International and

global strategies
Md. Rashidul Hasan
Professor
Department of Agribusiness and Marketing
Sher-e-Bangla Agricultural University
Dhaka
Internationalization and globalization

Business has been international since the days of the ancient Egyptians,
Phoenicians and Greeks. Merchants travelled the known world to sell
products manufactured in their home country and to return with
products from other countries. Initially, international business simply
took the form of exporting and importing. The term international
describes any business that carries out some of its activities across
national boundaries.
Internationalization and globalization

Globalization, on the other hand, is more than simply

internationalization. A large multinational company is not necessarily a
global business. In order for a business to become global in its
operations, we would usually expect a number of important
characteristics to be in place.
Internationalization and globalization

First, global organizations take advantage of the increasing trend

towards a convergence of customer needs and wants across
international borders (e.g. for fast foods, soft drinks, consumer
electronics, etc.; see Levitt, 1983).
Internationalization and globalization

Second, global organizations compete in industries that are globalized.

In some sectors, successful competition necessitates a presence in
almost every part of the world in order to effectively compete in its
global market.
Internationalization and globalization

Third, global organizations can – and do – locate their value-adding

activities in those places in the world where the greatest competitive
advantages can be made. This might mean, for example, shifting
production to a low-cost region or moving design to a country with
skilled labour in the key skill area.
Internationalization and globalization

Finally, global organizations are able to integrate and coordinate their

international activities between countries. The mentality of ‘home
base, foreign interests’ that has been so prevalent among traditional
multinational companies is eroded in the culture of global businesses.
They have learned to effectively manage and control the various parts
of the business across national borders and despite local cultural
differences.
Internationalization and globalization

The development of an organization’s global strategy, therefore, will be

concerned with global competences, global marketing and global
configuration and coordination of its value-adding activities.
Multinational and transnational companies

Both multinational and transnational companies share the feature that

they are usually large and they have direct investments in one or more
foreign countries. The foreign investments may be part-shareholdings,
but are more usually wholly owned subsidiaries.
Multinational and transnational companies

The difference is in the degree to which the foreign investments are

coordinated. We tend to think of a transnational company as one that
has a high degree of coordination in its international interests. It will
usually have a strategic centre which manages the global operation
such that all parts act in accordance with a centrally managed strategic
purpose.
Multinational and transnational companies

The term multinational company is usually taken to mean an

international company whose foreign interests are not coordinated
from a strategic centre.
Levitt and market homogenization

It was Levitt (1983) who first argued that changes in technology,

societies, economies and politics are producing a ‘global village’. By this
he meant that consumer needs in many previously separate national
markets were becoming increasingly similar throughout the world.
Levitt and market homogenization

Developments in transport have not only made it easier to move

products and materials between countries but they have also resulted
in a huge increase in the amount that people travel around the world.
Such travel educates people to the products available in other
countries and, on their return home, they often wish to have access to
products and services from overseas.
Levitt and market homogenization

This trend has been reinforced by changes in information technology,

particularly those related to cinema and television, which have been
important in some aspects of cultural convergence. The development
of the WTO (World Trade Organization) and its predecessor, GATT (the
General Agreement on Tariffs and Trade), has resulted in huge
reductions in the barriers to trade between countries since the Second
World War. Rising income levels throughout many parts of the world
have also given economic impetus to the development of global
markets.
Levitt and market homogenization

It is not only markets that are in many cases becoming more global.
Industries are also becoming more global. The value chains of
businesses in many industries span the globe. In the case of the fashion
house Yves Saint Laurent, design and marketing are concentrated in
France, whereas products are mainly manufactured in the Far East.
Levitt and market homogenization

Organizations concentrate certain of their activities in locations where

they hope to obtain cost, quality or other advantages. Other activities,
such as distribution, are also often dispersed around the world. The
way in which a business configures its activities across national borders
can be an important source of competitive advantage. The spread of an
organization’s value-adding activities around the world also means that
there are important advantages to be gained from effective integration
and coordination of activities.
Globalization drivers (Yip’s framework)

