Unit 2: Globalization

(From Globalization / Flattening of World towards

Semi-Globalization)
 Globalization of Markets (Levitt, 1983)
• Defines global strategy as a strategy for an integrated world

• One size fits all philosophy

• Well-managed companies have moved from emphasis on customizing

items to offering globally standardized products that are advanced,
functional, reliable—and low priced.

• Multinational companies that concentrated on idiosyncratic consumer

preferences have become befuddled and moving beyond towards global
platforms and processes

• Only global companies will achieve long-term success by concentrating

on what everyone wants rather than worrying about the details of what
everyone thinks they might like.

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 It's a Flat World, After All (Friedman, 2005)
Globalization 1.0 Globalization 2.0 Globalization 3.0
(1492 to 1800) (1800 to 2000) (>2000)

Large to Medium Medium to Small Small to Tiny

Size (World)
Countries Industries Individuals
Driven By
globalizing for globalizing for Globalizing individuals
resources and imperial markets and labour and small groups.
Focus conquest Empowering individuals

Europe & USA Europe & USA Non-European – Asia &

others
Control

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 Flatteners (1990s – 2000s) (Friedman, 2005)
Events (1-3) => created platforms for collaboration;
Events (4-10) => collaborative functions flattening the world
Open sourcing (Linux
Event 1 (1989) Fall of Berlin Wall / Boundaries Event 6 etc.)
Insourcing (taking over
(1989) Launch of Windows OS – global
Event 2 computer interface Event 7 specific business
functions by 3rd party)
(1995) Netscape went public bringing Supply chaining (global
Event 3 the internet live via fibre-optics tele - Event 8 supply chain)
communications cable
Informing (Google
Event 4 Outsourcing (applications) Event 9 search)
Event 5 Offshoring (factory) Event 10 VOIP

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Defining “Global”
 Meaning of “Global”

http://ocw.mit.edu/courses/sloan-school-of-management/ 6
 What Is Globalization?
• Globalization is a process of increased interdependence among
nations

http://ocw.mit.edu/courses/sloan-school-of-management/
 What Is Globalization?

http://ocw.mit.edu/courses/sloan-school-of-management/
Ghemawat, P. "Semi-globalization and Strategy"
 Is it Globalization or Semi-Globalization
• Redefines global strategy as a broader set of strategic possibilities

• Not really leads to global integration or international standardization

or scalar expansion or “one size fits all” philosophy

• Need to be a mix of leveraging similarities across borders as well as

addressing differences across borders

• Major percentage of economic activity is localized by country despite

the hype of globalization
• Ratio of FDI to Total Fixed Capital Formation is < 10%
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 Drivers of Globalization – Yes or No

Source: Sebastian Sane (2007). Review of Semiglobalization and Strategy 11

 Technology Leader - Google - Failures

Google in Russia
• Market Share
• 28% market reach in 2006 versus Yandex (64%)
• 0.5% of total revenues in Russia ($300 million against global
revenues of $66 billion)
• r market lag
• Linguistic complexity – nouns, verbs, contextual meaning differs
• Insufficient credit card and online payment infrastructure. Local
players collaborated with traditional banks
Google in China
• Local Laws in China and Support for local players and Censorship of
data prevented Google acceptance in China
• Ranked 3rd after Baidu and Soso.com

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 Coca-Cola – Workable Global Strategy Dilemma
– https://www.google.co.in/url?
sa=t&rct=j&q=&esrc=s&source=web&cd=7&cad=rja&uact=8&ved=0ahUKEwj2kMnEqoHKAhXGt44KHXVaDaQQ
FghDMAY&url=http%3A%2F%2Fjis.pe.kr%2Froad%2Fattachment
%2F1038484863.pdf&usg=AFQjCNExGKdSL1QhGW_URSwluR6ohrpP0g&sig2=9ujzDDkvC3xpO-
is01ntQQ&bvm=bv.110151844,d.c2E

Source: Sebastian Sane (2007). Review of Semiglobalization and Strategy 13

 Coca-Cola – Workable Global Strategy Dilemma

Source: Sebastian Sane (2007). Review of Semiglobalization and Strategy 14

Coke (1981-1997 vs. 2004-2009)
 Coke (1886 -)
Roberto Goizueta (1981-97) – 140 billion $; 160+ countries
• Bought into Levitt’s idea that the globalization of markets (rather than
production) was imminent.
• Focused resources on Coke’s megabrands, an unprecedented amount of
standardization, and the official dissolution of the boundaries between Coke’s
U.S. and international organizations.

