Fundamentals of Global Strategy Chapter 2 The Globalization of Companies and Industries

Chapter The Globalization of Companies and Industries Going global is often described in incremental terms as a more or less gradual process , starting with increased exports or global sourcing , followed by a modest international presence , growing into a multinational organization , and ultimately evolving into a global posture . This appearance of gradualism , however , is deceptive . It obscures the key changes that globalization requires in a company mission , core , structure , processes , and culture . As a consequence , it leads managers to underestimate the enormous differences that exist between managing international operations , a multinational enterprise , and managing a global corporation . Research by Diana Farrell of Company shows that industries and companies both tend to in stages , and at each stage , there are different opportunities for and challenges associated with creating value . Farrell ( 2004 , December ) URL books 28

The Five Stages of Going Global In the stage ( market entry ) companies tend to enter new countries using business models that are very similar to the ones they deploy in their home markets . To gain access to local customers , however , they often need to establish a production presence , either because of the nature of their businesses ( as in service industries like food retail or banking ) or because of local countries regulatory restrictions ( as in the auto industry ) In the second stage ( product specialization ) companies transfer the full production process of a particular product to a single , location and export the goods to various consumer markets . Under this scenario , different locations begin to specialize in different products or components and trade in finished goods . The third stage ( value chain disaggregation ) represents the next step in the company globalization of the infrastructure . In this stage , companies start to disaggregate the production process and focus each activity in the most advantageous location . Individual components of a single product might be manufactured in several different locations and assembled into final products elsewhere . Examples include the industry market and the decision by companies to offshore some of their business processes and information technology services . In the fourth stage ( value chain ) companies seek to further increase their cost savings by their processes to suit local market conditions , notably by substituting labor for capital . General Electric ( GE ) medical equipment division , for example , has tailored its manufacturing processes abroad to take advantage of low labor costs . Not only does it use more production also designs and builds the capital equipment for its plants locally . Finally , in the fifth stage ( the creation of new markets ) the focus is on market expansion . The Global Institute estimates that the third and fourth stages together have the potential to reduce costs by more than 50 in many industries , which gives companies the opportunity to substantially lower their sticker prices in both old and new markets and to expand demand . URL books 29

Significantly , the value of new revenues generated in this last stage is often greater than the value of cost savings in the other stages . It should be noted that the stages described above do not define a rigid sequence that all industries follow . As the study notes , companies can skip or combine steps . For example , in consumer electronics , product specialization and value chain disaggregation ( the second and third stages ) occurred together as different locations started to specialize in producing different components ( Taiwanese manufacturers focused on semiconductors , while Chinese companies focused on computer keyboards and other components ) URL books so

Understanding Industry Globalization Executives often ask whether their industry is becoming more global and , if so , what strategies they should consider to take advantage of this development and stake out an enduring global competitive advantage . This may be the wrong question . Simple such as the electronics industry is global are not particularly useful . A better question is how global an industry is , or is likely , to become . Virtually all industries are global in some respects . However , only a handful of industries can be considered truly global today or are likely to become so in the future . Many more will remain hybrids , that is , global in some respects , local in others . Industry globalization , therefore , is a matter of degree . What counts is which elements of an industry are becoming global and how they affect strategic choice . In approaching this issue , we must focus on the drivers of industry globalization and think about how these elements shape strategic choice . We should also make a distinction between industry globalization , global competition , and the degree to which a company has globalized its operations . In traditionally global industries , competition is mostly waged on a worldwide basis and the leaders have created global corporate structures . But the fact that an industry is not truly global does not prevent global competition . And a competitive global posture does not necessarily require a global reorganization of every aspect of a company operations . Economies of scale and scope are among the most important drivers of industry globalization in global industries , the minimum volume required for cost efficiency is simply no longer available in a single country or region . Global competition begins when companies subsidize national battles in pursuit of global brand and distribution positions . A global company structure is characterized by production and distribution systems in key markets around the world that enable , competitive retaliation on a global basis , and volume . So why are some industries more global than others ?

And why do global industries appear to be concentrated in certain countries or regions ?

