8/2/22

Welcome to
Global Business Strategy (GBS)
PGP 25
Jun - Aug 2022

Prof. Venkataraman S
Indian Institute of Management Kozhikode

Lincoln Electric

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Lincoln Electric
• What patterns so you see in Lincoln's past - in terms of
where they have been most or least successful? How would
this guide your own choice of where to place Lincoln
Electric's production facilities abroad?
• Should Lincoln Electric expand into India by investing in a
major production facility there? Does it make sense?
• If you were to expand into India, would you enter through
acquisition, a greenfield venture, or some type of joint
venture? Which factors would inform your decision among
these entry mode choices?
• Compare Japan, Korea, China and India on the basis of
Hofstede's cultural dimensions? How can we assess them in
terms of cultural distance from the US?
• More specifically, what conflicts arose in the JV in China?
Which dimension is it reflective of this conflict? How does
this dimension compare between China and India? Is a
similar conflict likely in India?

Lincoln: Enter India or Not?

• Yes
• Bulk of future growth likely from China and India
• Market can be still considered as attractive – options exist for a
successful entry
• If they don’t enter India, their key competitors could
potentially dominate the market and strengthen their ability to
attack Lincoln in other markets, say like Europe
• No?
• Performance in Asia generally poorer than in other markets –
they need to identify and fix the underlying issues first
• They have struggled for long, for adapting in these markets?
Would a large, complex market like India be any easier?
• An India entry may make matters more complex for top
management ? Operating in all but one continent- is the
trouble worth it?
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Lincoln: Mode of Entry?

Avoid, Transplant or Adapt?

Avoid Transplant Adapt
No Risk – stick to terrains We know how to make Rely on eminence or
where barriers are the system work best - advantage of
low/lowest possibly better than technology/ brand to
anyone else gain an upper hand

Miss out on potentially Countries may block What is really our core
huge growth certain practices - competitive advantage?
opportunities are we knowingly Is it really adaptable or
inviting legal/ market transferable? (RAT test)
risks for ourselves?
Miss out on learning Cookie-cutter Will we end up losing
opportunities in different approach often fails our key weapon that
institutional/cultural has helped us win/
conditions – through dominate elsewhere?
adaptation

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Inter-culturally Competent Leaders

Harris & Moran, 2011

Trompenaars

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Trompenaars’ Dimensions: The Concepts ( as given in “L.I.T”)

• Internal Vs. External Control (of Environments)

• Rules Vs. Relationships
• Individualistic Vs. Communitarian
• Identifying Vs. Non-identifying
• Achieving Vs. Ascribing

Trompenaars: More Dimensions of National Culture

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Trompenaars: Dimensions of National Culture

Source: Nardon & Steers, 2009

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Schwartz

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Schwartz
• The content of cultural value dimensions reflects
the alternative solutions that emerge as groups
cope with basic societal problems
• Three basic societal issues:
• Relations between individual and group: To what
extent are persons autonomous versus embedded in
groups?
• Assuring responsible social behaviour: How to
motivate people to consider others' welfare and
coordinate with them?
• The role of humankind in the natural and social
world: Is it more to submit, to fit in, or to exploit?

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Schwartz
• Focus on motivational goals
• Adjacent and Bipolar dimensions
• Clearly differentiates individual and cultural
(societal/national) level
• 56 value items, tested over 54 (later 70
plus) countries, 120 plus samples
• Teachers
• Students
• Adults

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Schwartz – Basic Human Values

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Schwartz – Cultural Values

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Schwartz – Cultural Values

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Schwartz – Cultural Values

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The GLOBE Study

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GLOBE Study
• House, Hanges, Javidan, Dorfman, and Gupta
• Global Leadership and Organizational Behavior
Effectiveness
• Multi-phase, multi-method
• 61 countries, 150 social scientists
• Societal and Organizational Levels
• Key motivation – Not just cultural dimension/
measures, but how variations in these affect
leadership behavior and effectiveness

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GLOBE Study

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GLOBE Study – Sample Insights

• Asian managers – paternalistic leadership
• A leader who listens carefully to subordinates -
more valued in US than in China
• Malaysian leaders- expected to be humble,
dignified and modest (contrary to American
ones)
• Indians prefer leaders who are assertive,
morally principled, ideological, bold and
proactive
• Family and tribal norms support autocratic
leaders - in Arab countries
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How does an understanding of

national cultural values
matter?

