1. A global business strategy consists of: Global ambition Stating the relative importance of

region and countries for a company. Global positioning Choice of countries, customer

segments and value proposition Global business system Global structure, processes, co-

ordination and HRM.

2. Global ambition: There are two global indices:

- Global Revenue Index (GRI) is the ratio of the company distribution of sales in the major world regions to the industry distribution of demand in the same region.

- Global Capability Index (GCI) is the ratio of the company distribution of assets or personnel in the major world regions to the industry distribution the same region. Distribution of assets is used when the company is engaged in a capital-intensive industry. Otherwise, the distribution of personnel is used.

Types of global ambitionsDepending on the value of the GRI and GCI, there are five main global ambitions for different players.- A Global player aspires to establish a sustainable competitive

position in the key markets of the world and to build an integrated business system of designs spread over those key markets. It has both a high GCI and a high GRI score.

- A Regional player captures a strong competitive advantage in one of the key regions of the world (North America, Europe and Asia) and is a relatively weak player in the other parts. It has both a low GCI and a low GRI score.

- A Regional dominant player sells in more countries than a regional player but it does not yet sell across the key markets of the world. It has a medium score for CGI and GRI.

- A Global exporter sells across the key markets of the world products manufactured or services operated in its home country and builds operations only to support the export drive. It has a low CGI and a high GRI score.

- A Global sourcer procures a large fraction of product components in factories located outside its base market and concentrates its sales in its domestic market. It has a high GCI and a low GRI score.

3. Global positioning : Global positioning involves:

- Choice of countries- Value proposition adopted.

There are five types of countries where global positioning occurs:

- Key countries Countries critical for the long-term competitiveness of the company owing to its size, growth or resources available.

- Emerging countries Countries that exhibit high growth rate for particular industry.

- Platform countries Countries which can serve as a ‘hub’ for setting up regional centres, global factories that are ‘platforms’ for further development

- Marketing countries Countries with attractive markets without being as strategically critical as the key countries.

- Sourcing countries Countries with a strong resource base but limited market prospects.

Value proposition:- The value proposition comprises:

(a) Choice of value attributes(b) Customer value curve(c) Degree of world standardization of products/service

offering.- Value attributes are the elements of the products/services that

customers value when making their purchasing decision; examples include price, design, functionality, performance, quality and customization.

- The customer’s value curve is the set of value attributes for particular group of customers and a particular product/service.

- Degree of world standardization of products/services:(a) A standardized value proposition adopts a similar or standard

value attribute to the same type of customer segments across the world.

(b) An adaptive value proposition adopts a similar or standard value proposition for different countries/regions.

Choices of global positioning:There are eight choices of global positioning depending on the company’s decisions on:- Scope of targeted customer segments (broad/focused player)- Approach of making a value proposition in different countries

(standardized/adaptive)- Choice of generic strategies adopted (differentiation or cost

leadership).

4. Global business system: Elements

- A global business system decomposes the company value chain into elements which are spread and integrated across the world.

- It involves building and developing capabilities to compete successfully on the global market space; global capabilities are embodied into a business system deployed in various countries

Value chain:Each company has a different value chain according to the type of industry in which is operates and the degree of vertical integration it has adopted. One can distinguish three major generic components of a value chain:- Innovative activities (R&D, design, knowledge)- Productive activities (procurement, manufacturing, back office,

operations, logistics)- Customer relationship activities (marketing, sales, distribution,

customer service) Capabilities

- Types:(a) Capabilities that lead to a differentiation proposition, such as

superior quality, customization, innovative design.(b) Capabilities which lead to cost leadership, such as low-cost

labour/raw materials.- Factor determining global competitive advantages: proprietary

ownership or access to valuable assets, resources or competencies- Types of sustainability in competitive advantage:

(a) Customer loyalty Can be built on brand or high switching costs involved

(b) Positive feedbacks Can result from network externalities and experience effects

(c) Pre-emption of capabilities Based on the appropriation by one company of key resources or assets that competitors will find difficult to access or to develop since they require investment of resources and/or time

- Modes of building competitive advantage:(a) First-mover advantages Being amongst the first competitors

to enter a given market.(b) Leveraging advantages Exploiting capabilities already built

in other countries. Evolution of firms in globalization process:

- There are three stages of progress:(a) Export

(i) Sales is the only element in the value chain which is set up in foreign countries and not through direct investment but through local distributors, agents or licensing; a representative office can be set up at this stage if the market size justifies it.