Most would consider the oil , auto , and pharmaceutical industries global industries , while tax preparation , many retailing sectors , and real estate are substantially domestic in nature . Others , such as furniture , lie somewhere in the middle . What URL books 31

accounts for the difference ?

The dominant location of global industries also poses interesting questions . Although the machine tool and semiconductor industries originated in the United States , Asia has emerged as the dominant player in most of their segments today . What accounts for this shift ?

Why is the worldwide chemical industry concentrated in Germany while the United States continues to dominate in software and entertainment ?

Can we predict that France and Italy will remain the global centers for fashion and design ?

These issues are important to strategists . They are also relevant as a matter of public policy as governments attempt to shape effective policies to attract and retain the most attractive industries , and companies must anticipate changes in global competition and locational advantage . Globalization Path First Cement , Then Services When Lorenzo became chairman and chief executive officer of in the , he pushed the company into foreign markets to protect it from the Latin American debt crisis . Now the giant cement company is moving into services . first focused on the United States . But attempts to sell cement north of the border were greeted by hostility from producers , who convinced the International Trade Commission to levy a stiff antidumping duty . Despite a a General Agreement on Tariffs and Trades ( ruling in favor , the company was still paying the fine a dozen years later . Rebuffed in the worlds biggest market , turned to Spain , investing in port facilities and European rivals for control of the country two largest cement . When he discovered how inefficiently they were run , sent a team of his Mexican managers to Spain to introduce his distinctive way of doing business . Called the Way , it is a culture that blends modern , management practices with technology . From Spain , where increased from to 24 during years there , the company expanded around the globe . Blending technology with the making and selling of one of the worlds most basic products , has achieved remarkable customer service in some of the most URL books 32

logistically challenged countries . Whether Venezuela , Mexico , or the Philippines , trucks equipped with navigational systems promise deliveries within 20 minutes . After gaining a solid international footing , went back to the United States . In 2000 , he bought of the largest purchases ever by a Mexican company in the United States . Soon , was the biggest cement seller . In less than two decades , had transformed from a domestic company into the world cement firm by investing heavily and imaginatively not only in plants and equipment , which is what one would expect in the cement industry , but also in information technology and particularly in people . The corporation has consistently been more profitable than either of its two biggest competitors , France and Switzerland . Sales in 2008 were almost 22 billion , with an operating margin of almost 12 . Today , has a presence in more than 50 countries across continents . It has an annual production capacity of close to 96 million metric tons of cement , approximately 77 million cubic meters of concrete and more than 240 million metric tons of . Its resource base includes 64 cement plants , over concrete facilities , and a minority participation in 15 cement plants , and it operates 493 aggregate quarries , 253 centers , and 88 marine terminals . embrace of technology is central to efficiency . Fiber optics link the system , and satellite communications are used to connect remote outposts . Whether at the headquarters or on the road , the chief executive officer can tap into his computer to check kiln temperatures in Bali or cement truck deliveries in Cairo . Because he believes many companies use technology ineffectively , spun off technology arm to sell its services . Organized under the Miami subsidiary , which is devoted to creating growth by building innovative businesses around strengths , formed a consulting service called . With more than half of its customers coming from outside , the operation has already become hugely profitable . It has been grouped with another , a distributor of building material products to construction companies in developing nations . We re selling logistics , says URL books as

the president of . We can assure our customers that they can have the materials from our warehouse to their construction site within 48 Hamel and ( 1985 , 2002 , November ) and URL books 34 Clustering Porter National Diamond The theory of comparative economic advantage holds that as a result of natural endowments , some countries or regions of the world are more efficient than others in producing particular goods . Australia , for example , is naturally suited to the mining industry the United States , with its vast temperate landmass , has a natural advantage in agriculture and parts of the world may have a natural advantage in producing products . This theory is persuasive for industries such as agriculture , mining , and timber . But what about industries such as electronics , entertainment , or fashion design ?