Yip (1992) argued that it is not simply the case that industries are
‘global’ or ‘not global’, rather that they can be global in some respects
and not in others.
Globalization drivers (Yip’s framework)

Yip’s globalization driver framework makes it possible to identify which

aspects of an industry are global and which aspects differ locally.
Analysis using this framework can play an important role in shaping the
global strategy of a business. A global strategy, according to Yip, will be
global in many respects but may also include features that are locally
oriented.
Globalization drivers (Yip’s framework)

Yip argued that: ‘‘To achieve the benefits of globalization, the managers
of a worldwide business need to recognize when industry conditions
provide the opportunity to use global strategy levers.’’
Globalization drivers (Yip’s framework)
Yip identified four drivers (Figure 13.1) which determine the nature and
extent of globalization in an industry. These are:
oMarket drivers;
oCost drivers;
oGovernment drivers;
oCompetitive drivers.
Globalization drivers (Yip’s framework)
Figure 1. A framework describing drivers for internationalization (adapted from Yip, 1992).

Market drivers

Industry and
Government
Cost drivers market
drivers
globalization

Competitive
drivers
Globalization drivers (Yip’s framework)
Market globalization drivers
▪ Common customer needs
▪ Global customers
▪ Global distribution channels
▪ Transferable marketing techniques
▪ Presence in lead countries
Globalization drivers (Yip’s framework)
• Market globalization drivers
The degree of globalization of a market will depend upon the extent to
which there are common customer needs, global customers, global
distribution channels, transferable marketing and lead countries. It is
not simply a case of a market being global or not global. Managers
must seek to establish which, if any, aspects of their market are global.
Globalization drivers (Yip’s framework)
Common customer needs
Probably the single most important market globalization driver is the
extent to which customers in different countries share the same need
or want for a product. The extent of shared need will depend upon
cultural, economic, climatic, legal and other similarities and differences.
There are numerous examples of markets where customer needs are
becoming more similar.
Globalization drivers (Yip’s framework)
Common customer needs
Examples include motor vehicles, soft drinks, fast food, consumer
electronics and computers. The importance of McDonald’s, Burger King
and Pizza Hut in fast food, of Coca Cola and Pepsi Cola in soft drinks
and of Sony and Panasonic in consumer electronics serves to illustrate
converging customer needs in certain markets.
Globalization drivers (Yip’s framework)
Common customer needs
Levitt (1983) referred to this similarity of tastes and preference as
increasing market homogenization – all markets demanding the same
products, regardless of their domestic culture and traditional
preferences.
Globalization drivers (Yip’s framework)
• Global customers and channels
Global customers purchase products or services in a coordinated
way from the best global sources. Yip identifies two types of global
customers:
Globalization drivers (Yip’s framework)

1. National global customers – customers who seek the best suppliers

in the world and then use the product or service in one country; for
example, national defence purchasers who try to source the highest
specification weapons and other military hardware from around the
world for use by the domestic armed forces.
Globalization drivers (Yip’s framework)

2. Multinational global customers – they similarly seek the best

suppliers in the world but then use the product or service obtained in
many countries; for example, transnational corporations source
components for their products globally to ensure optimal quality
standards.
Globalization drivers (Yip’s framework)
Examples of markets with global customers include automobile
components, advertising (advertising agencies) and electronics. Nissan,
for example, manufacture motor cars in a number of different locations
around the world including Japan, the UK and Spain, but source many
components for all of these locations globally.
Businesses serving global customers must ‘‘be present in all the
customers’ major markets’’ (Yip, 1992).
Globalization drivers (Yip’s framework)

