PART II GLOBAL STRATEGY

1. OVERALL INTRODUCTION

1
Internationalization at a glance
Example: Fujitsu

2
 Netflix Global Footprint

Going local, country by Programming for a

country global audience
Cast nation’s biggest film star in
Netflix has only translated its
heavily promoted original series.
apps and catalog into 20
languages. And plans to add 2-3 Cast more local stars in new
languages each year. original series, produced locally
and heavily promote worldwide.
Global content
Striking partnerships
recommendations that
with operators
defy stereotypes
worldwide
Following the rule that
Netflix has increasingly been
subscribers in South America
striking partnerships with TV
would prefer different content
operators around the world.
than subscribers in Canada –
Data is showing the complete Netflix has agreements with 60+
operators around the globe.
opposite. Netflix subscribers worldwide (2023) *1

US (69M) Canada (9M) India (5M)

UK (12M) Germany (7M) France (5M)
Brazil (9M) Mexico (5M) Other (78M)
Source *1 : STATISTA: Netflix-Statista-Dossier
 Netflix Global Footprint

Since 2010 Netflix had adopted an

aggressive expansion strategy into the
global market to offset slow domestic
growth in its U.S. market.

Netflix subscriber growth rates jumped

to an average of 7M subscribers per
year following its entrance into the
streaming markets of Canada, Europe
and Latin America

September September January October September September March September October October
2010 2011 2012 2012 2013 2014 2015 2015 2015 2015

Canada LATAM UK / Finland Netherlands Germany Australia Japan Spain

Ireland Denmark Austria Rest of the
New Zealand Portugal
Sweden France World
Italy
Norway
 What is a Multinational Enterprise

▪ The international firm – A company that directly engages in cross-border trade,

services and/or investments

▪ The multinational enterprise (MNE or MNC) – Undertakes FDI, and owns,

controls and performs value adding activities in multiple countries (with sizable TNI,
say 30%); home or HQ is important

▪ The transnational enterprise (TNE or TNC) – Has foreign subsidiaries that fulfill
a variety of strategic roles typically performed by HQ, along with large global scale
and high spreadness of operations and management (e.g., Nestle or Shell); high TNI
(say, 50%+)

▪ The global enterprise – Highly integrating a large number of international

subsidiaries that are geographically dispersed and operationally massive in order to
benefit from knowledge/resource sharing and global economy of scale (e.g., Coca-Cola,
McDonald’s); home market is just treated as one national market); high TNI (say, 50%+)
 The Degree of Internationalization
▪ Transnationality Index (TNI) – the level of MNE internationalization, Calculated as the average of three
ratios:

▪ Foreign assets to total assets

▪ Foreign sales to total sales
▪ Foreign employment to total employment
Example: Vodafone’s TNI=89%; Anheuser-Busch InBrev’s TNI 88%

▪ Internationalization Index (II) - # of foreign affiliates divided by the total # of affiliates

▪ Example: 60% (0.60) if a US company has 6 foreign subsidiaries out of a total of 10 domestic and foreign subsidiaries
combined

▪ Geographic Spread Index (GSI) – the square root of internationalization index (# of foreign
affiliates divided by the total # of affiliates) then multiplied by # of host countries
▪ Example (above): 0.7746 x 6 host countries = 4.65

▪ Regionalization Index – % of OFDI in the same region divided by total OFDI globally
▪ Example: 40% (0.40) if a Japanese MNE have 4 OFDI subsidiaries in Asia in its total of 10 globally
PART II GLOBAL STRATEGY

2. Global Environment Analysis

8
International Business Environment
Country Competiveness

why Singapore is so rich (6 min)

Country-level determinants of
country competitiveness
Industry-Level Determinants of
Country Competitiveness
Firm-Level Determinants of
Country Competiveness
Individual-Level Determinants of
Country Competitiveness
The Global Competitiveness Index (GCI) 2016–2017 Rankings
 9 Cultural Dimensions in IB
Power Distance The degree to which members of a collective expect power to be distributed
equally

Uncertainty The extent to which a society, organization, or group relies on social norms,
Avoidance rules, and procedures to alleviate unpredictability of future events

Humane The degree to which a collective encourages and rewards

Orientation individuals for being fair, altruistic, generous, caring, and
kind to others
Institutional The degree to which organizational and societal institutional practices
Collectivism encourage and reward collective distribution of resources and collective action

