The Rise of Global
Corporation
• Globalization is a business initiative based on the belief that the world is
becoming more homogenous and that distinctions between national
markets are not only fading but for some products, will eventually
disappear. As a result, companies need to globalize their international
strategy by formulating it across markets to take advantage of underlying
market, cost, environmental, and competitive factors.
• Once a firm has made the decision to compete in the
global environment, it subjects itself to pressures
single-country firms often do not experience. Single-
country firms normally operate in a relatively
homogenous market for their products and service.
Consequently, product design and production can
often fairly standardized, allowing the firm to
achieve economies of scale in production, and
deliver a product that appeal to its entire market.
Furthermore, strictly domestic firms typically don’t
have to concern themselves with differences in
industry and trade regulations from other countries.
• Global corporations, in contrast, often faces a trade-off between seeking
competitive advantage through the lower production cost that global
economies of scale allow, and seeking competitive advantage by tailoring
the products to specific national marketsforgoing economies of scale but
providing a product more tailored to local taste. Furthermore, the global
firm must determine how to balance the demands and practices of other
countries.
Presence in Key Global Market
• The United States, Japan, and Western Europe account for about half of the
world’s total consumption. They share certain important economic and
demographic conditions such as high income levels and high GNP values. It
has been argued (Ohmae, 1990) that a firm cannot truly compete on a
Global Scale if it is not present in this “triad.”
• If a firm does not have operations in all three areas of the triad, it may not be
able to achieve maximum economies of scale. Furthermore, since the three
areas are often source of technological and product innovations, a firm not
present in all triad areas would have difficulty keeping abreast of
technological developments in its industry.
Competitive Strategies of Global
Corporations
1. Cost leadership
• In cost leadership, a firm sets out to become the low cost producer in its
industry. The sources of cost advantage are varied and depend on the
structure of the industry. They may include the pursuit of economies of
scale, proprietary technology, preferential access to raw materials and other
factors. A low cost producer must find and exploit all sources of cost
advantage. if a firm can achieve and sustain overall cost leadership, then it
will be an above average performer in its industry, provided it can command
prices at or near the industry average.
2. Differentiation
• In a differentiation strategy a firm seeks to be unique in its industry along
some dimensions that are widely valued by buyers. It selects one or more
attributes that many buyers in an industry perceive as important, and
uniquely positions itself to meet those needs. It is rewarded for its
uniqueness with a premium price.
3. Focus
• The generic strategy of focus rests on the choice of a narrow competitive scope within an
industry. The focuser selects a segment or group of segments in the industry and tailors its
strategy to serving them to the exclusion of others.
• The focus strategy has two variants.
• (a) In cost focus a firm seeks a cost advantage in its target segment, while in ;
• (b) differentiation focus a firm seeks differentiation in its target segment. Both variants of the
focus strategy rest on differences between a focuser's target segment and other segments in
the industry. The target segments must either have buyers with unusual needs or else the
production and delivery system that best serves the target segment must differ from that of
other industry segments. Cost focus exploits differences in cost behaviour in some segments,
while differentiation focus exploits the special needs of buyers in certain segments.
Globalization Drivers
Market Factors
• The world Customer today identified by Ernst Dichter more than 30 years
ago has gained new meaning today. For example Kinichi Ohmae has
identified a new group of consumers emerging in the triad of North
America, Europe and Japan whom marketers can treat as a single market
with the same spending habits.
• Approximately over 600 million consumers have similar educational
backgrounds, income levels, lifestyles, use of leisure time and aspirations.
One reason given for the income levels in their demand is a level of
purchasing power (10 times greater than that of LDCs or NICs) that
translates into higher diffusion rates (for certain product).
Cost Factors
• Avoiding cost inefficiencies and duplication of effort are two of the most
powerful globalization drivers. A single-country approach may not be large
enough for the local business to achieve all possible economies of scale and
scope as well as synergies, especially given the dramatic changes in the
marketplace.
• For example, pharmaceuticals, in the 1970s, developing a new drug cost
about 16 million dollars and took 4 years to develop. The drug could be
produced in UK or United States and eventually exported. Now, developing
a drug cost from 250 to 500 million dollars and takes as long as 12 years,
with competitive efforts close behind. Only a global product for a global
market can support that risk (The Wall Street Journal, 1993).
Environmental
• As the world market is going global,
government barriers have fallen dramatically
in the last years to further facilitate the
globalization of markets and the activities of
global corporations with them.
Competitive Factors
• Many global corporations are already dominated by
global competitors that are trying to take advantage of
the three sets of factors mentioned earlier. To remain
competitive, the company may have be able to be the
first to do something or to be able to match or preempt
competitor’s moves.
Functions of Global Corporations
•• International companies are importers and exporters, typically without
investment outside of their home country;
•• Multinational companies have investment in other countries, but do not
have coordinated product offerings in each country. They are more focused
on adapting their products and services to each individual local market.
•• Global companies have invested in and are present in many countries.
They typically market their products and services to each individual local
market.
•• Transnational companies are more complex organizations which have
invested in foreign operations, have a central corporate facility but give
decision-making, research and develop (R&D) and marketing powers to
each individual foreign market.
Structural Periods of Global Corporations
Investment-based Globalization
(1950-1970)
• The investment-based period was dominated by producer-driven
commodity or value chains, which in turn tended to be dominated by firms
characterized by large amount of concentrated capital focused on large-
scale or capital-intensive manufacturing or extractive industries.
Trade-based Globalization
(1970-1995)
• The trade-based was due to the emergence of Japan as a major producer
nation, especially of automobiles and consumer electronics from the 1970s
onward. This brought to the scene new models of effective production
focused especially on quality and regimes of flexible production which
prompted the European firms to rejoin the global commodity chains.
Digital Globalization
(1995-Present)
• Digital Globalization has affected the entire structure of how global
corporations operate. The integration of corporate structure reducing the
effects of time and distance especially for services performed within the
corporate structures such as design, finance and accounting, advertising and
brand development, legal services, inventory controls, etc.
Emerging Global Corporations
Basic Element
(Russia)
•Is a world leader
in alumina
products
Bharat Forge
(India)
•Is one of the
world’s largest
forging
companies.
BYD Company
(China)
•Is the world’s
manufacturer of
nickel-cadmium
batteries.
CEMEX
(Mexico)
•Has developed
into one of the
world’s largest
cement products.
China International Marine Containers Group
(CIMC)
(China)
•Is the world’s
largest
manufacturing of
shipping containers.
COSCO Group
(China)
•Is one of the
largest shipping
companies in the
world.
Embraer
(Brazil)
•Has surpassed
Canada’s Bombardier
as market leader in
regional jets.
Galanz Group
(China)
• Has a 45 percent
share of the
European and a 25
percent of the US
Microwave market.
Hisense
(China)
•Is the number
one supplier of
flat-panel TVs to
France.
Johnson Electric
(China)
•Is the world’s leading
manufacturer of
small electric
motors.
Nemak
(Mexico)
•Is one of the world’s
leading suppliers of
cylinder head and
block casings for
automotive industry.
Sistema
(Russia)
•Is a conglomerate
with a focus on
telecommunicati
ons.
Tata Chemicals
(India)
•Is and inorganic
chemical producer
wit ha significant
global market share
for soda ash.
Wipro
(India)
•Is the world’s
largest third-party
engineering
services company.
