Chapter 10 Global Strategy Competing Around the World

Chapter 10 Global Strategy: Competing Around the World

The AFI Strategy Framework ©Mc. Graw-Hill Education. Jump to Appendix 1 long image description

Chapter 10 Outline (1 of 2) 10. 1 10. 2 10. 3 ©Mc. Graw-Hill Education. What Is Globalization? – Stages of Globalization – State of Globalization Going Global: Why? – Advantages of Going Global – Disadvantages of Going Global: Where and How? – Where in the World to Compete? The CAGE Distance Framework – How Do MNEs Enter Foreign Markets?

Chapter 10 Outline (2 of 2) 10. 4 Cost Reductions vs. Local Responsiveness: The Integration-Responsiveness Framework – International Strategy – Multidomestic Strategy – Global-Standardization Strategy – Transnational Strategy 10. 5 National Competitive Advantage: World Leadership Specific Industries – 10. 6 ©Mc. Graw-Hill Education. Porter’s Diamond Framework Implications for the Strategist in

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. ©Mc. Graw-Hill Education.

What Is Globalization? ©Mc. Graw-Hill Education.

Globalization • A process of closer integration and exchange • Between different countries and peoples worldwide • Made possible by: – Falling trade and investment barriers – Advances in telecommunications – Reductions in transportation costs ©Mc. Graw-Hill Education.

Globalization Has Led to Increases in Living Standards • Germany and Japan – Export-led growth, despite devastation after WWII • Brazil, Russia, India, and China – 40% of world’s population, now produce half the world’s economic growth – China: the second largest economy worldwide • Hong Kong, Singapore, South Korea, and Taiwan – Are now advanced economies, were previously undeveloped ©Mc. Graw-Hill Education.

Global Strategy • Part of a firm’s corporate strategy • Goal: – To gain and sustain a competitive advantage – To compete against other foreign and domestic companies around the world • Foreign Direct Investment: – A firm’s investments in value chain activities abroad ©Mc. Graw-Hill Education.

Multinational Enterprises • A company that deploys resources and capabilities in – The procurement, production, and distribution of goods and services – At least two countries • Examples: – Boeing, Caterpillar, Coca-Cola, GE, John Deere, Exxon Mobil, IBM, P&G, and Walmart ©Mc. Graw-Hill Education.

Stages of Globalization • Globalization 1. 0: 1900– 1941 – Sales, operations, and some procurement – Strategy flowed from HQ to international sites • Globalization 2. 0: 1945– 2000 – – To reconstruct damage from the war Focus on European countries, Japan, and Australia Greater local-responsiveness HQ set goals, international sites influenced tactics • Globalization 3. 0: 21 st Century – Business function locations are based on costs, capabilities, and PESTEL factors – Companies can operate 24/7, 365 days a year ©Mc. Graw-Hill Education.

Exhibit 10. 3 Globalization in the 21 st Century MNEs are global-collaboration networks that perform business functions throughout the world ©Mc. Graw-Hill Education.

State of Globalization • The level of globalization is no more than 10 to 25 percent total. • Evidence: – – – 2% of all voice-calling minutes are cross-border. 3% of world’s population are first-generation immigrants. 9% of all investments are foreign direct investments. 15% of patents list at least one foreign inventor. 18% of Internet traffic crosses national borders. • The world isn’t fully globalized. – Only semi-globalized ©Mc. Graw-Hill Education.

Going Global: Why? ©Mc. Graw-Hill Education.

Advantages of Going Global 1. Gain access to a larger market. 2. Gain access to low-cost input factors. 3. Develop new competencies. • Let’s review these in detail… ©Mc. Graw-Hill Education.

Gain Access to a Larger Market • Becoming an MNE provides opportunities for – Economies of scale – Economies of scope • Opportunities to participate in a larger market • Opportunities to outcompete local rivals • Helps firms in smaller economies – Achieve growth – To gain and sustain competitive advantage ©Mc. Graw-Hill Education.

Strategy Highlight 10. 1 The Gulf Airlines Are Landing in the United States. • The U. S. is the world’s largest air traffic market. – 1/3 of all business • Emirates, Etihad Airways, and Qatar Airways – Use modern aircrafts – Offer direct flights: Atlanta, Boston, Chicago, Dallas, Houston, Los Angeles, New York, and Orlando – Customers are flocking to these brands due to costcompetitiveness and a better service experience. • Competitive pressure is increasing. ©Mc. Graw-Hill Education.