In-group The degree to which individuals express pride, loyalty, and

Collectivism cohesiveness in their organizations or families

Assertiveness The degree to which individuals are assertive, confrontational, and aggressive
in their relationships with others

Gender The degree to which a collective minimizes gender inequality

Egalitarianism

Future The extent to which individuals engage in future-oriented

Orientation behaviors such as delaying gratification, planning, and investing in the future

Performance The degree to which a collective encourages and rewards

Orientation group members for performance improvement and excellence
 National Cultural Clustering
Underlying dimensions: power distance, uncertainty avoidance,
individualism vs. collectivism; masculinity (care success & money) vs.
femininity (care others and life quality)

Myth of Globalization - Cultural

Difference – 13 min
 National Cultural Differences

US Japan Arab
• Freedom Belonging Family security
• Independence Group harmony Family harmony
• Self-reliance Collectiveness Parental guidance
• Fairness Seniority Age
• Individualism Group consensus Authority
• Competition Cooperation Compromise
• Efficiency Quality Devotion
• Time Patience Patience
• Directness Indirectness Indirectness
• Openness Go-between Hospitality
How culture affects IB negotiations
 Corporate Culture
▪ Corporate culture:

▪ A pattern of basic assumptions that are taught

to employees as the correct way to perceive,
▪ think and act in relation to these problems

▪ It becomes increasingly important in shaping

foreign employees’ behavior and in integrating
worldwide operations

▪ Corporate culture types:

▪ Family-oriented
▪ Hierarchy-oriented
▪ Task-oriented

How to Curtail Cultural Barriers in IB:

1. Acculturation (e.g., selection, training, rotation)

2. Communication (e.g., openness, feedback)
3. Socialization (e.g., personal links, informal ties)
4. Adaptation (e.g., learning language, norms)
 Political Risk
▪ Political risk is the probability of disruption of operation from political forces or events and their
correlates

▪ Risk comes from instability, whether that is political, economic, regulatory, policy oriented, judicial, and
conflict oriented

▪ Types of Political Risk:

▪ Ownership Risk – potential threats to ownership from nationalization or seizure.
▪ Operational Risk – threats governments impose for “changing the rules of the game.”
▪ Transfer Risk – impediments to the transfer of production factors, products or capital.

Country Risk Rating Agencies:

1. Moody’s
PRS Model: Level of political
2. S&P’s
instability and government
3. EIU (Economist Intelligence Unit) intervention in equity restrictions,
4. R&A (S.J. Rundt & Associates) exchange controls, financial transfers,
5. BERI (Business Environment Risk Intelligence S.A.) changes to fiscal and/or monetary
6. II (Institutional Investor) policy, labor costs and requirements,
7. PRS (Political Risk Services) external borrowing liabilities, FDI,
8. Euromoney and imports & exports
9. ICRG (International Country Risk Guide)
 Global Political Risk Ranking by PRS (ascending order)

04/2014 2013 2012 2011 2010 81. Bangladesh 63 59 59 60 59

GLOBAL AVERAGES 72 72 72 72 72 81. Haiti 63 63 62 62 61

1. Canada 93 94 93 94 92
81. Myanmar 63 66 65 56 46
1. Hong Kong 93 92 92 92 92
3. Norway 91 89 88 87 87 84. Argentina 59 59 57 59 60

4. Singapore 90 92 89 89 89 84. Egypt 59 59 67 65 67

4. Taiwan 90 90 90 89 88
84. Russia 59 60 62 61 64
6. Australia 88 88 88 88 87
87. Nigeria 58 59 59 58 57
6. Austria 88 87 87 87 88
8. Sweden 87 87 88 89 89 88. Ecuador 56 56 53 53 53
9. Czech Republic 86 84 83 84 83 88. Guinea 56 56 54 53 55
9. Oman 86 86 85 85 86
88. Pakistan 56 55 52 53 53
9. Switzerland 86 86 86 86 86
88. Ukraine 56 61 62 62 60
9. UAB 86 86 84 85 87
92. Iraq 55 56 58 58 58
13. Chile 85 85 82 81 83
93. Congo DR 54 54 57 57 56
13. Japan 85 86 84 82 83
15. Botswana 84 83 82 82 83 94. Cuba 51 49 50 49 49
15. Finland 84 84 84 86 87 95. Libya 50 55 57 56 68
17. New Zealand 83 82 83 80 82
95. Sudan 50 48 50 51 62
17. South Korea 83 80 78 73 72
97. Iran 47 45 45 48 50
17. Trinidad & Tobago 83 80 82 83 83
98. Syria 44 49 53 50 62
20. Denmark 82 82 82 80 78
20. Germany 82 82 82 80 81 98. Venezuela 44 45 47 48 48

