Global Strategic

Management
Second Edition

J^drzej George Frynas

Professor of CSR and Strategic Management, Middlesex University Business School

Kamel Mellahi
Professor of Strategic Management, Warwick Business School, University of Warwick

OXFORD
UNIVERSITY PRESS

Contents
Preface

Acknowledgements
List of exhibits
List of cases

vii
xxi

xxiv

How to use this book

xxvi

How to use the Online Resource Centre

PART

I Introduction

xxviii

1 Introduction to global strategic management

Learning outcomes

Opening case study: IKEA

1.1 Introduction

1.2 Defining the strategic management field

-6

1.3 Phases of global strategy

1.3.1 Single-country strategy

1.3.2 Export strategy

11

1.3.3 International strategy

11

1.3.4 Global strategy

11

1.4 International strategy and global strategy: what is the difference?

12

1.5 Defining global strategic management

13

1.6 Drivers for a global strategic perspective

15

1.6.1 Macro globalizing drivers

16

1.6.2 Industry globalizing drivers

27

1.6.3 Internal globalizing drivers

29

1.7 Organization of the book

30

Key readings

31

Discussion questions

31

Closing case study: Walmart v. LVMHtwo retailers, two different global strategies

31

References

35

PART II Global strategic analysis

37

2 Global business environment: the external macro environment

39

Learning outcomes

39

Opening case study: The Brazilian Embraer and the external business environment

40

2.1 Introduction

41

2.2 The external business environment

42

Contents

2.2.1 Identifying threats and opportunities

2.2.2 Strategic fit and firm performance
2.3 PEST analysis
2.4 The political environment
2.4.1 Regional integration
2.4.2 Government legislation
2.4.3 Political risk
2.4.4 Corruption
2.5 The economic environment
2.5.1 Cost of production
2.5.2 Currency exchange rates
2.5.3 Cost of capital
2.6 The social environment
2.6.1 Social change
2.6.2 Global convergence
2.7 The technological environment
2.7.1 Global technology scanning and technology clusters
2.7.2 The knowledge-based economy
2.7.3 The spread of the Internet
2.8 National environmental influences and the Diamond Model
2.8.1 Factor conditions
2.8.2 Demand conditions
2.8.3 Related and supporting industries
2.8.4 Firm strategy, structure, and rivalry
2.9 Criticisms of the Diamond Model
2.9.1 The Diamond Model for small nations
2.9.2 The Diamond Model and globalization
2.9.3 Response to criticisms
2.10 Summary
Key readings
Discussion questions
Closing case study: Lockheed Martinfrom conquering Russia to
conquering space

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References

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3 Global business environment: the industry environment

73

Learning outcomes
Opening case study: Global economic recession and super luxury cars
3.1 Introduction
3.2 Understanding and adapting to industry environment
3.2.1 Market segmentation analysis
3.2.2 Strategic group analysis

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Contents
3.3 The Five Forces Model
3.3.1 Barriers to entry
3.3.2 Bargaining power of buyers and suppliers
3.3.3 Threat of substitutes
3.3.4 Rivalry
3.4 Criticisms of the Five Forces Model
3.4.1 Static v. dynamic competition
3.4.2 Industry profitability

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3.4.3 Response to criticisms

3.5 Industry evolution
3.5.1 The five phases of the International Product Life Cycle (IPLC)
3.5.2 Criticisms of the IPLC model
3.6 Anticipating the future
3.6.1 Forecasting
3.6.2 Scenario analysis
3.6.3 Anticipating the future and globalization
3.7 Summary
Key readings
Discussion questions
Closing case study: The rise ofLinuxthe battle for the operating system market
References

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4 Global business environment: analysis of the internal environment

109

Learning outcomes

109

Opening case study: Google.com

110

4.1 Introduction
4.2 Positioning perspective v. resource-based perspective
4.2.1 The positioning perspective

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4.2.2 The resource-based perspective

4.2.3 Industry profitability v. firm profitability
4.3 Analysing firm resources and capabilities
4.3.1 Resources
4.3.2 Capabilities
4.3.3 Core competencies
4.3.4 The VRIO framework
4.3.5 Resources and capabilities in multinational firms

