Strategic Management Session XVIII Covered PDF

Strategic Management
Internationalization Contd. (Session XVIII)
Dr. Saurav Snehvrat
Course: STMB19-3
What is globalization?
“Globalization is a process of closer integration and exchange between
different countries and people worldwide, made possible by falling trade and
investment barriers, advances in telecommunications, and reductions in
transportation costs”.
Multinational Enterprises (MNEs): “A company that deploys resources and

capabilities in the procurement, production, and distribution of goods and
services in atleast two countries”
Foreign Direct Investment (FDI)
Globalization hypothesis: global tastes are converging and larger consumer

bases mean economies of scale for firms.
Source: Rothaermel, F. T. (2015).Strategic management. McGraw-Hill Education.

“Nothing is exempt. The products and methods of the industrialized world play
a single tune for all the world, and all the world eagerly dances to it.”
https://hbswk.hbs.edu/item/ted-levitt-changed-my-life
The world is flat!
The world is flat!
Dell Theory of Conflict Prevention
No two countries that are both part of a major global supply chain, like
Dell's, will ever fight a war against each other as long as they are both
part of the same global supply chain.
Source: https://twitter.com/tomfriedman
accessed on 14/12/2018.
2 percent of all voice calling minutes are cross border.
3 percent of the world’s population are first-generation immigrants.
9 percent of all investments in the economy are FDIs.
15 percent of patents list at least one foreign investor.
18 percent of internet traffic crosses national borders.
Source: Rothaermel, F. T. (2015).Strategic management. McGraw-Hill Education.

Benefits of globalization
Benefits
Adding Volume
Decreasing Costs
Differentiating/Driving up
Willingness to pay
Improving Industry
Attractiveness
Normalizing Risk
Source:
Generating and upgrading https://twitter.com/pankajghe
mawat
knowledge/capabilities and assessed on 13/12/2018
other resources
Source: Ghemawat, P. (2007). Redefining global strategy: Crossing borders in a world where differences still matter. Harvard
Business Press.
Risks of globalization
Risks
Liability of foreignness
Loss of reputation
Loss of intellectual property
Performance fallouts
Reading: Competitive Advantage of Nations
Why do some nations have advantage in some industries while others achieve
a similar advantage in other industries?
Examples
Germany – high performance autos and chemicals
Swiss – banking and pharmaceuticals
Japan – semiconductors
USA – commercial aircrafts and motion pictures
Italy - leather
Absolute and Comparative advantage
Countries Potatoes Tomatoes
UK 45 90
India 60 100
Comparative Advantage : when a company can produce a particular good at a

lower opportunity cost than another country.
Opportunity cost for UK:

Potatoes: 45 p = 90 t => p = 2t
Tomatoes: 90 t = 45 p => t = 0.5 p
Opportunity Cost for India:

Potatoes: 60 p = 100 t => p = 1.66 t
Tomatoes: 100 t = 60 p => t = 0.6 p
Why do some nations have advantage in some industries while others achieve
a similar advantage in other industries?
Porter (1990) focuses on the capacity of a nation’s industry to innovate and

upgrade.
Four major factors:

❑ Factor Conditions: natural, human and other resources (like capital
markets, research universities, public infrastructure)
❑ Demand Conditions: sophisticated customers who hold companies to a

high standard of value creation and cost containment)
❑ Competitive Intensity in a focal industry: including firm strategy, industry

structure and rivalry
❑ Related and supporting industries/complementors: Leadership in related

industries.
Source: Porter, M. E. (1990). Competitive Advantage of Nations. Harvard Business Review.
Strengths of Porter’s Diamond Model
❑ Structured approach including innovation.
❑ Better able to explain than comparative advantage.
❑ National Competitive Advantage in developed countries.
❑ Captures interactions between factors.

Weaknesses of Porter’s Diamond Model
❑ Role of Government
❑ Born Global firms?
❑ Static
❑ Emerging countries.
❑ Role of chance.
News Article
News Article
Differences in culture across countries
Source:
https://www.skywo
rd.com/contentstan
dard/marketing/bey
ond-hofstedes-
cultural-dimensions-
theory-
approaching-a-
multicultural-
audience/
Geert Hofstede’s
book: Hofstede, G.
(1984). Culture's
consequences:
International
differences in work-
related values (Vol.
5). sage. And
subsequent works.
Source:
https://www.skywo
rd.com/contentstan
dard/marketing/bey
ond-hofstedes-
cultural-dimensions-
theory-
approaching-a-
multicultural-
audience/
Geert Hofstede’s
book: Hofstede, G.
(1984). Culture's
consequences:
International
differences in work-
related values (Vol.
5). sage. And
subsequent works.
Source: https://geerthofstede.com/culture-geert-hofstede-gert-jan-hofstede/6d-model-of-national-culture//
Where to compete in the world?
Pankaj Ghemawat’s CAGE Framework
❑ Cultural Distance
❑ Administrative and Political Distance
❑ Geographical Distance
❑ Economic Distance
Source:
https://twitter.com/pankajghe
mawat
assessed on 13/12/2018
Source: Ghemawat, P. (2001). Distance still matters. Harvard business review,79(8), 137-147.
Source: Ghemawat, P. (2001). Distance still matters. Harvard business review,79(8), 137-147.
Source: https://ghemawat.com/cage accessed on 15/1/2019

Source: https://ghemawat.com/cage accessed on 15/1/2019

Standardization versus Local Responsiveness
Tradeoff between:
Use of standardization in globalization to differentiate/reduce costs.