To explain the clustering of these industries in particular countries or regions , a more comprehensive theory of the geography of competition is needed . In the absence of natural comparative advantages , industrial clustering occurs as a result of a relative advantage that is created by the industry itself . Producers tend to locate manufacturing facilities close to their primary customers . If transportation costs are not too high , and there are strong economies of scale in manufacturing , a large geographic area can be served from this single location . This , in turn , attracts suppliers to the industry . A labor market is likely to develop that begins to act like a magnate for like industries requiring similar skills . This of like industries can lead to technological , which further encourage clustering . Clustering , therefore , is the natural outcome of economic forces . A good example is provided by the semiconductor industry . Together , American and Asian supply most of the world needs . The industry is capital intensive , research and development costs are high , the manufacturing process is highly complex , but transportation costs are minimal , Technology encourage with suppliers , whereas cost and learning curve effects point to scale efficiencies . Clustering , therefore , is mutually advantageous . Only when transportation costs are prohibitive or scale economies are to is , when there are to more decentralized patterns of industry location the natural order . The appliance industry illustrates this . Companies such as GE and Whirlpool have globalized their operations in many respects , but the fundamental economics of the industry make clustering unattractive . The production of certain components , such as URL books 35

compressors or electronic parts , can be concentrated to some extent , but the bulky nature of the product and high transportation costs make further concentration economically unattractive . What is more , advances in manufacturing techniques are reducing the minimum scale needed for efficient production . This allows producers to more finely tailor their product offerings to local tastes and preferences , further thwarting the globalization of the industry . Thus , classical economic theory tells us why clustering occurs . However , it does not fully explain why particular regions attract certain global industries . Porter addressed this issue using a framework he calls a national It has six components factor conditions , demand , related and supporting industries , competitiveness ofthe home industry , public policy , and chance . Factor Conditions The explanation why particular regions attract particular industries begins with the degree to which a country or region endowments match the characteristics and requirements of an industry . Such factor conditions include natural ( climate , minerals ) as well as created ( skill levels , capital , infrastructure ) endowments . But to the extent that such factors are mobile , or can be imitated by other countries or regions , factor conditions alone do not fully explain regional dominance . In fact , the opposite is true . When a particular industry is highly profitable and barriers to entry are low , the forces of imitation and diffusion cause such an industry to spread across international borders . The Japanese compete in a number of industries that originated in the United States Korean firms imitate Japanese strategies and Central European nations are conquering industries that were founded in Western Europe . Industries that depend on such mobile factors as capital are particularly susceptible . Demand Porter second factor is the nature and size of the demand in the home country . Large home markets act as a stimulus for industry development . And when a large home market develops before it takes hold elsewhere in the world , experienced have ample incentives to look for business abroad when saturation at home begins to set in . The motorcycle industry in Japan , for example , used its scale URL books 36

advantage to create a global presence following an early start at home . Porter found that it is not just the location of early demand but its composition that matters . A product fundamental or core design nearly always needs . As such , the nature of the needs and the sophistication of the buyer are important of the potential of the industry to stake out a future global position . It was helpful to the semiconductor industry , for example , that the government was an early , sophisticated , and relatively buyer of chips . These conditions encouraged the industry to develop new technologies and provided early opportunities to manufacture on a substantial scale . Related and Supporting Industries The presence of related and supporting industries is the third element of Porter framework . This is similar to our earlier observation about clustering . For example , Hollywood is more than just a cluster of encompasses a host of suppliers and service providers , and it has shaped the labor market in the Los Angeles area . Competitiveness of the Home Industry Firm strategies , the structure , and the rivalry in the home industry define the fourth element of the national diamond model . In essence , this element summarizes the five forces competitive framework described earlier . The more vigorous the domestic competition is , the more successful firms are likely to compete on a global scale . There is plenty of evidence for this assertion . The rivalry that exists among German pharmaceutical companies has made them a formidable force in the global market . And the intense battle for domestic market share has strengthened the competitive position of Japanese automobile manufacturers abroad . Public Policy and Chance The two components of Porter model are public policy and chance . There can be no doubt that government policy infrastructure , incentives , subsidies , or temporary global industries . Whether such policies are always effective is less clear . Picking winners in the global marketplace has never been the strong suit of governments . The chance element allows for the URL books 37

of random events such as where and when fundamental breakthroughs occur , the presence of entrepreneurial initiative , and sheer luck . For example , the early domination of the photography industry is as much attributable to the fact that George ( of Kodak ) and Edwin Land ( of Polaroid ) were born here than to any other factor . 1993 ) Porter ( 1990 ) 1994 ) 1994 ) URL books 38

