Global Market, by ffi99150


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George S. Yip
Pierre M. Loewe
Michael Y. Yoshino

Deciding how to deal with the globalisation of markets poses tough issues and choices for
mangers. There are both external business forces, and internal organisational factors to
consider. External business forces revolve around the interaction of industry drivers of
globalisation and the different ways a business can be global. Understanding this interaction
is key to formulating the right global strategy. Internal organisational factors play a major
role in determining how well a company can implement global strategy. This paper provides
a systematic approach to developing and implementing a global strategy.

MOST MANAGERS have to face the increasing globalisation of markets and competition.
That fact requires each company to decide whether it must become a worldwide competitor to

This is not an easy decision. Take the division of a multibillion-dollar company, a company
that's very sophisticated and has been conducting international business for more than fifty
years. The division sells a commodity product, for which it is trying to charge 400% more in
Europe than it does in the United States. The price was roughly the same in the United States
and in Europe when the dollar was at its all-time high. The company built a European plant
which showed greater return on investment with that European price. But the dollar has fallen
and, if the company drops its European price to remain roughly the same as the US price, the
return on the plant becomes negative, and some careers are in serious jeopardy. So it is
attempting to maintain a 40% European price premium by introducing minor upgrades to the
European product.

But its multinational customers will have none of it. They start buying the product in the
United States and transhipping it to Europe. When the company tries to prevent them from
transhipping, they go to a broker, who does the work for them; they still save money.

The manufacturer doesn't have a choice. It's working in a global market. And it's going to
have to come up with a global price. But management is fighting a losing battle because it is
unwilling to make the hard strategic and organisational changes necessary to adapt to global
market conditions.

European and Japanese corporations also face these kinds of organisational roadblocks. Large
European firms, for example, historically have been more multinational than US companies.
Their international success is due, in part, to decentralised management. The companies
simply reproduced their philosophy and culture everywhere, from India to Australia to
Canada. They set up mini-headquarters operations in each country and became truly multina-
tional with executives of different nationalities running them.

Now they are having problem running operations on a worldwide basis because these
multinational executives are fighting the global imperative. In one European company, for
example, the manager running a Latin American division has built an impenetrable wall
around himself and his empire. He's done very well, and everyone has allowed him to do as

he pleases. But the company's global strategy requires a new way of looking at Latin
America. The organisation needs to break down his walls of independence. So far, that's
proved next to impossible.

Japanese companies face a different set of problems. On the whole, they have followed a
basic, undifferentiated marketing strategy: make small Hondas, and sell them throughout the
world. Then make better Hondas, ending up with the $30,000 Honda Acura. It's incremental,
and it has worked.

Now, however, the Japanese must create various manufacturing centres around the globe and
they're facing many difficulties. They have a coordinated marketing strategy and have built up
infrastructures to coordinate marketing, which requires one particular set of skills. But now
they've begun to establish three or four major manufacturing operations around the world, and
they need a different set of skills to integrate these manufacturing operations. In addition,
many Japanese companies are trying to add some elements of a multinational strategy back
into their global one.

American multinationals have tended to take a different path. The huge domestic market,
combined with cultural isolation, has fostered an "Us-them" mentality within organisations.
This split has made it difficult to fully adapt to the needs of international business. Until
recently, overseas posts have been spurned. A marketing manager for new products in a
United States consumer products company told us that running the sizeable United Kingdom
business would be a step down for him. As a result of others' similar views, many American
firms face two conflicting challenges today. They need to complete their internationalisation
by increasing their adaptation to local needs, while at the same time they need to make their
strategies more global.

But some companies are better off not trying to compete globally because of the difficulties
of their internal situation. The CEO of one Midwest manufacturer decided that his company
had to go global to survive. He gave marching orders. And the organisation marched. Un-
fortunately, they started marching over a global cliff. For example, they set up a small
operation in Brazil since they had targeted South America as part of their global strategy. But
the executives they appointed to run the operation had never been outside the United States
before, and the company started losing money. Company analysis found that going global
was just too unnatural to its cultural system and that a viable strategic alternative was to stay
in the United States and play a niche strategy.