Alongside global customers there are sometimes global, or more often

regional, distribution channels which serve the global customers.
Global customers and channels will contribute towards the
development of a global market.
Globalization drivers (Yip’s framework)
Transferable marketing
Transferable marketing describes the extent to which elements of the
marketing mix, such as brand names and promotions, can be used
globally without local adaptations. Clearly, when adaptation is not
required it is indicative of a global market. In this way brands such as
McDonald’s, Coca Cola and Nike are used globally. Yet advertising for
Nike can be both global and locally adapted according to the popularity
of different sports in different parts of the world. If marketing is
transferable it will favour a global market.
Globalization drivers (Yip’s framework)
Lead countries
When, as Porter (1990) found, there are certain countries which lead in
particular industries, then it becomes critical for global competitors to
participate in these lead countries in order to be exposed to the
sources of innovation. Lead countries are those that are ahead in
product and/or process innovation in their industry.
Globalization drivers (Yip’s framework)
Lead countries
These lead countries help to produce global standards and hence global
industries and markets. Japan, for example, has leadership in the
consumer electronics industry and leads developments within it,
whereas the USA is the lead country in microcomputer and Internet
software.
Globalization drivers (Yip’s framework)
Cost globalization drivers
▪ Global scale economies
▪ Steep experience curve effect
▪ Sourcing efficiencies
▪ Favourable logistics
▪ Differences in country costs (including exchange rates)
▪ High product development costs
▪ Rapidly changing technology
Globalization drivers (Yip’s framework)
▪ Cost globalization drivers
The potential to reduce costs by global configuration of value-adding
activities is an important spur towards the globalization of certain
industries. If there are substantial cost advantages to be obtained then
an industry will tend to be global.
Globalization drivers (Yip’s framework)
Global-scale economies
When an organization serves a global market, it is able to gain much
greater economies of scale than if it serves only domestic or regional
markets. Similarly, serving global markets also gives considerable
potential for economies of scope. Thus, businesses such as Procter and
Gamble and Unilever who produce household products such as
detergents gain huge economies of scope in research, product
development and marketing
Globalization drivers (Yip’s framework)
Steep experience curve effect
When there is a steep learning curve in production and marketing,
businesses serving global markets will tend to obtain the greatest
benefits. In many high-tech and service industries there are steep
learning curves, yielding the greatest benefits to global businesses.
Globalization drivers (Yip’s framework)
Sourcing efficiencies
If there are efficiency gains to be made by centralized sourcing carried
out globally then this will drive an industry towards globalization.
Businesses such as those in sports apparel and fashion clothing benefit
from global sourcing to obtain lowest prices and highest quality
standards.
Globalization drivers (Yip’s framework)
Favourable logistics
If transportation costs comprise a relatively high proportion of sales
value, there will be every incentive to concentrate production in a few,
large facilities. If transport costs are relatively small, such as with
consumer electronic goods, production can be located in several (or
many) locations which are chosen on the basis of other cost criteria
such as land or labour costs.
Globalization drivers (Yip’s framework)
Differences in country costs
Production costs (materials, labour, etc.) vary from country to country,
which, like favourable logistics, can stimulate globalization. Thus,
countries with lower production costs will tend to attract businesses to
locate activities in the country. Many Asian countries have been chosen
as centres for production because of their favourable cost conditions.
Although countries such as Thailand have suffered in some respects
because of the devaluation of their currency in 1997–98, from the
point of view of being chosen as centres for production they have
benefited.
Globalization drivers (Yip’s framework)
Rapidly changing technology and high product development costs
Product life cycles are shortening as the pace of technological change
increases. At the same time R&D costs are increasing in many
industries. Such product development costs can only be recouped by
high sales in global markets. Domestic markets simply do not yield the
volumes of sales required to cover high R&D costs.
Globalization drivers (Yip’s framework)
Rapidly changing technology and high product development costs
Thus industries such as pharmaceuticals and automobiles face very
rapidly changing technology and hyper-competition, together with high
development costs. As a consequence, they must operate in global
markets so as to ensure the volumes of sales necessary to recoup these
