Competing Globally

Value Creation Beyond Business/ Competitive Strategy

Changing Business Landscape
 Business happens in a landscape—a complex backdrop
shaped by national borders, government policies, natural
resources, and cultural norms.
 That landscape is becoming increasingly global.
 Changes in technology and political economy are eroding
and reshaping the barriers between countries, allowing
firms with a home-market competitive advantage to
create and capture value in new national markets.
Changing Business Landscape
 In today’s global landscape, managers divide and
coordinate activities across multiple locations, each with
their own traits and cast of competitors.
 New business models rise and old ones collapse as
 Cheaper sourcing options develop
 Trends spread to consumers in distant and diverse cultures.
New suppliers and complementors become accessible.
 Even organizations that forgo international expansion are
at some point likely to face global competitors in their
home market, if they have not already.
Global Strategy: An Introduction
 Competing globally differs from doing business in a single
country as it provides different options for global value
creation and value capture.
 Global value creation is an extension of the concept of
competitive advantage—that is, it depends on growing the
wedge, relative to competitors, between the price
customers are willing to pay for a product and the cost an
organization incurs to produce it.
Global Strategy: Introduction
 It is difficult to apply the resources and expertise gained
through a home-market competitive advantage on a
global stage.
 Adjusting a successful business model to work in a new
environment can be complicated, expensive, or even
impossible.
 To overcome these hurdles, an organization that
competes globally needs a Global strategy—an
approach to value creation that capitalizes on similarities
and differences across geographic markets.
 Global strategies generally boil down to three options:
deployment, development, and/or deepening.
Global Strategy: Introduction
 Putting a global strategy into action is a complex and ongoing
challenge.
 Factors that shape the competitive landscape in domestic markets—
technological innovation, consumer demand, supplier relationships,
government regulation, and competitors’ moves, among others—are
magnified exponentially when firms compete across multiple
countries.
 Two powerful questions in global strategy:
 “What to do where?”—guides managers to evaluate the benefits and the
costs of separating activities in the value chain across geographic
markets. (Outsourcing and/ offshoring)
 Location decisions help to enhance firm competitive advantage, first by maximizing
global value creation and capture, and second by minimizing the threats posed by
competitors.
 “When to do what?” Carefully timing an expansion to new geographic
areas allows an organization to maximize its access to new markets, new
resources, and new suppliers, and to neutralize or box out competitors.
(Good timing helps create and capture more value)
Global Strategy- Introduction
 Ultimately, global managers who think strategically while
choosing where and when to expand their organization
will have the building blocks of a global location
strategy:
 a cohesive set of location choices, enacted over time, that
allows an organization to maximize the value creation and
value capture of each location decision.
Organizations Going Global
Why expand abroad?
 International markets offer opportunities for orgs to
remain competitive: the chance to tap new resources or
lower costs, to learn from competitors, to reach
consumers who would otherwise remain out of reach.
 A successful international expansion allows an
organization to preserve or expand the competitive
advantage it forged in its home market and to enact that
advantage in more places.

 In other words, organizations expand abroad to create

more value than they would by staying home.
 Organizations Going Global
Why Do Organizations Struggle in New National Markets?
Operating Margins for Publicly Traded
Firms in the United States, 1990–2011

Organizations with a proven competitive advantage in their home market are not
immune from struggles abroad.
Organizations Going Global
Why Do Organizations Struggle in New National Markets?
 The Liability of being foreigner
 Refers to the increased vulnerability and costs faced by
organizations that venture outside familiar territory (home
market).
 Some of these costs originate in the country the organization
expands to while other costs are created by spreading
operations over diverse geographies, cultures, and economies.
 Ex. Regulations that favour domestic competitors, caps on
foreign ownership, and/or fees for new patents and trademarks
 Requirements of new technology, or hours to the workday,
business norms, suppliers etc.
Organizations Going Global
Why Do Organizations Struggle in New National Markets?
 The paradox of being consistent
 arises from what an expanding organization knows well -- how
to create and capture value in its home market
 home-market competitive advantage is the end product of a business
model—
 a set of mutually reinforcing choices across value-chain activities (that
achieve internal consistency),
 each carefully designed to take full advantage of an organization’s home-
market environment (thus achieving external consistency).
Business Model Canvas
Business Model Canvas
Organizations Going Global
Why Do Organizations Struggle in New National Markets?
 When combined (LBF+PBC)), these can prevent the most
successful domestic organization from fully duplicating its
success abroad.
 Even when an organization overcomes the consistency
paradox it may not perform well because it is an outsider.