20. Netherlands 82 84 84 88 88 100. Zimbabwe 43 41 45 46 46

20. United Kingdom 82 80 80 80 80

Where is US? (#24)

 Government FDI Regulations

Entry regulations Post-entry

regulations
Legal Issues Localization Legal Issues
Sectorial preference requirement
▪ Ease of entry & exit ▪ Product origin
▪ Hiring and firing Industry access Distribution/channel ▪ Legal jurisdiction
employees restrictions ▪ Arbitration
Geographic
▪ Contract enforcement ▪ Intellectual property
▪ Product safety and preference Labor regulations rights [IPRs]
liability ▪ Access to local capital
▪ Marketplace behavior
Entry mode policy Finance, foreign
markets
exchange, accounting
Ownership control
& taxation
Technology Industrial &
requirement environmental standards

Financial incentives (e.g., tax)

Non-financial incentives
Improving MNC-Government Relations

Resource
Complementarity

MNC-
Relationship Social-Cultural
Government
Building Relations Accommodation

Organizational
Credibility
 IPR Protection in IB
Defensively

1. Patents and trademarks are territorial and must be filed in each country (or region such as
EPO) where protection is sought. One file for all through WIPO!
2. High-technology measures (devices such as raised lettering on packaging, special inks and
dyes, and genetic and covert markers to deter counterfeiters)
3. Creating a moving target – “access locks” in computer programs to verify authorized use,
and encryption standards to prevent unauthorized downloading of software
4. Walling-off clause – used in IJVs, contractual alliances and OEM
5. Cross-licensing between major global players
6. International coalitions (International Anti-Counterfeiting Coalition or IACC)
7. Exploit resources, support and bargaining power of US government
8. Use administrative channels to battle IPR infringement - Quicker and less expensive but
result in softer penalties and weaker deterrents
9. Use judicial channels (civil/IPR tribunals or criminal cases) - Strong penalties but costly &
time-consuming

Offensively

1. Constantly upgrading and innovating (e.g., product upgrade, new design, new configuration,
software update, etc)
 IPR Protection in IB
WIPO (World Intellectual Property Organization) - The global forum
for intellectual property services, policy, information and cooperation

1. The International Patent System - The Patent Cooperation Treaty (PCT) assists
applicants in seeking patent protection internationally for their inventions. By filing one
international patent application under the PCT, applicants can simultaneously seek protection
for an invention in 148 countries throughout the world

2. The International Trademark System - The Madrid System is a one stop solution for
registering and managing marks worldwide. File one application, in one language, and pay one
set of fees to protect your mark in the territories of up to 96 countries

3. The International Design System - The Hague System for the International Registration
of Industrial Designs provides a practical business solution for registering up to 100 designs in
over 64 territories through filing one single international application

Also: 1. Search patents, trademarks, designs and appellations of origin; 2. Settle IP and
technology disputes out of court using the fast, flexible and cost-effective services offered by
the WIPO Arbitration and Mediation Center

WTO’s Trade-Related Aspects of Intellectual Property Rights (TRIPS) - Establishes

minimum levels of protection that each government has to give to IP of fellow members
 PART II GLOBAL STRATEGY

3. International Expansion Strategies

27
Why Do Firms Expand Internationally?
Market Motives
• Offensive motive – seize market opportunities in foreign countries through
trade or investment.
• Defensive motive – to protect and hold a firm’s market power or position in
the face of threats from domestic rivalry or changes in government policy.

