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Author(s) of article or chapter: Lasserre, PTitle of article or chapter: Globalization of markets and competitionAuthor(s) / Editor(s) of sourcepublication:

Lasserre, P

Title of source publication: Global strategic management, 3rd edYear, Journal Volume & Issue Number (ifapplicable):

2012 / ---- / ----

Place of Publication and Publisher Basingstoke : Palgrave MacmillanPages (from to): 2 - 25 ISBN / ISSN: 9780230293816

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chapter

1 GLOBALIZATION OF MARKETS AND COMPETITION

Introduction Chuptcr 1 ddines what globalization means for a business enterprise. lL differentiates globalization from thc t.raditional process of setting up subsidiaries abroad and makes a distinction between a IIlU/liI/UliUlW/ company and a global company. Based on the example of the Otis Elevator Company, it looks at how a company having multiple international subsidiaries cun move toward a global competitive configuration through which its international activities can he strongly coordinated and integrated across bordcrs. 'I his Lransition from a multinational to u global position was driven by various social, political, cconomic and technological factors that arc described in the chapter. lhe benefits of globalization (Ire described, as well as the constraints. Some factors are still pushing toward a local approach to management. on a country-by-country basis. lind the fadors inducing this localization arc analyzed.

Finally. global/multi-local mapping is prescnted as a tool to position industries. companies and businesses according to the relative importunce of global versus local approaches. 'nle chapter ends by introducing some of the societal issues associated with globalization.

Learning objectives At the end of the chapter yOIl will be able to: define globalization, understand what a global finn is. and how it diflers from a multinational company identify the forces pushing toward globalization identify the forces pushing for localization position all indu~Lry or a business 011 the global/multi-local map discuss the benefit.s lind pitfalls of globalization.

The phenomenon of globalization Over the past 30 years int.ernational tr(lde and investment have grown much faster than the world economy as a whole. Firms have multiplicll their prcsellCC outside their COlllltry of origin. employing more and more people and selling and buying technology internationally. (Sce Table 1.1). More and more produCLq are sold in similar stores, with similar features and carry 11 common hrand across the globe. Factories that were prosperolls in the \I\festern

2

3

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GLOBALIZATION OF MARKETS AND COMPETITION

Il ll'lve been closed lind InlllsferreJ Lo low-cost countries. 'Ihe English language is now wor ( <

I THE PROCESS OF GLOBALIZATION4

"Illerc is no wcll-eslablishoo definition of globalization. Ilere we wilt propose as H defini tion: "lllc process by which people, prodllct.~, information and money CUll move freely across borders'. As a consequence, markeL'l may lend to converge, providing room for slllnrl;mliZlllion of products. nnd production cenLres can he located at economical and convenient places around the world. lhis implies. ;IS we will see, a more centralized management of firms. We will look first at the macro-economic, tcchnological lind politicul factors that howe geller-lled such a glob1environment and then look at how firms ha\'e ChUllgt"

5

>

GLOBALIZATION OF MARKETS AND COMPETITION

Union (EU). to which we lllay add the progrcssil'c opening of emerging nations to foreign investments. 'Ole liArI'. which was founded in 1946 by 23 nations, initialed a series uf negotiations,

culled 'rounds', :limed at reducing tariff concessions to create liberalization of trade. The GI\'l~r became the WTO ill 1995. '1l1C Kennedy Round ill the mid-I%Os, the Tokyo Round in Ihe carly 1970s and Ihe Uruguay round ill the late 19ROs created an environment Ihnt. fostered international trndc; during t.he period following the Kennedy Bound the average lVeighted tari(fraLe among GATT members decreased by 34% and aftcr the TokJ'0 round by 60%. 'Ilw European Economic Community (EEe) was established on 25 Mnfch 1957 by thc Treaty

of Rome. signcd by Bclgillm, France, Italy. Germany, Luxembourg and the NeLherlands. with the aim of creating a COllllllOll market and ecollomic and political inLegration among the six membcr st.ul.es. '\s a result, gnods, people and financial flows could movc frcely across eount.ries. During t.he 1970.~, the EEC was cnlarged with the cntry of the United h:.ingdom, Ireland and Denmark. folluwed by Spain. Portugal and Greece in the 1980s and by Swcden, Austria and Finland in the I990s. Companies like OLis could take advantage of European integration to create their own integrated Lrading network.

