CHAPTER 5: DESIGNING A GLOBAL

STRATEGY

Lecturer: Nguyen Van Dung Ph.D.

 Learning objectives
By the end of the chapter you should be able to:
 Identify a global strategy by breaking down all its elements

 Contribute meaningfully to the formulation of a global

strategy
 Describe a global business system

 Identify the sources of competitive advantages in a given

company

16-2
 Introduction
 In this chapter, a framework for the formulation of
global strategies is proposed, based on the
experience of leading global companies.
 The chapter starts by defining what business strategy
is about and how it applies to global companies.
 It uses the example of how Samsung Electronics has
developed its global strategy.

16-3
A company business strategy

 A company business strategy is a set of fundamental

choices which defines its
 Long-term objectives

 Value proposition to the market

 How it intends to build and sustain a competitive

business system
 How it organizes itself

4
 Insert 5.1: Origin, content, purpose and
drivers of strategy
 Strategy (from the Greek, stratos (an army) and agein (to
lead)) has traditionally been a military art.
 The ancient Chinese military theorist, Sun Tzu (Tôn Tử) (c. 500
BC) stated that ‘the supreme art of war is to subdue (đánh bại)
the enemy without fighting’.
 Strategy as an art of war was transferred into a business
context in the early 1960s. This does not mean that there was
no ‘strategy’ behind business decisions before this; but there
were no formal theories of business strategy.

5
 Insert 5.1: Origin, content, purpose and
drivers of strategy
 There are several schools of thought about what business
strategy is, but all schools recognize that business strategy has
to do with choice and investments. A business strategy will
generally cover the following:
 Ambition: Choice of long-term objectives for the business.
 Positioning: Choice of products and customer segments and of a
value proposition to customers.
 Capability building: Choice of investments in order to create a
business system that is able to deliver value competitively.
 Organization: Choice of people, structures, processes and systems.

6
 Insert 5.1: Origin, content, purpose and
drivers of strategy
 The concept of strategy may apply at various levels in a
corporation (see Figure 5.1). The most frequent distinctions are:
 Business strategy (also called competitive strategy) is applied
at the level of a business operating in a particular industry
segment. It defines the way the business wants, and is able,
to compete in its segment.

7
 Insert 5.1: Origin, content, purpose and
drivers of strategy
 If the market in which the firm operates is global, its
business strategy will be a global business strategy
that defines its long-term objectives and selects its
value proposition for the world market.
 A global business strategy will also build, integrate
and coordinate its business
system to gain and sustain a global competitive
advantage, and put in place an organizational
system to manage its operations worldwide.

8
 Insert 5.1: Origin, content, purpose and
drivers of strategy
 Corporate strategy is applied at the level of a
company engaged in different business segments: the
multi-business corporation.
 It essentially defines the portfolio of businesses in
which the corporation wants to operate and the
resource allocation pattern among those businesses.

9
 Insert 5.1: Origin, content, purpose and
drivers of strategy
Purpose and drivers of strategy
 The purpose of business strategy is to build and sustain

a competitive business system in selected markets

leading to economic value creation.
 Economic value is created when the revenues

generated by the business is equal to or larger than

the total cost of doing business.

10
 Insert 5.1: Origin, content, purpose and
drivers of strategy
Economic value is driven by two major forces:
 The macro structural characteristics of the industry in which the

company operates (Porter, 1980)

 The ability to build and sustain competitive advantages

(Porter, 1985)

11
Figure 5.1 Business, corporate and global strategy
12
Figure 5.2 The purpose of strategy
13
Example 5.1
Samsung Electronics

 What successful lessons we can learn from the case

of Samsung Electronics?

14
Framework for a global strategy

 A global strategy is made up of four major

components (see Figure 5.4):
 Global strategic ambition
 Strategic global positioning

 Global business system

 Global organization

15
Figure 5.4 Global strategy framework
16
Global ambition
 The global strategic ambition expresses the role a
company wants to play in the world marketplace.
 It defines two types of perspective: the rationale
for globalization and the scope of the global
presence.

