Introduction to Global Competitive Strategy Professor Daniel F

Introduction to Global Competitive Strategy © Professor Daniel F. Spulber

Global Competitive Strategy Suggested Course Outline 1. Introduction 2. Home country 3. Supplier and partner countries 4. Customer and competitor countries 5. Strategies for Global Value Added: Gains 6. Strategies for Global Value Added: Gains 7. Strategies for Global Value Added: Costs of trade 8. Competitive strategies: Global vs local 9. Competitive strategies: Modes of entry and FDI 2

Global Competitive Strategy Main Cases 1. Introduction 2. LENOVO 3. BP/ OIL INDUSTRY 4. P&G JAPAN 5. RENAULT-NISSAN 6. 7. 8. 9. LI & FUNG CEMEX ZARA FLEXTRONICS IN INDIA 3

Global Competitive Strategy Introduction 4

Global Competitive Strategy Outline of introduction § The global challenge § The global mosaic § The global strategy “Star Analysis” 5

Global Competitive Strategy The Global Challenge q Globalization changes nature of competition -- Competitors can be very different! q Innovative entrants, including emerging market firms q Global competitive advantage • Best sources of products, global brands • World-class cost efficiencies • Global pool of innovations • Global mix of transactions 6

Global Competitive Strategy The Global Challenge q To serve large-scale global market q To address market differences across countries 7

Size of Global Business Current $ (Source: World Bank) • World GDP: $ 41. 3 trillion (Gross Domestic Product) • US: $ 11. 7 trillion • EU (25): $ 12 trillion • Japan $ 4. 6 trillion • Latin America and Caribbean $ 2 trillion • Middle East and Africa $ 1 trillion • India $ 0. 7 trillion • China $ 1. 9 trillion High growth rate of emerging markets 8

Size of International Business Total exports of goods and services World Trade $ 11 trillion • Merchandise $9 trillion Agriculture, fuels and mining, manufactured goods • Services $2 trillion Transportation, travel, commercial services 9

Growing importance of trade to US economy Increases in: Exports: - Capital goods (mainly semiconductors, computer accessories) - Industrial supplies - Consumer goods Imports: - Industrial supplies and crude oil - Auto industry - Capital goods 10

Size of International Business • $1. 5 trillion in international currency transactions per day! • 63, 000 multinational corporations • Major source of economic growth and investment for developed and developing countries • Source of global technological innovation • Earnings growth for many companies (Wal-Mart, GE, Carrefour, Nestlé, Unilever, Cemex, Toyota, Samsung) 11

Why did Daimler. Chrysler have problems? Why was Nokia so successful? 12

Global Competitive Strategy The Global Mosaic • Vast economic differences across countries GDP per capita, prices, wages The world is bumpy! • Underlying geographic differences – Geography matters • Large “economic distances” between countries • “Sticky borders” preserve these differences • The arbitrage principle – economic differences evidence of sticky borders, many strategic opportunities remain 13

Differences in economic activity 14

Business must bridge critical differences between countries • • • Language Culture, customs, and history Social institutions Demographic differences: health, education Public policies Legal and regulatory systems Business practices Currencies Technology 15

Differences in climate, topography, natural resources 16

Global Competitive Strategy The costs of trade: The Four T’s • • Transaction costs Tariff and non-tariff barriers Transportation costs Time costs Borders are “sticky” 17

Business must navigate the World Trade System Proposed Caribbean Basin Initiative NAFTA 18

Business strategy must account for changes in political relationships and trade deals between countries 19

The Arbitrage Principle • • • Country borders: Restrict movement of inputs – capital, labor, technology, resources Limit trade in goods and services Create persistent differences in technology and information Preserve economic differences -- prices and wages Arbitrage reduces economic differences Innovative transactions find arbitrage opportunities Country borders provide opportunities and competitive advantage to international business 20

NEXT SESSION: Analytical framework! Global competitive advantage • Globalization challenges business strategy in a fundamental way • Trade costs are high resulting in economic differences between countries • The global mosaic offers opportunities for generating gains from trade • The successful global business develops innovative international transactions to gain global competitive advantage 21