Chapter 1

Globalization of markets
and competition
Globalization of the world economy and foreign direct
investments


Globalization of the world economy
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
37000

82000

Total number of foreign affiliates 170000 810000

Opportunities for firms
Challenges for firms
1990 2008
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
Macro driver: liberalization of trade


Macro driver: decline in maritime transport costs


Macro driver: decline in air transport costs
Macro driver: decline in telecommunication costs
Cost of a phone call to
the USA
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
Historically, corporate globalization took place in 3
stages


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

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
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 firms Domestic and multinational firms
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
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
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
Different industries have different competitive
requirements
Civil aircraft
Microprocessors
Bulk Chemicals
Catering
Automobile
Telecommunication
equipment
Package tours
Retail banking
Food
retail
Paint
Corporate banking Institutional banking
HIGH
HIGH
LOW
LOW LOCAL FORCES
GLOBAL
FORCES
Within businesses, different segments have different
competitive requirements
20
HIGH
GLOBAL
FORCES
LOW
LOW HIGH LOCAL FORCES
Automotive
Aircraft
Marine
Car repair
Industrial
DIY
Paints
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
LOW HIGH LOCAL FORCES
GLOBAL
FORCES