Industry Globalization Drivers Yip four sets of industry globalization drivers that underlie conditions in each industry that create the potential for that industry to become more global and , as a consequence , for the potential viability of a global approach to strategy . Market drivers how customer behavior distribution patterns evolve , including the degree to which customer needs converge around the world , customers procure on a global basis , worldwide channels of distribution develop , marketing platforms are transferable , and lead countries in which most innovation takes place can be globalization opportunity for global scale or scope economics , experience effects , sourcing efficiencies differentials in costs between countries or regions , and technology the economics of the industry . Competitive drivers are defined by the actions of competing firms , such as the extent to which competitors from different continents enter the fray , their strategies and corporate capabilities , and create interdependence between geographical drivers include such factors as favorable trade policies , a benign regulatory climate , and common product and technology standards . Market Drivers One aspect of globalization is the steady convergence of customer needs . As customers in different parts of the world increasingly demand similar products and services , opportunities for scale arise through the marketing of more or less standardized offerings . How common needs , tastes , and preferences will vary greatly by product and depend on such factors as the importance of cultural variables , disposable incomes , and the degree of homogeneity of the conditions in which the product is consumed or used . This applies to consumer as well as industrial products and services . offers similar but not identical products around the world . while adapting to local tastes and preferences , has standardized many elements of its operations . Software , oil products , and accounting services increasingly look alike no matter where they are purchased . The key to exploiting such opportunities for scale lies in understanding which elements of the product or service can be standardized without sacrificing responsiveness to local preferences and conditions . URL books 39

Global customers have emerged as needs continue to converge . Large corporations such as DuPont , Boeing , or GE demand the same level of quality in the products and services they buy no matter where in the world they are procured . In many industries , global distribution channels are emerging to satisfy an increasingly global customer base , further causing a convergence of needs . Finally , as consumption patterns become more homogeneous , global branding and marketing will become increasingly important to global success . Cost Globalization Drivers The globalization of customer needs and the opportunities for scale and standardization it brings will fundamentally alter the economics of many industries . Economies of scale and scope , experience effects , and exploiting differences in factor costs for product development , manufacturing , and sourcing in different parts of the world will assume a greater importance as of global strategy . At bottom is a simple fact a single market will no longer be large enough to support a competitive strategy on a global scale in many industries . Global scale and scope economics are already having effects . On the one hand , the more the new economies of scale and scope shape the strategies of in global industries , the harder it will be for new entrants to develop an effective competitive threat . Thus , barriers to entry in such industries will get higher . At the same time , the rivalry within such industries is likely to increase , the broadening scope of competition among interdependent national and regional markets and the fact that true differentiation in such a competitive environment may be harder to achieve . Competitive Drivers Industry as the degree to which total industry sales are made up by export or import volume , the diversity of competitors in terms of their national origin , the extent to which major players have globalized their operations and created an interdependence between their competitive strategies in different parts of the affect the globalization potential of an industry . High levels of trade , competitive diversity , and interdependence increase the potential for industry globalization . Industry evolution plays a role , too . As the underlying characteristics of the industry change , competitors will URL books ,

respond to enhance and preserve their competitive advantage . Sometimes , this causes industry globalization to accelerate . At other times , as in the case of the worldwide major appliance industry , the globalization process may be reversed . Government Drivers Government globalization as the presence or absence of favorable trade policies , technical standards , policies and regulations , and government operated or subsidized competitors or affect all other elements of a global strategy and are therefore important in shaping the global competitive environment in an industry . In the past , multinationals almost exclusively relied on governments to negotiate the rules of global competition . Today , however , this is changing . As the politics and economics of global competition become more closely intertwined , multinational companies are beginning to pay greater attention to the nonmarket dimensions of their global strategies aimed at shaping the global competitive environment to their advantage ( see the following section ) This broadening of the scope of global strategy a subtle but real change in the balance of power between national governments and multinational corporations and is likely to have important consequences for how differences in policies and regulations affecting global competitiveness will be settled in the years to come . Global Value Chains in the Automotive Industry A Nested Structure From a geographic point of view , the world automotive industry , like many others , is in the midst of a profound transition . Since the , it has been shifting from a series of discrete national industries to a more integrated global industry . In the automotive industry , these global ties have been accompanied by strong regional patterns at the operational level . Market saturation , high levels of motorization , and political pressures on automakers to build where they sell have encouraged the dispersion of final assembly , which now takes place in many more places than it did 30 years ago . According to Automotive News Market Data Books , while seven countries accounted for about 80 of world production in 1975 , 11 countries accounted for the same share in 2005 . URL books 41