Most international companies have grappled with the types of problems we have been
describing, and have tried to find a solution. This paper provides a framework for thinking
through this complex and important issue. In particular the framework addresses the dual
challenge of formulating and implementing a global strategy. Readers may find the
framework a convenient way to analyse globalisation issues.

Managers who want to make their businesses global face two major challenges. First, they
need to figure out what a global strategy is. Then, when they know what to do, they have to
get their organisations to make it happen.

Developing a global strategy is complicated by the fact that there are at least five major
dimensions of globalisation. These are:

   Playing big in major markets.

   Standardising the core product.

   Concentrating value-adding activities in a few countries.

   Adopting a uniform market positioning and marketing mix.

   Integrating competitive strategy across countries.

Each of these can offer significant benefits:

Playing big in major markets - countries that account for a sizeable share of worldwide
volume or where changes in technology or consumer tastes are most likely to start - brings
these benefits:

   Larger volume over which to amortise development efforts and investments in fixed

   Ability to manage countries as one portfolio, including being able to exploit differences
    in position along the product life cycle.

   Learning from each country.

   Being at the cutting edge of the product category by participating in the one or two major
    countries that lead development.

The local managers of multinational subsidiaries face strong pressures to adapt their offerings
to local requirements. This gets the company laudably close to the customer. But the end
result can be such great differences among products offered in various countries that the
overall business garners few benefits of scale.

The core product can be standardised while customising more superficial aspects of the
offering. McDonald's has done well with this approach - Europeans and Japanese may think
they are eating the same hamburgers as Americans, but the ingredients have been adapted for
their tastes. A French McDonald's even serves alcohol. But the core formula remains the

Instead of repeating every activity in each country, a pure global strategy provides for
concentration of activities in just a few countries. For example. fundamental research is

conducted in just one country, commercial development in two or three countries,
manufacturing in a few countries, and core marketing programs developed at regional centres,
while selling and customer service take place in every country in the network. The benefits
include gaining economies of scale and leveraging the special skills or strengths of particular
countries. For example, the lower wage rates and higher skills in countries such as Malaysia
or Hong Kong have encouraged many electronics firms to centralise worldwide assembly
operations in these countries.

The more uniform the market positioning and marketing mix, the more the company can save
in the cost of developing marketing strategies and programs. As one company told us, "Good
ideas are scarce. By taking a uniform approach we can exploit those ideas in the maximum
number of countries." Another benefit is internal focus. A company may struggle with
numerous brand names and positioning around the world, while its rivals single-mindedly
promote just one or two brands. There also are marketing benefits to a common brand name
as international travel and cross-border media continue to grow. In consolidating its various
names around the world, Exxon rapidly achieved global focus and recognition. Coca-Cola,
Levis, and McDonald's are other companies that have successfully used a single brand
strategy. Mercedes, BMW, and Volvo not only use the same brand name throughout the
world, but also have consistent images and positioning in different countries.

                      Example of Global Strategy: Black & Decker

  Black & Decker, manufacturer of hand tools, provides an example of a company that is
  pursuing a global strategy. In the past decade, Black & Decker was threatened by
  external and internal pressures. Externally, it faced a powerful Japanese competitor,
  Makita. Makita's strategy to produce and market standardised products worldwide made
  it a low-cost producer, and enabled it to increase steadily its share in the world market.
  Internally, international fiefdoms and nationalist chauvinism at Black & Decker had
  stifled co-ordination in product development and new product introductions, resulting in
  lost opportunities.