Finally, in parallel with what was happening in the illdustrialized countries, developing nat.ions progressively adopted more positive attit.udes toward foreign direct investment. (FIJI). At first, il\ve.~tJlleot laws were designed to attract foreign investors in order to induce t.hem to pruduce 10l;ully, but. over the years the legislation has evolved Loward a more open stance. favuuring cruss-border investments. Between 1991 lind 2004 the number uf regul

I THE PROCESS OF GLOBALIZATION

Air, rnil and road transport and th~ use or containers in maritime transport have reduced lhe cost of shipping g;oods from country to country as well as, in the case of air transport, favoring the travel ofmanagers. "lhe development oftelecomlTlunicatiolls has reduced the cost of information exchange between business units scattered around the globe. Between 1950 and J990, the transportatioll costs of air trall.~porl,ocean freight and transatlantic phone calls decreased by some 56%, 14% and 29%. respectively. Fur satellite charges. there was an approximate decrease 01'90% between 1970 and 1990 (Figure 1,1).

I'rngress in manufacturing technology gave a trelllendous impcl.llS t.o the Ileed to concentrate producLion in world-class factories benefiting from huge economics of scale, Lllus encouraging Lhe ratiollali,.;aLion and integration of production systems.

Beside manllf~lclurillg conccnLraLioll, companies have been able to source components or services from low-cost. countries, either by setting up their own operations or by purchasing locally.

Table 1.2 Illustrations of the shortening of product life cycles General product Time 01 invention to commercial category exploitation (yearsl Electric motor 65 TV 52 Vacuum tube OJ Zip-f

----------------

7 toB" I A NO MARK rAND M ,.

..s

appel,l to masses of(:onsumers in all countries: DVIJs. PCs, mobile phones or elevators, c ....lnes lmd robols lire prodllCL~ for which Illiliona! differences do not maller much.

Competitive factors 'Ihe 19(108 So'!\\' Ihe emergence ofJap.'lnesc COrlll>elitors in markets that lmditionally had 1x..'Cn duminulLod by American or European COIllI>ctitors. Japanese firms. and laler Korean firms, adopted a global approach al the vcry beginning ofthcir international expansion. One orillc reasons is thatlllcy did nol ha\'c many national subsidiaries and their international expansion WllS occllrril\g at Ule lilllc ofthe opcnillg oft rllde barriers. Bighl. lit the beginning the)' designed products for the world market, creating global bralltls stich as 'Sony' or 'anllsonie', and their cflident produdion systcm gave them a cost advanluge in e1eelronics alHlaut,omntive parls. Competitors had to adopt a similar strill cgie stance if they wished to survive.

Another compctitive force that flushed companies to g[oba1i~.IJ is the t:!obalizatioll of ';lIstoIl/CI'~'. During the I'nos. CiUbank cl'ented n Global Account Management Unit Lo service lhose corporate customers who had interlHlUnnul subsidiaries. Figure J.~ SIIIIH1Hlrizcs these 'push factors' ill favour of globali,mtion.

Political faclors

, GAn EEC FDI

Technological lactors

Transport M~nuI;Kluring TelecommUnication R&D

Redetitjve poinl of view and the macro socio-economic poinL of view. In this chapLer we will focus 011 Lhe business and COIllI>eLilive l>ellcfits. A more generlll discussion 011 the socio

I THE PROCESS Of GLOBALIZATION8

l-'COllomic benefits and costs of gJobaJi:r.ation will be inclll(k.od laler in Ule chapter. while this part focuses on the benefits to a corporation ofadopting a global strategy. 'Ihe business and competitive benefits CliO he grouped into four categories; cost. [curning.

liming and arbitmge.

(I) CostlJlmejils. lhcsc come. on the one hand, from economics of scale ill product/process standardization as well as im;reased bargaining powers over suppliers of raw materials. components. equipmellt and services and. on the other hand. from the ahility to organ ize a logist.ic UIll! sourcing network based on location (,lclors. Examples of economics of scale through standardization arc llllnlcrnllS; in the cxurnplc mentioned earlier, Oris W(lS able to lower the cosl of elevators in Europe by 30% after inlroducing a pan-European mun ufactllring systelll.

