Introduction to Global Competitive Strategy © Professor Daniel F. Spulber

Global Competitive Strategy Suggested Course Outline Introduction Home country Supplier and partner countries Customer and competitor countries Strategies for Global Value Added: Gains Strategies for Global Value Added: Gains Strategies for Global Value Added: Costs of trade Competitive strategies: Global vs local Competitive strategies: Modes of entry and FDI

Global Competitive Strategy Main Cases Introduction LENOVO BP/ OIL INDUSTRY P&G JAPAN RENAULT-NISSAN LI & FUNG CEMEX ZARA FLEXTRONICS IN INDIA

Global Competitive Strategy Introduction

Global Competitive Strategy Outline of introduction The global challenge The global mosaic The global strategy “Star Analysis”

Global Competitive Strategy The Global Challenge Globalization changes nature of competition -- Competitors can be very different! Innovative entrants, including emerging market firms Global competitive advantage Best sources of products, global brands World-class cost efficiencies Global pool of innovations Global mix of transactions

Global Competitive Strategy The Global Challenge To serve large-scale global market To address market differences across countries

Size of Global Business Current $ (Source: World Bank) • World GDP: $ 41.3 trillion (Gross Domestic Product) US: $ 11.7 trillion EU (25): $ 12 trillion Japan $ 4.6 trillion Latin America and Caribbean $ 2 trillion Middle East and Africa $ 1 trillion India $ 0.7 trillion China $ 1.9 trillion High growth rate of emerging markets

Size of International Business Total exports of goods and services World Trade $ 11 trillion Merchandise $9 trillion Agriculture, fuels and mining, manufactured goods Services $2 trillion Transportation, travel, commercial services

Growing importance of trade to US economy Increases in: Exports: Capital goods (mainly semiconductors, computer accessories) Industrial supplies Consumer goods Imports: Industrial supplies and crude oil Auto industry Capital goods

Size of International Business $1.5 trillion in international currency transactions per day! 63,000 multinational corporations Major source of economic growth and investment for developed and developing countries Source of global technological innovation Earnings growth for many companies (Wal-Mart, GE, Carrefour, Nestlé, Unilever, Cemex, Toyota, Samsung)

Why was Nokia so successful? Why did Daimler-Chrysler have problems? Why was Nokia so successful?

Global Competitive Strategy The Global Mosaic Vast economic differences across countries GDP per capita, prices, wages Underlying geographic differences – Geography matters Large “economic distances” between countries “Sticky borders” preserve these differences The arbitrage principle – economic differences evidence of sticky borders, many strategic opportunities remain The world is bumpy!

Differences in economic activity

Business must bridge critical differences between countries Language Culture, customs, and history Social institutions Demographic differences: health, education Public policies Legal and regulatory systems Business practices Currencies Technology

Differences in climate, topography, natural resources

Global Competitive Strategy The costs of trade: The Four T’s Transaction costs Tariff and non-tariff barriers Transportation costs Time costs Borders are “sticky”

Business must navigate the World Trade System Proposed Caribbean Basin Initiative NAFTA

Business strategy must account for changes in political relationships and trade deals between countries

The Arbitrage Principle Country borders: Restrict movement of inputs – capital, labor, technology, resources Limit trade in goods and services Create persistent differences in technology and information Preserve economic differences -- prices and wages Arbitrage reduces economic differences Innovative transactions find arbitrage opportunities Country borders provide opportunities and competitive advantage to international business

NEXT SESSION: Analytical framework! Global competitive advantage Globalization challenges business strategy in a fundamental way Trade costs are high resulting in economic differences between countries The global mosaic offers opportunities for generating gains from trade The successful global business develops innovative international transactions to gain global competitive advantage