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Source: Elkins & Gould, Business Insider, 2015

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Blue Ridge Spain

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Blue Ridge Spain : Issues plaguing the IJV

• Trust Issues
• Many years to develop a foundation of trust
• Blue Ridge relied heavily on their partners to make key decisions and
trusted them to make good decisions
• Delta had successful global brands and did not place as much
importance on local knowledge and relationships
• Tone set by Södergran during the first directors’ meeting –
then on, further downhill
• Organization Culture & Competencies
• Blue Ridge - service business that relied on quality, location
(real estate) and local knowledge
• Delta - Marketing-driven firm focused on commodity
products (soda, snack foods)
• Blue Ridge by nature, had to deal with more complexity
• Mismatch between the corporate culture and objectives

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Blue Ridge Spain : Issues plaguing the IJV

• The Spaniards were in a better position to judge the ability
of the JV to meet the target set by the U.S. consulting firm
• Delta did not value this local knowledge
• Decided that its brand strength was sufficient to compete
successfully without a local partner (a fallacious presumption?)
• Likely didn’t realize that the Spaniards had valuable personal
connections within Spain that helped them to succeed
• Terralumen
• Knew the real estate market
• Well connected with external stakeholders (such as lending
institutions)
• Superior knowledge of the Spanish business environment
• Management resources of the JV came from Terralumen.
• The divergence of organizational cultures further
exacerbated by the individual cultural differences – with
Finns and Americans

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Low Uncertainty Avoidance:

• High Risk Appetite
• Aggressive moves
• More Ambitious
• High Employee t/o

Power Distance

Vs

Uncertainty
Avoidance

High Uncertainty Avoidance:

• Low Risk appetite
• Conservative
• Less Ambitious
• Lower employee t/o
Source: Geert Hofstede,
“Motivation, Leadership and
Organization: Do American
Theories Apply Abroad?”,
Organizational Dynamics, 1980

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Power Distance

Vs

Individualism

Source: Geert Hofstede,

“Motivation, Leadership and
Organization: Do American
Theories Apply Abroad?”,
Organizational Dynamics, 1980

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Cross-Cultural Encounters

Lane & Maznevski, 2014

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A Speed Race:
Benelli & QJ Compete in the
International Motorbike Arena

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The Key Problem(s)

• Under-appreciation (?) of cultural-distance and cross-cultural
problems - different mentalities, habits, ways of doing
business and managing HR- between Western/Italian and
Chinese contexts
• Symptoms:
• Delays in the development of important projects: “The Chinese and
Italian technical departments should have worked together in harmony
to combine and optimize their complementary skills; however, working
together proved to be difficult due to language and cultural differences”
• Misunderstandings in daily routines: “In some cases, administrative
actions were perceived as nonsense by either Italians or Chinese or
both. Behaviors relating to specific Italian fiscal or civil rules were
sometimes judged to be “wrong” by the Chinese. Likewise, Chinese
rules seemed “strange” or unacceptable to the Italians”
• Lack of a well–defined global expansion strategy/plan – esp.
w.r.t marketing and sales/post-sales activities
• Symptoms:
• Low sales volume: Despite Benelli’s ability to produces technologically-
advanced motorcycles and ability to excite the relevant audience,
market share within the niche segment of the 3-cylinder motorcycles —
in comparison to main competitors is negligible.

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Issues & Approaches:

Cross-border M&As/
Post-Merger Integration

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M&A Integration: Typical Models

• Preserve: The competitive features of the acquired company are

completely preserved and maintained. Light integration is pursued
• Accommodate: Integration is related only to incentive and control
mechanisms. Distance is kept between the mother company and the
acquired entity
• Cooperate: The mother company and the acquired entity share only
some processes, know-how and resources related to specific areas of
competency such as marketing, R&D, sales, etc.
• Absorb: The acquisition aims at gaining economies of scale so that the
acquired company’s identity is melted and absorbed into that of the
mother company;
• Choose the best: The integration aims at melting the two companies’
competencies and resources and transferring the best assets to each;
• Transform: The business approach is changed by both sides of M&A so
that a new company vision, a new culture and a new organizational and
operational model are introduced into the group.

