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ChapterCase
The Wonder from Sweden: Is IKEA’s Success Sustainable?
10.1 What Is Globalization? (LO 10-1)
10.2 Going Global: Why? (LO 10-2)
CONNECT INTEGRATION
Video Case: Going Global: Why?
10.3 Going Global: Where and How? (LO 10-3, LO 10-4)
10.4 Cost Reduction vs. Local Responsiveness: The Integration-Responsiveness Framework
(LO 10-5)
CONNECT INTEGRATION
Case Analysis: Strategy Around the World
10.5 National Competitive Advantage: World Leadership in Specific Industries
(LO 10-6)
CONNECT INTEGRATION
Interactive Labeling: Porter’s Diamond Framework of National Advantage
Strategy Term Project
CONNECT INTEGRATION
HP Running Case: Module 10
Chapter 10
Global Strategy: Competing Around the World
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POWERPOINT SLIDES 1–5
This chapter discusses the importance of globalization. It illustrates why firms are eager to enter the global marketplace. To
do so, however, firms need to be aware of the turbulent and diverse nature of the global marketplace. This dynamic situation
is caused by different geographic characteristics, cultural factors, and different types of demand. To successfully compete
worldwide, firms need to develop global strategies. We begin with the definitions of globalization, multinational enterprise,
and foreign direct investment in the beginning to help students develop a good foundation with globalization concepts. Then
we talk about why, where, and how MNEs have entered the global marketplace. We discuss several types of global strategies
arrayed within the integration-responsiveness framework and their pros and cons. Finally, we discuss the world leadership in
specific industries as analyzed through Porter’s Diamond of National Competitive Advantage.
Learning Objectives
LO 10–1 Define globalization, multinational enterprise (MNE), foreign direct investment
(FDI), and global strategy.
LO 10–2 Explain why companies compete abroad, and evaluate the advantages and
disadvantages of going global.
LO 10–3 Apply the CAGE distance framework to guide MNE decisions on which countries
to enter.
LO 10–4 Compare and contrast the different options MNEs have to enter foreign markets.
LO 10–5 Apply the integration–responsiveness framework to evaluate the four different
strategies MNEs can pursue when competing globally.
LO 10–6 Apply Porter’s diamond framework to explain why certain industries are more
competitive in specific nations than in others.
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ChapterCase
Powe rPoint Slid es 63–64
STRATEGY SMART VIDEO EXAMPLE
POWERPOINT SLIDE 71: IKEA’S SECRET TO GLOBAL SUCCESS
The brief video in this slide could be used to introduce the case discussion.
Alternatively, check out this case update article and video “How IKEA took over the world” B Kowitt 3/15/15 Fortune.
CONSIDER THIS DISCUSSION QUESTIONS
Ingvar Kamprad’s influence over IKEA may even be stronger than that of Sam Walton over Walmart because IKEA
is privately held, while Walmart is a public company (since 1970). Walmart entered a period of difficulties after Sam
Walton stepped down (in 1988 at age 70). Do you anticipate IKEA having similar leadership transition challenges?
Why or why not?
Sam Walton retired as CEO in 1988, but remained as chairman of the board until 1992, when he was replaced by his son,
Rob. At Walmart, two of Walton’s sons, Jim and Rob, and Rob’s son–in-law currently hold positions on the board of
directors. Jim Walton worked briefly at the firm, but spent the majority of his career managing the family-owned bank and
the family’s wealth management firm. Rob Walton began his career in a law firm, but joined Walmart in 1969 and has been
chairman of the board for 23 years (as of 2015). A third son, John, also held a board position until his death in 2005, when he
Did it surprise you to learn that both a rich developed country (the United States) and emerging economies (i.e., China
and Russia) are the fastest-growing international markets for IKEA? Does this fact pose any challenges in the way
IKEA ought to compete across the globe? Why or why not?
A key consideration in this question is the extent to which the products that IKEA sells have highly localized consumer
What can IKEA do to continue to drive growth globally, especially given its strategic intent to double annual store
openings?
IKEA’s biggest challenge is likely to be obtaining the capital needed to fund these ambitious growth targets. Its convoluted
corporate structure and its determination to remain family controlled and private create barriers for both equity and debt
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Assume you are hired to consult IKEA on the topic of corporate social responsibility (see the discussion in Chapter 2).
Which areas would you recommend the company be most sensitive to, and how should these be addressed?