(ii) As the company progresses through the export stage, it invests in marketing subsidiaries actively to manage the

marketing mix; their role is to co-ordinate the activities of the distributors, organize promotion and set up logistics and service centres: these marketing subsidiaries may eventually take over the local distributors.

(b) MultinationalThe company manages a portfolio of relatively independent worldwide wholly owned subsidiaries or joint ventures.

(c) GlobalA global company integrates and co-ordinates its worldwide operations to take advantages of economies of scale, transfer of know-how and resources optimization; this leads to an interlocked set of value chain activities which falls broadly into three categories: the activities which have a global role to serve the whole world (global activities), those which have a regional role (regional activities) and those which are purely local (local activities).

Partnerships:- Companies usually need to acquire and complement their

capabilities by setting up partnerships; global strategic partnerships are often critical for achieving a global presence and building global competitive advantage.

- Forms of strategic alliances include:(a) Global alliances to pool complementing capabilities to reach

world markets and achieve a critical mass in R&D(b) Partnerships – joint ventures, franchises or licensing for market

entry.(c) Acquisitions.

5. Global organizations Organization choice is dependent on:

- The nature of the competitive context in the industry:Phases of global development include:(a) Early export(b) Early multinational subsidiaries(c) Full multinational(d) Global(e) Global multi-business

- The strategic positioning adopted by the firm Organizational dimensions cover:

(a) Structure (b) System/processes(c) Culture

6. Global corporate strategy: For a multi-business corporation, the four elements of the global

corporate strategies are extended in scope:

- Corporate global ambition specifies the different global profiles for each business e.g. whether the corporation wants to be a global player in all of the businesses it controls.

- Corporate global positioning considers which businesses the corporation wants to be in: does it want the businesses to share a common global brand and/or standard competitive positioning?

- Global business system describes how business units share resources, assets and competences to obtain synergies and what the company’s priorities are in resource allocations among businesses.

- Global organization explains the role of corporate headquarters and the company organization by function/products/countries/region

To take the example of the Asia Pacific region, and to refer to our earlier discussion of country clusters, one can classify countries into five main groups:

Table 1: Cluster characteristics, Asia Pacific

Hubs Emerging giants

Newly industrialized economies

Resource-rich developing* countries

Advanced countries

Population L H M M/H M/H

GDP L M M L H

GDP per capita

H L M L H

Infrastructure

H L H L H

Skills H L H L H

Labour costs M L M L H

Risks M M L/M H H

Natural Resources

L M L H LJapan = LAustralia = H

Notes : L = Low, M = Medium, H = High

*These countries share many common characteristics with the emerging giants.

Hubs: Singapore and Hong Kong Emerging giants: India and China Newly industrialized economies: Taiwan, Korea, Malaysia Resource-rich developing countries: Indonesia, the Philippines,

Thailand Advanced countries: Australia and Japan. Table 1 gives the key

characteristics of those clusters. The choice of countries between clusters and within a cluster will ultimately depend on the strategic ambition of the global firm and the relative importance it attaches to the various factors

Key points

1. Entry decisions take into account:

Country attractiveness analysis Entry strategy

2. A country attractiveness assessment is based on two dimension: Market and industry opportunities

Country risks (many organizations publish country assessment results based on various economic/political/social factors.