(2) Timing bemifiL

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1 GLOBALIZATION OF MARKETS AND COMPETITION

used by Goodyear.lhe US tyrc giallt, when in the carly J970s, Michelin from France moved into North America. Goodyear. which had a small market share ill Europe. engaged ill II price waf that Michelin was obliged to counter by lowering its prices. amI de facto reduc

ing it.s financing scope for its American expansion. !\nother type of arbitrage comes from (!irfcrcl1!.iaJ cost clemenlS such as t.axes. interest and possibly risk reduction through the pooling of currencies.

1hosc four bCllcfits are real hut achieving them is subject to certain conditions. and their ~ldopt.ion has to be measured against the rcal cOlllpetitive advantage they provide La the firms adopting them.

'111C benefits ill cost reduction obtained by economies 01' scale are contingent upon the market responsivencss to standardization and whether customers are pricc sensitivc. If, on the contrary, customers arc not responsive aud prefer tailored products and scrviccs to standardizat.ion, a global approach is less appropriate. A similar reasoning applies to the benefits of timing. As for purchasing power, it may be limited for culturally sensitive services such as advertising.

'Ole henelits of learning arc positive if the experience gaine{l ill one COllntry is applicable to ~lIlother. [f it is not the case, thcrc is a liming dfjici/: the time it takes til rculize that you have made a mistake, plus the timc to learn about the new environment.. AI. Disneyland Paris', two years were lost because the transfer of knowledge from Florida and California did not help the European operation.

The benefits of arbitrage can be offset by the cost of managing the arbitrage and the legal balTiers tlmt. may exist in onler to prcvent such arbitrage. In the case of tax arbitrage, governments are very careful to make sllre that global companies do not abuse their arbitrage power.

Despite tllose limitatiolls, more and more companies recognize the competitive benefits of globalization. However. you should he aware there are still some factors that work against globalization and this is what we will consider aller the following example of globalization.

Globalization at the level ofthejirm m illustrat.e the phellomenon of globa1i~,aUon lel us takc the example of the elevator

10 THE PROCESS OF GLOBALIZATION

countries' subsidiaries. 'lhe 0l'craLiolls were .I'clfcolliaillcd in each country and the resulLq wcrc evaluated on a coull/ry-hy-country hasis. Such a situation had prevaileJ since the [RHOs. It. corresponds to what. was referred to as a multinat.ional or multi-domestic world, in which multinational companies like Otis were compelingill.';cpara1.e domestic markcL~ around the world.

By the end of t.he 19605 several key clements p1

11

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1 GLOBALIZATION OF MARKETS AND COMPETITION

'this would be po~siblc only if customers in Europe - architects, engineers, real-est.ate developers. housing departments. ell;, - had a common view ahout what un elevat.or should be like. Despite the differences in housing orgunizutiOIl across coulltries, elevators wcre CSSCllti.dly technictl! products with vcry little cultural content and therefore able to be standardilCU. Only selling methods would vary from COUll try to country. 'nlC Otis manager perceived

thi.~ as Ull opportunity to gain market share in Europe and engaged in the pan-European strategy depicted in Figure IA in which design centres and fUdorics were speciulized alld

inter-dependent. From a management point of view this was a radical change; national managers were no

longer responsihle for the whole value chain as before, but only for part of it. lhey were obliged to coordinllle with other countries and they were dependent on a coordinating organization called the Europenn headquarters. 'Ihis led to a very successful out.come. By 1975, Otis had captured 40% of thc !::uropellll market, containing Japanese pelletration, and competitors if they wanted lo survive were obliged to adopt a similar strategy. 'Ihis (;ollcept WHS further expanded and today Otis is organi~ed by product lines on a worldwide basis. lherc arc still counlry subsidiaries, which take care of installation, maintenance, public relations and personnel. but otherwise product development and manufacturing is coordinat.ed globally by rroducl.lines. From being a 'multinational'. Otis has become a 'global' company.