 In addition, the institutions that govern value capture—patents,

trademarks, and copyright laws —remain predominantly local.
 Burger King as Hunger Jack; iPad in China
 Cost of applying those rights may be very high
 Sometimes the source of value cannot be protected by law.
Why Do Organizations Struggle in New National Markets?
Capabilities Begin at Home
 An organization’s initial capabilities—and the competitive advantage those capabilities enable—
cannot be fully separated from the business model in which they were developed. A business model,
in turn, is born and evolves in a geographic environment with particular traits. These traits—
government regulations, natural resources, weather conditions, infrastructures, concentrations of
competitors and suppliers, and consumer demographics and preferences, among others—may vary
by country, by region, or even by city.
 An organization that is assessing whether to enter new geographic markets therefore needs a solid
understanding of whether its business model is replicable outside its birth environment. More
specifically, it needs to know which environmental traits its business model cannot function without,
which parts of the model can be adjusted to fit new environments, and the implication of any
adjustments on the organization’s source(s) of competitive advantage.
 For example, Bharti Airtel became the largest mobile phone provider in India using a business model
that outsourced the management of its wireless [Link] it tried to replicate a similar model
with its expansion into Africa, it failed to find a partner to run the network.
 Similarly, the National Football League (NFL) failed in its early attempts to expand from the United
States into Europe. Attracting a mass audience in Europe proved impossible, at least initially, in part
because Europe lacked a crucial link in the value chain: a network of high schools and universities to
identify and develop local talent. The NFL was forced to integrate upstream in the value chain to
develop local players—a task it had never performed and for which it was poorly prepared.

 Sources: Krishna G. Palepu and Tanya Bijlani, “Bharti Airtel in Africa,” HBS No. 112-096 (Boston: Harvard Business School Publishing, 2012); Juan
Alcacer and Mary Furey, “The Globalization of the NFL,” HBS No. 711-455 (Boston: Harvard Business School Publishing, 2011).
Strategies to Create and Capture Value
Abroad
 To create and capture value from global expansion, an
organization needs a solid global strategy
 A strategy that leverages or builds on the organization’s home-
market competitive advantage in new countries or geographic
regions.
 A successful global strategy capitalizes on similarities
and/or differences across geographic markets.
 The potential permutations are as varied as the
organizations and the countries involved.
Strategies to Create and Capture Value
Abroad (DDD Framework)
 Most organizations create value abroad in one or more of
three ways.
 They deploy a home-market competitive advantage in new
geographic markets, aggregating demand.
 They develop a new and complementary source of
competitive advantage by arbitraging technical and market
knowledge.
 They deepen an existing advantage by aggregating production
and/or arbitraging resources to reduce cost, or by adapting
products to maximize demand in new markets.
Strategies to Create and Capture Value
Abroad-
 Deployment Strategies
 Replication requires deploying the same source of
competitive advantage (Business Model) developed in the
home market across a myriad of national markets,
generally without significant localization.
 A deployment strategy aggregates demand across multiple
country markets. The size of the wedge between
production cost and customers’ willingness to pay stays
the same, but the volume of sales increases.
 In that sense, a deployment strategy for global expansion
is similar to a domestic business-unit growth strategy.
 More common in high-end and luxury consumer goods.
Strategies to Create and Capture Value
Abroad-
 Deployment Strategies
 To achieve similar willingness to pay across markets, an
organization needs to target a homogeneous segment of
customers across countries.
 The key is focusing on similarities, rather than differences,
across country markets.
 To keep costs similar across markets, organizations generally
choose between concentrating production in one or a few
locations and exporting to different national markets or
replicating production across markets.
 At an organizational level, it require a corporate culture and an
organizational form and processes that guarantee
standardization of products and services.
 The organizations become more homogeneous and are well
positioned to franchise their operations abroad.
Strategies to Create and Capture Value
Abroad-
 Development Strategies
 Development strategies depend on differences. Specific
locations enjoy unique endowments. Some are geographic,
others are institutional.
 An organization that diversifies geographically to obtain new
capabilities—for ex., unique knowledge that helps it improve
its products or services—follows a development strategy.
 An organization using a development strategy creates and
captures value by identifying where a potential new capability
resides, locating to acquire that capability, and integrating it for
use across the organization’s global markets.
 In some cases, the result may be new or enhanced products
that increase CWP. In others, it will be improved production
and procurement procedures that reduce SOC.
Strategies to Create and Capture Value
Abroad-
 Development Strategies
 It is a process of arbitraging knowledge across countries.
 It is important that the diversity among locations is not so great that an
organization struggles to absorb local knowledge (because it is too
different from what the organization already knows) or to apply that
knowledge in other national markets (because it is too local).
 Thus, for a development strategy to be successful, a new location should be
different enough to provide the organization with a unique capability but
not so different that the capability cannot be applied somewhere else.
 Successful development strategies require organizations to align their
reporting structures and management incentives carefully to ensure that
local innovations are identified and developed and that their potential for
global success is communicated clearly to headquarters.