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4.3.6 Changing global markets and dynamic capabilities

4.4 Global value chains and value systems
4.4.1 Value added
4.4.2 Value chain analysis
4.4.3 Value system analysis
4.4.4 Value analysis and cost advantages

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Contents

4.4.5 Value analysis and strategic linkages

130

4.4.6 Value analysis and global location decisions

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4.5 Comparative analysis

132

4.5.1 Competitor intelligence

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4.5.2 Benchmarking

134

4.5.3 Internal comparative analysis

135

4.5.4 Comparative analysis in global markets

137

4.6 Summary

137

Key readings

138

Discussion questions

138

Closing case study: Clothing industry supply chains and Zara's business model

139

References

141

PART ill

Global strategic development 145

5 Managing the internationalization process

147

Learning outcomes

147

Opening case study: Internationalization of a French retailerCarrefour

148

5.1 Introduction

150

5.2 Decision and motives to internationalize

150

5.2.1 Organizational factors

150

5.2.2 Environmental factors

152

5.2.3 Motives for foreign investment

153

5.3 The internationalization process

154

5.3.1 Timing of market entry

154

5.3.2 Obstacles to internationalization

155

5.3.3 Perceptions of managers

157

5.3.4 Psychic distance and internationalization

157

5.3.5 The Uppsala Model

158

5.4 Criticisms of the Uppsala Model

159

5.4.1. Firms not following Uppsala Model

5.4.2 The Born Global firm
5.4.3 Response to criticisms
5.5 Entry mode strategies

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5.5.1 Export

164

5.5.2 Licensing

165

5.5.3 International franchising

168

5.5.4 Wholly-owned ventures

169

5.6 Entry modes and risk v. control

171

5.7 De-internationalization

173

5.8 Summary

174

Contents
Key readings

174

Discussion questions

175

Closing case study: Internationalization of a Chinese firmthe Haier Group

175

References

178

6 International strategic alliances: partnership and cooperation

183

Learning outcomes

"

183

Opening case study: Fiatthe questfor global leadership

184

6.1 Introduction

186

6.2 The concept of international strategic alliances

6.3 International strategic alliances: external drivers and internal motives
6.3.1 External drivers of alliance formation

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6.3.2 Internal motives for alliances

6.4 Types of alliance
6.4.1 International expansion alliance
6.4.2 Vertical integration alliance
6.4.3 Diversification alliance
6.4.4 Complementary alliance

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6.4.5 Shared supply alliance

6.4.6 Quasi-concentration alliance
6.5 Selecting partners
6.5.1 Partner selection criteria
6.5.2 Optimal business partner
6.5.3 Strategic alliances in emerging economies
6.6 Control in strategic alliances

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6.6.1 Control mechanisms

6.6.2 Focus of control
6.6.3 Control and performance
6.7 International strategic alliances: balancing risks and trust
6.7.1 Risks in strategic alliances
6.7.2 Trust in strategic alliances
6.8 Summary
Key readings
Discussion questions
Closing case study: Tyrian Diagnosticsdancing with the big pharmas
References

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7 The subsidiary-level strategy

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Learning outcomes

211

Opening case study: Dell in China: will the direct sales model crack in China?

212

7.1 Introduction

214

7.2 Global strategy levels

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Contents

7.3 Strategic role of subsidiaries

7.4 Types of subsidiary-level strategy
7.4.1 Support and implementation
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7.4.2 Autonomous subsidiaries
7.5 Global generic strategies
7.5.1 Cost leadership strategy
7.5.2 Differentiation strategy
7.5.3 Focused low-cost strategy
7.5.4 Focus differentiation strategy
7.5.5 Integrated strategy or 'stuck in the middle'
7.5.6 Criticisms of generic strategies
7.6 Summary
Key readings
Discussion questions
Closing case study: Managing the melamine contamination crisis by Nestle China
References

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8 Headquarter-level strategy