Gain Access to Low-Cost Input Factors • Helps MNEs that pursue a low-cost leadership strategy • Examples of low-cost raw materials: – Lumber, iron ore, oil, and coal • Was a key driver of Globalization 1. 0 and 2. 0 – During Globalization 3. 0, firms benefit from lower labor costs in manufacturing and services ©Mc. Graw-Hill Education.

Develop New Competencies • Helps MNEs that pursue a differentiation strategy • Foreign direct investments provide access to: – Communities of learning: often contained in specific geographic regions – Location economies: benefits from locating value chain activities in optimal geographies ©Mc. Graw-Hill Education.

Disadvantages of Going Global 1. Liability of foreignness 2. Loss of reputation 3. Loss of intellectual property • Let’s review these in detail… ©Mc. Graw-Hill Education.

Liability of Foreignness • Working in an unfamiliar cultural environment • Working in an unfamiliar economic environment • Can result in additional costs ©Mc. Graw-Hill Education.

Strategy Highlight 10. 2 Walmart Retreats from Germany • They lost billions and exited Germany in 2006 • What went wrong? – Culturally, Germans didn’t want to cheer and smile. • Behaved gruffly like at every other retail store – They couldn’t get costs down = prices weren’t low • Many other stores were cheaper & more convenient. – They had a liability of foreignness. ©Mc. Graw-Hill Education.

Loss of Reputation • Reputation is one of the most valuable resources that a firm may possess. – Innovation reputation – Customer service reputation – Brand reputation • Can be due to low wages, long hours, and poor working and living conditions overseas • Local government may be corrupt. • Minimum safety standards may not be enforceable ©Mc. Graw-Hill Education.

Loss of Intellectual Property • Particularly in the software, movie, and music industries • Copyright infringements can occur in foreign markets. • Intellectual property can be siphoned off or reverseengineered. ©Mc. Graw-Hill Education.

Going Global: Where and How? ©Mc. Graw-Hill Education.

The CAGE Distance Framework • Guides MNE decisions on which countries to enter • CAGE is an acronym for different types of distance – Cultural – Administrative and political – Geographic – Economic • Let’s review these in detail… ©Mc. Graw-Hill Education.

Exhibit 10. 4 Elements of CAGE Distance C A G E Cultural Administrative and Political Geographic Economic • Different languages, • ethnicities, religions, • social norms, and between two countries dispositions • Lack of connective • increases with … ethnic or social networks • • Lack of trust and mutual • respect Absence of trading bloc • Lack of common border, • Different consumer Absence of shared waterway access, incomes currency, monetary or adequate transportation, • Different costs and political association or communication links quality of natural, Absence of colonial ties • Physical remoteness financial, and human Political hostilities • Different climates and resources Weak legal and financial time zones • Different information or institutions knowledge • With high linguistic • That a foreign • With low value-to • content (TV) government views as weight ratio (cement) • Related to national staples (electricity), as • That are fragile or • most affects industries and/or religious identity building national perishable (glass, meats) (foods) reputations (aerospace), • In which or products … • Carrying countryor as vital to national communications are vital specific quality security (financial services) associations (wines) (telecommunications) ©Mc. Graw-Hill Education. For which demand varies by income (cars) In which labor and other cost differences matter (textiles)

Cultural Distance • Disparity between a firm’s home country and its targeted host country – Social norms and morals, beliefs, and values – Differentiation among human groups • Made up of: – – – ©Mc. Graw-Hill Education. Power distance Individualism Masculinity–femininity Uncertainty avoidance Long-term orientation Indulgence

Administrative & Political Distance • Captured in factors such as: – Shared monetary or political associations – Political hostilities – Weak or strong legal and financial institutions • Political and administrative barriers include: – Tariffs – Trade quotas – FDI restrictions ©Mc. Graw-Hill Education.

Geographic Distance • Does not imply only physical distance • Includes the following attributes: – – – Physical size (Canada versus Singapore) Within-country distances to its borders The country’s topography Time zones Whether the countries are contiguous to one another Access to waterways and the ocean • Infrastructure is also important: – Roads, power, and telecommunications ©Mc. Graw-Hill Education.