 P&G’s experience in Japan. Its successful global rollout of SK-II, for example, was part of a larger strategy
that in the space of a few years had given the world Swiffer, an electrostatic mop; Dryel, a dry-cleaning
system for the home; and Lipfinity, a line of long-lasting lipsticks. Behind these successes was a radical
restructuring in the early 2000s that moved profit responsibility from P&G’s regional headquarters to its
global business units and gave P&G managers hefty bonuses for identifying local products with global appeal.
Strategies to Create and Capture Value
Abroad-
 Deepening Strategies
 It shares elements with each of the first two, but uses those elements
differently.
 Like a deployment strategy, a deepening strategy can leverage similarities
across country markets. Like a development strategy, it can leverage
differences across markets.
 In either case, the goal of a deepening strategy is to grow (or “deepen”) an
organization’s existing competitive advantage without changing the
organization’s primary business model.
 Among deepening strategies that turn on reducing costs, the most common
is arbitraging labour costs by offshoring activities to low-cost locations.
Rarely offers sustainable advantage.
 A more enduring way to reduce costs is to aggregate production, R&D, or
advertising across markets to create economies of scope and scale.
Reducing cost through economies of scope and scale is an organization-
specific process, so it is difficult for competitors to imitate.
Strategies to Create and Capture Value
Abroad-
 Deepening Strategies
 The second and more desirable category of deepening strategy is
based on increasing customer willingness to pay. This can be
accomplished with three different mechanisms: adapting to local
demand, leveraging a multinational presence, and flexing market power
(Part of the value chain where market power resides).
 When tastes differ across countries but the need for a product is
constant, an organization may increase willingness to pay by adapting the
product to local tastes. Adapting to local tastes can be expensive—an
intermediate approach- offer regional products or build products on a
platform that can be adapted to local tastes while minimizing costs.
 In cases where products and services command higher prices precisely
because they are available across national markets, an organization can
increase willingness to pay using multinationality.
 Finally, an organization that can identify and own the part of the value
chain where market power resides can increase willingness to pay using
market power.
Strategies to Create and Capture Value
Abroad- Selecting a Global Strategy
 Each option opens particular avenues for value creation and imposes
particular constraints—limits on the products the organization sells, the
activities it disperses geographically, the locations and ownership structures
it selects for foreign operations, and the organizational processes it follows.
 Managers can identify their most viable options by using the chart in the
next slide, which breaks down the complex process of strategy selection
into seven critical dimensions:
 The method of value creation (or goal) the organization wants to pursue.
 The product an organization offers and whether it needs to be similar or
different across markets.
 The value chain used to produce that product (or products) and the extent to
which it can be concentrated in a single location or spread across geographic
markets.
 The similarities or differences across locations that will be necessary for value
creation and capture.
 The capabilities the organization possesses or hopes to develop.
 The organizational processes necessary to enact an expansion successfully.
 The forms of ownership an organization might use in a new market.
Strategies to Create and Capture Value
Abroad- Selecting a Global Strategy
Issue Deployment Development Deepening

Goal(s) Increase scale and maintain willingness Obtain new capabilities that increase Use existing capabilities to increase
to pay and costs. willingness to pay or decrease cost. willingness to pay or decrease cost.

