Developing a global strategy

Sources: DHL Global Connectedness Index, 2011
Concept based on WORLD 3.0 Global prosperity and how to achieve it,
Harvard Business Review Press, Copyright, 2011
1
NAFTA
LAFTA
EU
ASEAN

World is flat.
The world is one huge market.
Anything or anyone can go anywhere, anytime.
Do you think this is true?
Are there barriers to connectedness?
2

Global Connectedness – Goods & Service Trade
In comparison to total economic activity (GDP), what percent is global?
When asked about global interaction, the traditional data to compare a
country’s external merchandise/service trade with it’s total GDP.
So, lets start there.
Global Trade
3
Total GDP

Global Connectedness – Merchandise & Service Trade
With both merchandise and service international trade at only 30% of the
world GDP, there is still a great deal of growth potential. This 22% could
actually be closer to 15% if you consider re-exporting of semi-finished
products exported to another country for final processing and supplied to
the end user. We could be connected a great deal more.
1930
9%
of GDP
2015
22%
of GDP
Growth in trade
connectedness
Source: DHL Global Connectedness Index, 2016
4

Japan’s Global Connectedness – Merchandise & Service Trade
Japan’s external trade ratio is well below the average.
It is mainly due to it large domestic market. It has
much room for expansion.
Outward
15%
of GDP
Inward
16%
of GDP
From worldwide suppliers
To worldwide
markets
5

USA’s Global Connectedness – Merchandise & Service Trade
The United States’ external trade ratio is below the
average. It is mainly due to it large domestic market
too. It can expand much more.
Outward
8%
of GDP
Inward
13%
of GDP Source: DHL Global Connectedness Index, 2016
USA
From worldwide
suppliers
To worldwide
markets
6

China’s Global Connectedness – Merchandise & Service Trade
The China’s external trade ratio is closer to the average. This
might be one of the main reasons China has such high growth. It
is helped by valuable imports and it is financed by exports. In the
future, serving the domestic market will become more important as
wealth is created.
Outward
21%
of GDP
Inward
15%
of GDP
China
From worldwide
suppliers
To worldwide
markets
7

Global Connectedness – Foreign Direct Investment (FDI)
FDI peeked
in
2000
20%
of capital
formation
Foreign direct investment (FDI) to capital formation
(Total investment in fixed assets)
FDI settled in
2010
10%
of capital formation
FDI fell in
2007
15%
of capital
formation
There is great global economic benefits of FDI (financial transfer, technical
transfer, business knowhow transfer, etc.)
8

Global Connectedness – Financial Movement
Source: “Home Bias in International Equity Portfolios: A Review (August 2007)
Foreign equity investment (share purchase only)
Foreign equity investment
2005 ~ 2007
20%
of all investments
There is much room for foreigners investing in foreign companies. It
trust and better communication continues to grow so should
investment.
9

Global Connectedness – Communication & Information
20%
of all internet connections are international.
5%
of all phone calls are international.
We could communicate and share information much more than we are
now. This would build trust, investment and greater prosperity.
10

53/140
Bits per second per
internet user
International calls
International email
63/140
Outward per minutes/capita
112/140
Inward per minutes/capita
(World ranking among 140 countries (99% of world GDP and 95% of population)
Japan’s Global Ranking – Telephone/Internet Communication
Of 140
countries
Outward calls
Inward calls
11
Outward email data
Inward email data

Visiting foreign countries & foreign populations
1.9%
Of Japanese
population is
from another
country.
Source: UN report Trends in International Migrant Stock: The 2015 Revision.
14.3%
Of USA
population is
from another
country.
Connecting face-to-face
What percent of the world population are from foreign countries?
3% of the world population live outside of their home country.
What percent of the world population have studied in a foreign country?
2% of university student have studied outside their country.
What professionals are foreigners in the US?
33% of USA engineers are from foreign countries.
27% of USA mathematician, statisticians and computer science
specialists are from foreign countries.
24% of USA scientists and researches are from foreign countries.
12