Economic Distance • Wealth and per capita income of consumers • Wealthy countries tend to engage in more crossborder trade. • Wealthy countries trade with wealthy countries. – To benefit from economies of experience, scale, scope, and standardization • Due to similar infrastructure & resources • Wealthy countries trade with poor countries. – To access low-cost input factors ©Mc. Graw-Hill Education.

Exhibit 10. 5 How Do MNEs Enter Foreign Markets? Jump to Appendix 2 long image description ©Mc. Graw-Hill Education.

Cost Reductions vs. Local Responsiveness: The Integration-Responsiveness Framework ©Mc. Graw-Hill Education.

The Integration Responsiveness Framework • Deals with the pressures an MNE faces for cost reductions and local responsiveness – Local responsiveness: the need to tailor product and service offerings to fit local consumer preferences • Four different strategies to gain and sustain competitive advantage when competing globally: – International strategy – Multidomestic strategy – Global-standardization strategy – Transnational strategy ©Mc. Graw-Hill Education.

Exhibit 10. 6 Global Strategy Positions and Representative MNEs ©Mc. Graw-Hill Education. Jump to Appendix 3 long image description

International Strategy • Leverages home-based core competencies • Sells the same products or services in both domestic and foreign markets • Advantageous when the MNE faces: – Low pressures for local responsiveness – Low pressures for cost reductions • Often used successfully by MNEs with: – Large domestic markets – Strong reputations and brand names • Limited local responsiveness ©Mc. Graw-Hill Education.

Multidomestic Strategy • Used to try and maximize local responsiveness • MNEs hope that local consumers will perceive their products or services as local ones. • This strategy arises out of the combination of: – High pressure for local responsiveness – Low pressure for cost reductions • Can be costly and inefficient – Duplication of business functions across countries ©Mc. Graw-Hill Education.

Global-Standardization Strategy • Attempts to reap significant: – Economies of scale & location economies – Through global division of labor where capabilities are at the lowest cost • Arises out of the combination of: – High pressure for cost reductions – Low pressure for local responsiveness • Price becomes the main competitive weapon ©Mc. Graw-Hill Education.

Transnational Strategy • Strategy that attempts to combine: – Benefits of a localization strategy • High local responsiveness – With a global-standardization strategy • Lowest-cost position attainable • Arises out of the combination of: – High pressure for local responsiveness – High pressure for cost reductions • Used by MNEs that pursue a blue ocean strategy • Difficult to implement ©Mc. Graw-Hill Education.

Exhibit 10. 7 Dynamic Strategic Positioning: The MTV Music Channel Jump to Appendix 4 long image description ©Mc. Graw-Hill Education.

Exhibit 10. 8 Characteristics, Benefits, and Risks of Each Type of Strategy International Characteristics • • • Multidomestic • • Global • Often the first step in internationalizing. Used by MNEs with relatively large domestic markets or strong exporters (e. g. , MNEs from the United States, Germany, Japan, South Korea). Well-suited for high-end products with high value-to-weight ratios such as machine tools and luxury goods that can be shipped across the globe. Products and services tend to have strong brands. Main business-level strategy tends to be differentiation because exporting, licensing, and franchising additional costs. Used by MNEs to compete in host countries with large and/or lucrative but idiosyncratic domestic markets (e. g. , Germany, Japan, Saudi Arabia). Often used in consumer products and food industries. Main business-level strategy is differentiation. MNE wants to be perceived as local company. Used by MNEs that are offering standardized products and services (e. g. , computer hardware or business process outsourcing). Main business-level strategy is cost leadership. Benefits • • • Ø Ø Ø Leveraging core competencies. Economies of scale. Low-cost implementation through: Exporting or licensing (for products) Franchising (for services) Licensing (for trademarks) • • • No or limited local responsiveness. Highly affected by exchange-rate fluctuations. IP embedded in product or service could be expropriated. • • • Highest-possible local responsiveness. Increased differentiation. Reduced exchange-rate exposure. • Duplication of key business functions in multiple countries leads to high cost of implementation. Little or no economies of scale. Little or no learning across different regions. Higher risk of IP expropriation. No local responsiveness. Little or no product differentiation. Some exchange-rate exposure. “Race to the bottom” as wages increase. Some risk of IP expropriation. Global matrix structure is costly and difficult to implement, leading to high failure rate. Some exchange-rate exposure. Higher risk of IP expropriation. • • Standardization • Transnational • Used by MNEs that pursue a blue ocean strategy at the business level • by simultaneously focusing on product differentiation and low cost. Mantra: Think globally, act locally. • ©Mc. Graw-Hill Education. Risks • • • Location economies: global division of labor • based on wherever best-of-class capabilities • reside at lowest cost. • Economies of scale and standardization. • • Attempts to combine benefits of localization • and standardization strategies simultaneously by creating a global matrix structure. • Economies of scale, location, experience and • learning.