Product Identify or create a common market for Use similar products with potential for Use the same product.
the same product. a common market segment in the
future.
Value Chain Use standard sourcing from a few Depends on the activity associated with Concentrate activities that control the
locations or from each national market learning. A country-specific source of value chain.
(when production does not depend on competitive advantage requires the firm
specific location traits). to operate in that location.

Location Create value based on similarities Create value based on differences In a business-to-business strategy,
(Similarities or across countries. across countries. Differences should be follow the client or optimize the
Differences) large enough to create value but small location per firm traits. In a business-to-
enough that new capabilities can be consumer strategy, allocate where
applied elsewhere. location is best.

Capabilities Replicate. Identify, absorb, and diffuse. Coordinate.

Organizational Standardize processes, products, and Be able to (1) identify a country-specific Strong communication; create flexibility
Processes culture. source of competitive advantage, (2) to move assets as location
internalize it, and (3) diffuse it across characteristics change.
countries.
Ownership Franchising is possible. Pursue one or more options, from full Own only where necessary; outsource
ownership to licensing. nonstrategic functions. Own in the
bottleneck to create value.
Using Scope Decisions to Create and
Capture Value Abroad- What to do where?
 Once an organization has selected a global strategy, managers
have the complex task of enacting that strategy. In other
words, they must answer the questions “What to do where?”
and “When to do what?”
 Globalization gives organizations opportunities to create value
by changing their geographic and vertical scope.
 Outsourcing: performing activities outside the boundaries of the
organization,
 Offshoring: performing activities within the organization but in
locations abroad
 Offshore outsourcing: performing activities outside the organization
and abroad
 Each approach varies in its potential to create and capture
value.
Using Scope Decisions to Create and
Capture Value Abroad- What to do where?
 With outsourcing, organizations create and capture value
by combining the competitive advantages of different
organizations.
 It requires skilful coordination of activities and processes
across organizations.
 It also exposes organizations to the risk of transferring
valuable capabilities to other organizations that may at
some point become competitors.
Using Scope Decisions to Create and
Capture Value Abroad- What to do where?
 Offshoring creates value by combining organizational
capabilities with the comparative advantages of different
countries.
 This requires an ability to coordinate activities within the
organization and across locations.
 It also carries a risk that organizational capabilities will be
appropriated by competitors in the new country.
Using Scope Decisions to Create and
Capture Value Abroad- What to do where?
 Offshore outsourcing offers the benefits and costs of
both- the potential for value creation is magnified, but so
are the risks.
 On the one hand, offshore outsourcing frees up domestic
producers to concentrate on innovation and other high-
value activities (while suppliers deal with lower-value
activities).
 On the other hand, it may trigger a migration of
capabilities to foreign suppliers, allowing them to become
rivals, and a loss of innovative capacity among domestic
producers.
Using Scope Decisions to Create and
Capture Value Abroad- What to do where?
 Geographical dispersion of value-chain activities can break valuable
links among them.
 Broken links increase costs to the organization by
 hampering internal communication and coordination,
 weakening access to location-specific resources, or
 even short-circuiting organizational learning and innovation.
 Each task or activity in value chain is connected to other tasks and
activities by three types of links:
 Internal links govern the flow of information within the organization and
