1. Chapter 1 Globalization of markets and competition

2. Globalization of the world economy and foreign direct investments

3. Globalization of the world economy

4. Globalization of the world economy and business firms  Wider scope of markets  Growth potential  Wider access to resources: - Labor - Raw materials - Components - Knowledge  Ability to gain costs advantages through economies of scale  Ability to moderate risks  Governments regulation  Cultural diversity  Need for adaptation?  Cross border management Total numbers of multinational corporations 3700082000 Total number of foreign affiliates170000810000 Opportunities for firms Challenges for firms 1990 2008

5. Globalization of the world economy: the macro drivers POLITICAL Peace in the triad Opening of markets ( GATT, EEC, WTO…) Liberalization of foreign direct investments Liberalization of financial flows TECHNOLOGICAL Increased efficiency of transportation and logistics: air; cargos; containers Increased efficiency of telecommunication and information technology Increased critical mass of investments in R&D and production SOCIAL Some convergence of middle class consumer behavior Wider access to information, movies, TV series, internet

6. Macro driver: liberalization of trade

7. Macro driver: decline in maritime transport costs

8. Macro driver: decline in air transport costs

9. Macro driver: decline in telecommunication costs Cost of a phone call to the USA

10. Why do firms globalize? MARKETS To capture new markets RESOURCES Natural resources Offshoring/Offsourcing Knowledge Security of supply COMPETITIVENESS Economies of scale Costs Networks Risk-spreading

11. Historically, corporate globalization took place in 3 stages

12. 12 R PM R PM R PM R PM R PM R PM R P M R PM R PM R P M R MM P P M M M M MM P GIS 4 A classic example of transition from multinational to global elevators in Europe

13. Multi local industries Local industries are industries in which firms can sustain competitive advantages within the boundaries of countries. Firms competing in multi local industries are either: Domestic firms within each country Subsidiaries of multinational companies operating independently of each other in their respective countries Global industries Global industries are industries in which firms can sustain competitive advantages only if: They are present in the key countries of the world They integrate and coordinate their activities across the world in a centralized manner

14. Industries: global or multi local? Factors pushing for globalization Low entry barriers High scale technology Convergence of consumption Transport Factors against globalization Cultural differences Customer proximity Transport costs Legal requirements Characteristics of global industries Similar needs and customer behavior Standardized products Beyond country economies of scale Speed of innovation Transferability of experience “Global” customers “Global” pricing “Global” competitors Characteristics of local industries Different needs andcustomer behavior Customized products/services Low economies of scale Complex distribution Transferability of experience “Local” customers High transport costs

15. Going global Competitive battlefield Country by country Local World Global The competitive battlefield is within the country boundaries. Competitors are local or subsidiaries of multinational firms. The competitive battlefield is worldwide. The world is one market. Competitors are global firms who compete with a full integration of their activities. The competitive battlefield is regional. Regions have different markets and competitive characteristics. Competitors are firms operating regionally. Region Regional Global firmsDomestic and multinational firms

16. Globalization path 16 Expand value adding activities into countries in order to capture: Market opportunities Resources Learning Optimize competitiveness by leveraging international: Resources Assets Competences Leading to: Differentiated advantage Cost advantage Speed advantage Innovation advantage Spread Risk Global integration and coordination Multinational expansion Traditional globalization Recent globalization

17. The different benefits of going global 17 Benefits of multimarkets presence  Market opportunities  Resources opportunities  Risk spreading The multinational advantage Benefits of knowledge creation and transfer  Learn new knowledge  Use global operations to leverage local capabilities and knowledge  Mix new capabilities and market knowledge The metanational advantage Optimize competitiveness by leveraging international: Resource Assets Competences Leading to: Differentiated advantages Cost advantages Speed advantages Innovation advantages Arbitrage The global advantage Benefits of global integration and coordination

18.  Get access to resources and procurement (S)  Increase size benefit from economies of scale (C )  Increase size (V): capture market opportunities  Get access to low cost labor and infrastructure (C)  Get access to knowledge (CV and C)  Serve global customers (CV)  Reduce risks through geographical diversification Customer Value CV Internal Costs C Supplies (S) Costs Volume (V) Price The economic benefits of going global Profit

19. Different industries have different competitive requirements Civil aircraft Microprocessors Bulk Chemicals Catering Automobile Telecommunication equipment Package tours Retail banking Food retail Paint Corporate bankingInstitutional banking HIGH LOW LOCAL FORCES GLOBAL FORCES

20. Within businesses, different segments have different competitive requirements 20 HIGH GLOBAL FORCES LOW HIGHLOCAL FORCES Automotive Aircraft Marine Car repair Industrial DIY Paints

21. Within businesses, different functions benefit from being either local or global Research Finances Development After sales services Logistics Component sourcing Component manufacturing Marketing Accounting Customer services Sales Advertising HIGH LOW HIGHLOCAL FORCES GLOBAL FORCES