  In response, Black & Decker decisively moved toward globalisation. It embarked on a
  major program to coordinate new product development worldwide to develop core
  standardised products that can be marketed worldwide with minimal modification. The
  streamlining in R&D also offers scale economies and less duplication of effort, and new
  products can be introduced more quickly. It consolidated worldwide advertising by using
  two principal agencies, gaining a more consistent image worldwide. Black & Decker
  also strengthened the functional organisation by giving functional managers a larger role
  in coordinating with the country management. Finally, Black & Decker purchased
  General Electric's small appliance business to achieve world-scale economies in
  manufacturing, distribution, and marketing.

  The globalisation strategy initially met with scepticism and resistance from country
  management due to entrenched factionalism among country managers. The CEO took a
  visible leadership role and made some management changes to start the company
  moving toward globalisation. Today, in his words, "Globalisation is spreading and now
  has a life of its own."

Instead of making competitive decisions in a country without regard to what is happening in
other countries, a global competitor can take an integrated approach. Tyrolia, the Austrian
ski-binding manufacturer, attacked Solomon's stronghold position in its biggest market, the
United States. Rather than fighting Tyrolia only in the US, Salomon retaliated in the countries
where Tyrolia generated a large share of its sales and profits-Germany and Austria. Taking a
global perspective, Solomon viewed the whole world-not just one country-as its competitive

Another benefit of integrating competitive strategy is the ability of a company to cross-
subsidise. This involves utilising cash generated in a profitable, high-market-share country to
invest aggressively in a strategically important but low-market-share country. The purpose is,
of course. to optimise results worldwide.

How can a company decide whether it should globalise a particular business? What sort of
global strategy should it pursue? Managers should look first to the business's industry. An
industry's potential for globalisation is driven by market, economic, environmental and
competitive factors (Chart 1 omitted from this version) Market forces determine the
customers' receptivity to a global product; economic factors determine whether pursuing a
global strategy can provide a cost advantage; environmental factors show whether the
necessary supporting infrastructure is there; and competitive factors provide a spur to action.

The automotive industry provides a good example of all four forces. People in the industry
now talk of "world cars." A number of market factors are pushing the industry toward
globalisation, including a mature market, similar demand trends across countries (such as
quality/ reliability and fuel efficiency), shortening product life cycles (e.g., twelve years for
the Renault 5, eight for the Renault 18, and five each for the Renault 11 and Renault 9), and
worldwide image-building. Similarly, economic factors are pushing the automotive industry
toward globalisation. For example, economies of scale, particularly on engines and
transmissions, are very important, and few country markets provide enough volume to get full
benefits of these economies of scale. Similarly, many car manufacturers have now moved to
worldwide sourcing. In the environmental area, converging regulations (safety, emissions)
and rapid technological evolution (new materials, electronics, robotics), all requiring heavy
investment in R&D and plant and equipment, also are moving the industry inexorably toward
globalisation. Finally, competitive factors are contributing to globalisation. Witness the
increasing number of cooperative ventures among manufacturers-Toyota-GM, Toyo Kogyo-
Ford, Chrysler-Mitsubishi. These ventures are putting pressure on all automotive manufac-
turers to go global.

In summary, managers wrestling with globalisation issues should first analyse the four sets of
industry forces to determine whether they compete in an industry that is global or globalising.
Next, they need to assess how global their companies are, and how global their competitors
are along the five dimensions defined previously. A very difficult part remains: assessing
whether the organisation has the capacity to go global.

Organisational factors can support or undercut a business's attempt to globalise., Therefore,
taking a close look at how the organisation will affect the relative difficulty of globalisation is
essential. Four factors affect the ability of an organisation to develop and implement global
strategy: organisation structure, management processes, people and culture (Chart 2 omitted
from this version). Each of these aspects of organisation operates powerfully in different
ways. A common mistake, in implementing any strategy, is to ignore one or more of them,
particularly the less tangible ones such as culture.