it’s related activities- from formal communication between activities to
informal exchanges between employees
 External links govern the flow of information between the organization
and its environment- the resources it accumulates, the way it competes,
and perception and forecasting of future trends.
 Dynamic links regulate the accumulation of an organization’s knowledge
over time. (VC= Stock of organizational capabilities; ongoing and evolving
learning process)
 Using Scope Decisions to Create and
Capture Value Abroad- What to do where?
Framework to Analyze the Impacts of
Allocating Activities Across Locations
Using Scope Decisions to Create and
Capture Value Abroad- What to do where?
 The value of links between organization activities is most
readily apparent when organizations embrace offshore
outsourcing.
 The short-term gains of low wages are sometimes
undercut by long-term losses in revenue, a risk often
referred to as hollowing out. Why?
 The cost of breaking links can be as high as creating a
new competitor. Motorola outsourcing to BanQ
Hedging Risk with Mode of Entry
 Organizations can expand abroad by either exporting or starting wholly
owned subsidiary (Greenfield or Acquisition)
 In addition it can use hybrid ownership forms:
 joint ventures,
 alliances, and
 Franchising/ Licensing
 These allow organizations to limit the liability of being foreigner or to
access new markets by obtaining a license or complying with a government
cap on foreign ownership.
 Organizations need to look beyond the benefits of cooperation to consider
the costs of competition when going for hybrids.
 Alliances are typically motivated in part by a desire to access a partner
organization’s capabilities.
 Cooperating allows organizations to develop new capabilities jointly, but it
may also facilitate opportunistic behavior (taking propriety knowledge or
demanding contract concessions after an investment is made).
Hedging Risk with Mode of Entry
 Organizations can maximize cooperation and minimize competition by evaluating a proposed
partnership along four dimensions:
 Partner choice
 An ideal partner has complementary capabilities and a cooperative culture. Some overlap of capabilities
is necessary for a fruitful alliance, but too much may encourage opportunistic behavior (and multiply
losses for the “losing” organization). A cooperative culture allows an alliance to achieve its potential.
 Scope
 The goals and length of a partnership should be defined in advance, as should the type and amount of
each partner’s contribution and the mechanisms for collaboration. Being clear from the outset allows
partnering organizations to achieve their common goals, limit unintended knowledge transfers, and
rationalize their contributions.
 Structure
 In addition to setting ownership stakes, hybrid forms contract to regulate the exchange of information
and human capital, assign property rights for knowledge that the alliance creates, set requirements for
future investment, and allocate decision- making rights. Partnering organizations can protect their
relative competitive positions by limiting partners’ access to capabilities outside the scope of the
alliance.
 Measurements of success
 Common measures of a partnership’s success, such as financial indicators, can mask the benefits and
costs accruing to each partner separately. For an alliance to persist, each partner needs to pass the
better-off test: Is the organization better off participating in the partnership than not participating in it?
Using Location Choices to Create and
Capture Value- What to do where?
 When an organization determines it can expand abroad
without undermining performance, it next needs to
choose where, precisely, it will go.
 In global context answer to the question “What to do
where?” Is extremely complex.
 Global location strategy—a strategy that accounts for the
unique traits of the organization and its potential locations
over time, leverages government incentive packages (where
available), and anticipates the moves and countermoves of
competitors.
 Helps maximising value creation and capture in global context.
Using Location Choices to Create and
Capture Value- What to do where?
 Four Dimensions of Location Strategy