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Choosing a Mode of Integration

• Scope of integration:
• What should be integrated? Define the level of integration:
• Should the acquirer company focus only on structures and
operations? (light integration)
• Should it also consider cultural values? (deep integration);
• Style of integration: How much are managers willing to invest
in the integration process?
• Quality of relationships between the parties
• Consensus building
• Attention to the acquired company’s needs, etc.
• Often, there’s a strong link between the sources of value creation
and the efforts of the acquirer in terms of quality of relationships
with the acquired company.
• The higher the level of integration and the domain, the higher the quality of
relationships must be.
• A “joint sales growth” or “co-learning” approach to value creation requires
more investment in understanding the culture and routines of target firm
• Low sensitivity is needed instead if the acquisition involves a rescue of an
acquired company in financial difficulty. If the purpose of the M&A is
financial rescue, people will more willingly accept the integration process.

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Choosing a Mode of Integration

• Speed of integration: When to decide and when
to implement?
• Relates to the decision-making process of the
acquisition
• Speed is related to the type of integration preferred
chosen and to the quality and style of relationships
• Lower Speed: In cases where a high level of
integration in competencies and culture is called
for
• E.g.: Models aiming at cooperating and transferring
resources and competencies.
• Higher Speed: Where only optimization is
pursued and the scope of integration is lower
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Cultural Divide: China & Italy: Hofstede

Source: Geert Hofstede Cultural Dimensions Scores, www.geert-hofstede.com/hofstede_china.shtml

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Cultural Divide:

China & Italy:

GLOBE

Calculations on Globe database

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Issues in Cross-border M&A Deals

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Diversification: Porter’s Three Tests

1. The attractiveness test:

Is the industry chosen for diversification
structurally attractive or capable of being made
attractive?
2. The cost-of-entry test:
Is the cost of entry reasonable compared to
expected future profits?
3. The better-off test:
Does the new unit gain competitive advantage
from its link with the corporation and vice versa?
Source: Michael E. Porter, “From Competitive Advantage to Corporate Strategy,” Harvard Business Review, May-June 1987.

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Critical Questions for Diversification Success

1. What can our company do better than any of our
competitors in the current market?
2. What strategic assets do we need in order to
succeed in the new market?
3. Can we catch up to or leapfrog over competitors
at their own game?
4. Will diversification break up strategic assets that
need to be kept together?
5. Will we be simply a player in the new market or
will we emerge a winner?
6. What can our company learn by diversifying, and
are we sufficiently organized to learn it?

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Acquisitions

Benefits Drawbacks
• Speed • Cost of acquisition
• Access to • Unnecessary adjunct
complementary assets businesses (potentially)
• Removal of potential • Organizational clashes
competitors may impede integration
• Upgrade corporate • Major commitment/risk
resources

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M&A: Why the big deals typically don’t deliver…

1. Lack of compelling strategic rationale

2. Unrealistic expectations of possible synergies

3. Paying (way) too much !
4. Inadequate due diligence

5. Conflicting corporate cultures

6. Failure to move quickly to meld the two cultures

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Acquisitions: Components of Value

Base Case Revenue Cost

Value of
TARGET
= Earnings + Synergies + Synergies
and Growth

• Earnings from • Potential for new • Potential for new

business as usual customers, new processes and
products that can efficiency from
enhance the revenue scale/scope
base economies that can
drive down costs

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How does an understanding of

national cultural values
matter?

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We can, of course, be sensitized to

basic etiquettes
of different lands

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Source: Elkins & Gould, Business Insider, 2015

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…and also gather

Broader Insights
(that borders on the stereotypical)

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Illustration: Americans at a Glance

Harris & Moran, 2000

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Illustration: Fundamental differences between

Japanese and Mexican Culture that affect business

Harris & Moran, 2000

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Illustration: American - Japanese Cultural Divide

H. Deresky, 2017

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..but, it
goes deeper
than that!

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Sylvio Napoli at Schindler India

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Schindler India Strategy and Organization

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Key Takeaways
• One of the greatest challenges: Converting strategic
plans into desired outcomes
• People as a tool of strategy
• Success is not assured with either developing a great strategy
or communicating a clear strategy
• How do we (or can we) match strategy with the right manager
– strong ability or even a bias?
• Napoli – Committed to Swatch project/ But not deeply
entrenched in elevator tradition
• Napoli was hand-picked – He was the strategic choice for
Alfred Schindler
• Luc Bonnard evaluating Napoli
• High Road Vs. Low Road
• Cultural adaptation
• Corporate culture and National culture
• Cultural adaptation Vs. Cultural submission

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