United Arab Emirates 7,826,981 83.7
Singapore 2,323,252 42.9
Switzerland 2,438,702 28.9
Israel 2,046,873 26.5
New Zealand 1,132,736 25.1
Germany 12,005,690 14.9
United States 46,627,102 14.3
Sweden 1,639,771 14.3
United Kingdom 8,543,120 11.3
France 7,784,418 11.1
Greece 1,242,514 11.1
Italy 5,788,875 8.0
Russia 11,643,276 7.7
Turkey 4,580,678 5.81
Japan 2,437,169 1.9
India 5,338,486 0.4
Egypt 297,448 0.4
China 848,511 0.1
Indonesia 295,433 0.1
Vietnam 68,290 0.1
Visiting foreign countries & foreign populations
Connecting face-to-face
(foreign population & percentage of total population)
THE BENEFIT: Advanced cultural diversity, learning,
teaching, blending, interaction and understanding
13

20% 40% 60% 80% 100%0
Source: Concept based on Redefining Global Strategy,
Crossing Borders in a World Where Differences Still Matters, Harvard Business School Press, Copyright, 2007
Global Connectedness – Overall Summary
Level of international connection
International to domestic telephone calls
Foreign university students to total
Management research with global content to total
Charity to foreign country to domestic
Foreign direct investment to capital formation
Foreign tourists to total
Foreign related patents to domestic
Foreign held stock to domestic
Foreign trade to GDP
Immigrants to total population
14

40% 80% 120% 160% 200%0
Source: Pankaj Ghemawat and Rajiv Malick, “The Industry-Level Structure of International Trade Networks: A
Gravity-Based Approach”, working paper, Harvard Business School, February 2003
Global Connectedness – Overall Summary
Factors that improve connected (over average)
Common
language
Colony or
colonizer
Common
currency
Common land
border
Common regional
trading block
+188%
+114%
+125%
+42%
+47%
15

Looking at foreign markets & production bases
Differences from us & other regions
Source: World 3.0 GLOBAL PROSPERITY AND HOW TO ACHIEVE IT
Are all other regions very different from us?
Are there great differences between us and the other location?
Is there great distance between us and the other location?
In World 3.0 both distance and differences still matter greatly. Those
differences must be explored in each case to determine the ideal level of
connectedness. Some issues should be kept at the local level, other
issues at the global level.
Yes No
16

CAGE - Differences
G-Geographic – Are there great geographic differences?
E-Economic – Are there great economic differences?
A-Administrative – Are there great administrative differences?
C-Culture – Are there great cultural differences?
Yes No
17

C- Cultural Differences – Industry Sensitivity Indicators
Country of Origin – Is country of origin a major concern?
Language – Is high language communication skill required?
Tastes – Are there great preference/standards differences?
Traditions – Are there strong historic traditions in the industry?
Yes No
18

A- Administrative Differences – Industry Sensitivity Indicators
Government Involvement – Is the government involved in
funding, procurement, standard-setting, etc?
Yes No
National Priority – Is this industry of strategic national priority?
Rigidity/flexibility – Are the products highly specialized,
capital intensive (can affect potential and risks)?
Restraints – Are there strong operating procedure restrictions
(imports, exports, FDI)?
19

G- Geographic Distance – Industry Sensitivity Indicators
Hazards/fragile – Is quality transportation and freight hazards a concern?
Weight/Value – Are the products high weight & low value?
Perishable – Does the product lose its value quickly (time-sensitive)?
Yes No
20

E – Economic Distance – Industry Sensitivity Indicators
Yes No
Cost Content – Is the product costing heavily dependent on local
factors (labor, material process, equipment, etc.)?
Scale – Is it difficult to standardize the product
to suit a wide range of international markets?
Pricing – Are the products price sensitive? Price negotiations on
price is very common when deciding to buy?
Distribution – Is the supply chain poorly developed and very
different from your home market?
21

