CHAPTER 1
STRATEGIZING AROUND THE GLOBE
CHAPTER OUTLINE
I. OPENING CASE: Emerging Markets: Samsung’s Global Strategy Group
A.
Samsung is South Korea’s leading conglomerate
1.
Samsung Electronics Corporation (SEC)—flagship company
2.
Higher profits than five rivals combined
B.
Trouble attracting and keeping non-Korean talent at SEC
(3) globalize Samsung.
C.
Global Strategy Teams:
1.
Project leader, one or two global strategists, and project coordinator (senior
Korean manager)
2.
The average project lasts three months; after 2 years, global strategists graduate
and are assigned to subsidiary in their home country.
D.
Success has been mixed:
II. A GLOBAL GLOBAL STRATEGY BOOK
A. The text itself is an example of a real global product that leverages its strengths, engages
rivals, and competes around the world
B. It departs from the traditional understanding of global strategy, which is characterized by
the production and distribution of standardized products and services on a worldwide
F. Examples of products that have been rejected by foreign markets
1.
Ford Mondeo and Volkswagen Golf—strong in Europe, little visibility in North
America or Asia
2.
Coke Classic tastes different around the world due to the varying sugar content
Chapter 1 Strategizing Around the Globe
3.
Coca-Cola’s commercial featuring polar bears met with indifference from consumers
living in hot climatic conditions
G. A newer understanding of global strategy involves
1.
An understanding that a one-size-fits-all strategy is often incomplete and unbalanced
2.
The importance of emerging economies (or emerging markets)
(a) They command half of the worldwide FDI inflow and nearly half of the global
gross domestic product (GDP) measured at purchasing power parity
(b) The BRICS (Brazil, Russia, India, China, and South Africa) countries have
pyramid—a segment ignored by traditional “global strategy”
3.
MNEs from developed countries must realize that many opportunities exist at the
BOP level and capitalize on them
4.
New competitors from emerging economies can go after the second- and top-tier
market overseas and can pose a serious challenge to MNEs from developed countries
III. WHY STUDY GLOBAL STRATEGY?
A. To enhance job and career opportunities
IV. WHAT IS STRATEGY?
A. Origin
1.
Derived from the Greek word strategos, which referred to the art of generalship
(a) The application of the principles of military strategy to business competition is
known as strategic management. This phenomenon developed in the 1960s
(b) Sun Tzu, Chinese military strategist in 500 BC; definition of strategy: “Know
yourself, know your opponents; encounter a hundred battles, win a hundred
victories.”
B. Plan Versus Action
1.
The strategy of plan school believes that strategy is embodied in the same rigorous
formal planning as military strategy
Chapter 1 Strategizing Around the Globe
C. Strategy as Theory
1.
Defines strategy as a firm’s theory about how to compete successfully
2.
Borrows the idea of strategy formulation from the planning school and the idea of
strategy implementation from the action school, giving rise to a “strategy as
integration” theory
3.
Advantages of the “strategy as theory” definition
(a) It capitalizes on the insights of both the planning and the action schools
(b) It emphasizes the idea of “theory,” which helps to explain the past and to predict
the future
V. FUNDAMENTAL QUESTIONS IN STRATEGY
A. Why Do Firms Differ?
1.
Most knowledge about firms comes from experiences in Western capitalist countries,
but the business landscape is very different in Eastern countries like Japan
2.
In countries like China, interpersonal networks and relationships (guanxi), cultivated
by managers, may serve as informal substitutes for formal institutional support
B. How Do Firms Behave?
influences of formal and informal rules
C. What Determines the Scope of the Firm?
1.
Growth is an important objective for all firms
2.
Growth beyond a certain limit is not possible—downsizing, downscoping, and
withdrawals are often necessary
3.
The scope of a firm pertains to growth as well as contraction
4.
Product scope and geographic scope are important to an institution
D. What Determines the Success and Failure of Firms around the Globe?
Chapter 1 Strategizing Around the Globe
4
(c) Institution-based view—institutional forces contribute to differences in firm
performance
2.
The true determinants of firm performance probably involve a combination of these
three forces—industry-based competition, firm-specific resources and capabilities, and
institutional conditions and transitions
VI. WHAT IS GLOBAL STRATEGY?
A. Definitions of “global strategy”
1.
