Module 1: Globalisation and global strategy 27 July 2020 UTS CRICOS 00099F
Overview • What is strategy? • Global strategy and globalisation • Global strategy and globalisation at the crossroads
Opening case: Is a global strategy real? Source: www.hungerartist.co Source: https://mcdonaldsblog.in/
1. What is strategy?
What is Strategy? • Strategic management or strategy – the application of the principles of military strategy to business competition (dates to the 1960s) • Three schools defining strategy: • Strategy as plan • Strategy as action • Strategy as theory
Strategy Plan, Action and Integration Strategy as plan Strategy as action Strategy as integration “a set of flexible, “explicit, rigorous formal “The determination of the basic planning” (Peng, 2017) goal-oriented long-term goals and objectives of actions” (Peng, 2017) an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals” (Chandler, 1962:13) Sources: Peng, M., Global Strategy, 4th Edition, 2017, North Ryde NSW: Cengage Chandler, A., 1962, Strategy and Structure, Cambridge, MA: MIT Press
Strategy as Theory • • Firms have both One firm’s strategies intended and may not work in all emergent strategies – situations strategy as • Past success does not integration guarantee future • How to compete success successfully • It is often difficult to • Allows replication change strategy
Whic ich of of t these ese statem ements a are e strateg egie ies? s? • “We want to be the number one or number two in all the markets in which we operate” • “We want to increase operational efficiency; we will target Europe, the Middle East, and Africa; and we will divest business X.” • Dan Murphy Liquor store: “Lowest liquor price guaranteed. In the unlikely event that a customer finds a lower price, we’ll beat it on the spot.” • “Our strategy is to move from defense to industrial applications.” Sources: Hambrick, D. C., Fredrickson J. W., 2005:51. Are you sure you have a strategy? Academy of Management Executive, Vol. 19, No. 4; Vermeulen, F., 2017, Many Strategies Fail Because They’re Not Actually Strategies, Harvard Business Review, November 8; Kenny, G., 2018, Your Strategic Plans Probably Aren’t Strategic, or Even Plans, Harvard Business Review, April 6
Strategy as integration: “The determination of the basic long-term goals and objectives of an enterprise, and the adoption of Goals and objectives courses of action and the Strategy allocation of resources necessary for carrying out these goals” (Chandler, 1962:13) Actions and resources Source: http://www.englandtouch.org.uk/
Fundamental questions in strategy • Why do firms differ? • How do firms behave? • What determines the scope of the firm? • What determines the international success or failure of firms?
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? – Introducing strategy tripod Industry-based competition Firm-specific resources and Strategy Performance capabilities Institutional conditions and transitions
What determines the scope of the firm? • Related not only to the growth of the firm, but also to its contraction • Example of product scope: Does conglomerate strategy destroy the value of the firm? - General Electrics (USA) vs. TATA (India) • Example of geographic scope: global presence vs. emerging markets vs. regional scope
What determines the international success or failure of firms? • Acquiring, leveraging and sustaining competitive advantage • 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
2. Global strategy and globalisation
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 • Both international and non- international (domestic) • Both developed and emerging economies
Globalisation • The term “globalisation” was made popular by Theodore Levitt (1983). • The idea of one global marketplace: • The merging of distinctly separate national markets into a global marketplace • Falling barriers to cross-border trade have made it easier to sell internationally • Tastes and preferences converge into a global norm • Firms offer standardized products worldwide creating a world market Source: Levitt, Theodore (1983), “The Globalization of Markets”, Harvard Business Review, May-June.
What is globalisation? New force sweeping Long-run historical through the world in evolution since the dawn recent times? of history? Pendulum view
Semi-globalization & regionalisation • Market barriers are high but not high enough to completely insulate countries • Is free trade and investment still global or is it becoming more regional and bilateral? • Free trade agreements (FTAs): agreements between nations to promote free trade. • Regional trade agreements (RTAs): usually refers to the creation of a trading bloc within a specific geographic region.
Semi-globalization as spaghetti bowl effect • Referred to as the “spaghetti bowl effect” and, in Asia, as the “noodle bowl effect” (Baldwin, 2008; Panagariya, 2002) Source: blogs.worldbank.org Source: Baldwin, R. E. 2008. Managing the Noodle Bowl: The Fragility of East Asian Regionalism. Singapore Economic Review, 53(3): 449-478.; Panagariya, A. 2002. E.U. Preferential Trade Arrangements and Developing Countries. The World Economy, 25(10): 1415-1432; Sajid, O. (2015): Youth Voices: Effects of The Spaghetti Bowl on South Asia-East Asia Trade Relations, World Bank Blogs, available online: https://blogs.worldbank.org/endpovertyinsouthasia/youth-voices-effects-spaghetti-bowl- south-asia-east-asia-trade-relations
Note: Notifications of RTAs: goods, services and accessions to an RTA are counted separately. The cumulative lines show the number of RTAs/notifications currently in force Source: WTO Secretariat (21 July 2020), available online: https://www.wto.org/index.htm
Source: WTO Secretariat (21 July 2020), available online: https://www.wto.org/index.htm
3. Global strategy and globalisation at a crossroads
Events require making strategic choices in this complex, rapidly moving world • Anti-globalization protests (job losses, downward pressure on wages for unskilled labor, environmental destruction) • Terrorist attacks (9/11, ISIS) • Economic crises (Great Recession, Euro crisis) • Corporate governance crisis (Asian financial crisis, US scandals, 2008 global financial crisis) • Trade wars (Russia versus EU, China versus US) • COVID-19 (and other pandemics) and accompanied humanitarian crises
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), but view them as partners
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