The widespread expectation that markets in China and India were poised for explosive growth generated a surge of new investment in these countries . Consumer preferences require that automakers alter the design of their vehicles to the characteristics of markets . They also want their conceptual designers to be close to to see how they modify their production vehicles . These motivations led automakers to establish a series of affiliated design centers in places such as China and Southern California . Nevertheless , the heavy engineering work of vehicle development , where conceptual designs are translated into the parts and subsystems that can be assembled into a drivable vehicle , remain centralized in or near the design clusters that have arisen near the headquarters of lead . The automotive industry is therefore neither fully global , consisting of a set of linked , specialized clusters , nor tied to the narrow geography of nation states or , as is the case for some cultural or service industries . Global integration has proceeded at the level of design and vehicle development as have sought to leverage engineering effort across regions . Examples include versus drive , more rugged suspension and larger gas tanks for developing countries , and consumer preferences for trucks in Thailand , Australia , and the United States . The principal automotive design centers in the world are Detroit , Michigan , in the United States ( Ford , Chrysler , and , more recently , and ) Cologne ( Ford Europe ) European division ) Volkswagen ) and ( in Germany Paris , France ( Renault ) and Tokyo ( and Honda ) and ( in Japan . This is just nine products sold in multiple end markets . As suppliers have taken on a larger role in design , they have , in turn , established their own design centers close to those of their major customers in order to facilitate collaboration . On the production side , the dominant trend is regional integration , a pattern that has been intensifying since the for both political and technical reasons . In North America , South America , Europe , Southern Africa , and Asia , regional parts production tends to feed final assembly plants producing largely for regional markets . Political pressure for local production has driven automakers to set up final assembly plants in many of the major established market areas and in the largest emerging market countries , such as Brazil , India , URL books 42

and China . Increasingly , as a precondition to being considered for a new part , lead demand that their largest suppliers have a global presence . Because centrally designed vehicles are manufactured in multiple regions , relationships typically span multiple production regions . Within regions , there is a gradual investment shift toward locations with lower operating costs the South and Mexico in North America Spain and Eastern Europe in Europe and Southeast Asia and China in Asia . Ironically , perhaps , it is primarily local that take advantage of such investments within regions ( the investments of Ford , and Chrysler in Mexico ) since the political pressure that drives inward investment is only relieved when jobs are created within the largest target markets ( the investments of and Honda in the Unites States and Canada ) Automotive parts , of course , are more heavily traded between regions than finished vehicles . Within countries , automotive production and employment are typically clustered in one or a few industrial regions . In some cases , these clusters specialize in specific aspects of the business , such as vehicle design , assembly , or the manufacture of parts that share a common characteristic , such as electronic content or labor intensity . Because of deep investments in capital equipment and skills , regional automotive clusters tend to be very . To sum up the complex economic geography of the automotive industry , we can say that global integration has proceeded the farthest at the level of relationships , especially between automakers and their largest suppliers . Production tends to be organized regionally or nationally , with bulky , heavy , and parts production concentrated close to final assembly plants to assure timely delivery , and with lighter , more generic parts produced at a distance to take advantage of scale economies and low labor costs . Vehicle development is concentrated in a few design centers . As a result , local , national , and regional value chains in the automotive industry are nested within the global organizational structures and business relationships of the largest . While clusters play a major role in the automotive industry , and have pipelines that link them , there are also global and regional structures that need to be explained and theorized in a way that does not discount the power of localization . URL books 43