Stichting INGKA Foundation’s bylaws enable it to disburse funds in only two ways, to invest in the IKEA group of firms or
to donate money through the IKEA Foundation. As a result, the firm has extensive social and environmental programs. In
2014 the foundation donated 104 million euros to benefit children living in extreme poverty through 40 partner organizations,
including UNICEF, Save the Children, and the United Nations Refugee Agency. Some of these charitable programs are done
in close cooperation with IKEA stores and promote sales, as well as social benefit. For example, in the “soft toys for
10.1 What Is Globalization? LO 10–1
POWERPOINT SLIDES 6–13
EXAMPLES
STRATEGY SMART VIDEO EXAMPLE
POWERPOINT SLIDES 13 AND 74: TOP 100 MOST VALUABLE GLOBAL BRANDS 2015
The brief video in slide 74 can be used as an illustration of the growing importance of non-U.S./European firms to global
consumer products commerce.
POWERPOINT SLIDE 11
NEWER FACULTY: There are three stages of globalization from a historical perspective. Globalization 1.0 occurred between
1900 and 1941, and the cross-border trading was very export-oriented; only sales and distribution took place overseas.
POWERPOINT SLIDE 8
In “Urban world: The shifting global business landscape” 10/2013 McKinsey Quarterly, the firm projects that by 2025
emerging market firms will make up 45percent of the Fortune Global 500, compared with just 5 percent in 2000.
POWERPOINT SLIDE 8
EXPERIENCED FACULTY: While many multinational companies like Coca-Cola, Procter & Gamble, and Sony tend to focus
on more affluent customers, some 4 billion people on the planet live on less than $2,000 a year (or $5.50 a day). Recently,
scholars have shown that this so-called bottom of the pyramid of the global economy—the largest but poorest socioeconomic
group of the world’s population—can yield significant business opportunities, which—if satisfied—could improve the living
standard of the world’s poorest. Muhammad Yunus, winner of the 2006 Nobel Peace Prize, founded Grameen Bank in
Bangladesh to provide small loans (so-called microcredit) to impoverished villagers. Loans provided funding for their
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DISCUSSION TOPICS
POWERPOINT SLIDE 7
NEWER FACULTY: Instructors can ask students where their sneakers are being made. The answer will likely be a place
political and cultural change in one country can have broad effects on an industry and that a deep global mindset and broad
EXTENDED EXAMPLE
Samsung’s Path to Global Dominance in Consumer Electronics
Samsung Electronics, the flagship subsidiary of Samsung (and best known in the U.S. for its Galaxy line of smartphones
and tablets) was initially set up in 1969 to produce home appliances. In 1988, Lee Kun-hee merged Samsung Electronics
with Samsung Semiconductors to integrate manufacturing. By 1992, it had become the worldwide market leader in
DRAM (dynamic random access memory). Samsung Electronics, however, aspired to be more than a leading supplier and
OEM (original equipment manufacturer). Its strategic intent was to be the leader in branded consumer electronics.
In 1988, Samsung Electronics had launched its first mobile phone in the South Korean market. It flopped because of the
phone’s poor quality. In the early 1990s, Samsung Electronics’ market share in mobile phones in South Korea was a mere
10 percent compared to Motorola’s 60 percent. Samsung’s chairman, Mr. Lee sent out mobile phones as New Year’s gifts
to hundreds of key business partners. A public embarrassment occurred when Mr. Lee later learned that the phones he had
sent out as personal gifts didn’t work properly. Mr. Lee ordered drastic changes. In front of Samsung’s Gami factory with
2,000 employees watching, Mr. Lee set fire to a pile of 150,000 mobile phones to show his disappointment and
determination alike. Many Samsung employees credit this day as the beginning of a successful turnaround.
Mr. Lee appointed a new CEO for Samsung Electronics in 1996, Yun Jong–Yong. Mr. Yun aggressively trimmed costs
and sold off unproductive assets during the Asian Financial Crisis in 1997, making the company leaner and more agile.
Subsequently through improved operational efficiency and integrated manufacturing processes, Samsung Electronics
shortened the time needed to respond quickly to changes in market trends. Samsung Electronics chose to be a fast
follower, investing only once a new area has proven market traction. Once such areas were identified, however, Samsung
vastly outspent competitors in order to develop leading electronics products. For example, the company started marking
batteries for digital gadgets in 2000. Ten years later it was the world’s largest producer of this key critical component. In
2001, Samsung started to invest in flat–panel televisions. Just four year later, Samsung was the world’s leader in flat-panel
TVs. In 2002, Samsung Electronics bet on flash memory, the technology that runs Apple’s iPads and iPhones. Providing
not only batteries but also flash memory, Samsung is Apple’s largest supplier today.