17
Rationale for globalization:
market/resource/capability-seeking objectives

 According to John Dunning, global expansion can

be driven by three kinds of motive:
 market-seeking

 resource-seeking

 capability-seeking

18
Rationale for globalization:
market/resource/capability-seeking objectives

 Market-seeking objectives relate to the pursuit of

sales expansion in international territories.
 This can be achieved by exports or local
operational subsidiaries.

19
Rationale for globalization:
market/resource/capability-seeking objectives

 Resource-seeking objectives relate to accessing

natural and human resources in international
territories in order to use those resources for
global competitiveness.
 This is achieved by contractual sourcing,
direct exploitation of mining or agriculture, or by
setting up offshore production centers.

20
Rationale for globalization:
market/resource/capability-seeking objectives

 Capability-seeking objectives are aimed at capturing

innovative or logistical capabilities that
international territories may offer.
 This can be achieved by setting up local R&D
centers, logistic or hub centers, research alliances
or intelligence offices.

21
Scope of the global presence
 The scope of the global presence expresses how
the company views the future distribution of its
sales and assets in key regional clusters worldwide,
and can be formulated into four types of role:
 Global player
 Regional player

 Global exporter

 Global sourcer

22
Scope of the global presence
 A company whose ambition is to be a global player
aspires to establish a sustainable competitive position
in the key markets of the world and to build an
integrated business system of designs spread over
those key markets.
 Sony and Samsung Electronics fit such a description,
as would Nestlé, Unilever, Ericsson, Nokia, Siemens,
Shell, Canon, Procter & Gamble, Toyota and HSBC.

23
 Scope of the global presence
 A regional player aims to capture a strong competitive
advantage in one of the key regions of the world – North
America, Europe or Asia – and to remain a marginal or
relatively weak competitor in the other parts.
 Companies such as Peugeot, Shiseido or Barclays would be
examples of such an ambition.
 The distinction between a global player and a regional
player is more about the relative importance of each
major region of the world in the company’s portfolio, rather
than the stated ambition of the company in
its external communications.

24
 Scope of the global presence
 Many companies assert that they are ‘global’, when their
accounts reflect a strong concentration of their sales to one
region.
 However, this situation may change if the company has a real
ambition to become a global player that is supported by the
appropriate investment.
 Renault, for instance, a traditional European player, has
acquired controlling positions in Nissan and Samsung
automobiles, transforming the company into a European,
Asian and North American player thanks to Nissan’s
operations in the USA.

25
 Scope of the global presence
 A global exporter is a company whose role is to sell in
the key markets of the world products manufactured or
services operated in its home country, and that builds
foreign operations only to support the export drive.
 The major aerospace or defence companies such as
Boeing, Airbus and Raytheon can be classified in this
category despite the fact that they have some
supporting assets (maintenance, sales offices, etc.)
outside their home region.

26
 Scope of the global presence
 A global sourcer is a company that procures a large
fraction of its product components from factories
located outside its base market and concentrates its
sales in its domestic market.
 In such a case the ambition would hardly qualify as
global. However, many managerial issues of
integration and coordination of activities, such as in-
house factories or long-term subcontracting, would be
quite similar to those that a
global company would have to face.
27
Scope of the global presence
 In order to assess the degree of global ambition
exhibited by companies, we will look at the
distribution of their sales, assets and personnel.

28
Table 5.1 Distribution of the world market by regions in selected industries,
2014 (as a percentage of US$ value)

29
Scope of the global presence
 A pure, global company should ideally exhibit three
major characteristics:
1. The distribution of its sales would be proportional
to the distribution of markets in its industry.
 For instance, Sony’s distribution of sales is 28% in

North America, 23% in Europe and 39% in Asia

closely replicates the percentage distribution of
consumer electronic industry markets (23% in North
America, 36% in Europe and 38% in Asia).

30
Scope of the global presence
 Obviously, this may not apply to all industries, given that no
two industries have the same degree of global pressure
towards globalization.
 In a global industry such as the tire industry, where the
distribution of the market is 31% in North America, 30% in
Europe, 35% in Asia and 4% in the rest of the world, the
distribution of revenues of the five major players differs
substantially from the industry distribution, as shown in Table
5.2.

