Global Strategic Analysis: Understanding the International Business Environment

Drivers for a Global Strategic Perspective
 (Frynas & Mellahi, 2011: 16)

Forces for Global Integration and Coordination

Levitt, Theodore (1983) The Globalization of Markets. Harvard Business Review  vol 61, issue 3, pp. 92-102

Identified an expanding spiral of globalization driven by

n  Economies of Scale

n  Economies of Scope

n  Factor Costs

n  Trade Liberalization

Ideas developed by YIP, George S. (1989) ‘Global Strategy…In a World of Nations?’ MIT Sloan Management Review, Fall, vol. 31 issue 1, pp. 29-41

n  Each industry has distinctive drivers of globalization:

n  Market, Cost and Environmental (PESTEL) factors

n  Competitive factors, which competitors can modify through their own actions

n  Links to the resource-based view: create your own market, change the rules of the game

n  Integrate your activities world-wide to capitalize on strengths, build economies of scale and scope

Yip’s Drivers of Globalization
(Stonehouse et al 2004: Ch 4)

For each industry, the pace of globalization will be determined by

n  Market factors      ) fixed in the short term

n  Cost factors                            ) for each industry

n  Environmental factors   )

n  Competitive factors: variable in the short term                              through the actions of competitors

                                                (links to Porter’s Five Forces)

For each firm, the choice of lever should be matched to the current condition of the drivers within its industry

A range of possible tactics that can be used to support a strategy of globalization

n  Major market participation (i.e. presence in all three ‘expanded Triad’ regions: NAFTA, enlarged EU, Asia)

n  Product standardization

n  Activity concentration

n  Uniform marketing

n  Integrated competitive moves

Levers: Key Variables in the Business Model Linked to Global Expansion
(Frynas & Mellahi, 2011: 13)

A Note of Caution: Forces for Local Differentiation and Responsiveness

n  Global brands are the exception, not the rule in international business (Ohmae, Kenichi (1989) Managing in a Borderless World. Harvard Business Review, May/June)

n  If globalization drivers are weak in your industry, you may need to set your strategy levers towards local responsiveness (Yip 1989) – or to expand on a regional rather than global level (Gefen and Carmel 2008)

n  Remember Lecture 2? Industry analysis is most effective when combined with regional analysis

n  In each new region: acquire local knowledge, analyse and reflect on it, and learn from the experience – become able to act locally

n  When managers from different regions meet and share their learning, including their growing understanding of distance (CAGE factors), the firm can start to think globally

Analysing the Industry-Level Environment: The Arena of Competition
 (Frynas & Mellahi, 2011: 42)

Porter’s Five Forces: A Key Tool of Industry Analysis

 (Frynas & Mellahi, 2011: 80-92)

Key Concept: Barriers to Entry

n  Barriers to entry are obstacles, which potential newcomers would encounter when entering the market

n  High barriers to entry help maintain a firm’s profitability

n  Barriers to entry include:

n  Capital Requirements

n  Economies of Scale

n  Product Differentiation

n  Access to Distribution Channels

n  Government Policy

n  Expected Retaliation

Entry to What...?

n  How do we define an industry?

n  A focus on a broad industry may lead to an inaccurate understanding of the market and the nature of competition. Indeed, using the word “industry” may be unhelpful because it is very broad.

n  Firms need to identify a precise market, which can be achieved by conducting

n  a market segmentation analysis (customer focused) and

n  a strategic group analysis (competitor focused)

Strategic Groups in the Global Car Industry
(Frynas & Mellahi, 2011: 78)

The Industry-Level Environment: The Arena of Competition and Cooperation

 (Frynas & Mellahi, 2011: 42)

Porter’s Diamond: Strong Industry-Level Competitors Need a Strong Home-Region Support System (Ghadar et al 2012)

The Competitive Advantage of Nations In a Given Industry 

Will Change Over Time…

n  The Product Life Cycle model suggests that every basic product evolves through a cycle of roughly four stages – introduction, growth, maturity and decline – which correspond to the rate of growth of industry sales.  

n  The International Product Life Cycle (IPLC) model suggests that many manufactured products go through an international life cycle, during which a developed country is initially an exporter, but then loses its export markets and finally could become an importer of the product from developing countries (Remember Lecture 2? Late Movers)

The Industry-Level Environment: The Arena of Negotiation
 (Frynas & Mellahi, 2011: 42)

All These Environmental Forces Will Influence...
The Business Model

1)      Customer Value Proposition

n  Who are your target customers?

n  What is the problem or need you will help them with?

n  How will you meet their needs?

2)      Key Resources (needed to deliver the CVP)

3)      Key Processes (Porter’s Value Chain activities)

4)      Profit Formula (costs and revenues)

Managers look at how these factors will vary not automatically but through trial and error, and negotiation

n  as the SCALE of output rises

n  over TIME – lead times, throughput, cash flows

n  over SPACE – do you need to adapt the business model when you move beyond your home market?

(Johnson, M.W., Christensen, C.M. and Kagermann, H. (2008) Reinventing Your Business Model. Harvard Business Review. 86/12 p: 50)