National Competitive Advantage: World Leadership in Specific Industries ©Mc. Graw-Hill Education.

Is the Internet Causing Firm Location To Be Less Important? • The short answer: no • Death of Distance Hypothesis: – The assumption that geographic location shouldn’t lead to firm-level competitive advantage because firms are able to source inputs globally. – This assumption is inaccurate. • High-performing firms in certain industries are concentrated in specific countries. ©Mc. Graw-Hill Education.

Exhibit 10. 9 Porter’s Diamond of National Competitive Advantage Why some nations outperform others in certain industries ©Mc. Graw-Hill Education. Jump to Appendix 5 long image description

Factor Conditions • A country’s endowments: – Natural, human, and other resources – Resource rich countries: focus on commerce – Resource lacking countries: focus on human capital • Other important factors: – Capital markets – A supportive institutional framework – Research universities – Public infrastructure (airports, roads, schools, health care system, etc. ) ©Mc. Graw-Hill Education.

Demand Conditions • The characteristics of demand • From a firm’s domestic market • Customers hold companies to high standards of value creation. – Developments in research – Cost containment – Other marketplace applications ©Mc. Graw-Hill Education.

Competitive Intensity in a Focal Industry • Highly competitive environments lead to better firm performance. • Example: Fierce environment for German car companies helped prepare them for global competition – Fierce domestic competition – No-speed-limit autobahn – Require top-notch engineering of chassis and engines – High gas prices ($9) put pressure on low fuel consumption – Demanding customers ©Mc. Graw-Hill Education.

Related and Supporting Industries/Complementors  • Leadership in related and supporting industries • Fosters complementors in downstream industries – Firms that provide an additional good or service • Combined with the primary product • Leads customers to value the focal firm’s offering more – Further strengthens national competitive advantage ©Mc. Graw-Hill Education.

Implications for the Strategist ©Mc. Graw-Hill Education.

Dimensions to Formulate the Firm’s Corporate Strategy • The degree of vertical integration • The level of diversification • How / if to compete outside of its home market – The benefits usually outweigh the costs. – Even small companies can compete this way. • Via the Internet ©Mc. Graw-Hill Education.

The CAGE Framework Helps Make Global Strategy Decisions • Relative distance / closeness to a target market • Assesses multiple dimensions – Cultural, administrative/political, geographic, and economic • Mode of foreign entry – Consider degree of investment – Consider level of control ©Mc. Graw-Hill Education.

The Business Level Strategy Influences the Global Strategy • A cost leader: – More likely to achieve success with a globalstandardization strategy • A differentiator: – More likely to achieve success with an international or multidomestic strategy • A blue ocean strategy: – Also called a transnational strategy – Combines high pressures for cost reductions with high pressures for local responsiveness – Is difficult to implement ©Mc. Graw-Hill Education.

Physical Geographic Location Maintains Its Importance • This is the case despite the rise of the internet. • Examples of regional geographic clusters: – – Silicon Valley: computer technology Chicago: medical device firms Southern Germany: Daimler, BMW, Audi, Porsche Northern Italy: fashion companies • Local presence provides: – Knowledge – Relationships – Motivation ©Mc. Graw-Hill Education.

Chapter 10 Summary ©Mc. Graw-Hill Education.