OTIS UK OTIS GERMANY,c-__,

~---,~,,~===;::--t-J"'>De5igy"D"i,~ ~ L.,-' ~ .. 7""- )'"

>arkeli3>)serviY ~ S"i" Local market Local market

OTIS y EUROPE yy

",)ProdUCliO;>~

>arketi3>>servi~ Local marketLocal market

OTIS ITALYOTIS FRANCE

Figure 1.4 A globill competitive configuration

THE PROCESS OF GLOBALIZATION12 I

1his plu~nomenon of an aCl;vc coordinated and ifllcgrated presellCi1 in the main regions of the world is what 'glohal company' means. It is important to ollM'f\'c that this change gave Otis 11 compctith'c advantage and coml>ctitors were obliged to adopt a similar approach in order to survive. GlobaJi:l:.'ltion is neither u consultanfs fad nor a nmnagcmcnt buzzword; it is 11 compclilh'c impcr,lti\'c in an increasing IUlmher of industries.

Hist.orically the evolution or globalization from an enterprise point of view cun be best duscribed as in Figure 1.5. It has cvolvc{] ill three steps: (I) international lrude: export alld sourcing. (2) lllull.inaLionaJ investments: seiLing up valllc:,ddillg activities in different countries and (3) inl.t:gration and coonlination of activities m.:ross regions and cOllntries.

J !

Internationalization Imultinational!

Global Integration (globaL)

Export Itrade)

Started on 17th centul"f Cenlunes ago but mainly early 20th Ctnlul"f 191>05 and laler

Figure 1.5: Historically globalization tooK pl

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SA 12:ATlON I MAliK ANO COMP lION

working ag.'linSl sJobaliz.ation. \\'c can group Ihose factors into four main clItcgorics: cultural, commercial. l.t..c1mical and legal.

(I) C"ltllrllijoclors: altillldes,lasles. beJwll;or ami social codes When the consumption of a product or a service is linked 10 traditions and national or religious values. glohal standardiz,,'ltiOI1 is not cffccti\'c. Some products - for instance. ....retek (tobacco and dove) cigarellcs in Indonesia, or the I'llcllinko (pinball) game in j'lpan - are ullique to one society and their globalization is ncurly impos-'liblc. although it could be argued that with inllOVl.livc marketing it Illay be possible. Examples are the MrivuJ of'Beaujolais nouveau" wine. typically a Burgundy and Parisian bistro event before I,he 19705. now available in Tokyo, Paris or New York on Lhesame day. and Jlalloween trick or treating, a typical US festivity. is now celebrated in Eurnpc. 'I his shows that even some highly cultuml goods alld customs can be appreciated by eustomcrs all over thc world, but it rClllflins Uwt tastes ill food and

I THE PROCESS OF GLOBALIZATION14

consumer electronics, where creating video multi-standard prouuct~ with PAL for some European countries. SEeM] for France and the Middle East. und NTSC for the USA does not represent a major hurdle for global manufacturing. In other instances, stundards arc not that easy to accommodate and require specific loc~t1 productiun1incs. as is mainly the case for beer. for instance.

Some industries need to occupy a physical space in order to create and distribute their products and services: retail hanking, retailing, hotels, local telephones services. hospitals. entertainment and car dealers are examples of industries where the services have to be produced locally. In those im.lustries there are still some advantages ill globalizing certain fUllctions such as hack office functiOIlS (accounting, data processing, global sourcing, transfer of best practice, etc.) bllt the location constraint still limits globalization benefit.s. In the future, e-commerce is likely to reduce spatial constraints considerably, particularly when it comes to virtual services such as banking or movies on demand. E-cornrnerce with physical products can also eliminate the spatial constraint as far as the customer interface is concerned but is still hampered by logistical constraints. The example of Amazon.com demonstrates that it is possible for a customer ill Paris or in Rio de)aneiro to order a hook through Amazon. but the Same customer will have to bear shipping costs that wil! elirnin(tte the basil: l:ost advantage of the e-bookstore. 'Ihis is the reason why Amazon is looking for local partnerships outside the United States, thus moving toward a more multinat.ional business design.