Centralisation of global authority.
One of the most effective ways to develop and implement a global strategy is to centralise
authority, so all units of the business around the world report to a common sector head. Sur-
prisingly few companies do this. Instead, they are tied for historical reasons to a strong
country-based organisation where the main line of authority runs by country rather than by
business. In a company pursuing a global strategy, the business focus should dominate the
country focus. It's difficult, but necessary.

Domestic/international split.
 A common structural barrier to global strategy is an organisational split between domestic
and international divisions. The international division oversees a group of highly autonomous
country subsidiaries, each of which manages several distinct businesses. A global strategy for
any one of these businesses can then be coordinated only at the CEO level. This split is very
common among US firms, partly for historical reasons and partly because of the enormous
size of the US market. Ironically, some European multinationals with small domestic markets
have separated out not their home market but the US market. As a result they find it difficult
to get their US subsidiaries to cooperate in the development and implementation of global
strategy. In one European company we know, the heads of worldwide business sectors go hat
in hand to New York to solicit support for their worldwide strategies.

While organisation structure has a very direct effect on management behaviour, it is
management processes that power the system. The appropriate processes can even substitute
to some extent for the appropriate structure.

Cross-country co-ordination.
Providing cross-country co-ordination is a common way to make up for the lack of a direct
reporting structure. Some consumer packaged goods companies are beginning to appoint
European brand managers to coordinate strategy across countries.

Global planning.
Too often strategic plans are developed separately for each country and are not aggregated
globally for each business across all countries. This makes it difficult to understand the
business's competitive position worldwide and to develop an integrated strategy against
competitors who plan on a global basis.

Global budgeting.

 Similarly, country budgets need to be consolidated into a global total for each product line to
aid the allocation of resources across product lines. Surprisingly few companies do this.

Global performance review and compensation.
 Rewards, especially bonuses, need to be set in a way that reinforces the company's global
objectives. An electronics manufacturer, for example, decided to start penetrating the
international market by introducing a new product through its strongest division. The division
head's bonus was based on current year's worldwide sales, with no distinction between
domestic and international sales. Because increasing his domestic sales was easier and had a
much quicker payoff-than trying to open new international markets. the division head didn't
worry much about his international sales. Predictably, the firm's market penetration strategy

International groups and forums.
Holding international forums allows exchange of information and building of relationships
across countries. This in turn makes it easier for country nationals to gain an understanding of
whether the differences they perceive between their home country and others are real or
imagined. It also facilitates the development of common products and the co-ordination of
marketing approaches. For example, a French manufacturer of security devices uses councils
of country managers, with different countries taking the lead on different products. While this
approach is time consuming, the company has found that this reliance on line managers
makes it easier for various countries to accept the input of other countries, and thus for global
approaches to be pursued by all.

Being truly global also involves using people in a different way from that of a multinational

Use foreign nationals.
High-potential foreign nationals need to gain experience not only in their home country, but
also at headquarters and in other countries. This practice has three benefits: broadening the
pool of talent available for executive positions; demonstrating the commitment of top
management to internationalisation; and giving talented individuals an irreplaceable de-
velopment opportunity. US companies have been slow to do this, particularly at the most se-
nior ranks.

Promoting foreigners, and using staff from various countries, has often paid off. In the 1970's,
an ailing NCR vaulted William S. Anderson, the British head of their Asian business, to the
top job. Anderson is widely credited with turning around NCR. A French packaged goods
manufacturer undertook seven years ago to move its European staff from country to country.
Today, of fifteen staff members working at headquarters, seven are French, three are English,
three are German and two are Italian. The company credits this practice-among others - for its
remarkable turnaround.

Require multicountry careers.
 Making work experience in different countries necessary for progression, rather than a hin-
drance, is another step that helps a company become truly global. One electronics
manufacturer decided to make a major push into Japan, but an executive offered a transfer
there was loath to take it. He was unsure a job would remain for him when he came back. As
he put it, "The road to the executive suite lies through Chicago, not Osaka."

