Strategizing Around the Globe Part I: Foundations of Global Strategy Copyright © 2005 South-Western. PowerPoint Presentation by David Ahlstrom, Chinese University of Hong Kong All rights reserved. and Charlie Cook, The University of West Alabama

What Global Strategy? Traditional “global strategy” is treating different countries as one worldwide or “global” market. World car: Ford Contour (as the Mondeo in Europe) World drink: Coke Classic World advertising commercial: Polar bear ads But that strategy has backfired repeatedly There is no world car, no world drink, no world MTV Toyota Camry: Best-selling car in the US, but not even top-5 best-selling car in Japan (Honda Fit is #1 in Japan) A more balanced view—covering both global and local (non-global) aspects—is necessary (Figure 1.1) Copyright © 2005 South-Western. All rights reserved.

HSBC (One of the world’s largest and most global banks): The World’s Local Bank Source: Issued by HSBC Holdings, plc Copyright © 2005 South-Western. All rights reserved. Figure 1.1

A Global Global-Strategy Book Traditional global strategy books Only dealing with MNEs from developed economies which practice “one-size-fits-all” “global strategy” Traditional international business books Only dealing with foreign entrants (usually MNEs) and ignoring local/domestic firms Local/domestic firms are not necessarily passive This is a global global-strategy book Strategies of firms around the globe Both international and non-international (domestic) From both developed and emerging economies Copyright © 2005 South-Western. All rights reserved.

What is Strategy? From military strategy to strategic management Strategy as plan (as in classic military planning) SIA 1.2: A 250-year plan at Matsushita Strategy as action – emergent strategy Strategy has elements of both plan and action (Figure 1.2) Strategy as integration – combination of plan and action Copyright © 2005 South-Western. All rights reserved.

The Essence of Strategy Copyright © 2005 South-Western. All rights reserved. Figure 1.2

Fundamental Issues in Strategy Around the Globe Why do firms differ? How do firms behave? What determines the scope of the firm? What determines the international success or failure of firms? Copyright © 2005 South-Western. All rights reserved.

Why Do Firms Differ? Western firms (US/UK vs. German/French) Have different (shorter- versus longer-term) planning horizons. Japanese firms Are different from Western firms. Firms from emerging economies (e.g., China, Korea, Russia) Are also different. The challenge is to understand the roots of these differences when trying to compete globally. Copyright © 2005 South-Western. All rights reserved.

How Do Firms Behave? Three Views (Figure 1.3) Industry-based view Resource-based view Institution-based view Firms’ strategic behaviors are influenced by all three factors. Copyright © 2005 South-Western. All rights reserved.

Three Leading Perspectives on Strategy Copyright © 2005 South-Western. All rights reserved. Figure 1.3

What Determines the Scope of the Firm? In the West In the 1960s and 1970s: Conglomeration Since the 1980s: Diversification that focused on core competencies In developing economies in the 1990s China, India, Indonesia, Peru, South Africa, and South Korea Conglomeration is still in vogue. Some changes? Copyright © 2005 South-Western. All rights reserved.

What Determines the International Success or Failure of Firms? Acquiring and leveraging competitive advantage The Key: Sustaining such an advantage over time and across countries (regions) through replication and innovation. Copyright © 2005 South-Western. All rights reserved.

How About Global Strategy? Traditional “global strategy” Only relevant for MNEs from developed economies The same as “international” (non-U.S.) strategy Wal-Mart went to Mexico in 1991: Did it go “global”? Everything becomes “global”? Our definition of global strategy: Strategies of firms around the globe Both international and non-international (domestic) Both developed and emerging economies Copyright © 2005 South-Western. All rights reserved.

A Glance at the World Economy A $30 trillion economy (official GDP) What will happen in 2020: assuming 4% annual growth for US, EU, and Japan and 9% for China ($ trillion) – see Figure 1.4 2003: US (10), EU (9.5), Japan (4), China (1.3) 2020: US (21), EU (19), Japan (8), China (5) 51 of top 100 economic entities (countries or companies) are MNEs Copyright © 2005 South-Western. All rights reserved.

Estimates of Gross Domestic Products (GDP), 2003–2020 Based on estimates from Economist, 2003, Bergernomics, in The World in 2003 (p. 30), London: The Economist. 2020 GDP estimates are based on 4 percent annual growth for the US, EU, and Japan, and 9 percent for China. The size of food items is proportional to the size of the economies. Copyright © 2005 South-Western. All rights reserved. Figure 1.4

The Top 10 Economies (GDP) and Firms (Sales), 2003 USA Japan Germany UK France China Italy Canada Spain Mexico Wal-Mart BP ExxonMobil Royal Dutch/Shell General Motors Ford Motor DaimlerChrysler Toyota Motor General Electric Total Sources: Adapted from (1) World Bank, 2004, World Development Indicators database (http://www.worldbank.org, accessed July 25, 2004), and (2) Fortune, 2004, The Fortune Global 500, July 26: F1–F2. Copyright © 2005 South-Western. All rights reserved. Table 1.2

Changes in the Fortune Global 500, 1990–2003 Sources: Based on data from various issues of Fortune Global 500. Finland and Sweden are included as “others” prior to 1996 and as European Union after 1996. Copyright © 2005 South-Western. All rights reserved. Table 1.3

The 20 Largest Firms (by Sales) Headquartered in Emerging Economies, 2003 Source: Adapted from Fortune, 2004, The Fortune Global 500, July 26: F1–F10. Copyright © 2005 South-Western. All rights reserved. Table 1.4

Three Defining Events Anti-globalization protests Terrorist attacks Since Seattle, 12/1999 (Table 1.5) B-school students: More in favor of globalization (Table 1.6) Terrorist attacks 9/11 and the war on terror Corporate governance crises Asia: Financial crisis (1997) US: Enron, WorldCom, Arthur Andersen (2002) EU: Royal Ahold (2003) The post-Seattle, post-9/11, post-Enron world More uncertainties, but also more potential opportunities Copyright © 2005 South-Western. All rights reserved.

Anti-Globalization Protests Source: Adapted from (1) Business Week, 2001, When demonstrations turn violent, August 6: 8 and (2) Economist, 2003, Cancun’s charming outcome, September 20: 11. Copyright © 2005 South-Western. All rights reserved. Table 1.5

Views on Globalization: American General Public versus Business Students Sources: Based on (1) A. Bernstein, 2000, Backlash against globalization, Business Week, April 24: 43; (2) M. W. Peng & H. Shin, 2003, How do future business leaders view globalization? Working paper, Fisher College of Business, The Ohio State University, http://fisher.osu.edu/mhr/faculty/peng. All differences are statistically significant. Copyright © 2005 South-Western. All rights reserved. Table 1.6