International expansion and

Globalisation Strategies

Reference: Richard Lynch, Strategic

Management
 What is international and global strategy? – 1

Some definitions:
• Foreign Trade: the exporting and importing activities of
a company engaged in international trade.
• Foreign Direct Investment: the long-term investment by
a company in the technology, management skills,
brands and physical assets in another country.
• MNE: Multinational Enterprise – like Repsol or
Telefonica.
 What is international and global strategy? – 2

Some definitions:
• International: when a significant proportion of operations are
outside the home country and these operations are managed
as a separate area. E.g small co exporting products to other
countries
• Multinational: when a company operates in many countries,
though it may still have a home base. One purpose of such
operations is to respond to local demand, e.g. Toyota or
Philips. Customize to local demand.
• Global: when a company treats the whole world as one
market and one source of supply. There is little significant
response to local demand, e.g. Gucci or McDonald’s.
 What is international and global strategy? – 3

Strategic implications:
• International: main focus on home country – competitive
advantage developed from home country.
• Multinational: competitive advantage separately
determined for each of the national or regional markets
in which the company operates.
• Global: focus is world-wide with competitive advantage
being applied around the globe. Car Industry, Paper
Industry

• Co’s selling in different countries claiming to be global,

are international or multinational but not truly global
 Global developments and their
relationship with corporate strategy

• Over the last ten years, global trade has increased faster than
manufacturing output.
• International trade has become a driver of output for companies:
political developments have enhanced world trade, e.g. GATT
Uruguay Round negotiations.
• Theories of international trade and the development of nations
provide the framework for the analysis of corporate strategy:
examples:
– Theory of comparative advantage of nations
– Competitive advantage of nations (Porter): four main factors
plus government policy and chance
– Limited state intervention (World Bank): to develop infrastructure
and open competition.
• Corporate strategy needs to analyse relevant trends.
 Economic theories of international trade

• Theories are important because they hope to explain

why things happen and can be predictive.
• But theories in international trade have to deal with
complex situations and remain incomplete.
• Most have developed using economic models: e.g.
– 18th/19th century theories of Absolute and Comparative
advantage
– 20th century concepts of Factor Endowment and Product Life
Cycle
– 1990: Porter’s Diamond Theory.
• All partially ignore the vital aspect of politics and totally
miss any cultural or human resource dimension.
 What are the main theories of world trade?

• Early theories concentrated on trade between nations

rather than between companies.
• Riccardo’s Theory of Comparative Advantage:
countries trade where they have special strengths.
• ‘Nations should produce those goods for which they
have the greatest relative advantage’.
• Porter’s Diamond Theory argued that trade also relates
to the degree of competition, levels of investment and
infrastructure in the home country.
• World Bank view: need for governments to provide
infrastructure in early years, then allow free markets to
operate.
 Major institutions and agreements
influencing international trade

• Many institutions including:

– International Monetary Fund (IMF): oversees international
payments between countries
– World Bank: provides long-term capital aid
– World Trade Organisation (WTO): regulates trade activity and
resolves trade disputes between nations.
• World trade mainly governed by General Agreement on Tariffs and
Trade (GATT):
– general treaty between nations
– various rounds of tariff-reduction negotiations over last fifty
years
– opened up world markets and increased international trade.
 What is the basic business case for
a global strategy? – 1

• Business case for global strategy based on achieving

one or more of the following: see research by Levitt,
Ghoshal, Ohmae,Yip and others.
– Economies of scope and scale
– Global brand recognition
– Global customer satisfaction, i.e. MNE customers who
demand the same product and quality at various
locations throughout the world.
…continued…….
 What is the basic business case for
a global strategy? – 2

…continued…
– Lowest labour and other input costs by choosing and
switching to countries with low(er) labour costs
– Recovery of R&D and other development costs across
the maximum possible number of customers
– Emergence of new markets.
• Yip argues that the business case for globalisation is
strengthened by competitive pressures: fear of being
left behind.
 What is the business case for
a global strategy? – 3

• Costs of globalisation: see Douglas and Wind and

others
– lack of sensitivity to local customer demand
– transport
– communications
– management co-ordination.
• Business case for global strategy will vary depending
on the product category: Lynch.
• Importantly, global economies of scale are not so easy
to achieve
 How do you develop a global strategy?

Globalisation – the Yip approach

• Distinguish global and multidomestic strategy.
• Three steps to global:
» Develop core strategy
» Internationalise
» Integrate across countries.
• Framework of global strategy forces acting on the organisation:
Resources
of parent Company’s Benefits and
own global problems of
External strategy global
global levers operations
drivers
 How do you balance global and
national issues?

• In practice, the key debate for MNEs is often the balance between
two factors which are not mutually exclusive: Prahalad and Doz
and others
– pressure for global strategy
– pressure for national responsiveness.

Multinational company
High for global and nationally
Global product company
Benefits of responsive products
global-scale
opportunities
Multi-domestic
Low International subsidiary
company

Low High
Need for national responsiveness
 Global versus Local

• The case for a global strategy:

– Resources: sourced and manufactured on a global basis
– Customer demand: essentially the same around the world.
• The case for a local strategy:
– Customer tastes and usage may differ
– National governments may force some variation to suit its
local policies
– Different technical standards
– Different national competitors.
• In practice, not mutually exclusive.
• Glocal – Think Global, Act Local
 Some specific international strategies

• Multicountry strategy: targets individual countries or regions of the

world; international co-ordination secondary to a country-by-
country expansion programme. E.g. Launching a product using
local expansion opps.
• International low-cost strategy: sources production where costs are
lowest and sells products globally. Philips(Netherlands)
manufactures in HK and sells them in Europe
• International niche strategy: same product sold in same market
niche in all countries of the world; often applies to up-market
products. E.g Dunhill (UK), Zara (France)
• International combination strategy: regions of the world have their
own production with regional or national variations made and
marketed....but global underpinning of strategy is clear, e.g.
through R&D or global branding. E.g. Toyota, GM
 Reasons for developing external relationships

• Relationships include: ownership, alliances and joint

ventures.
• In the context of international expansion, there are three
main reasons for developing external relationships:
– Learning: about a country, its culture, about the resources
of the companies involved
– Cost minimisation and risk reduction: e.g. lower labour
costs, different regulatory systems
– Market factors: international access and distribution,
competitive positioning, customer service.
 Case 19.1 - MTV: More local than global? – 1

• MTV activities:
– Began 1981 in USA, pioneered reality TV from 1992
– MTV: 40 national and regional TV channels
– MTV: 80% viewers outside USA, but US accounts for 85% of
revenue
– MTV: Some international artists, but many local channels
– Relatively cheap programming using music videos and youth
reality programming
– Part of international media group – Viacom.
• Competition:
– From other forms of music downloading
– From other music channels – all playing music videos
– Where is the sustainable competitive advantage of MTV?
 Case 19.1 - MTV: More local than global? – 2

• Benefits of global media strategy? Economies of scope

and scale – technology, satellites, global image, only
need to dub language for local broadcast
• Difficulties? Need for local music service, so not truly
global, difficult to raise revenue outside USA
• Market trends: Other downloading platforms,
competition increased, little competitive advantage
• MTV more global or local? Will it survive? If more local,
then why global? If more global, then where will the
profits come from? Not really clear.