Samsung co-CEO BK Yoon recently outlined a strategy for Samsung involving the Internet of Things—a system where
all items an individual interacts with are integrated electronically, and communicate with each other. Yoon said that
Samsung’s approach to the Internet of Things would be open—meaning that Samsung’s code and intellectual property
would be shared with everyone, so that others can take Samsung’s devices and software and develop it however they see
users, where it has not been successful is in producing profits large enough for a firm like Samsung. Firms like Xiaomi
have a lower cost structure than Samsung, and can bring new devices to market faster. Samsung has a much more
extensive product line than Xiaomi, but by following an open architecture, Samsung does not create advantages for users
of one Samsung device to purchase another over a lower-cost competitor like Xiaomi.
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POWERPOINT SLIDE 13
EXPERIENCED FACULTY: The Wall Street Journal video, “Niall Ferguson: Too pessimistic on U.S. production?” (8/30/13),
discusses the dynamics of the global economy from the standpoint of shifts in the U.S. economic position vis-à-vis China.
This video could be a springboard for a discussion of the strategic implications of the macroenvironment trend of a global
power shift from west to east.
POWERPOINT SLIDE 13
The chapter notes that some firms are started in countries with relatively small populations (and thus small domestic
markets), such as Taiwan, Australia, and Finland. In these cases, the firms often rapidly expand internationally to reach a
large enough market for economies of scale. Some large countries (such as Brazil, China, and Japan) have economic
incentives (and sometimes mandates) for firms to export their products. There are cases where such mandates result in
products available internationally but not to the local population (except perhaps through a “black–market” or unofficial
distribution channel). Is this closed domestic market an ethical issue for the firm? Is it an ethical issue for the government?
Why or why not? Students may view this question from a microeconomic perspective where government policy plays a
central role in directing firms’ import/export strategies. When answering this question from consumers’ perspectives in
domestic markets, it might be unethical to both firms and governments; when answering the question from governments’
perspectives, it may not be unethical because sometimes this is a necessary means to achieve rapid economic growth. This is
especially true in emerging economies.
END OF CHAPTER DISCUSSION QUESTION 1
POWERPOINT SLIDE 10
Multinational enterprises (MNEs) have an impact far beyond their firm boundaries. Assume you are working for a
small firm that supplies a product or service to an MNE. How might your relationship change as the MNE moves
from Globalization 2.0 to Globalization 3.0 operations?
One can consider the transition of business from vertical integration to vertical disaggregation. This transition is similar to
moving from Globalization 2.0 to Globalization 3.0 operations. In Globalization 2.0, MNEs need only duplicate the operation
Research Update
Patel, P. C., Fernhaber, S. A., McDougall-Covin, P. P., and van der Have, R. P. (2013), Beating competitors to international
markets: The value of geographically balanced networks for innovation.
Strat. Mgmt. J.,
doi: 10.1002/smj.2114
EXPERIENCED FACULTY: Dangerous, illegal, or unethical behavior by its suppliers can have negative consequences on a
firm’s reputation. These researchers analyzed 17,000 code-of-conduct global supplier audits to determine the audit teams’
effectiveness at identifying violations. They found that “audits yield fewer violations when the audit team has been at that
particular supplier before, when audit teams are less experienced or less trained, when audit teams are all male, and when
the audits were paid for by the supplier instead of by the buyer.” Supply chain management and accounting majors can be
asked to lead a discussion on the implications of this research for how supply chain and accounting functions need to
work cooperatively to protect the firm.
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END OF CHAPTER ETHICAL/SOCIAL ISSUES 2
POWERPOINT SLIDE 11
Will the Globalization 3.0 strategy persist through the 21st century? If not, what will Globalization 4.0 look like?
Several American companies such as Apple and GE have realized that they miscalculated the full cost of managing
far-flung production operations and are bringing production back to the United States. Forbes magazine put the
blame on managers who were focused on maximizing shareholder value rather than emphasizing the long-term future
of the firm. That is, some managers looked only at labor costs and ignored the hidden costs of time and money trying
to communicate quality and design concerns to workers across countries as well as unexpected costs to the supply
chain from natural disasters or political threats. These factors combined with the new economics of energy (e.g.,
growing supply of natural gas) and new technologies (robotics, artificial intelligence, 3D printing, and
nanotechnology) are rapidly changing manufacturing and management decisions. Discuss the factors that managers
of Apple or GE may consider as they focus on continuous innovation rather than the cost of manufacturing. How
might governments with an interest in generating employment opportunities try to influence the decisions of firms?
What other stakeholders may have an interest in bringing jobs back onshore and thus try to influence the decisions of
firms? Consider the persuasive arguments and deals that might be struck. With changes to the location of production,
what might Globalization 4.0 look like?
