Chapter 1 Strategizing Around the Global Strategy Mike

Chapter 1 Strategizing Around the Global Strategy Mike W. Peng Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Outline • A global-strategy book • Why study global strategy? • What is strategy? • Fundamental questions in strategy • What is global strategy? • What is globalization? • Global strategy and globalization at a crossroads Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Quiz • Which of the following two cities has a larger number of Fortune Global 500 company headquarters? • Beijing • New York • Fortune Global 500 HQ (2011 data from Fortune, July 23, 2012) • Beijing (43 out of 73 from China) • New York (18 NYC + 3 NYS out of 132 from the US) • FYI: Texas 13 (Houston 6, DFW 4, San Antonio 1, Austin/Round Rock 1); Shanghai 6 Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Global Strategy: One Size Fits All? • Traditional “global strategy” is treating different countries as one worldwide or “global” market. World car: Ford Contour (as the Mondeo in Europe) World drink: Coke Classic? World advertising commercial: Polar bear ads • But that strategy has backfired repeatedly There is no world car, no world drink, no world MTV • A more balanced view—covering both global and local (non-global) aspects—is necessary 1– 4 © M. W. Peng (www. mikepeng. com)

A Global-Strategy Book • Text departs from traditional view of global strategy • Important to respond to local needs • Traditional view of global strategy is incomplete and unbalanced Sacrifices local responsiveness and global learning Ignores how domestic firms compete with each other and with foreign entrants Traditional global strategy is only appropriate for large MNEs in developed countries It is dangerous to ignore less developed economies Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Why Study Global Strategy? • Job and career aspiration opportunities Expertise in global strategy is highly sought after • Awareness of what is going on in the world Preparation for international assignments • Avoid downside risks of globalization Necessary knowledge for people working in smaller companies Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

© 2010 Cengage Learning. All rights reserved. 7

What is Strategy? • Origin-Greek word (strategos)-art of the general Sun Tzu, Chinese military strategist in 500 B. C. Modern-day application to business and competition dates to the 1960 s • Plan versus Action - strategy is “explicit, rigorous formal planning” versus “a set of flexible, goal-oriented actions” • Strategy as Theory-how to compete successfully Firms have both intended and emergent strategies One firm’s strategies may not work in all situations Past success does not guarantee future success It is often difficult to change strategy Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

What is Strategy? Cont’d Strategy should give coherence to decisions and actions Managers must exert effective strategic leadership Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

The Essence of Strategy Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Figure 1. 3

Our definition: Strategy as theory • Integrating both planning and action schools • Leveraging the concept of “theory” A theory serves two purposes: Explanation and prediction • Requiring replications and experimentations To establish the temporal (time-related) and geographic limits of an existing theory • Understanding the difficulty of strategic change Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Fundamental Questions in Strategy • Why do firms differ? Cultural differences between Western firms and Japanese companies Networks of relationships have powerful effect - keiretsu, guanxi, chaebol, blat • How do firms behave? Industry-based view - focus on competitive forces within an industry that impact all firms Resource-based (capabilities) view - focus on internal strengths and weaknesses, firm specific resources and capabilities Institution-based view - focus on government and societal forces Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Why Do Firms Differ? • Western firms (US/UK vs. German/French) Have different (shorter- versus longer-term) planning horizons. • Japanese firms Are different from Western firms. • Firms from emerging economies (Brazil, Russia, India, and China—BRIC) EM 1. 1. Foxconn • The challenge is to understand the roots of these differences when trying to compete globally. 1– 13

Fundamental Questions in Strategy cont’d • What determines the scope of the firm? • What determines the international success or failure of firms? Industry-based view - degree of competitiveness in the industry Resource-based view - firm specific differences in capabilities Institution-based view - institutional forces, such as economic reforms and government policy Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

The “Strategy Tripod” Three Leading Perspectives on Strategy Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Figure 1. 4

What Is Global Strategy? • Provide standardized products and/or services on a worldwide basis (i. e. , traditional view) • Any strategy outside one’s home country • Our definition of global strategy: Strategies of firms around the globe v Both international and non-international (domestic) v Both developed and emerging economies Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

How About Global Strategy? • Traditional “global strategy” Only relevant for MNEs from developed economies • The same as “international” (non-U. S. ) strategy Wal-Mart went to Mexico in 1991: Did it go “global”? Everything becomes “global”? • Our definition of global strategy: Strategy of firms around the globe v Both international and non-international (domestic) v Both developed and emerging economies 1– 17

What is Globalization? • A new phenomenon since the late 20 th century? • A part of long-run human history? • A pendulum view: Transportation and communication revolutions + breakdown of artificial barriers in trade and investment v. A process similar to the swing of a pendulum: Postwar history v Semiglobalization? Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Global Strategy and Globalization at a Crossroads • Three Defining Events - have brought corporate social responsibility, ethics, and governance to the forefront of strategic decisions Anti-globalization protests - lost jobs, downward pressure on wages for unskilled labor, environmental destruction Terrorist attacks Corporate governance crisis (Asian financial crisis, U. S. scandals) Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Global Strategy and Globalization at a Crossroads, Cont’d. • Know Yourself, Know Your Opponents Understand strengths AND limitations Recognize the social, political, and environmental costs associated with globalization Current business school students exhibit values and beliefs different from the general public Be aware of bias and strategic blind spots Do not ignore non-government organizations (NGOs)view them as partners Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

What Determines the Success or Failure of Firms around the Globe? • Acquiring and leveraging competitive advantage • Strategy is about performance, about making a difference • The Key: Sustaining such an advantage over time and across countries (regions) through replication and innovation. 1– 21

Organization of the Book • Part I: Foundations of Global Strategy Chapter 1: 2: 3: 4: Strategizing Around the Globe Managing Industry Competition Leveraging Resources and Capabilities Emphasizing Institutions, Cultures, and Ethics • Part II: Business-Level Strategies Chapter 5: 6: 7: 8: Growing and Internationalizing the Entrepreneurial Firm Entering Foreign Markets Making Strategic Alliances and Networks Work Managing Global Competitive Dynamics • Part III: Corporate-Level Strategies Chapter 9: Diversifying, Acquiring, and Restructuring Chapter 10: Strategizing, Structuring, and Learning Around the World Chapter 11: Governing the Corporation Around the World Chapter 12: Strategizing with Corporate Social. Reserved. Responsibility Copyright © 2014 Cengage Learning. All Rights May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.