Take Away Concepts (1 of 6) LO 10 -1 Define globalization, multinational enterprise (MNE), foreign direct investment (FDI), and global strategy. • Globalization involves closer integration and exchange between different countries and peoples worldwide, made possible by factors such as falling trade and investment barriers, advances in telecommunications, and reductions in transportation costs. • A multinational enterprise (MNE) deploys resources and capabilities to procure, produce, and distribute goods and services in at least two countries. • Many MNEs are more than 50 percent globalized; they receive the majority of their revenues from countries other than their home country. • Product, service, and capital markets are more globalized than labor markets. The level of everyday activities is roughly 10 to 25 percent integrated, and thus semi-globalized. • Foreign direct investment (FDI) denotes a firm’s investments in value chain activities abroad. ©Mc. Graw-Hill Education.

Take Away Concepts (2 of 6) LO 10 -2 Explain why companies compete abroad, and evaluate the advantages and disadvantages of going global. • Firms expand beyond their domestic borders if they can increase their economic value creation (V – C) and enhance competitive advantage. • Advantages to competing internationally include gaining access to a larger market, gaining access to low-cost input factors, and developing new competencies. • Disadvantages to competing internationally include the liability of foreignness, the possible loss of reputation, and the possible loss of intellectual capital. ©Mc. Graw-Hill Education.

Take Away Concepts (3 of 6) LO 10 -3 Apply the CAGE distance framework to guide MNE decisions on which countries to enter. • Most of the costs and risks involved in expanding beyond the domestic market are created by distance. • The CAGE distance framework determines the relative distance between home and foreign target country along four dimensions: cultural distance, administrative and political distance, geographic distance, and economic distance. ©Mc. Graw-Hill Education.

Take Away Concepts (4 of 6) LO 10 -4 Compare and contrast the different options MNEs have to enter foreign markets. • The strategist has the following foreign- entry modes available: exporting, strategic alliances (licensing for products, franchising for services), joint venture, and subsidiary (acquisition or greenfield). • Higher levels of control, and thus a greater protection of IP and a lower likelihood of any loss in reputation, go along with more investment-intensive foreign- entry modes such as acquisitions or greenfield plants. ©Mc. Graw-Hill Education.

Take Away Concepts (5 of 6) LO 10 -5 Apply the integration-responsiveness framework to evaluate the four different strategies MNEs can pursue when competing globally. • To navigate between the competing pressures of cost reductions and local responsiveness, MNEs have four strategy options: international, multi-domestic, global-standardization, and transnational. • An international strategy leverages home-based core competencies into foreign markets, primarily through exports. It is useful when the MNE faces low pressures for both local responsiveness and cost reductions. • A multi-domestic strategy attempts to maximize local responsiveness in the face of low pressure for cost reductions. It is costly and inefficient because it requires the duplication of key business functions in multiple countries. • A global-standardization strategy seeks to reap economies of scale and location by pursuing a global division of labor based on wherever best-of-class capabilities reside at the lowest cost. It involves little or no local responsiveness. • A transnational strategy attempts to combine the high local responsiveness of a localization strategy with the lowest- cost position attainable from a global-standardization strategy. It also aims to benefit from global learning. Although appealing, it is difficult to implement due to the organizational complexities involved. ©Mc. Graw-Hill Education.

Take Away Concepts (6 of 6) LO 10 -6 Apply Porter’s diamond framework to explain why certain industries are more competitive in specific nations than in others. • National competitive advantage, or world leadership in specific industries, is created rather than inherited. • Four interrelated factors explain national competitive advantage: (1) factor conditions, (2) demand conditions, (3) competitive intensity in a focal industry, and (4) related and supporting industries/complementors. • Even in a more globalized world, the basis for competitive advantage is often local. ©Mc. Graw-Hill Education.

Key Terms • CAGE distance framework • International strategy • Cultural distance • Liability of foreignness • Death-of-distance hypothesis • Local responsiveness • Foreign direct investment (FDI) • Location economies • Global-standardization strategy • Multidomestic strategy • Global strategy • Globalization hypothesis • Integration-responsiveness framework ©Mc. Graw-Hill Education. • Multinational enterprise (MNE) • National competitive advantage • National culture • Transnational strategy

Chapter 10 Cases & Exercises ©Mc. Graw-Hill Education.