What global connectedness offers (ADDING)
Source: Redefining Global Strategy, Pankaj Ghemawat, Harvard Business School Press, 2007
A – ADDING BUSINESS, production volume/economies of scale
D – DECREASING COSTS through regional costing differences
D – DIFFERENTIATING, offering different products
and solutions to increase willingness to pay more
I – IMPROVING COMPETITIVE ADVANTAGE
and bargaining power
N – NORMALIZE RISKS as success in one market
balances failures in others
G – GENERATING CAPACITY by spreading
and diffusing knowledge
22

ADDING Value Scorecard – A – Adding volume, or growth
Confirm the goals of entering a foreign market
or producing overseas
Forecast the profit potential of added growth and volume
Forecast potential on a global level, regional level,
national level, distributor level and end-user level
Determine the company capacity for expansion
Determine the effect of volume on competitiveness
Determine added supply requirements
23

ADDING Value Scorecard – D – Decrease Costs
24
Confirm where the cost reduction will come from
(separate all costs)
Explore any added cost that might occur
Explore any potential indirect costs
Project long-term cost increases
Determine fixed cost, variable costs and break-even point
Determine main factors that determine costs
increases/decreases (like currency movements)
Estimate any potential shortages that could influence costs

ADDING Value Scorecard – D – Differentiating
& increasing willingness to pay
Look at R & D-to-sales and advertising-to-sales ratios
in industry and your strengths among competitors
Focus on customer willingness to pay and product benefit
to them
Project impact of differentiation by global changes
Anticipate competitor reaction to your global strategy
Segment market appropriately
25

ADDING Value Scorecard – I – Improving bargaining power
Determine international differences in industry profitability
Determine any market entry/exit bearers
Determine customer switching bearers
Determine potential for substitution
Determine change on influence with suppliers
Determine change on influence on customers
Determine moves of competitors to response to your
cross-border operation
Explore and react to regulatory and nonmarket restraints
and local business ethics
26

ADDING Value Scorecard – N – Neutralizing risks
Identify the key risks in your industry
(capital intensity, labor concerns, supply
shortages, legal restrictions,
demand volatility)
Assess how much cross-boarder operations
reduce or increase risks
Compare benefits to risks by cross-boarder
operation
27

Risk rating for material development projects in rural areas
Source: Nippon Export and Investment Insurance
A Japan, Singapore, Germany, USA, Britain
B South Korea, Spain, Slovakia
C China, Malaysia, Poland, Chile
D Russia, India, Thailand, Mexico, Algeria, Morocco
E Philippines, Turkey, Hungary, Colombia
F Vietnam, Greece, Egypt, Angola
G Cambodia, Honduras, Cameroon, Bolivia
H North Korea, Myanmar, Iraq, Lebanon, Libya
Review national risk rating by governments, insurance companies
and financial institutions. They specialize in risk management.
Below is just on source rating anywhere in these countries. The
higher the risk, the greater the profit potential must be.
Highest
Lowest
RISK
28

ADDING Value Scorecard – G – Generating knowledge,
resources and capacity
Access local specifications and learn user requirements
Access local distribution requirements
Explore similar capacities that could be of value
Hold discussions with suppliers, consultants, target users,
distributors, political leaders and local firms
Hire people who are open, willing to learn and adapt
Create cross-boarder teams in diverse locations
Expand on cross-boarder interaction and assignments
Explore
valuable
diversity
29

Strategies for Global Value Creation
TRANSFER
EXPERTISE
Offer
new value
ADAPTATION
Make appropriate
market &
production
adjustments WEALTH
CREATION
Confirm profit
potential
30

Strategies for Global Value Creation - Adaption
ADAPTATION
Make appropriate
market &
production
adjustments
31