31
Table 5.2 Distribution of markets and revenues in tires, 2014

32
The globalization indices
 The Transnational Index (TNI), used by the United Nations
Conference on Trade and Development
(UNCTAD), is a composite ratio of the proportion of activities
outside the home country of a
multinational firm.
 For instance, in the tire industry, assuming that Europe is the
‘home’ region of European suppliers, Continental’s TNI would
be 57, much lower than those of Michelin (TNI = 86), Pirelli
(TNI = 76), Goodyear (TNI = 70) or Bridgestone (TNI = 76),
because of its higher concentration of activities in Europe.

33
 The globalization indices
 The Global Revenue Index (GRI) represents a company’s
distribution of sales in the major world regions as a percentage
of the industry distribution of demand in the same regions.
 If the world market in an industry is divided in the proportion of
30% in North America, 30% in Europe, 30% in Asia, and 10% in
the rest of the world, the GRI will compare the actual distribution
of sales of a company in those four major regions with sales
distribution for the industry as a whole.
 A company with a low GRI is more concentrated in one region,
while a company with a high GRI will have a distribution of sales
similar to the distribution of the global demand in that industry

34
 The globalization indices
 The Global Capability Index (GCI) represents the distribution
of assets or personnel in a similar way
to the GRI.
 Companies which rely heavily on external sourcing will have a
low GCI score. This is because the company cannot deploy
(triển khai) resources and capabilities at will, but relies on
external parties to supply the capability.
 This reliance on external parties also means that the company
can face potential problems such as product/service
unavailability, time delays in delivery, or price pressure from
its overseas suppliers.

35
 The globalization indices
 A company low in both GRI and GCI would be a
regional player, a company low in GRI and high in
GCI would be a global operator, a company low in
GCI and high in GRI would be a global exporter,
 A company high in both dimensions would be a
global player and a company with an average score
in both dimensions would be a regional dominant
global player.

36
Figure 5.5 Mapping of global ambition

37
Figure 5.6 shows the mapping
of two leading companies,
one in the tire industry and
the other in retailing.
Michelin can be considered as
a global player while
Carrefour is positioned as a
dominant regional player.

Figure 5.6 Comparative mapping of global ambition:

comparison of Carrefour (retailing) and Michelin (tires)

38
 The globalization indices
 None of these indices is perfect.
 The UNCTAD index favors companies from smaller
exporting countries (Switzerland, for instance) to the
detriment (sự thiệt hại) of corporations from large countries
(the USA for instance).
 For their part, the GRI and GCI still assign a global score to
companies that concentrate their operations in one region
or country.
 For instance, a US company having 100% of its sales in the
USA would still obtain a global score, which would be
equivalent to the relative size of the US presence in the
world. 39
Dynamic utilization of the global indices

 As part of the strategy formulation process,

companies can use the global indices to analyze
their position and set their global ambition.
 To illustrate, we will take the example of Whirlpool
and the global appliance industry

40
Example 5.2
Whirlpool
 What lessons we can learn from the case of

Whirlpool?

41
Global positioning
 Global positioning consists of two types of choice:
 First,the choice of countries in which the company wants
to compete and the role that those countries play in the
global portfolio.
 Second, the definition of the various value propositions
for the products or services of the company,
corresponding to the type of segments and countries in
which the company wants to compete.

42
Choice of countries
 Depending on the industry, countries differ in the
opportunities they offer to companies for their
strategic development.
 Some countries, given their size, growth or the
quality of their human, natural or locational
resources, are critical for companies’ long-term
competitiveness. Those countries are classed
as key countries.

43
 Choice of countries
 Europe, North America and Asia are the three regional clusters
that a global player would consider, but within those clusters some
countries are more important than others, and should be given
priority.
 In Asia, for instance, in the automotive sector, Japan, Korea and
China can be considered as key.
 In Europe, Germany and, to a certain extent, the UK and France
are key countries.
 In the pulp and paper industry, in which natural resources are a
key component of competitive
advantage, countries like Indonesia can be considered as key,
while California (Silicon Valley) would be key for internet players.
44
 Choice of countries
 The second category of countries is countries that exhibit
a high growth rate, making them strategically attractive
in the near future. These are the emerging countries (as
defined in Chapter 2).
 Today China, India, Brazil and Poland would generally
qualify for that definition but, again, it is difficult to
generalize since opportunities are industry-specific.