Providing standardized products and/or services on a worldwide basis (i.e. traditional
view), usually relevant to large Triad-based MNEs
2.
Can also refer to any strategy outside one’s home country
3.
The definition used in this book: Global strategy is defined as strategy of firms
around the globe—essentially various firms’ theories about how to compete
successfully
VII. WHAT IS GLOBALIZATION?
A. Defining
A. Three Views on Globalization
1.
A new force that has developed in recent times
(a) It is a new phenomenon which can be traced to the beginning of the 20th century
(b) It is driven by Western ideology, focused on exploiting and dominating the world
(c) The arguments against globalization focus on an ideal world free of
environmental stress, social injustice, and sweatshops
3.
A pendulum that swings from one extreme to another from time to time
(a) It is an integration of the countries and peoples of the world brought about by the
enormous reduction of the costs of transportation and communication
(b) It signifies the breaking down of artificial barriers to the flows of goods, services,
capital, knowledge, and people across borders
(c) It is not recent or one-directional
Chapter 1 Strategizing Around the Globe
3) The view of globalization as a pendulum is more balanced and more realistic than the
other two views
C. Semiglobalization
1) It chooses a middle ground between unilaterally opposing and unconditionally
accepting globalization
2) It suggests that barriers to market integration at borders are high, but not high enough
to completely insulate countries from each other
VIII. GLOBAL STRATEGY AND THE GLOBALIZATION DEBATE
A.
Challenges that confront strategists
1) Anti-globalization protests (Seattle, 1999)
2) Terrorist attacks/the War on Terror (9/11)
3) The global financial crisis (2008) and the aftermath of the Great Recession
4) The Euro crisis (since 2010)
B.
Many executives, policymakers, and scholars have failed to take into sufficient account
the social, political, and environmental costs associated with globalization
1) Many of the opponents of globalization are nongovernmental organizations (NGOs)
such as environmentalists, human rights activists, and consumer groups
Chapter 1 Strategizing Around the Globe
CHAPTER ONE – LECTURE NOTES AND TEACHING TIPS
SUMMARY OF THE OPENING CASE: Emerging Markets: Samsung’s Global Strategy
Group
The opening case looks at the strategy adopted by Samsung Group in South Korea in a effort to
recruit and retain upper-level managers outside of Korea.
Teaching Tip: Ask students to respond to the following case discussion questions. (Possible
answers are included in italics):
What factors made it difficult for Samsung Group, and Samsung Electronic Corporation (SEC)
specifically, to compete outside of Korea?
To compete effectively outside of Korea, SEC believed that it needed to attract and retain non-
Korean talent. Korean culture, however, traditionally operates within a rigid hierarchical
structure and Korean is not spoken generally outside of Korea. This made it difficult for non-
A GLOBAL GLOBAL STRATEGY BOOK
Teaching Tip: Ask students to provide some examples, from their own experience, of products
and/or services that did not seem to be designed with their needs in mind. Students might
entertainment, etc.
Also ask students if they would like to buy products that did not fit their needs or solve their
problems. Why might companies like Coca-Cola, Toyota, and Ford try to develop and sell
products that are standardized all over the world? Why might people in other countries not be
satisfied with products that were developed for the U.S. market and not designed to meet local
needs? When is this most often a problem (that is, for what types of products are local tastes
probably most important?)
Multinational enterprises (MNEs) have sometimes learned the hard way that products or services
that are popular in one country or region are frequently rejected by customers elsewhere. The
narrow, “one-size fits all” version of global strategy advocated over the past twenty years in
global strategy texts is incomplete and unbalanced for the following reasons: 1) Too often the
Chapter 1 Strategizing Around the Globe
WHY STUDY GLOBAL STRATEGY?
Teaching Tip: Ask students to identify three reasons why it might be helpful for them to study
global strategy. Their answers might be the fact they need this course to graduate, or they have
traveled extensively (or want to travel) and want to have a better understanding of business in
other countries, or perhaps they might work for a global firm after graduation, etc. The key is to
help students see that there is something in it for them to work hard and understand what global
strategy is all about.
Most business school graduates will eventually be faced with foreign-owned suppliers,
WHAT IS STRATEGY?