This question can be good for a small team discussion that is later shared with the whole class, or it could be done by inviting
some students to role play a negotiation as government officials and firm executives. If a negotiation, one team of students
context
EXERCISES
VIDEO LECTURE AND EXERCISE
global business trends and then explain how the lecture helps them to understand the motivation and causal effects behind the
phenomena in their article. AACSB 2015 Standard 9 Managing in a global context
END OF CHAPTER SMALL GROUP EXERCISE 1
POWERPOINT SLIDES 10 AND 66
Given that traditional U.S. firms like IBM have over 70 percent of their employees and almost two-thirds of their
revenues come from outside the United States, what is an appropriate definition of a “U.S. firm”?
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Should IKEA be considered a Swedish firm with less than 6 percent of sales garnered from the Swedish market?
Discuss why or why not in your groups.
Is there any special consideration a firm should have for its “home country”? Is it ethical to keep profits outside the
home country in offshore accounts to avoid paying domestic corporate taxes?
Challenge students to identify the social and ethical arguments about where the firm is incorporated and where it conducts
operations. Offer hints, such as job creation, unemployment rate, economic growth, standard of living, and so on. Encourage
them to consider not only supply-side issues, such as labor costs, but also demand-side issues, such as where customer
demand is growing.
10.2 Going Global: Why? LO 10–2
POWERPOINT SLIDES 14–24
EXAMPLES
POWERPOINT SLIDE 15
NEWER FACULTY: The three drivers are easy to understand. It will, however, enhance students’ learning if we can use
examples. We can use Dell entering China and GM entering emerging markets to discuss the access to a larger market. We
firms induces knowledge spillover, which may help firms develop new capabilities.
POWERPOINT SLIDE16
An example of issues that a firm considers in choosing why to expand overseas, Chinese tech giants, Lenovo, Ten Cent
Holdings, and Baidu are investing in Brazil (see “Chinese tech titans eye Brazil” 1/8/13 The Wall Street Journal). The article
identifies the BRIC country growth rate of Brazil and the fact that U.S. competitors do not have a big head start there as
positive factors in the decision. Countering these motivations is the administrative red tape and relatively high labor cost in
this country.
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POWERPOINT SLIDE 16
Does GM’s future lie in China? In short, the answer to this question seems to be yes, despite the recent slowing of China’s
economic growth. GM entered China in 1997 through a joint venture with Shanghai Automotive Industrial Corp (SAIC). In
2014, GM set record sales in China of 3.5 MM vehicles (1 every 9 seconds) and recorded $2.1B in equity income from
China. The product design is different in order to adapt to location demands and market conditions. The smaller, boxy
Strategy Highlight 10.1
POWERPOINT SLIDE 17: THE GULF AIRLINES ARE LANDING IN THE UNITED STATES
This is a classic example of global expansion to gain access to larger markets. In the case of the Arabian Gulf countries’
airlines, their home market is quite small, so global expansion is vital to gain the economies of scale needed to compete in air
travel. See an op-ed piece in The Wall Street Journal by Doug Parker, CEO of American Airlines “Rigging the game on open
skies” (11/10/15) for more insight into the views of incumbent firms on the new entrants.
Research Update
Patel, P. C., Fernhaber, S. A., McDougall-Covin, P. P., and van der Have, R. P. (2013), Beating competitors to international
markets: The value of geographically balanced networks for innovation.
Strat. Mgmt. J.
, doi: 10.1002/smj.2114
POWERPOINT SLIDE 21
EXPERIENCED FACULTY: These authors explore the importance of local and foreign networks in enabling firms to
quickly bring new products to international markets. Firms use these networks to partially offset the liability of
foreignness. They find that a balanced network that includes both foreign and local partners offers the best support for
quickly internationalizing new products. This balance in the network structure is particularly important when the industry
has a rapid rate of change and the innovation is highly complex.
INTEGRATION
Video Case: Going Global: Why?
This video case analysis gives students an opportunity to consider five major global forces as identified by McKinsey &
Company. It complements the text material in Section 10.2. This video is ten minutes long and has five embedded
questions contained in it. Difficulty: Medium Blooms: Analyze AACSB: Analytic
Video Case Tips: We suggest setting the “attempts” policy to “revise the previous attempt” for video cases. This enables
students to watch parts of the video and edit their answers without needing to watch the entire video again for each
attempt at the questions.
Follow-Up Activity: The instructor can expand on the concepts in this video case by discussing some of these same
global impacts at Walmart, as noted in Strategy Highlight 10.2. For some “American” companies, greater profits are now
obtained overseas. Small Group Exercise 1 in the end of chapter material raises questions about IBM as another example
of a large firm growing rapidly outside the U.S.