The impediments of transportation are significant if the cost of transport cancels out the benefits of concentration of production. Bulk cOlTllllodities like cement OJ" basic chemicals are more economically produced in local plants rather thau in global cent.ralil,ed units, despite the scale economies that could he gained: t.he cost and the risks of t.ransport cancel out the benefits of ccn!.raliz,ed production. Similarly, when production systems arc not sl:ule-intcnsive and small pro(luction units can achieve similar cos!.s to large plants - in plastic moulding. for instance - there are no major benefits in building a global production system.

Finally, languages can add constraints to global approaches. These constraints can be significant when it comes to services to individual customers: training services, personal banking and personal telecommunication or retailing are possible examples. However, there are two major trends that can reduce language constraillts. English has become more and more a 'global language' and industries such as grn(luate business training or high-level consuJlallcy ClUJ usc English wit.houl.the need for tnlllsialion.

(4) Legalfactors: rt:glliatitm lind ,wlionaL security issues Govemments impose regulatory constraints that oft.en work against globali,mtioll, either bccHuse they limit the free flolV of personnel (regulation on work permits), cash (exchange control, tax), goods (customs duties, quotas), data (censorship, the lnlernct and EDI cOlltrol), or because they impose localil.atioll constraints (local content policies, local ownership and joint venture policies).

15 1 GLOBALIZATION OF MARKUS AND COIotPETlTIDN

p

O,'cr the yeafS.thanks to the GA'rr and now the \V1'O and also mullil:ltcral agrcemcnL'l (Eurol>C1UI Union (EU). ASEAN. NAFTA. etc.) and International Monetary Fund (1l\'(F) re

I THE PROCESS OF GLOBALIZATION16

Quick response time is the ability to rc:;pOIlU at once to specific customers' demands. Proximity, flexibility and quick response lime arc very much related to each other: proximity provides the basis for llexibility and flexibility provides the basis for a quick response. All three give a competitive advantage when JOel,] cultural, technical, cOlllmercial and legal contexts vary so much from country to country.

Global/multi-local mapping "[ he two sel.~ of fon;cs - globalization and Jocali..:atioll - are shaping the compditivc structure of industries und inducing companies to COIl figure their worldwide business systems with the right mix of coordination. inLegraLion or deccnLf(llizaUoll, Global/multi-local mapping is a tool that has been developed to position industrics and industry segments according to the relative importance of each set of forces. Figure 1.7 represcnts the mapping for various industries, while Figure 1.8 shows II similar rcprescntation for various segJllel1L~ of thc finandul sector.

Global industries in which firms carl suslaill competitive advantages only if:

they preselll in the key counlries of the world alld they integrate arld coordirlale their activities across the world ill a celltralized marmer.

No

Civil alrcralt Microprocessors

Telecommunication eqUipment

Institutional banking Corporate banking Bulk chemicals Automotive

Pain!

Package lours Retail banking

Nahonal public services

Caler",g Food relail

No Yes Multi-local illdustries in which firms carl sustain competitive advantages independerlily wilhin the boundaries 01 countries in which they operate

Figure 1.7 Global/multi-local mapping: different industries have different competitive requirements

Thc mapping in Figures 1.7 and 1.8 reveals that industries and segments call be broadly posilioned into three types of competitive situations: Type I: Globalforces dominate and firms in those industries I;an sustain compdiU\'c advantage by operating across the world in a coordinated way. 'Ihere are few advantages to pushing for local adaptation ofproduClS. services and approaches. What matters is efficiency, speed, arbitrage and learning. 111ese indust.ries (Ire global, as in the casc of the microchip, bulk chemical or civil aircraf"l. industries. Type II: Localjim;es dominate and ficxibility, proximity and quick response are determining capllhilities for competitive advantage. Firms can operat.e independently in different

-

.--------------------

l08AlilATtON OF MARK T AND DMPE 11 N 17

(;UUlIlries; their approaches are different from country 10 country. 1:00d retailing. consumer banking or ,'oice telephony rail in this cntcgory. Ttl>e III: In these industries there is a mix ojgfobtll and localfarccs al "/(/1 lmd oompetiti\'cm.."SS (;.'Innol be achieved without achieving the henefits ofglobal coorrlimtlion (md. at the !mille lime, the benefits ofOcxibility. proximity and quick response time. 'Ihis !>ositioning is incrc;lSingly becoming the dominant (;ompctith'c battleground for a vast nmjorily ofsectors.