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Learning outcomes
Opening case study: The house of Tata
8.1 Introduction
8.2 The role of the corporate parent
8.3 Headquarter-level control strategies
8.3.1 Types of control
8.3.2 Focus of control
8.3.3 Control and global values
8.3.4 Barriers and challenges to headquarter-level control
8.4 Diversification strategies
8.4.1 Industrial diversification
8.4.2. Types of industrial diversification
8.4.3 Global diversification
8.5 Global sourcing strategies
8.5.1 Vertical integration
8.5.2 Outsourcing
8.6 Managing global portfolios
8.7 Summary
Key readings
Discussion questions
Closing case study: Lufthansa's diversification strategy
References

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Contents
PART

IV Global strategic implementation 277

9 Global structures and designs

279

Learning outcomes

279

Opening case study: Procter & Gamble (P&G)

280

9.1 Introduction

283

9.2 Organizational structures: what are they?

284

9.3 Domestic organizational structures

285

9.4 Strategy and structure of multinational firms

288

9.4.1 Functional structures

290

9.4.2 International division structure

291

9.4.3 Area or geographical division structure

292

9.4.4 Product division structure

293

9.4.5 The matrix structure

295

9.5 Balancing integrations and local responsiveness: broad forms of

international strategy

297

9.5.1 The export firm

297

9.5.2 The multi-domestic firm

298

9.5.3 The global firm

299

9.5.4 The transnational firm

300

9.6 Summary

303

Key readings

304

Discussion questions

305

Closing case study: Restructuring Sony

305

References

312

10 Global management of change

315

Learning outcomes

315

Opening case study: Shanghai Volkswagen

316

10.1 Introduction

318

10.2 Types of change

318

10.2.1 Incremental change

318

10.2.2 Transformational change

319

10.2.3 Types of change and national cultures

320

10.2.4 Organizational change and national culture

321

10.3 People involved in the change process

325

10.3.1 The change agent

325

10.3.2 The role of subordinate and subsidiary managers

327

10.4 The change process

10.4.1 A model of the change process
10.4.2 People's reaction to change
10.5 Appropriate styles of change management

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Contents
10.6 Implementing change
10.6.1 Project teams
10.6.2 Moving people
10.6.3 Expatriates
10.7 Communication issues
10.7.1 Difficulties in discussing issues linked to change
10.7.2 The role of language
10.7.3 Business implications
10.7.4 Overcoming language problems
10.8 Negotiation with outside parties
10.9 Summary
Key readings
Discussion questions
Closing case study: LG global rebranding
References
PARTV

Global strategic innovation

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11 Global management of innovation and knowledge

347

Learning objectives
Opening case study: Innovating the Google way
11.1 Introduction
11.2 What is innovation?
11.2.1 Innovation within the life cycle
11.2.2 Innovation and competitive advantage
11.3 Competing in technological markets
11.4 Managing knowledge '
11.4.1 Knowledge creation
11.4.2 Knowledge transfer within multinationals
11.5 Global R&D networks
11.5.1 Outsourcing innovation globally
11.6 Summary
Key readings
Discussion questions
Closing case study: Outsourcing innovation in the pharmaceutical industry
References

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12 Corporate Social Responsibility (CSR) and innovation

377

Learning outcomes
Opening case study: Two crises influence the strategy ofRoyal Dutch/Shell
12.1 Introduction
12.2 Corporate Social Responsibility (CSR) and corporate objectives

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Contents
12.2.1 Companies and profit maximization

380

12.2.2 Changing views on the role of companies in society

12.2.3 National differences

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12.3 Corporate Social Responsibility (CSR) and stakeholders

12.3.1 Stakeholder view of the firm
12.3.2 Stakeholder mapping
12.3.3 Problems in stakeholder mapping
12.3.4 Which stakeholders should the firm focus on?
12.3.5 Critique of stakeholder mapping
12.3.6 Issue analysis
12.4 CSR strategies and innovation
12.4.1 Generic strategies of social responsiveness

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12.4.2 Benefits of CSR strategies

12.4.3 CSR strategies and innovation
12.4.4 Innovation and core competencies
12.4.5 Levels of social innovation
12.4.6 Non-traditional partnerships and innovation
12.5 Summary
Key readings
Discussion questions
Closing case study: BP tackles climate change and innovation
References

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Index

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