45
 Choice of countries
 The platform countries constitute a third category.
 These are the countries that, because of locational advantage,
good logistical, financial, regulatory and legal infrastructure or
qualified personnel, can serve as a ‘hub’ for setting up regional
centers, that is, global factories that are ‘platforms’ for further
development.
 Singapore, Hong Kong, Ireland and Taiwan are examples of
such countries.
 For example, Carrefour, the French hypermarket giant, has used
Taiwan as a platform for strategic development in Asia.

46
 Choice of countries
 A fourth category would be marketing countries, where
the market is attractive without being as
strategically critical as the key countries.
 Countries such as Vietnam in Asia, Tunisia in North Africa
or Colombia in Latin America may not be considered as
key or emerging for an automobile company on
industrial or investment grounds, but may be interesting
from the marketing point of view

47
 Choice of countries
 The type of presence suitable for such countries should
be assessed on its own merits, depending on the
political, economic and business contexts.
 Countries with a strong resource base but limited
market prospects would be classified as sourcing
countries; for instance, Malaysia for rubber or Saudi
Arabia for petroleum.

48
 Value proposition
 The value proposition is defined by the value
attributes and the market to which the company seeks
to appeal.
 It comprises:
 Choice of value attributes prioritized.
 Choice of customer segments targeted.

 Degree of worldwide standardization adopted for the

product/service offering.

49
Figure 5.8 The three dimensions of the value proposition

50
 Value proposition
 Value attributes are the elements of the products or
services that customers value when making their
purchasing decision.
 These include the product design, functionality,
performance, quality, customization and price, as well
as the related service, brand, availability, and other
features.
 The set of those attributes for a particular group of
customers and a particular product or service gives
the customers’ value curve as illustrated in Figure 5.9.
51
Figure 5.9 Example of customers’ value curve

52
Value proposition
 Professor Michael Porter of Harvard Business School
has identified two ‘generic’ strategies corresponding
to two types of value attributes:
A proposition based on value-enhancing attributes such
as performance, quality, service and customization.
Porter calls this a differentiated attribute.
 A proposition based on price for standardized products
or services. Porter calls this cost leadership

53
Value proposition
 The same typology (các kiểu hình) can apply to global
positioning: the company can either position itself as a global
differentiator or a global cost leader.
 Customer segments are groups of customers that have similar
value curves. Those customer groups
can be identified by income level, geographical location,
age and lifestyle attributes for consumer goods and service
industries; or by industry, size and purchasing behavior for
business-to-business (B2B)
industries.

54
Table 5.3 Global positioning alternatives

55
 Global business system
Global business system and its components
 A business system is the configuration (cấu hình/ cấu thành) of

the various activities that a firm carries out (either internally

or externally through alliances) in order to design, produce
and deliver value to customers, and ultimately to capture
value for itself.
 Professor Porter describes a company business system as a

‘value chain’.

56
 Global business system
 Three major components of a value chain:
 Innovative activities: R&D, knowledge creation, design.
 Productive activities: procurement, manufacturing, back
office, operations, logistics.
 Customer relationship activities: marketing, sales,
distribution, customer services.

57
Figure 5.10 Generic value chain
58
Figure 5.11 Typical globalization of the value chain 59
 Global business system
 During the process of globalization, companies split their
value chain by spreading their activities across the world.
The typical path of globalization of the value chain is
described in Figure 5.11.
 The first stage is the export stage in which the only element of
the value chain to be set up in foreign
countries is sales, through local distributors,
agents or licensing.

60
 Global business system
 The only direct investment at this stage is, if the size of the
market justifies it, the creation of a representative office for
one country or region.
 Those representative offices are set up to seize
opportunities, identify agents, distributors and partners,
organize trade flow and prepare the way
for future substantial investments.

61
 Global business system
 The second stage is to actively invest in marketing subsidiaries
to manage the marketing mix.