Chapter Case 10: Consider This… (1 of 2) • IKEA faces significant external and internal challenges going forward. • External Challenges: – The global supply chain has become a bottleneck. – Growth slowed after the recession. – Consumers are concerned about deforestation. • Internal Challenges: – Constraints in accessing large sums of capital – CEO succession ©Mc. Graw-Hill Education.

Chapter Case 10: Consider This… (2 of 2) • Walmart entered a period of difficulties after Sam Walton stepped down. Do you anticipate IKEA having similar leadership transition challenges? • Developed & emerging countries are the fastest growing for IKEA. How does this influence global competition for IKEA? • How can IKEA drive global growth? • In which areas should IKEA practice corporate social responsibility? ©Mc. Graw-Hill Education.

My Strategy Exercise: How to Develop a Global Mindset • Three components: – Intellectual capital • Take courses, read publications, watch international news – Psychological capital • Be open to new ideas and experiences, appreciate diversity. – Social capital • Widen social circle, volunteer, travel / study abroad. • Your task: – Outline your strengths / weaknesses for each element – Make a list of activities to improve them – Determine how to get started ©Mc. Graw-Hill Education.

Small Group Exercise #1 • IBM has become a global tech giant. – 375, 000 employees, revenues at $95 billion – HQ is in NY, but 70% of employees are overseas – Earns 2/3 of revenues outside of the U. S. • What is an appropriate definition of a U. S. firm? • Is IKEA a Swedish firm? – 6% of sales are garnered from the Swedish market • What considerations should a firm have for it’s home country? ©Mc. Graw-Hill Education.

Small Group Exercise #2 • Apply the 4 types of global strategy to Clif Bar. – Nutritious, food and drinks for sports and snacking • Your task: – Apply the CAGE distance framework to the six foreign international countries where Clif Bar is operating. • Rank relative distance – Do the six chosen countries make sense? ’ – What 3 -4 other countries should they enter? – What entrance strategy should the firm employ? ©Mc. Graw-Hill Education.

End of Chapter 10 ©Mc. Graw-Hill Education.

Strategy Smart Videos ©Mc. Graw-Hill Education.

Strategy Smart Videos (1 of 6) • Kevin Cleary, President of Clif Bar • Clif Bar's Strategy: 5 Bottom-lines – Related to Small Group exercise #2 • Link: – http: //www. inc. com/kevin-cleary/clif-bar-kevin-fivebottomlines-why-it-works. html • 10: 42 Minutes ©Mc. Graw-Hill Education.

Strategy Smart Videos (2 of 6) • IKEA's Secret to Global Success • Related to our Chapter Case • Link: – http: //fortune. com/video/2015/03/10/ikeas-secret-toglobal-success/ • 2: 19 Minutes ©Mc. Graw-Hill Education.

Strategy Smart Videos (3 of 6) • How to Develop a Global Mindset • Panelists & keynote speakers give their thoughts • Link: – https: //www. youtube. com/watch? v=yp. JQQ 6 U 7_bw • 3: 29 Minutes ©Mc. Graw-Hill Education.

Strategy Smart Videos (4 of 6) • Coca-Cola International Business Strategy • A well-done presentation created by a student • Link: – https: //www. youtube. com/watch? v=QAy. JVt. EIAt. M • 5: 53 Minutes ©Mc. Graw-Hill Education.

Strategy Smart Videos (5 of 6) • Top 100 Most Valuable Global Brands 2015 • A countdown. Provides overall brand value and category. • Link: – https: //www. youtube. com/watch? v=hn. HOR 6 y. Xul. I • 4: 41 Minutes ©Mc. Graw-Hill Education.

Strategy Smart Videos (6 of 6) • Microsoft CEO Satya Nadella • Microsoft’s Global Strategy • Link: – https: //www. youtube. com/watch? v=Uu-Ol 78 l. Ci 0 • 1: 45 Minutes ©Mc. Graw-Hill Education.

Chapter Case 10 ©Mc. Graw-Hill Education.

Chapter Case 10: IKEA (1 of 2) • The world’s most profitable retailer – Note: it’s IKEA, not Walmart! – 360 stores, in 40 countries, employs 150, 000 people – Has earned revenues of 37 billion euros • The rise of IKEA – Started in 1943 by a 17 -year-old as a retail outlet – Took 20 years before it expanded beyond Sweden – Sells similar home furnishings across the globe • Little adaptation • Makes allowances for some adaptation ©Mc. Graw-Hill Education.