costs.
Globalization drivers (Yip’s framework)
Government globalization drivers
▪ Favourable trade policies
▪ Compatible technical standards
▪ Common marketing regulations
▪ Government-owned competitors and customers
▪ Host government concerns
Globalization drivers (Yip’s framework)
Government globalization drivers
Since the Second World War many governments have taken individual
and collective action to reduce barriers to global trade.
Globalization drivers (Yip’s framework)
Favourable trade policies
The World Trade Organization (WTO) and its predecessor, the General
Agreement on Tariffs and Trade (GATT), have done much to reduce
barriers to trade which have, in the past, hindered globalization of
many industries. Although there are still significant barriers to trade in
certain areas, the movement towards freedom of trade has been
substantial, thereby favouring globalization. The growth of customs
unions and ‘single markets’ such as the European Union and the North
American Free Trade Area (NAFTA) have also made an important
contribution in this regard.
Globalization drivers (Yip’s framework)
Compatible technical standards and common marketing regulations
Many of the differences in technical standards between countries
which hindered globalization in the past have been reduced. For
example, telecommunications standards, which have traditionally
differed between countries, are increasingly being superseded by
international standards. Similarly, standards are converging in the
pharmaceutical, airline and computing industries which makes it easier
to produce globally accepted products.
Globalization drivers (Yip’s framework)
Compatible technical standards and common marketing regulations
There remain important differences in advertising regulations between
countries, with the UK regulations among the strictest. Generally,
however, these differences are being eroded and this is expected to
favour greater globalization.
Globalization drivers (Yip’s framework)
Government-owned competitors and customers
Government-owned competitors, which often enjoy state subsidies,
can act as a stimulus to globalization as they frequently compete with
other global competitors, thus being forced to become more efficient
and global market oriented. On the other hand, government-owned
customers tend to favour domestic suppliers, which can act as a barrier
to globalization. The privatization of many state-owned businesses in
many European countries has reduced this barrier to globalization.
Globalization drivers (Yip’s framework)
Host government concerns
The attitudes and policies of host government concerns can either
hinder or favour globalization. In certain circumstances, host
governments may favour the entry of global businesses into domestic
industries and markets, which will assist globalization. For example, the
UK government has, in recent years, done much to attract inward
investment by Japanese and Korean companies. The more
governments that espouse such policies, the greater will be
globalization of an industry. In other cases, host governments will seek
to protect industries that they see as strategically important and will
attempt to prevent foreign businesses from entry.
Globalization drivers (Yip’s framework)
Competitive globalization drivers
▪ high exports and imports
▪ competitors from different continents
▪ interdependence of countries
▪ competitors globalized
Globalization drivers (Yip’s framework)
Competitive globalization drivers
The greater the strength of the competitive drivers, the greater will be
the tendency for an industry to globalize. Global competition in an
industry will become more intense when:
▪ there is a high level of import and export activity between countries;
▪ the competitors in the industry are widely spread (they will often be
on different continents);
▪ the economies of the countries involved are interdependent;
competitors in the industry are already globalized.
Globalization drivers (Yip’s framework)
High exports and imports
The higher the level of exports and imports of products and services,
the greater will be the pressure for globalization of an industry.
Globalization drivers (Yip’s framework)
Competitors from different continents
The more countries that are represented in an industry and the more
widely spread they are, the greater the likelihood of globalization.
Globalization drivers (Yip’s framework)
Interdependence of countries
If national economies are already relatively interdependent, then this
will act as a stimulus for increased globalization. Such interdependence
may arise through, for example, multiple trading links in other
industries, through being a part of a single market or through being in a
shared political alliance.
Globalization drivers (Yip’s framework)
Competitors globalized
If a competitor is already globalized and employing a global strategy,
there will be pressure on other businesses in the industry to globalize
as well. Globalization in the automotive industry is high because of the
pressure on organizations to compete globally. An automobile
manufacturer will struggle to survive if it only serves domestic markets.