62
 Global business system
 During the final stage of globalization, multinational
companies integrate and coordinate their worldwide
operations to take advantage of economies of scale,
transfer of know-how and resource optimization.
 This leads to an interlocking set of value chain activities which
falls broadly into three categories:
 The activities which have a global role to serve the whole
world (global activities, such as global research centers, or
global plants)
 Those which have a regional role (regional activities)

 Those which are purely local (local activities)

63
Figure 5.12 A generic global distribution of activities in the
value chain
64
 Competitive advantages
 Competitive advantages are capabilities that are difficult to
replicate or imitate and are non-tradable.
 Traditionally, there were seen to be two types of capability
that lead to competitive advantage (Porter 1985):
 Capabilities leading to an increase in customer value
through performance, quality and brand services: a
differentiated value proposition
 Capabilities leading to a lower cost base, such as low-cost
labor, low-cost sourcing, economies of scale
in production, efficiency: a cost leadership value proposition.

65
 Competitive advantages
 More recently, three other types of competitive advantage
have been identified:
 Capabilities that allow companies to be ahead of the
competition in developing new products or services, leading
to an innovative advantage.
 Capabilities that allow companies to be faster in adapting
to change and delivering value to customers, leading to a
time-based advantage.
 Adopting a ‘blue ocean strategy’ – that is, by-passing the
existing competition and creating a new market space.

66
 Competitive advantages
 Blue ocean strategy is based on four principles:
 Eliminating those elements of the value curve that are not
necessary
 Reducing some elements that are less important

 Augmenting those elements that need more emphasis

 Creating new elements as needed

67
Table 5.4 Capabilities leading to competitive advantage
68
Example 5.3
Yellow Tail: a blue ocean strategy in action in the
global market space

69
Sources of competitive advantages

 Those competitive advantages find their sources in

the proprietary (độc quyền) ownership of, or access
to, valuable resources, assets or competencies, as
shown in Figure 5.13.

70
Figure 5.13 Sources of competitive advantage
71
Sustainability of competitive advantage

 Competitive advantage, in order to be valuable,

needs to be long-lasting.
 From an economic point of view, a competitive
advantage is similar to a monopoly that the
company creates for itself and which gives the
company a profit advantage over its competitors.
 This happens only if this monopoly is not
immediately neutralized by imitation.

72
Sustainability of competitive advantage

 There are four ways of achieving sustainability:

 Customer loyalty due to a strong brand or a unique
customer value.
 Positive feedback due to accumulated experience or
network effects.
 Preemption (quyền mua trước) of key resources such as
location, key personnel, distribution networks, patents and
so on.
 Imitation barriers such as inimitable competencies or
costly capabilities to copy or replicate

73
Global firms’ competitive advantages

 For global firms, the central issue is to be able to utilize their

existing advantages in multiple-country leverages in order
to compete successfully with local players and other global
competitors. This can be done in two ways:
 By being among the first competitors to enter a given
market: first-mover advantages
 By exploiting capabilities already built up in other
countries in order to displace and dominate existing
competitors: leveraging advantages

74
Table 5.5 Sources of competitive advantage of global companies
75
Table 5.5 Sources of competitive advantage of global companies

76
 Global, regional, multinational deployment of
competitive advantages

 One particular aspect of leveraging competitive advantage in

a global setting is related to the way in which a company will
distribute and organize its capabilities. From that point of
view, three types of configuration can be identified:
 Global configuration: the world is considered as a single
market, therefore products will be standardized
across the globe and organization will be centralized
 Regional configuration: the competitive approach will be
differentiated according to regional
characteristics and the organizational structure will be
designed around regions. Many authors have
advocated the benefits of a regional approach rather than a
global or multinational one.12 77
 Global, regional, multinational deployment of
competitive advantages

 Regional configuration: the competitive approach will be

differentiated according to regional
characteristics and the organizational structure will be
designed around regions.
 Multinational configuration: the world is a collection of
different countries, and competitive strategies
will be adapted to the different environment.

78
Global organization
 The final element of a global strategy is the design of an
organizational architecture which is able to
support and implement the global ambition, global
positioning and global business system already
described.