Chapter Case 10: IKEA (1 of 2) • Keeping costs low is their value innovation. – Shifted from an international strategy to a global standardization strategy – Attempts to achieve economies of scale through managing a global supply chain • Implementing production techniques • IKEA’s revenues by geographic region: – – ©Mc. Graw-Hill Education. 69%: Europe 15%: North America 9%: Asia & Australia 7%: Russia

Appendix 1 The AFI Strategy Framework The important inside circle is titled "Gaining and Sustaining a Competitive Advantage" that is at the very center of the image, with five different circles on the outside of it. Arrows go back and forth from the center circle to each of the five outer circles. The five outer circles are labeled: (1) Getting Started, (2) External and Internal Analysis, (3) Formulation: Business Strategy, (4) Formulation, Corporate Strategy, and (5) Implementation. Each of these outer five circles have a brief description beside them to explain what the circle means: Under the first outer circle titled "Getting Started", it says: Part 1, Strategy Analysis, "What is Strategy (Chapter 1)" and "Strategic Leadership: Managing the Strategy Process (Chapter 2)". Under the second outer circle titled "External and Internal Analysis", it says: Part 1, Strategy Analysis, "External Analysis: Industry Structure, Competitive Forces and Strategic Groups (Chapter 3)", "Internal Analysis: Resources, Capabilities and Core Competencies (Chapter 4)", and "Competitive Advantage, Firm Performance, and Business Models (Chapter 5)". Under the third outer circle titled "Formulation: Business Strategy", it says: Part 2, Strategy Formulation, "Business Strategy: Differentiation, Cost Leadership and Integration (Chapter 6)" and "Business Strategy, Innovation and Entrepreneurship (Chapter 7)". Under the fourth outer circle titled "Formulation: Corporate Strategy", it says: Part 2, Strategy Formulation, "Corporate Strategy: Vertical Integration and Diversification (Chapter 8)", "Corporate Strategy: Strategic Alliances, Mergers and Acquisitions (Chapter 9)", and "Global Strategy: Competing Around the World (Chapter 10)". Under the fifth outer circle titled "Implementation", it says: Part 3, Strategy Implementation, "Organizational Design: Structure, Culture and Control (Chapter 11)", and "Corporate Governance and Business Ethics (Chapter 12)". Return to slide ©Mc. Graw-Hill Education.

Appendix 2 Exhibit 10. 5 How Do MNEs Enter Foreign Markets? Though it does not apply to globally born companies, this framework is relevant for manufacturing companies that are just now expanding into global operations. This image shows a two-sided arrow. On the left side above the title "Less Investment & Control" is Contract-Based Exporting. In the middle, is Strategic Alliances, which contains three sub-parts from left to right: Long term contracts (licensing and franchising), equity alliances, and joint ventures. On the right, above the title "More Investment and Control" is Subsidiary (Acquisition & Greenfield) Return to slide ©Mc. Graw-Hill Education.

Appendix 3 Exhibit 10. 6 Global Strategy Positions and Representative MNEs This image shows the opposing pressures for cost reductions and local responsiveness to derive four different strategic positions to gain and sustain competitive advantage when competing globally High pressure for cost reduction + high pressure for local responsiveness = transnational strategy. Ex. ABB, Bertelsmann, P&G Return to slide ©Mc. Graw-Hill Education.

Appendix 4 Exhibit 10. 7 Dynamic Strategic Positioning: The MTV Music Channel At first, MTV followed a global standardization strategy. To be more responsive to local audiences, MTV then implemented a multidomestic strategy to meet the need for local responsiveness. This led to a loss of all possible scale effects, especially rolling out expensive content over a large installed base of viewers. In a next move a few years later, MTV shifted its strategic position away from a multidomestic strategy and is now pursuing a transnational strategy. Return to slide ©Mc. Graw-Hill Education.

Appendix 5 Exhibit 10. 9 Porter’s Diamond of National Competitive Advantage The image is drawn as four interrelated factors, which circle an inner result titled "national competitive advantage. " Factor conditions, demand conditions, competitive intensity in focal industry, related and supporting industries/complementors. Return to slide ©Mc. Graw-Hill Education.