Teaching Tip: Ask students to look up the meaning of the word “strategy.” Most dictionaries
define strategy as a plan of action or policy formulated to achieve an aim. Alternatively, it is
defined as the art of planning military operations. As a hands-on exercise, ask students to
Derived from the ancient Greek word strategos, the word has strong military roots. Sun Tzu, a
500 BC Chinese military strategist in his book The Art of War provides an appropriate definition.
It is to “know yourself, know your opponents; encounter a hundred battles, win a thousand
victories.” The application of the principles of military strategy to business competition, known
as strategic management, is a recent development that can be traced to the 1960s. “Strategy as
plan” and “strategy as action” are the two schools of thought that allow us to make sense of the
FUNDAMENTAL QUESTIONS IN STRATEGY
Teaching Tip: Ask students to discuss, in their own words, the appropriateness of the four
fundamental questions that this text aims to address. You could also ask students to describe the
connections between these four questions and strategy.
Chapter 1 Strategizing Around the Globe
In an effort to focus attention on the most crucial aspects of global strategy, this text addresses
four fundamental questions: Why do firms differ? How do firms behave? What determines the
scope of the firm? What determines the international success and failure of firms?
Teaching Tip: Ask students to think of a few examples of companies that have recently changed
their scope by making an acquisition, opening up a new store in the area, entering a new market,
laying off workers, closing down stores/plants, etc. Then ask students to generate ideas about
All firms, just like individuals, differ. Cultural differences between the East and the West
influence how firms react to situations. Three perspectives or the strategy tripod offer an
explanation of how firms behave. The industry-based view focuses on the external opportunities
and threats faced by an organization, whereas the resource-based view concentrates on the
internal strengths and weaknesses of the firm. The institution-based view, in addition to industry-
level and firm-level conditions, focuses on the impact of government policies and economic
reforms on the performance of firms.
The scope of a firm is determined not only by its growth but also by the contraction of the firm.
Continuous growth is not sustainable; downsizing, downscoping, and withdrawals are sometimes
inevitable in a firm’s history. The “strategy tripod” attempts to understand the success and failure
WHAT IS GLOBAL STRATEGY?
Teaching Tip: Ask students to compare and contrast the three definitions of global strategy using
a real-life example.
The traditional, narrow notion of global strategy refers to a particular theory on how to compete
that centers on providing standardized products and services on a worldwide basis. This
definition is relevant for large multinational companies based in North America, Europe, or
Japan and competing in a variety of countries; but not applicable to smaller firms in developed
economies or most firms in emerging markets. Another use of the term “global strategy” is
Chapter 1 Strategizing Around the Globe
view of global strategy, this text will provide a balanced coverage of domestic and foreign
entrants in a variety of developed and emerging economies.
WHAT IS GLOBALIZATION?
Teaching Tip: In this section, three different views of globalization are suggested; one sees
globalization as a recent phenomenon driven by technological innovations in transportation and
communication, another recognizes the early historical roots of globalization, and a third is
likened to a pendulum that swings from one extreme to the other. Semiglobalization chooses a
middle ground between unconditional acceptance of globalization and opposition. Ask students
which of these views of globalization they prefer and why.
The critical view, like anti-globalization protesters, argues that the current rate of globalization
should be slowed down, so that Western MNEs do not exploit and dominate the world. This view
also argues that globalization undermines wages in rich countries, exploits workers in poor
countries; compromises human rights; devastates the environment, diminishes national
sovereignty, and gives large MNEs too much power.
Teaching Tip: Ask students to describe some examples of the backlash against globalization that
have occurred in the late 1990s and early 2000s.
• People in developed countries started to fear the loss of low-end manufacturing jobs—as well
as high-end, high-tech jobs.
• Some people in emerging economies have also complained that large MNEs destroy local
cultures, values, the environment, and the ability of local firms to compete.
• The current backlash against globalization has been fueled by resentment of people in
countries like Indonesia, South Korea and Thailand.
The current state of globalization can be summarized as semi-globalization—barriers to market
integration at borders are high, but not high enough to completely insulate countries from each
other. Likewise, globalization has both dark and rosy sides, yet companies must still find ways to
productively engage in globalization efforts.
Chapter 1 Strategizing Around the Globe
GLOBAL STRATEGY AND THE GLOBALIZATION DEBATE
In this section the author describes the enormous challenge that strategists face as they look for
viable ways to compete in the world of semi-globalization. In order to develop successful
Knowing yourself and your opponents requires understanding strengths AND limitations, and
recognizing the social, political, and environmental costs associated with globalization. Note that
current business school students exhibit values and beliefs that favor globalization which may be
different from the general public, be aware of bias and strategic blind spots, and do not ignore
non-government organizations (NGOs), view them as partners.