INVESTMENTYES

"'"""' GLOBAL CORPORATI: ACCOUNTS

CREDIT CARDS

Global TRADE FINANCEapproach

dominates

COMt-IERCw.emKlNG

RETAIL BANIQNG SAVlNQ5ACCOUNTS PERSON,tlLINSURMIcENO

NO YES Local approach dominates

Figure 1.8 Global/multi-local mapping for the fmancial sector: different segments have dillerenl competitive requirements

Glohal{multi-lol.:lll mllpping call he used for assessing a situation at 1I point in time or to anticipate evolution over time. It can 1I1so serve as mapping for the various aclivities of the value chuin. As will be seen ill Chapters 2 and 3, l\ good um.lerstundingofindustry positioning will hclp the formulation ofbllsincss and nalional strlll,cgies. as well as the implcmcntation of all dfel.:livc ol'ganizalional design.

In Appendix l.J there is a questionnaire I.hat will help managers to position their business Llsing the Glohal/multi-Iocal mapping tool.

Globalization: the macro picture In 1817, David Ricardo in his 11loory ujColII/Xlmtille AdllO.tllage' showl'({ that it was heneficiallo nations to specialize and trnde goods in which they had a oompamliw:. adwlIllage. 'Illis laid the foundation oftrode theory. which itsclf is the underlying foundation ofg1ob.."l.liUltion: in a perfect

I THE PROCESS OF GLOBALIZATION18

global setting where goods. people, dala and moncy flow freely, companies can adopt an integrated ~Lnd coordinated approach to their operations and the competitive battlefield would be the world. Since Hieardo's time, partisans and adversaries offrcc tntdc have exchanged heated debates about the pro ami cons ofglohalization for sodety. Table 1.3 summarizes those arguments.

'I his debate gained political visibility during the J990s. In Europe, the Treaty of Maastricht (signed in 1')92) adopted the curo as a single currcncy, generating a heated debate on the loss of sovereignt.y and the advantages of fmthcr political and economic integration. III North America. t.he NAFTA agreement (1995) created similar discussion. In Asia, after Lhe 1997 financial crisis, globali7,ation was called into question and, at the end of that decade, t.he W'I"O at the Seattle ministerial conference could not set up an agenda for launching unother trade rO\lnd because of public criticism of the whole concept of globalization. Since 200 I, there has been a growing debate about the fuLure 01" glohllli~,aUon. Some, like Alan Rugman, have announced the 'end of globali:t.ation'," an issue Lhal. will be discllssed in Chapter 16,

Table 1,3 The societal effects of globalization ~------

Arguments in favour of globalization Arguments against globalization Creates overall wealth for all nations because Imposes massive strain on labour force both in developed

specialization increases trade countries Ijob destruction) and developing countries (sweatshops. child labor!

Reduces inflation because of cost efficiencies Standardizes customer tastes. Reduces diversity

I . Benefits customers because of price reduction owing to Induces concentration of power in a few global

cost efficiencies corporations

Introduces a 'jungle' leading to the domination of the strongest multinational

Better allocation of natural, financial arlo' human Harms the environment because of unrestrained resources exptoitation of natural resources such as forests

Reduces corruption because of free market trade Reduces capacity for natiorlS to protect their national Jinterests, cultures and values Source, Ricardo 1196'/)

Despite all this polil.ical t.~rmoi1, some analysts think that the world is becoming progressively more int.egrat.ed. According to the consulting firm McKinsey,S by 1997, truly global markets represenLed approximat.c1y US$6 trillion out of a total world output of US$28 trillion (21%), 'Ihe firm anticipates that by 2030 the proporLion of global markets will alllount to US$73 trillioll out of US$91 trillion (80%), However, as 'I'll! he secn in Chaptcr 16, this forecast lIlay he challcngcd,

Pragmatically, companies adopt. a competiLive positioning which tends to !()sLer I"urt.her globnlization. l1w development or inl"ormaLion technologies, the fluidity of capilul markets, the creation of mcgHlllergers in the telecoms, computer, oil. pharmaceutical, powcr and car industries dcmonstrate that business firms are increasingly bchaving as if they were already living in a global world.