Neville Isdell (2004-2009)

• Coke’s strategy looks very different and is no longer always the same in
different parts of the world.
• In big, emerging markets such as China and India, Coke has lowered price
points, reduced costs by localizing inputs and modernizing bottling operations,
and upgraded logistics and distribution, especially rurally.
• The boundaries between the United States and international organizations
have been restored, recognizing the fact that Coke faces very different
challenges in America than it does in most of the rest of the world. This is
because per capita consumption is an order of magnitude that is higher in the
United States than elsewhere.
http://www.saylor.org/site/textbooks/Fundamentals%20of%20Global%20Strategy.pdf 16
 Toyota – Semi-Globalized Approach
Toyota’s globalization has always had a distinct regional flavour.

Its starting point - long-term vision of a fully integrated world in

which autos and auto parts can flow freely from anywhere to
anywhere else.

Rather, the company anticipated expanded free-trade agreements

within the Americas, Europe, and East Asia but not across them.

This reflects a vision of a semi globalized world in which neither the

bridges nor the barriers between countries can be ignored

JVs and subsidiaries setup across different locations including USA

http://www.saylor.org/site/textbooks/Fundamentals%20of%20Global%20Strategy.pdf 17
 Walmart – Semi-Globalized Approach
It has been successful in markets that are culturally, administratively,
geographically, and economically closest to the United States: Canada,
Mexico, and the United Kingdom.

In other parts of the world, it has yet to meet its profitability targets. The
point is not that Wal-Mart should not have ventured into more distant
markets, but rather that such opportunities require a different competitive
approach.

For example, in India, which restricts foreign direct investment in retailing,

Wal-Mart was forced to enter a joint venture with an Indian partner,
Bharti, that operates the stores, while Wal-Mart deals with the back end of
the business.

http://www.saylor.org/site/textbooks/Fundamentals%20of%20Global%20Strategy.pdf 18
 Global Business - Risks

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Source: Sebastian Sane (2007). Review of Semiglobalization and Strategy
 Defining Global Corporation
Global Corporation involves evaluation across 4 dimensions

Globalization of market presence

• Refers to the degree the company has globalized its market presence and
customer base.
• Oil and car companies score high on this dimension.
• Wal-Mart, the world’s largest retailer, on the other hand, generates less than
30% of its revenues outside the USA

Globalization of supply base

• extent to which a company sources from different locations and has located key
parts of the supply chain in optimal locations around the world.
• Caterpillar, for example, serves customer in approximately 200 countries
around the world, manufactures in 24 of them, and maintains R&D facilities in
nine.

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 Defining Global Corporation
Globalization of capital base
• measures the degree to which a company has globalized its financial structure.
• This deals with such issues as on what exchanges the company’s shares are
listed, where it attracts operating capital, how it finances growth and
acquisitions, where it pays taxes, and how it repatriates profits.

Globalization of corporate mind-set

• refers to a company’s ability to deal with diverse cultures.
• GE, Nestlé, and Procter & Gamble are examples of companies with an
increasingly global mind-set: businesses are run on a global basis, top
management is increasingly international, and new ideas routinely come from
all parts of the globe.

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 Framework for (Semi) Globalization
• Step 1: Companies must analyse the differences across countries that
affect their industry using the CAGE framework

• Step 2: Company should evaluate whether to internationalize or not by

making use of ADDING framework
(Adding Volume or Growth, Decreasing costs, Differentiating or
Increasing Willingness to Pay, Improving industry attractiveness or
bargaining power, Normalizing risks, and Generating knowledge)

• Step 3: Define approach for going global. Single and / or combinations

- Adaptation (Adjusting to Differences)
- Aggregation (Overcoming Differences)
- Arbitrage (Exploiting Differences)

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