79
Table 5.7 Organizational designs for global strategies
80
Table 5.7 Organizational designs for global strategies 81
 The choice of an adequate organizational model is
contingent upon the following factors:
 The nature of the competitive context in the industry. The
more ‘global’ the industry, the more integrated and
coordinated the activities and the more the organizational
structure
should reflect this integration.
 The strategic positioning adopted by the firm. A
standardized positioning using cost leadership as a
competitive advantage will require a tightly integrated
organization such as the centralized hub or the global
business structure.
82
 Global strategies and the small and medium-sized
enterprise (SME)

 Small and medium-sized enterprises (SMEs) represent a

significant proportion of employment activities in the world
(Table 5.8).
 Their participation in international trade and investment
remains relatively limited; their main global activities are
sourcing and exporting.
 According to an estimate made by the European Commission
in 2010, 25% of European SMEs are engaged in exports,
29% in imports, 2% in
foreign direct investments and 7% in technological
partnerships.

83
Table 5.8 SMEs’ economic weight measured by contribution to
employment in selected countries in Europe, North America, Asia Pacific
and Australia
84
 Global strategies and the small and medium-sized
enterprise (SME)

 Does the framework presented here apply to SMEs as well as

large multinational and global enterprises?
 The answer to that question is ‘yes and no’.
 ‘No’, because of SMEs’ limited resource base; they are
not generally able to create global capabilities by deploying
assets, resources and competencies in the
20–30 countries that represent 90% of world demand.
 ‘Yes’, because these companies also need to ‘think global’ if
they are competing in sectors that are confronted with global
competition and if new market opportunities are located
outside their national boundaries.
85
Barriers to internationalization for SMES

 Table 5.10 provides a list of the barriers to

internationalization for SMEs.
 As Table 5.10 shows, those barriers belong to two
categories:
 Financial issues

 Ability to deal with a foreign environment

86
Table 5.10 Obstacles to internationalization as perceived by SMEs

87
Overcoming the barriers
 Two major sources of intervention may help SMEs to
overcome the barriers to internationalization:
 Government-led initiatives

 Company-led initiatives

88
Overcoming the barriers
 Government-led initiatives. Many governments or
international organizations, being conscious of the
difficulties that many SMEs face, have tried to implement
specific programs. In 1997 the OECD grouped government
support initiatives into four categories: financial help
programs, business environment facilitators, capability-
enhancement programs, and assistance in information
gathering.

89
Overcoming the barriers
 The following approaches are the kind of actions that
governments can implement in order to foster the global
capabilities of SMEs.
 Information gathering and distribution

 Advice and consulting

 Trade fairs

 Training

 Financing

 Logistical and market access support

90
 Born global
 There are many definitions of ‘born global’.
 The earlier proponents of the concept defined born global
firms as ‘firms that intended to export immediately upon
inception’, or firms that ‘succeed in world markets without an
established domestic base’, thus concentrating on the early
exporting drive of those companies.
 The concept has since evolved to include ‘business organizations
that, from inception, seek to derive significant competitive
advantage from the use of resources and the sale of outputs in
multiple countries’.

91
 Born global
 Characteristics of born global firms:
 A small domestic market inciting entrepreneurs to find a
larger market for starting a new venture.
 The presence of multinational customers (a piggybacking
perspective).
 The emergence of global niches markets particularly in the
technology intensive sectors.
 The firm’s products or services have significant first-mover
advantages or network effects.

92
 Born global
 Characteristics of born global firms:
 Born global firms offer high value-added products or services
– technology start-ups in particular tend
to quickly find partners, distributors and sometimes production
or service in foreign markets.
 Internationally experienced and highly motivated company
leaders.
 Strong capabilities in building partnerships.

93
Example 5.4
 Gemplus: from Marseille to the world

94
Example 5.5
 Sunna Design: a born global start-up

95
Example 5.6
 Cochlear: an Australian born global high-tech
company

96
Mini-case 5.1
 HSBC: The world’s local bank
 Questions
 The bank defines its businesses as ‘global’. What is your
opinion of this definition? Are all the businesses really
global? What are the implications for decision making?
 What is your assessment of HSBC’s strategy of focusing
on trade corridors?

97