Four Dimensions of
Location Strategy
together shape
how much value an
organization can
create and capture
in new locations.
Using Location Choices to Create and
Capture Value- What to do where?
 Location Characteristics (Three)
 Natural endowments- Availability of basic Production factors;
Market size, physical infrastructure, quality of labour force etc.
 Institutional environments- political risk, enforcement of
property rights, labour laws, attitude towards corruption etc.
 The presence or absence of clusters of same-industry
organizations- access to specialised knowledge, suppliers, workers,
customers etc.
 Differences among these give organizations multiple options
for where to locate specific activities in their value chains.
 The first step is in choosing the right location is recognizing
what location characteristics matter for a specific organization.
 The second step is to cover multiple geographic levels of
analysis – Country Specific and Site Specific
Using Location Choices to Create and
Capture Value- What to do where?
 Government Incentives
 Governments significantly influence the underlying value a location offers
to a foreign entrant by offering incentives to lure organizations or taking
steps to block their entry.
 A package of government incentives creates a lens through which
locating organizations view a location; the lens can either magnify or
minimize the location’s intrinsic value.
 May include advantageous regulations, tax breaks, lower utility rates,
subsidies for training and other investments, improvements to local
infrastructure, and accelerated depreciation, among other options.
 The package offered to a particular organization depends on the size of
the organization’s investment, the government’s appetite for negotiation,
and how highly the government values the organization’s presence. Intel
in Vietnam
 Potential Hidden cost- typically emerge after the deal has been struck,
the investment has been sunk, and the organization starts operations.
 Some governments also take action to prevent organizations from
entering their countries.
Using Location Choices to Create and
Capture Value- What to do where?
 Firm Fit
 Tend to expand first into countries that are similar to their
home country
 Organizations with a home and host country in common may
experience different degrees of strategic fit, because every
organization has particular traits that shape its relationship
with the new setting, like:
 unique capabilities- Resources, ability to coordinate and control
across locations and to endure competitive pressures.
 locations the organization selected previously
 location prerequisites embedded in the organization’s business model
 Organization characteristics and capabilities can enhance or
decrease the value of a specific location.
Using Location Choices to Create and
Capture Value- What to do where?
 Competitive Effect
 Competition at two levels:
 competition for inputs and
 competition among products.
 Locating in a cluster- the trade-off between the benefits and costs of
joining a cluster varies by organization desire for multimarket
contact to soften competition. – Industry leader vs. less advantaged
firms
 Competitive forces in a location may also induce organizations to
locate apart because organizations with different capabilities need to
be mindful of losing critical knowledge to rivals.
 In some cases, competing in multiple geographic markets can soften
or enhance an organization’s competitive position by creating the
possibility for cross-market retaliation. Cement manufacturers
 Overall, competitive effects dictate that managers need to look
beyond attractive traits and instead treat locations as the context
where competition happens when they craft a location strategy.
Timing Expansion to Maximize Value
Capture- When to do What?
 Carefully timing entry to
new markets is another way
organizations can influence
their competitive advantage
and maximize the value of
geographic expansion.
 Second key question
managers face in global
expansion—“When to do
what?”
Determinants of Time of Entry
Timing Expansion to Maximize Value
Capture- When to do What?
 Location Clock
 Maturation of locations- Soviet Union and Eastern Europe, China and Vietnam
 Changing country conditions
 What occurs in other locations.
 The presence of other foreign organizations
 Entering late is not always better, however: It may allow early entrants to develop
valuable country-specific characteristics, including securing key suppliers and customers;
building brand recognition; and, in some cases, influencing the standards and rules that
govern an industry.
 Research shows that entrants perform best when the density of existing firms is
neither too low nor too high.
 Incentives Clock
 Governments willingness to offer incentives changes. (Window of opportunity)
 When an antibusiness government follows a pro-business government.
 A backlash from the public
 Obtain as many incentives as possible up front because organizations’ bargaining
power decreases with time.
Timing Expansion to Maximize Value
Capture- When to do What?
 Firm Clock
 Firm must possess the financial, managerial, and organizational resources to
expand.
 The required quantity of resources depends on an organization’s experience in
the global arena.
 Basic business model and Strategic options (DDD) influences its pace of global
expansion
 The value of a particular location may also change as an organization expands,
learns, and changes.
 Competitive Clock
 When an organization chooses one new geographic market, it postpones entry
elsewhere, giving competitors time to improve their own competitive advantage
in those markets.
 Managers who compare the benefits of entering against the opportunity costs of
postponing can identify the best time to enter new markets and select between a
location strategy that avoids competitors and one that locates with them.
 Importance of the competitive clock in timing decisions may vary by industry.
Sustaining a Global Strategy
 Organizations following a global strategy can maximize
the value they create and capture by:
 dispersing activities geographically without severing critical
links among those activities
 adding new locations strategically
 timing geographic expansions to neutralize rivals
 These are the building blocks of a successful global
location strategy.
 A sustainable global location strategy cannot be static
because locations and organizations evolve over time
Sustaining a Global Strategy
 Globalization, and the strategies organizations use to
exploit it, are still evolving.
 The promise of developing a global competitive advantage
is undeniably tantalizing.
 to date, even the most capable global firms have not
found the necessary but elusive balance point between
being global and being local.
 Given the stakes, there is little doubt they will continue
trying.
Transnational Management:
Antecedent Perspectives on Global Competition and Strategy