George Yip first developed this framework in his book Total global strategy Managing for worldwide competitive advantage ( 1992 ) chaps . and . Sturgeon , Van , and ( 2009 ) URL books 44 Globalization and Industry Structure suggests propositions that help explain how the structure of an industry can evolve depending on , among other factors , the dynamics that shape competition in the industry and the role governments play in stimulating or obstructing the globalization process . Proposition is that when industries are relatively fragmented and competitive , national environments ( factors of production , domestic market and domestic demand , and so forth ) will largely shape the international advantage of domestically headquartered firms and the patterns of trade . A correlate to this proposition is that in emerging industries , country advantages also play a dominant role in determining global competitive advantage . In other words , in fragmented industries relative cost is a key determinant of global success , and since countries differ in terms of their factor costs , as long as entry barriers remain low , production will gravitate to the lowest cost , highest efficiency manufacturing location . Another way of saying this is that the presence of multinational firms , by itself , should not the pattern of international trade in globally competitive , fragmented industries other things being equal , country factors determine the location of production and the direction of exports . Oligopolistic global industry structures a very different strategic context , as the next proposition illustrates . Proposition stipulates that if an industry becomes globally concentrated with high barriers to entry , then location , activity concentration , export , and other strategic decisions by multinational companies are determined to a greater extent by the nature of the global oligopolistic rivalry . Thus , while in concentrated industries country characteristics remain important , the dynamics of the global , oligopolistic competitive climate become the principal drivers of global strategy . This is intuitive . In global , more so than in fragmented market structures , the success of one is directly affected by that of a few , immediate competitors . Entry into the industry is often restricted in some factors such as economies of scale or scope , high levels of capital investment , and the like , or by restrictions imposed by governments . Furthermore , in many global , participating earn returns , which may make the difference in cost between producing locally and exporting a less critical determinant of strategy . Opportunities to URL books 45

subsidize businesses and further reduce the importance of geography in production or export decisions . As a consequence , the moves and of direct , global competitors heavily company strategies . For example , it is quite common for companies to enter some other home market , not just because that market is likely to generate additional but mainly to weaken its global competitive position . This line of reasoning directly leads to a third proposition , which relates organizational and strategic attributes of global competitors to global strategic choice . Proposition suggests that in global , structure of ownership , strategies employed , and organizational factors , to name a affect strategic posture , the pattern of trade , and , sometimes , the competitiveness of nations . In global with a relatively small number of competitors , issues such as who owns the resources necessary for creating value and who sets the global priorities take on a greater strategic . Executives from different cultures approach strategy enterprises are often more motivated by public policy considerations , employment , and other concerns . These differences can have a direct impact on the relative attractiveness of global strategy options . The of governments in global markets is captured further in the fourth proposition . Proposition suggests that extensive government intervention in global oligopolistic industries can alter the relative balance between firms of different in fragmented industries , it can alter the direction of trade and affect major corporate trade decisions . The degree and of government intervention varies from industry to industry . Whereas in fragmented industries the of governments is naturally somewhat limited by market conditions , government intervention can have a pronounced in industries with economies of scale effects or other market imperfections . For example , governments can protect infant industries with such characteristics . While a case can be made for the temporary protection of strategically important industries , in reality , such protection is rarely temporary . This can create a global strategic environment in which anticipating and capitalizing on the actions of governments become the driving forces of global strategy . URL books 46

Proposition suggests that in industries where make commitments , corporate adjustments and patterns of trade tend to be This and proposition addresses the issue of corporate inertia . Although the global competitive climate changes every day , choices made by multinational companies and governments tend to have an enduring impact on the industry environment . This proposition has at least two implications . First , the study of how industries evolve globally and what decisions different competitors made and how they made them is relevant to understanding what drives strategy in a particular global context . Second , the commitments already made by industry participants and governments may spell opportunity or impose constraints for years to come . These propositions important dimensions for classifying industries according to the nature of the strategic challenge they represent the degree of global concentration and the extent to which governments intervene . In industries with a relatively low degree of concentration and little government intervention , the classical economic laws of comparative advantage are the primary drivers of international competition . Here , factor costs are a primary determinant of global competitiveness . It would seem natural , therefore , to focus on a global strategy aimed at minimizing costs . But this can be extremely in a world . Comparative country costs change continuously . In cars , semiconductors , and computers , among other industries , the comparative ( cost ) advantage has shifted a number of times since World War II from the United States to Japan to East Asia to Southeast Asia . What is more , there is good reason to believe it will shift again , perhaps to Africa or Latin America . And , with new technological breakthroughs , Western nations may once again become the production centers . So what should companies do ?