Travel frequently.
Senior managers must spend a large amount of time in foreign countries. The CEO of a large
grocery products company we have worked with spends half his time outside the United
States - a visible demonstration of the importance and commitment of the company to its
international operations.

State global intentions.
The senior management of a company that wants to go global needs to constantly restate that
intention and to act accordingly. Otherwise, the rank and file won't believe that the
globalisation strategy is real. One test among many is the prominence given to international
operations in formal communications such as the chairman's letter in the annual report and
statements to stock analysts.

Culture is the most visible aspect of organisation, but, as shown below, it can play a
formidable role in helping or hindering a global strategy.

Global (vs national) identity
Does the company have a strong national identity? 'This can hinder the willingness and ability
to design global products and programs. It can also create a "them and us" split among
employees. One firm was making a strong global push, and yet many of its corporate
executives wore national flag pins! European companies are generally well in advance of both
American and Japanese firms in adopting a global identity.

Worldwide (vs. domestic) commitment to employment.
Many American companies view their domestic employees as more important than their
overseas employees and are much more committed to preserving domestic employment than
to developing employment regardless of location. This often leads them to decide to keep
expensive manufacturing operations in the United States, rather than relocate them to lower-
cost countries. This puts them at a competitive cost disadvantage and threatens their overall
competitive position.

Interdependence (vs. autonomy) of businesses.
A high level of autonomy for local business can also be a barrier to globalisation.

In sum, the four internal factors of organisation structure, management processes, people and
culture play a key role in a company's move toward globalisation.

For example, a company with a strong structural split between domestic and international
activities, management processes that are country -rather than business-driven, people who
work primarily in their home countries, and a parochial culture is likely to have difficulty
implementing integrated competitive strategies. If the analysis of external drivers has shown
that such strategies are necessary for market, competitive, environmental, or economic
reasons, top management needs to either adapt the internal environment to the strategic moves
the company needs to make-or decide that the profound organisational changes needed are
too risky. In the latter case, the company should avoid globalisation and compete based on its
existing organisational strengths.


There are many was to pursue a global strategy. Industry forces play a major role in
determining whether going global makes sense. An analysis of a company's competitive po-
sition against the five dimensions of globalisation - major market participation, product
standardisation, activity specialisation, uniform market positioning and integrated competitive
strategy-helps define the appropriate approach for a globalisation strategy. Finally, and very
importantly, the ability of the organisation to implement the different elements of global
strategy needs to be considered.

Matching the external and internal imperatives is critical. For example, we have worked with
a company whose culture included the following characteristics:

          A high degree of responsiveness o customers' requests for product tailoring.

          A strong emphasis on letting every business and every country be highly

          A desire for 100% control over foreign operations.

          A commitment to preserving domestic employment.

The difficulty the company found in pursuing a globalisation strategy is illustrated in the
strategy/culture fit matrix in Exhibit 3.[omitted here] The matrix helped management
articulate the pros and cons of the three major options they could pursue: a pure global
strategy with an organisational revolution; a series of incremental changes in both strategy
and organisation, leading to a mixed strategy of globalisation/national responsiveness; and an
explicit rejection of globalisation, accompanied with a conscious decision to build on the
company's existing organisational and cultural characteristics to develop a pure national
responsiveness strategy. This enabled them to make fundamental and realistic choices rather
than assuming the unavoidable dominance of strategy over organisation and of globalisation
over national responsiveness.

Competing globally is tough. It requires a clear vision of the firm as a global competitor, a
long-term time horizon, a concerted effort to match strategy and organisation changes, a
cosmopolitan view and a substantial commitment from the top. But the result can be the
opportunity to gain significant competitive advantage through cost, focus, and concentration,
and improved response to customers' needs and preferences.

Source: Columbia Journal Of World Business Volume 23 Number 4 Winter 1988
Note: For technical reasons, the appendix, charts and references have been omitted from this version.


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