Example: Boeing, Airbus etc
Use of adaptation to cater to local customer and other needs.

Example: McDonald’s menu in India
Modes of Foreign Entry
Source: Textbook
Cost Reductions versus Local Responsiveness
Source: Textbook
Cost Reductions versus Local Responsiveness
International Localization/ Global – Transnational

Multi-domestic standardization
What kind of Relatively large Entering host Used by companies Combine benefits
companies? domestic markets countries with large offering standardized of product
and strong brands. and/or idiosyncratic products or services. differentiation and
markets. Consumer low cost.
products and food
industries. Economies of scale and Think globally and
local advantages. act locally.
Business Differentiation Differentiation Cost Leadership Differentiation and

Strategy cost leadership
Examples Harley-Davidson, Bridgestone, Infosys, Lenovo, ABB, Bertelsmann,
Rolex, Starbucks Nestle, Philips Siemens-Energy P&G
Case: The Globalization of Cemex
Q1. What are the benefits of globalization for Cemex, given that cement is a
largely localized industry?
Q1. What are the benefits of globalization for Cemex, given that cement is a
largely localized industry?
Parameter Examples
Adding Volume Limitations of the Mexico market.
Decreasing Costs Lesser cost in acquiring distressed assets/firms.

Reduction of financing costs.
Transfer of superior management abilities.
Differentiating/Driving up Brand building.
Willingness to pay 15-min delivery guarantee. (Limited)
Improving Industry Market restructuring to reduce number of competitors.
Attractiveness Superior ability to coordinate pricing levels.
Normalizing Risk Mitigation of country level risk.
Generating and upgrading Incorporation of best practices. (integration)

knowledge/capabilities and International mindset and talent.
other resources
Q2. How has Cemex performed as compared to its leading global competitors
in the cement industry? Consider Holderbank as a reference competitor. What
are possible reasons behind the difference in performance?
Q3. What is/are the pattern(s) in which Cemex has entered foreign countries?
How do the markets, it has entered recently, compare with the markets that it
entered early on?
entered early on?
US, Spain and Latin America
Screening Criteria:
Large population and high growth rate

Lead the market or at least control 25%.(emerging countries)
Caribbean basin, South East Asia and Mediterranean.

entered early on?
Types of Distances
Countries Cultural Administrative Geographic Economic
USA √ √ √√
Spain √√ √ √
Venezuela √√ √ √√ √
Columbia √√ √ √√ √
Philippines √ √
Indonesia √
Egypt √
Learnings:
❑ Benefits of globalization.
❑ Globalization in the case of cemex helps in increasing market power and

industry attractiveness.
❑ Use of CAGE Framework.
❑ Importance of distance (different types) in international trade.

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Strategic Management

Internationalization Contd. (Session XVIII)

Dr. Saurav Snehvrat

Multinational Enterprises (MNEs): “A company that deploys resources and

Foreign Direct Investment (FDI)

Globalization hypothesis: global tastes are converging and larger consumer

Source: Rothaermel, F. T. (2015).Strategic management. McGraw-Hill Education.

Dell Theory of Conflict Prevention

3 percent of the world’s population are first-generation immigrants.

9 percent of all investments in the economy are FDIs.

15 percent of patents list at least one foreign investor.

18 percent of internet traffic crosses national borders.

Source: Rothaermel, F. T. (2015).Strategic management. McGraw-Hill Education.

Loss of intellectual property

Germany – high performance autos and chemicals

Swiss – banking and pharmaceuticals

USA – commercial aircrafts and motion pictures

Comparative Advantage : when a company can produce a particular good at a

Opportunity cost for UK:

Opportunity Cost for India:

Porter (1990) focuses on the capacity of a nation’s industry to innovate and

Four major factors:

❑ Demand Conditions: sophisticated customers who hold companies to a

❑ Competitive Intensity in a focal industry: including firm strategy, industry

❑ Related and supporting industries/complementors: Leadership in related

❑ Structured approach including innovation.

❑ Better able to explain than comparative advantage.

❑ National Competitive Advantage in developed countries.

❑ Captures interactions between factors.

❑ Born Global firms?

❑ Administrative and Political Distance

Source: https://ghemawat.com/cage accessed on 15/1/2019

Source: https://ghemawat.com/cage accessed on 15/1/2019

Use of standardization in globalization to differentiate/reduce costs.

Use of adaptation to cater to local customer and other needs.

International Localization/ Global – Transnational

Business Differentiation Differentiation Cost Leadership Differentiation and

Adding Volume Limitations of the Mexico market.

Decreasing Costs Lesser cost in acquiring distressed assets/firms.

Generating and upgrading Incorporation of best practices. (integration)

US, Spain and Latin America

Large population and high growth rate

Caribbean basin, South East Asia and Mediterranean.

❑ Globalization in the case of cemex helps in increasing market power and

❑ Use of CAGE Framework.

❑ Importance of distance (different types) in international trade.

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