6/22/22

Welcome to
Global Business Strategy (GBS)
PGP 25
Jun - Aug 2022

Prof. Venkataraman S
Indian Institute of Management Kozhikode

Global Business Strategy (GBS) : Key Course Themes

• Understanding the context of globalization and

implications for GB
• Why, how, when should a firm go global
• Political & Legal Context
• Strategies for going global
• Market Entry
• Winning the local battle
• Cross-Cultural Dimensions
• Being a global manager - cultural aspects
• Emerging market perspectives
• Responsible globalization

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Course Evaluation

• Class Participation + Quiz : 20%

• Group Assignments : 40%
• What’s the Big News : 10
• Case Lead : 10
• Group Strategy Project : 20
• End Term Examination : 40%

Group Tasks

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Group Strategy Project: Tale of Two Firms

• Pick two Indian companies, somewhat peers within the same
industry, and trace their global initiatives mainly during the last
decade
• New market entry or Subsequent Expansion
• Acquisition/ Merger
• Strategic Alliances

• Understand /explain the each firm’s international moves and

strategies
• Understand past patterns and contextualise current initiative(s) w.r.t global
strategies
• Apply and relate how the concepts/ frameworks discussed in class fit (or
don’t fit)
• Compare and contrast the global strategies of the two firms

• Properly cited primary research will get good credit

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What’s the Big News?

• Present the essentials and likely impact one recent/latest piece of news
of international / global strategy/ initiative for any reasonably prominent
company.
• You have approx. 3 weeks lead time.
• The date of presentation will be pre-assigned
• 10 mts minutes; 3 -5 slides ONLY.
• Email me the news item 2 days before your slot.
• Use mainstream media (FT, WSJ, AWSJ, ET, BS, Mint, HBL etc.) or News
wires/ platforms such as Bloomberg/ Reuters.
• Timeline: Current and up to Minus 3 months (~ Mar 2022)
• Analyze the news with regard to:
• What’s interesting/important/innovative about this
• How it fit’s into the company’s strategy. What changes now, etc..
• What are the key issues or challenges here?
• Impact (if any) industry dynamics and competitiveness
• Purpose: Educate yourself and Educate the Class
• The news should be important enough for the class/ of value
• Assessment: Largely peer-based (Most Likely)

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Case Lead
• Every group to prepare for every case for every class
• Random Callouts to max two groups to present/ lead
discussions on a given case
• Assignment questions will be circulated beforehand
• Specific responses expected - PPT not necessary, but may
be handy
• Doesn’t mean that individuals from other groups
won’t be cold-called
• What’s expected:
• Preparedness
• Thoroughness and depth of perspective/analysis
• Ability to think different (and relevant)
• Ability to link readings/ concepts

The Context of Globalization

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Four Phases of Globalisation

•The figure plots the trade-GDP ratio for the world since 1870 and highlights four phases. There
were two phase of globalisation (1870-1914, 1945-1985), one phase of hyper-globalisation
between 1985 and 2008, and one phase of de-globalisation in the inter-war period.

Tom Friedman (2005) : “The World is Flat”

Key Flatteners

• #1: Collapse of Berlin Wall-11/'89: The event not only symbolized the end of the
Cold war, it allowed people from other side of the wall to join the economic
mainstream. (11/09/1989)
• #2: Netscape: Netscape and the Web broadened the audience for the Internet
from its roots as a communications medium used primarily by 'early adopters and
geeks' to something that made the Internet accessible to everyone from five- year-
olds to eighty-five-year olds. (8/9/1995)
• #3: Workflow software: The ability of machines to talk to other machines with no
humans involved. Friedman believes these first three forces have become a “crude
foundation of a whole new global platform for collaboration.”
• #4: Open sourcing: Communities uploading and collaborating on online projects.
• Examples include open source software, blogs, and Wikipedia. Friedman
considers the phenomenon "the most disruptive force of all."
• #5: Outsourcing: Friedman argues that outsourcing has allowed companies to
split service and manufacturing activities into components, with each component
performed in most efficient, cost-effective way.

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Pankaj Ghemawat (2007): “The World Isn’t Flat”

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The Context of Globalization

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Implications for Global Strategy

• Recognize that
differences matter
- that the world
isn’t perfectly
Integrated
• View the world —
differences and
similarities — with
a balanced
perspective
• The real challenge
is not just to
understand
differences… but
to address them

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Globalization of Goods Vs Services

Source: DHL/OECD

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Global Connectedness

Source: GCI Index/DHL

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Four Components of Global Connectedness

Source: GCI/ DHL

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Key Takeaways

Source: GCI/ DHL

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Growing Clout of EMCs

48
60
%
%

24
14 %
%

The EM7 -- Brazil, China, India, Indonesia, Mexico, Russia and Turkey – accounted for 24 percent of global
economic output over 2010-2016, up from 14 percent in 1990s. Although this is a smaller share than the Group of
Seven major industrialized economies, the G7’s portion of global economic output has narrowed to 48 percent
from 60 percent over the same time frame.