Teaching Tip: Ask students to prepare their own summary of the key points that they learned in
this chapter. Are there any ideas expressed in the chapter that students are confused about? What
do they think about the global perspective of strategy that the author advocates in this book?
Chapter 1 Strategizing Around the Globe
POSSIBLE ANSWERS TO CRITICAL DISCUSSION QUESTIONS
1. A skeptical classmate says: “Global strategy is relevant for top executives such as CEOs in
large companies. I am just a lowly student who will struggle to gain an entry-level job,
probably in a small company. Why should I care about it?” How do you convince her that
she should care about global strategy?
Ask her to list the products that she uses in her daily life that are made outside her home
country. This exercise might create some awareness that as a consumer, she is already
participating in the global economy. She will be able to make better decisions about the
2. ON ETHICS: Some argue that globalization benefits citizens of rich countries. Others argue
that globalization benefits citizens of poor countries. What are the ethical dilemmas here?
What do you think?
Students could take any perspective on this question, or argue that globalization doesn’t have
to be an either-or proposition—it can help people in poor as well as rich countries. Some
might argue that globalization gives customers in rich countries more choices, as well as
forcing all firms, foreign and domestic, to be more competitive in terms of the pricing and
quality of their products and services. Likewise, globalization can stimulate economies in
rich countries as domestic firms export their goods and services and increase the standard of
living at home and abroad. Globalization can also create jobs in rich countries. It is also
true, however, that jobs are often outsourced to workers in other, poorer countries, although
Chapter 1 Strategizing Around the Globe
3. ON ETHICS: Critics argue that MNEs, through FDI, allegedly both exploit the poor in poor
countries and take jobs away from rich countries. If you were the CEO of an MNE from a
developed economy or from an emerging economy, how would you defend your firm?
Once again students’ answers will vary depending on their perspective. Those who support
globalization might argue that providing jobs to people in poor countries who have no other
options to earn a living and support their families, does not qualify as exploitation. MNEs
TOPICS FOR EXPANDED PROJECTS
1. The 2008 global financial crisis and the Great Recession since then have been devastating.
However, not all industries and not all firms suffer. Some may profit from these events.
Write a short paper describing how some industries and firms may profit from the crisis and
the recession.
Answers might vary. According to Michael Walden, an economist from N.C. State University,
the recession has an impact on everyone. Firms will sell less, there will be a lower profit
margin, workers will have to agree to a cut in their pay, and companies will be downsizing.
But not everyone is affected by recession. Some companies may actually benefit from
Chapter 1 Strategizing Around the Globe
2. As the CEO of an MNE from an emerging economy, use the strategy tripod to analyze what
the leading challenges for your firm’s internationalization will be.
Answers will depend on the students’ choice of the product that they are aspiring to market.
The “strategy tripod” comprises three leading perspectives that provide us with insights into
3. ON ETHICS: What are some of the darker sides associated with globalization? How can
strategists make sure that the benefits of their various actions outweigh their drawbacks?
Costs associated with globalization include:
• The loss of domestic jobs as companies move their manufacturing and distribution
facilities to other countries in order to reduce costs and improve profit margins;
• The loss of some ability to control quality as companies outsource manufacturing, which
may lead to product liability problems if defects are not caught and fixed before products
are sold to end users;
• Lack of familiarity with the needs of foreign customers that may require increased
expenditures in market research;
• Employment laws, product liability, tax policies, and environmental regulations that
differ from one country to another. Companies may incur increased costs as they try to
figure our how various laws impact their business;
• Additional costs incurred to coordinate and monitor performance across units when
companies have business units scattered around the world;
Chapter 1 Strategizing Around the Globe
Some things that companies can do to ensure the benefits of their actions outweigh the
drawbacks are as follows:
• Identify ways to develop new products/services and/or production processes that have a
• Develop strategic alliances with firms from different countries, learn how to cooperate
effectively to satisfy customer needs;
• Develop products and services that people can afford, regardless of whether they live in
a poor, emerging economy or a rich, developed one;
• Increase the standard of living and improve working conditions in foreign factories;