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GLOBALIZATION OF MARKETS AND COMPETITION

______ 'I!@A11 Mobile Telephony Services Mobile telephony expanded rapidly during the two decades of the 19905 and 2000s. By 2011 there were around 5.2 billion mobile subscribers in the world (77% of the world's population). According to the International Telecommunication Union (fTC), the distribution of customers is as follows: Asia Pacific: 2.649 billion, Americas: 880 million. Europe: 741 million. rest of the world: 979 million.

The industry is divided broadly into two major sub-industries: a) mobile equipment manufacturers: phones and docking stations, for example; and 2) mobile services operators.

Around the world, mobile services are operated mainly by local telephone companies with their own national brands. Some operators such as Vodaphone {UK} or Orange (France) have developed their presence internationally by acquiring or participating in the capital of local operators.

Most consumers use pre-paid services for the use of mobile phones. Various packages of pre-paid services as well as additional add-ons (Internet access, mobile banking. email, games ... ) are offered by the operators according to the characteristics of their markets. Customers are divided between personal accounts (roughly 65 to 90%. according to the country) and corporate accounts (from 10 to 35%). Some of the corporate accounts are multinational firms that want to benefit from a 'global' offer.

Mobile operators purchase their own network equipment and control its installation. They also procure large quantities of handsets that they include in their pre"paid contracts at discounted prices.

The key activities of mobile phone operators are: Procurement of network hardware and software: suppliers are multinational firms such as Nokia, Erikson and Alcatel-Lucent. There are two major standards used in the world: Global Standard Mobile with around 80% penetration and CDMA (15%). Japan and Korea use a standard of their own. Procurement of handsets. The major manufacturers of handsets are Nokia (23% global market share). Samsung (16%), LG (7.5%), BlackBerry (3%) and Apple (4.6%). Network installation and maintenance carried out by equipment suppliers plus local infrastructure companies under the control of the service provider.

Software developments for new applications and services. From 2008 to 2011 around 300,000 applications for mobile phones and smartphones have been developed in the world. The main applications are games, news and social networking.

Marketing and brand management. Products are marketed under a variety of local brands. Multinational players try to use their global brand (such as Orange). although advertising is country specific. Sales and distribution are organized differently from country to country.

Billing is done according to local standards. Regulation with local authorities. Operators have to comply with local regulations.

Finance and controL Treasury is managed centrally while day-to-day transactions are the duties of local managers.

I THE PROCESS OF GLOBALIZATION20

"!!''12\11 ~ _ Human Resources. Employment regulations are specific to countries' legislation while

human resource policies are decided by the Corporate Office. Strategy, Mergers and Acquisitions, Alliances belong to the corporate domain.

Questions: 1) Using your knowledge, the data provided and global/multi-local mapping can you decide

whether mobile telephony is a global industry? 2} Now do the analysis for each of the activities listed above.

Summary and key points

Companies A global company:

can be defined as a company that operates in the main markets ofllle world in an integrated and coordinaLed way carries out one activity (e.g. manufacturing) or a component orthe uctivity (e.g. manufacturing olle sub-part only) of the value chain in one country. which serves the company's worldwide market.

;\ multinational company: operates in many markets oCthe world with little or no integration or coordination among operations.

2 GLobalization: Is the phenomenon of the progressive transition of industries from a nlliltinational to a global competitive structure Four factors arc pushing companies 1.0 glohalize: - Political: reduces trade barriers - Technological: reduces the cost. of coordination and increases economics of scale - Social: encourages standardization and global branding - Competitive: induces integration and coordination Going global has four competitive bendits: - Cost: economics of scale and increased bargaining powers - Timing: reaches the optimal production volume and increases the reach of a product

with a short product life cycle Learning: facilitates best practices to be adopted across suhsidiaries through the experience eITect and the transfer of knowledge Arbitrage: is derived when H globul company uses resources in oue country for the benefit of a subsidiary in another country.