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The Great Rebalancing – Shifting Economic Power

Source: Standard & Poor’s

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The Globalization Debate

Pros Cons
• Lower prices for • Destroys
goods and services manufacturing jobs in
• Economic growth wealthy, advanced
stimulation countries
• Increase in • Wage rates of
consumer income unskilled workers in
• Creates jobs advanced countries
declines
• Countries specialize
in production of • Companies move to
goods and services countries with fewer
that are produced labor and environment
regulations
most efficiently
• Loss of sovereignty

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Implications for Global Strategy

• Recognize that
differences matter
- that the world
isn’t perfectly
Integrated
• View the world —
differences and
similarities — with
a balanced
perspective
• The real challenge
is not just to
understand
differences… but
to address them

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Play it Safe at Home

or
Take a Risk Abroad?

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Case Questions
• Should Coe’s internationalize?
• Is Mexico the best option? What information should
Coe’s collect to determine market potential and risk
w.r.t (a potential) Mexico entry? What do they need to
know, and how much do they know?
• Put yourself in Stan Windham’s shoes - what would
you do next? Develop an action plan
• Do you expect Coe’s to have to adapt its successful model
in another country? What aspects do they need to think
about in this regard
• What capabilities does Coe’s need to develop in order to
maximize its chance of success?
• Other than opening its own branches in Mexico, what other
forms of entry should Coe’s consider? What are the pros
and cons of each?

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Pros and Cons of International Expansion

Pros Cons
• Enables Coe’s to grow; domestic growth • Other less risky domestic
opportunities are limited expansion opportunities exist
• Hedge against domestic regulatory o Additional locations
environment (broader)
• Less competition abroad o Different product offerings
• Preempt competition and gain first-mover (deeper)
advantage • Failure in Puerto Rico
• Achieve scale economies suggests limited capabilities
• Mexico may not be that different from the • Much is unknown about
United States market potential international
• Likely a clear demand for Coe’s offerings in markets
other countries, at least in Mexico • Risk to company stock price if
• Gain knowledge from Mexican experience not successful
that can be applied to US or to other markets • Cultural/consumer behavior
• Expand company capabilities differences between United
• Potential for product innovation States and Mexico 24

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Is Market Entry into Mexico Attractive?

What do we need to know?
• Is there a sufficiently large
potential market?
• Competitive context
• Is the regulatory framework
attractive? Will this change?
• Are adaptations to the model No
required (e.g. merchandise
offered, payment structure)?
• Can we establish an effective No
operating model?
• Nature of business
infrastructure available
Is this known today? How should Coe’s assess this?
Partially: some Additional market research
demand exists; on target consumers
some research done
Partially Fully understand who is in
the marketplace and how
consumers meet these
needs today
No Regulatory research
Market research, piloting
new products
Rigorous assessment of
costs/operating conditions,
esp. given Puerto Rico
No Understand local
conditions 25

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Seven Critical Steps for Developing an International Strategy

1. Decide on the method of value creation that the company
wants to pursue. What is it trying to achieve?
2. Identify the product an organization offers and whether the
product will be the same or different in different locations.
3. Articulate the value chain used to produce the product and
whether it will exist in each market or be centralized.
4. Articulate the similarities or differences across locations
that will enable value creation or capture.
5. Identify the capabilities that the organization has or needs
to develop.
6. Define the organization processes that are needed to
expand successfully.
7. Determine what forms of organization should be used in a
new market (for example, owned, franchised, strategic
partnership, joint venture, etc.).
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A Framework for Market Entry Strategy/International Strategy

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Entry Strategy Alternatives

Entry Strategies Pros Cons

Build its own Total control Investment required

branches
All profits accrue to Coe’s All risks borne by Coe’s

Knowledge of Mexican
market required

Joint venture Sharing of risk and Loss of control

combined strengths
Coordination required
Access to market knowledge

Franchising/licensing Knowledgeable local partner Low financial return

No investment Learn little about Mexico

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Marcopolo

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Marcopolo – Case Questions

• Which factors have been important for the
success of Marcopolo’s internationalization?
• What advantages have been obtained from its
international expansion?
• What consequences in terms of central
coordination will Marcopolo face in managing its
subsidiaries in countries culturally distant from
Brazil?
• What patterns can you observe in Marcopolo’s
international process and expansion?

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Which factors have been important for the success of

Marcopolo’s internationalization?

• Flexible production
• Customization of products
• Learning from its first experiences in the
international market
• Careful planning.

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What advantages have been obtained from its

international expansion?
• Knowledge of the international markets
• Ability to satisfy different requirements of a
range of customers
• Reduced dependency on the Brazilian market’s
performance.

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Consequences in terms of central coordination - in

managing in countries culturally distant from Brazil?

