world’s largest automaker in 2009.
boogle is another company that has had to step back from its ideal of being just “Global”
to adapting to local markets. Ghemawat explains why the company had problems with a “one-
size-fits-all-countries” strategy by using his CAGE distance framework, as follows:
Culturul distance: Google’s biggest problem in Russia seems to have been associated with
a relatively difficult language. Adninistrative distance: Google’s difficulties in dealing with Chinese censorship reflect
the difference between Chinese administrative and policy frameworks and those in its home
country, the United States.-Geographic distance: Although Coogle’s products can be digitized, and it had trouble
adapting to Russia fiom afar and has had to set up offices there’
Econottric distance: The underdevelopment of payment infrastructure in Russia has been
another handicap for Google relative to local rivals.62
Global lntegrative Strategies
Many MNCs have developed their global operations to the point of being fully integrated*of19n
both vertically and horizontalty, including iuppliers, productive facilities, marketing and distrib-
ution outlets, and contractors around the world. Dell, for example, is a globally integrated com-
pany, with worldwide sourcing and a fully integrated production and marketing system’ It has
ia.tcries in lreland, Brazil, Chinu, Malaysia, Tennessee, and Texas, and it has an assembly and
delivery system from 47 locations around the world. At the same time, it has extreme flexibility’
Since Dell builds computers to each order, it carries very little inventory and, therefore’ can
change its operation* ut u *o*”nt’s notice. Thomas Friedman described the process that his notebook computer went through when he ordered it from Dell:
The rtotebook was co-designed in Au,stin, Tex{ts, rud in Taiwan. . . . The total supply
chairt.for m1, comptfter, including suppliers of suppliers, int’olved about.four hundred
. Formulating SrategY 213