 Translational Management
 One stream of international
business literature classifies
organizations that compete
globally by the degree to
which their strategies
emphasize
 the integration of global
operations and
 responsiveness to country
preferences.
Transnational Management:
Antecedent Perspectives on Global Competition and Strategy
 International Strategy
 An organization with an international strategy attempts to create value
mainly by adapting ideas and products that come from the firm’s
headquarters. Its national units have relatively little autonomy. In this
strategy, the value perceived in being globally integrated or responsive to
national differences is low.
 Multinational Strategy
 An organization with a multinational strategy aims to differentiate
products and services across country markets. Managers in subsidiaries
are highly independent, charged with both identifying local needs and
finding ways to meet them. But their independence renders the
multinational less efficient overall because its national units will be
duplicating efforts.
Transnational Management:
Antecedent Perspectives on Global Competition and Strategy
 Global Strategy
 An organization with a global strategy uses a global product for which there is
substantial standardization across national markets. Concentrating production
and centralizing R&D increases efficiency but limits opportunities to learn from
developments in an organization’s various markets. Concentrating activities also
exposes them to sourcing risks caused by natural disasters or shifts in exchange
rates and government policies.
 Transnational Strategy
 An organization with a transnational strategy takes the cost and efficiency
advantages of global organizations, and the localization of multinationals, and
applies them in the markets where they will reap the greatest advantage. This
gold-standard approach turns on a careful (and difficult to achieve) configuration
of an organization’s assets and capabilities to capture low costs and higher
revenues, and global efficiency and local innovation. An organization that achieves
and sustains this delicate balance gains what Bartlett and Ghoshal call a
worldwide competitive advantage.
AAA Triangle Framework
 Pankaj Ghemawat observed that value-
creation strategies focused on similarities
across markets risk overlooking the
historic and enduring importance of
market differences.
 AAA Triangle serves as a kind of strategy
map for managers.
 The percentage of sales spent on
advertising indicates how important
adaptation is likely to be for the company,
the percentage spent on R&D is a proxy
for the importance of aggregation, and the
percentage spent on labor helps gauge the
importance of arbitrage.
 Managers should pay attention to any
scores above the median because those
areas most likely merit strategic focus. AAA Triangle framework, wherein
Scores above the 90th percentile may be strategies for global value creation are
perilous to ignore. defined by aggregation, adaptation, and
arbitrage.
AAA Triangle Framework
 Adaptation is the strategy of choice for organizations whose
goal is to raise revenues and market share by optimizing their
products and services for local markets; aggregation is the
response of organizations trying to build economies of scale
with regional or global operations; and arbitrage is for
organizations looking to exploit market differences by, for
instance, locating elements of their supply chain in different
places.
 In Ghemawat’s conception, the strategic focus of an
organization competing globally will shift from one A to
another depending on its strategic priority
AAA Triangle Framework
 David Collis later highlighted the potential for a fourth A—
agglomeration—which in his framework denotes the
simultaneous pursuit of arbitrage, aggregation, and adaptation.
 Collis suggested that, in addition to acting on market
differences, managers should identify whether there is a
common customer segment across countries.
 Where there is none, organizations may be able to create one
by designing a product or product platform with worldwide
appeal.
 The final step in Collis’s framework is performing a cost
analysis to evaluate whether (and which) changes can be made
to adapt global products to local taste (which is similar to
Bartlett and Ghoshal’s transnational strategy).
CAGE Distance Framework
 Ghemawat also distilled a vast literature on measures of distance
into a simple but powerful CAGE framework, in which distance
along four dimensions—cultural, administrative, geographic, and
economic—amplifies or decreases the attractiveness of a potential
location or product market for a given firm.
 For products, the framework addresses the point that even when a
viable market appears to exist, organizations need to evaluate
whether their offerings are close enough (i.e., similar enough) to
inspire demand there.
 For activities, it speaks to why it is necessary to understand the
underlying factors that determine whether an organization can
achieve its goal in a given location.
 The importance of each dimension for a given global expansion
depends on two factors: the organization’s industry and the
organization’s degree of internationalization.
 CAGE Distance Framework
Cultural Distance Administrative Distance Geographic Distance Economic Distance
Different languages Absence of colonial ties Physical remoteness Differences in consumer income
Different ethnicities; lack of Absence of shared monetary or Lack of a common border Differences in cost and quality of:
connective ethnic or social networks political association Lack of sea or river access natural resources
Attributes Creating