3. Market opportunities assessment measures the potential demand in the country for a firm’s products or services based on:

Market size Growth Quality of demand

4. Demand: Overall demand is assessed based on a combination of:

- Macroeconomic correlation approach (estimating demand based on correlation with given macroeconomic indicators)

- Consideration of other factors:(a) Degree of urbanisation(b) Climate conditions(c) Income distribution(d) Lifestyles(e) Savings rates

- Trend analysis with comparable countries:(a) On a per capita basis(b) On absolute value

Demand for most mass consumer goods in emerging markets is often triggered by the ‘middle-class effect’:

- The increased number of people who become middle-class (i.e. reach a certain disposable income threshold) causes an increased demand for modern branded products

Quality of demand:- Nature and diversity of market segmentation prevailing in a

country and the profile of customers value curve in each segment

- There are two generic segments:(a) Low-end segment:

(i) Undifferentiated products (ii) Mass production and distribution(iii) Price-sensitive

(b) High-end (i) Differentiated products (ii) Functionalities and performances(iii) Less price-sensitive

- Developing world segmentation(i) Huge low-end commodity market(ii) Rising middle-class but still relatively small segment(iii) Tiny highly wealthy segment

- Industrialized country segmentation: (i) Diverse segmentation(ii) Middle-class market dominates

Demand characteristics of a country:- Market growth, market size, segmentation, customer value

curve, distribution and competition.- Depends on country life cycle cluster country belongs to- country life cycles clusters:

(a) Defined based on a country’s wealth and its growth rate – a country goes through a ‘country life cycle’ depicting the relationship between the country’s wealth and its long-term growth rate.

(b) Types of country life cycle cluster include:(i) Developing countries(ii) Emerging countries(iii) Newly industrialized economies(iv) Industrialized countries

5. Industry opportunities assessment determines profitability potential of a company’s presence in a country given the following factors:

Quality of industry competitive structure (including Porter’s five-force Industry Analysis Framework):

- Intensity of rivalry- New entrants and entry barriers:

(a) High capital investments(b) Short product life cycles(c) R&D costs(d) Proprietary products(e) Industry standards(f) Economies of scale(g) Large distribution channels(h) Some closed markets(i) Fear of retaliation(j) Regulatory requirements, e.g. licenses

- Bargaining power of:(a) Suppliers

(i) Scarcity or proprietary nature of supplies(ii) Concentrated suppliers(iii) Threat of forward integration

(b) Buyers: (i) Low switching costs(ii) Concentrated buyers(iii) Threat of backward integration

- Threat of substitutes: alternative value proposition - Profitability

(a) Short-term(b) Long-term

Resource availability:- Natural resources:

(a) Examples include raw materials and geographical location(b) Governments are protective of country’s natural resources

- Human resources: examples include low-cost labour, skilled personnel Infrastructure skills)

- Infrastructure and support industries resources:(a) Examples include power, telecoms, road(b) When combined with good geographical, provide a

competitive advantage to a country to become a regional centre

Government- Investment incentives granted by governments:

(a) Types of incentives(i) Fiscal incentives-tax reduction, exemption of import or

export duties(ii) Financial incentives-subsidies(iii) Competitive incentives-preferential purchases(iv) Operational incentives-preferential rates for rents,

land, power and telecoms(b) Incentives play only a limited role in inducing foreign

investment- Government intervention:

(a) Price controls(b) Regulatory constraints (c) Taxation

6. There are four categories of country risk: Economic risks:

- Economic growth- Variability of economic factors- Inflation- Cost of inputs- Exchange rates

Competitive risks (non-economic distortion of competitive context):- Corruption - Cartels

Operational risks:- Infrastructure:

(a) Power, telecoms and transport(b) Suppliers

- Regulations (a) National preferences(b) Constraints on local capital, local content or local

employment(c) Taxes

Political risks:- Employees’ exposure:

(a) Gangsterism(b) Kidnapping

- Operational exposure:(a) Market disruption(b) Labour unrest(c) Racketeering (d) Supplies shortage

Shareholder’s exposure (loss of capital or loss through inability to repatriate dividends):

(a) Asset destruction (e.g. war or riots)(b) Asset spoliation(c) Asset immobility (e.g. freeze)