Localization Four driving forces reduce the need to globalize: - CII/tllml; re(luces the benefits ofstandardizaLion

3

-------

p----------------GLOBALIZATION OF MARKETS AND COMPETITION 21

CUI/II/lcrciaf: requires differentiated approaches to sales and marketing lee/mica!: rerllices the benefits of economics of scale, centralization and standardi:wt.ion !,I'ga{; limits free Dow of resources and illlposes localizaLion constraints

I3cing local has three benefits: proximity Ho:ibility Quick rcsp0/l.~e limc.

4 GlobaL jmulti-Local mapping is used to idcnLify the competitive requiremellts of an industry or a business segment and can assist companies in formulating business and national strah~gics.

Appendix 1.1 Positioning a business on the global/multi-local mapping !\ssi

-- I

THE PROCESS OF GLOBALIZATION 22 I

I-To what e contexts d requlnrog Towna! e a h'9h deg !custom'l To what e

Icompared To what e for succes

f

dent business regulations and Not 100 different ,ller from country 10 country

Oil high degree of locaL practices

Z 3

HIghly different

ILow,",,,mi~I'OOXlenl products or sel'Vlces require Ifee of Interaction with customers allOnl High cuSlornlzahon xtenllransportation costs are h,gh Not so high

10 the product costs Very hl9h

xlen! customer interface IS critical Not critical ,

Very cntlcal

Questions 1 to 8 representlhe importance of global forces while questions 9 to 14 represent the importance of local forces. It is then possible to map a business by a simple mathematical operation as in the following figure. Add your totals for each scor~ to th~ bo~ below to find out if your business is suited 10 a global or local approach.

3

Global approach

2dominates

(Questions lto BJ

2 3

Local approach dominates IQuesl.ions 9 10 141

IllDiltH:"::'11 Among the enterprises that you know, can you identify one that can be classed a g10bul compllllY? Why?

ps-------------------1 GlOOAllZATlON OF MARKETS AND COMPETITION 23

Why. in Figure 1.8. are savings accounts positioned low on global approaches and high2

ol11ocll i approach while investment banking is high on global approllch and 10won local approach?

, III Figure 1.7, food retailing is positioned as a local business. with a very low glob.1.lizalion S(;orc. Ilo\\'cver. in the press. companies like Tesco. Wal-Marl ami Carrefollt arc classed as 'global rcl:tilers". Explain this discrep,'lIJcy. Whal arc the social factors thai hm'e been pushing for globaliz....tion and which hu\'cI heen pushing llg.'linsl.? WIIlII nrc the benefits of having a localllpproach?5 When the Otis Elevator Company inl rodllCt.-'d the change descrlbt.od at Ihe beginning6 of the chapter. there was a lot of resisl:lncc from the various heads of tile EUropCllll suhsidiuries. Why'! What argulTlents do yOlllhink Lhe people hoslile 10 globa1i7AIt.i01l used'! C(II! Apple he classed as a global firm? Why? 7

, ,

ArbitnLge benefits Comparative advanlage Globnl companies Global industries

Global/multi-Ioc

24 THE PROCESS OF GLOBALIZATION

DECO resources.

25

p

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porter, Michael E. (cd.). COllljJl!lili(JI/ ill Global Industries. Boston, MA; Harvard Husiness School Press. 1986.

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L aAUlATION F MARK SAND DMPUll ON

Yip, George, Total Global Strategy: MlI/wging lor World llIide Competitive I1dvalllagl', Ellglewood Cliffs, NJ: Pl'cnlicc-J lalL 1992.

j(JllrlUt!.s BUSINESS Busincss week Iorllllle ""cO/wlllist. flllel'l/u/imlflf Mallagcmelll Fimll/cial Time.~

SEMI-ACADEMIC MullillationallJusillcss J/arll(lrd Busincss Review California MlIIwgemelll Review Columbia jOl/rnal afWorld Business Sloll/l Manllgement NevicJV h'l/ropellll Management journal ACAoeMIC joumal alil/lematiollal Busincss Studies Stralegic Management jOflrnal Intemationailiumall Resources Management