Strategies for Global Value Creation - Adaption
Design: reduce
process costs
Use production standardization,
platforms and modules to
reduce production costs
Focus: reduce
need for costly
variation
Target a specific region,
segment, product line or
value chain process
Innovation:
improve
effectiveness
Explore new
applications and
combinations for
the foreign market
Variation
Modify the product and
marketing promotional
program.
Externalization: reduce
variation burden
Outsource certain functions through
strategic alliances, franchising, etc.
32

Strategies for Global Value Creation – Transfer Expertise
TRANSFER
EXPERTISE
Offer
new value
33

Transferring expertise – Regional strategies
1. Regional or home focus: One processing location
mainly service home market. Small amount of second
market attention
2. Regional portfolio: Move to one off-shore foreign direct
investment to supply that market
3. Regional hub: Create an off-shore production operation
to serve the surrounding markets in that region
4. Regional platforms: Standardize components in each
production operation to supply several regions
5. Regional mandates: Awarding certain regions
assignments to specialize in specific global
responsibilities and roles.
6. Regional networks: A broad configuration of
coordinated processes to supply the whole cross-
boarder network of markets
90% of global companies
34

3. Regional hub
R2R1
1. Regional focus
R2R1
2. Regional portfolio
R2R1
= One product line
R = Region = minor effort
= minor effort
Home production,
major and minor
markets.
Major and minor
production, cross
sharing products
Major and minor
production, major
and minor markets
Increasing complexity & managerial challenge
with regional development issues,
supervision issues and coordination issues
Transferring expertise – Regional strategies review
35

6. Regional networks
R2R1
4. Platforms
R2
5. Regional Mandates
R2R1R1
Even more of a complex
managerial challenge
= One product line
R = Region = minor effort
= minor effort
R4R3
Products and
components for
global markets
Massive,
coordinated and
controls worldwide
supply system.
HQ request for
production
specialization for
global markets
Transferring expertise – Regional strategies review
36

Strategies for Global Value Creation – Wealth creation
WEALTH
CREATION
Confirm profit
potential
37

Wealth Creation – Questions to ask
1. Volume: Can wealth be created by adding volume
across-boarders?
2. Costs: Can costs be reduced by cross-boarder projects?
3. Differentiation: Can differentiation be created by cross-
boarder activities which increase willingness to buy?
4. Bargaining Power: Will bargaining power be improved
by crossing boarders?
5. Risks: Will risks be reduced by going across boarders?
6. Capacity: Will added skills, valuable experience and
knowledge be gained which will increase capacity
through foreign market activities?
38

Combinations of global value creation strategies
Selling products across boarders
Transfer
expertise
mainly as is
Adapt
mainly to local
market
Producing products across boarders
Ideal point
Ideal point
Where should your company be on these lines?
Where is the competition on these lines?
What will be your competitive advantage?
39

Getting started using a refined global strategy analysis
1. Performance Review: In what regions is the customer
underserved for your product? Can they be profitably
supplied?
2. Industry’s competitive environment: Who are the top
players in the industry? What cross-boarder production is
there? Are products standardized? Are prices moving up
or down? What is the relationship between costing and
volume? What is the main distribution method? How
important is advertising/marketing, R&D, labor costs,
capital investment in your industry?
3. CAGE: Do the CAGE analysis and determine market
differences.
4. Global Value Creation: Using the ADAPTATION, TRANSFER
EXPERTISE, WEALTH CREATION material, determine what
value could be created.
5. ADDING: Do the ADDING analysis and determine your ideal
strategy.
40

41
A successful global strategy has many benefits:
1. It can help a company expand when its industry is declining.
2. It can help a company reduce its costs much more that it can
in its home market only.
3. It can make a company far more competitive than its
competitors.
4. It can give a company bargaining power it does not have in
its domestic market only.
5. It can reduce a company’s overall risks.
6. It can provide great experiences which will develop its
overall abilities.

Developing a global strategy

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