•
Different religions Political hostility Size of country • financial resources
Different social norms Government policies Weak transportation or • human resources
Institutional weakness communication links • infrastructure
Differences in climate • intermediate inputs
Distance

• information or knowledge

Products with high linguistic content Industries in which government Products with a low value compared to Industries in which the nature of
(TV) involvement is high, such as: weight or bulk ratio (cement) demand varies with income level (cars)
Industries or Products Affected by Distance

Products affecting cultural or national  producers of staple goods Products that are fragile or perishable Industries in which economies of
identity of consumers (food) (electricity) (glass, fruit) standardization or scale are
Product features that vary in terms of:  producers of other Industries in which communications important (mobile phones)
 size (cars) entitlements (drugs) and connectivity are important Industries in which labor and other
 large employers (financial services) factor cost differences are salient
 standards (electrical (garments)
appliances) (farming) Industries in which local supervision
 large suppliers to and operational requirements are Industries in which distribution or
 packaging high (many services) business systems are different
government (mass
transportation) (insurance)
Products that carry country-  national champions Companies that need to be
specific quality associations (aerospace) responsive and agile (home
(wines) appliances)
 those that are vital to
national security
(telecommunications)
 exploiters of natural
resources (oil, mining)
 industries that are subject to
high sunk costs
(infrastructure)
Products for Global Value Creation
 The DDD (deployment, developing, deepening)
framework teaches that the degree of product
standardization (or, conversely, localization) an
organization can pursue in a global expansion is
controlled in part by the basic global strategy the
organization follows. Each strategy requires some degree
of common customer preferences across markets, but the
amount shifts along a continuum.
 The continuum itself is a synthesis of ideas from
international business (including those from Bartlett,
Ghoshal, and Ghemawat) and also from marketing
Theodore Levitt and Susan Douglas and Yoram Wind.
Products for Global Value Creation
 Integrating these ideas in the DDD framework gives us deployment
strategies, which replicate the same business model across
countries, and deepening strategies using multinationality, which
serve the same customer segment across markets. These strategies
represent one end of a continuum and target similar segments with
very similar products.
 On the other end of the continuum are deepening strategies using
adaptation, which create value by tailoring products and services to
local tastes, thereby gaining market share and/or increasing
customers’ willingness to pay. At its most extreme, a deepening
strategy can result in a wide array of country-specific products and
services that have little in common.
 Between these two extremes are development strategies, which tap
unique resources in one market and apply them in others.
Development strategies require products that are similar but not
identical across markets.
Determinants of National Advantage
Michel Porter
Determinants of National Advantage
Michel Porter
 The factors of production –
 refers to the inputs necessary to compete in any industry—labor,
land, natural resources, capital, and infrastructure (such as
transportation, postal, and communication systems).
 There are basic factors (for example, natural and labor resources)
and advanced factors (such as digital communication systems and a
highly educated workforce).
 Other production factors are generalized (highway systems and the
supply of debt capital) and specialized (skilled personnel in a specific
industry, such as the workers in a port that specialize in handling bulk
chemicals).
 If a country has both advanced and specialized production factors, it
is likely to serve an industry well by spawning strong home-country
competitors that also can be successful global competitors.
Determinants of National Advantage
Michel Porter
 The demand conditions –
 is characterized by the nature and size of buyers’ needs in the home market
for the industry’s goods or services. A large market segment can produce
the demand necessary to create scale efficient facilities.
 Related and supporting industries - Italy has become the leader in
the shoe industry because of related and supporting industries; a
well-established leather-processing industry provides the leather
needed to construct shoes and related products.
 Firm strategy, structure, and rivalry - foster the growth of certain
industries. The types of strategy, structure, and rivalry among
firms vary greatly from nation to nation.

 The four basic dimensions of the model emphasize the

environmental or structural attributes of a national economy that
contribute to national advantage.

 Government Policy
Porter Diamond