• Difficulty of expatriate executives

• To adapt to the local culture
• Understand the local product
requirements/legislation;
• Need for a better grasp of local customs and
culture
• Implications for training people from the
overseas subsidiaries in Brazil
• Possible need for a more flexible production
schedule

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What patterns can we observe in Marcopolo’s

internationalization process and expansion?
Internationalization process has involved:
• Increased involvement based on initial knowledge of the
new setting
• Gradual further learning process, particularly in
countries that are culturally close to Brazil, like Portugal,
Argentina, Mexico, Colombia and South Africa.
• More recently Marcopolo has sought to enter the
market in countries similar to Brazil in terms of large
geographic area and population, to obtain economies of
scale for its products (products involving knowledge and
technology that are mastered by the company).

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Country Specific Advantages

The International Product Cycle (IPC)
• The IPC proposed by Raymond Vernon in 1966
• Vernon used the IPC to demonstrate how the manufacturing of
new products in the U.S. shifted over time to new locations
overseas
• The IPC Stages
• Stage 1 – the innovator produces and markets the product at home
• Stage 2 –the firm exports and markets to other developed countries (similar
markets)
• Stage 3 – the firm exports from these countries to developing markets
• Stage 4 – the developing countries develop their own manufacturing
capability
• Stage 5 – developing countries export back to the original country’s market

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Dominant Theoretic Approaches - IB

• OLI Framework (Dunning 1988)

• Theoretical underpinnings: TCA (Transaction
Cost Analysis)
• Three conditions for emergence of MNCs
(through foreign direct investments)
• Ownership advantages (firm-specific (FSAs)
tangible and intangible): to compensate for liability
of foreignness
• Location advantages (country specific advantages -
CSAs - such as access to natural resources, labour,
trade barriers)
• Internalization advantages (transaction costs of
organizing externally)

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Ownership (Resources) – Location (Markets) – Integration

(Organization)
OLI Framework

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Theoretical Models of Internationalization

Focus Theory Main Basic Ideas Driving Forces
Author(s)
Economic Intnl. Vernon Companies innovate in Search for locations
their local markets and that present lower
Product transfer the production of costs for mature
mature products to technologies.
cycle
developing countries.

Economic Eclectic Dunning Firms expand The interplay of these

overseas when there are three aspects
paradigm determines the mode
competitive advantages
and success of
of ownership (O), location
(L) and internalization (I). internationalization.

Organizational Uppsala Johansson Psychic distance, Increasing involvement

model & incremental of the firm based on
Vahlne internationalization and increasing knowledge
networks. about a new market.

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Usual (Traditional) Pattern of Internationalization

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What’s Different About Global Strategy?

• Heterogeneity across markets

• Scale (incl. Size) and Complexity
• Unpredictability of economic
conditions (Volatility)

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So…

How do firms seek to address and

leverage these differences?

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Generic Global Strategies: “3A’s”

•Aggregation
•Adaptation
•Arbitrage

(Ghemawat: 2003, 2007)

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ADDING Value Framework

• Adding Volume
• Decreasing Costs
• Differentiating/Driving up Willingness to Pay (WTP)
• Improve Industry Attractiveness
• Normalizing Risk
• Generating/Upgrading Knowledge/Capabilities/Resources
(Ghemawat: Redefining Global Strategy, 2007)

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The CAGE Framework:

An Alternative view of Distance

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CAGE framework
• Distance (geographic, administrative and political,
cultural and economic).
• CAGE framework
• Culture: language, social capital, religion, social
norms
• Administrative: common institutions (colonial ties,
trade agreements, monetary agreements),
government policies, judicial system, institutions
• Geographic: remoteness, lack of common border or
ports, country size, within-country transportation
• Economic: difference in incomes, spending patterns
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CAGE View of Arbitrage

• Cultural Arbitrage
• Administrative Arbitrage
• Geographic Arbitrage
• Economic

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CAGE factors affect industries differently

• Products where language is key (media)

Culture • Products with or that affect national identity (wine, foods,
toys)
• Unique products consumed for generations (food)

• Industries in service or with strong local competitors

Administrative (health, baking)
• “Strategic industries” (farming, oil, defense, airlines)
• Industries related to infrastructure (telecom, utilities, roads)

• Products with high transportation-to-value ratios (cement,

Geographic beer, soft drinks)
• Industries with after-purchase service

• Industries with minimum market size

Economic • Products with value added is low (cost based competition)
• Income level determines preferences

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Applying the CAGE Framework : “Play it Safe…”

DIMENSIONS OF DISTANCE/ PROXIMITY

(w.r.t USA)
High/ Medium/ Low
CULTURAL ADMINISTRATIVE GEOGRAPHIC ECONOMIC

Canada Low Low Low Low

(somewhat)

Mexico High Med ~ High Low Med ~ High

UK Low Med Med Low

Spain High Med Med Med ~ Low

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