While companies should definitely take advantage of opportunities to minimize costs , especially in their initial investments , suggests that global strategic choices should emphasize commitments to countries that are likely to act as the over timefor a broad array . In globally concentrated industries where the role of governments is limited , characterized by oligopolistic competition , company strategies are often heavily by the moves and of direct competitors . Strategies such as making significant investments in URL books 47

competitors markets , regardless of their or would not work in highly competitive only be explained in terms of a strategic posture aimed at maintaining a global competitive balance between the various participants . Caterpillar invested heavily in Japan while and European construction equipment manufacturing moved into the United States at a time when such moves offered limited immediate returns . In this kind of competitive environment , the potential for globalization of different aspects of strategy well in advance of proven as the relatively small number of competitors and high barriers to entry encourage competitive behavior . On the other hand , not responding directly to major competitors can be equally dangerous . challenge to Caterpillar , in part , was made possible because , early on , Caterpillar focused its strategy on keeping John , International Harvester , and Dresser Industries at bay rather than on heating . This suggests a number of strategic implications . First , while imitation can not be the sole basis for developing strategy , in , it may be necessary , at times , to match a competitor in order to reduce the risk of competitive disadvantage . A related implication is that in global , companies can not allow their competitors to have uncontested home markets in which profit sanctuaries can be used to subsidize global competitive moves . This explains Kodak extraordinary efforts to pry open the Japanese knew Fuji would be at a considerable advantage if it remained dominant in Japan . Finally , the use of alliances can make such global moves more affordable , and effective . Alliances can be powerful vehicles for rapidly entering new countries , acquiring new technologies , or otherwise supporting a global strategy at a relatively low cost . Dealing effectively with governments is a prerequisite for global success in oligopolistic industries such as telecommunications , where extensive government intervention creates a global competitive climate known competition . Here , nonmarket dimensions of global strategy may well be as important as market dimensions . Political involvement may be necessary to create , preserve , or enhance global competitive advantage since government in infant or established critical to success . As a consequence , strategy in global , regulated URL books 48

industries should be focused as much on shaping the global competitive environment as on capitalizing on the opportunities it offers . Political competition , characteristic of fragmented industries with government intervention , also calls for a judicious mix of market and strategic thinking , In contrast to regulated competition , in which government policy has a direct impact on individual companies , however , government intervention in political competition often pits one country or region of the world against another . This encourages a whole range of cooperative strategies between similarly affected players and strategic action at the level , Finally , it is worth remembering that patterns of competition are not static . Industries evolve continuously , sometimes dramatically . Similarly , the focus of government action in different industries can change as national priorities change and the global competitive environment evolves . 1993 ) chaps . and 10 , The reader is encouraged to consult this excellent book for further details . 1993 ) 432 . 1993 ) 433 , 434 , URL books 49

Points to Remember . Industries and companies tend to in stages , and at each stage , there are different opportunities for , and challenges associated with , creating value . Simple such as the electronics industry is global are not particularly useful . A better question is how global an industry is or is likely to become industry globalization is a matter of degree . A distinction must be made between industry globalization , global competition , and the degree to which a company has globalized its operations . Porter explains industry clustering using a framework he calls a national It has six components factor conditions , home country demand , related and supporting industries , competitiveness ofthe home industry , public policy , and chance . Yip identifies four sets of industry globalization drivers conditions in each industry that create the potential for that industry to become more global and , as a consequence , for the potential viability of a global approach to strategy . These drivers are market drivers , cost drivers , competitive drivers , and government drivers . offers five propositions that help explain how the structure of an industry can evolve depending on , among other factors , the dynamics that shape competition in the industry and the role governments play in stimulating or obstructing the globalization process . These propositions define two important dimensions for classifying industries according to the nature of the strategic challenge they represent the degree of global concentration and the extent to which intervene . URL books ,