Strategic Motives Economic Motives

• Capitalize on distinctive • Increase return through higher
resources or capabilities already revenues and/or lower costs.
developed at home
• Enables the company to benefit
• Be the first mover in a target from the differences in:
foreign market ― Costs of labor
• Benefit from vertical integration ― Natural resources
involving different countries ― Capital
• Follow the company’s major ― Differences in regulatory treatment
customers abroad
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 Why Global Expansion?
A case of Netflix

▪ Offset slow domestic growth in its U.S. market

▪ Saturated domestic market and positive results from past entrances
I. Market Objectives into global markets such as Canada
▪ Seize market opportunities in foreign countries - Offensive Motive
▪ Double its suscriber base by 2023 – Global Leadership

▪ Global expansion into 200 countries to establish itself as a global force

▪ Benefit from Vertical Integration (Creation, Aggregation, Distribution)
II. Strategic Motives ▪ Grow content catalogue/library (Multiple Languages | > 20 languages)
▪ Extend product lifecyle

▪ Capitalize on SVoD worldwide revenue projections

▪ Reduce streaming cost (content/license cost) with the acquisition of
new subscribers (2016 Streaming Cost: ~$5.6B).
III. Economic Motives
▪ Share cost across a broader range of countries and a larger
subscriber base.
 Internationalization Process
Evolutionary (Incremental) vs. Revolutionary (Radical) Approach

Stages of globalization:
Relocating
Overseas production
Export Insiderization Truly global
branches facilities
(active FDI)

1 2 3 4 5
In Stage 3 Relocating production facilities (active FDI):
a) Contractual arrangement - minority JV - majority JV – wholly owned – umbrella
company;
b) Culturally similar countries – culturally distant countries;
c) Core products with competitive advantage – moderately diversified but related
products – highly diversified including unrelated products;
d) A few projects with small scale – a multitude of projects, technologies, products,
locations, and entry modes, with high scale of operations
30
 Internationalization Process

Most early MNCs were generally evolutionary; but we see

more EM MNCs, late movers, niche players, and born-global
firms that are radical

Internal reasons behind evolutionary logic: resource

commitment, organizational capability, international
experience, strategic orientation (including risk aversiveness)

External reasons behind evolutionary logic: environmental

uncertainty, regulatory variability, liability of foreignness
(LOF), infrastructure conditions, completion of market system

31
Integrated Model of Country Selection (Where)

Locational Determinants
▪ Institutional environment
(e.g., political, legal, sociocultural)
▪ Governmental regulations on FDI
▪ Economic environment
▪ Economic soundness (GDP growth, real income per capita)
▪ Global connectivity and country openness
▪ Infrastructure (physical, digital, science & education, industrial
supportiveness)
▪ Finance (capital market, foreign exchange, etc.)
▪ Production factors (labor, capital, raw materials, tech. etc.)
▪ Cost/tax factors for production and operations
▪ Market demand factors
▪ Competition/rivalry factors

Strategic Capabilities &

Objectives Resources
Location Decisions
Regional Global
Strategies Integration

32
Country Innovation Index
 Country Selection Factors (India)

Market Data Legal Framework

• India’s per capita Media and Foreign OTT Service Providers:
Entertainment spend will be capped ▪ Foreign OTT service providers are
at 32 USD by 2021 (China $222 | adopting a model of setting up an
US $2260) intermediary in India with distribution
• SVoD in India amounted to $86M rights.
expecting to show CAGR of 10.8 ▪ Net Neutrality: Remains free and
between 2016 and 2020 open in India
• User penetration is expected to grow ▪ Content Classification: India follows
from 57% in 2016 to 86% in 2020 globally accepted rating parameters

Demand Competition Taxation

▪ Estimates suggest that India will ▪ Hotstar (Start India) ▪ Goods and Services Tax (GST) in
have 500M smartphone users and – Non-Sports: Free Unlimited / Supported by ads India mirrors tax measures of
650M internet users by 2020 developed economies.
– Sports: Live Content is priced
▪ India’s young population (~50% ▪ Consumers bear 18% GST on the
▪ Eros Now (Eros International)
under 25) favors watching content import of OIDAR services.
on the go. – Free and supported content
▪ OTT and OIDAR services providing
▪ India is considered a ‘Mobile-First’ – Subscription pack at $1.47 per month services would have to comply with
economy and a majority of its ▪ HOOQ (Sony, Warner Bros Entertainment) GST, register in India and pay taxes
population use the internet on their – Ad-free video on demand ▪ Advertisement revenue paid by the
smartphones. Indian advertiser/ad agencies are
– Subscription packs start at $2.92 per month
subject to a 6% tax rate
Country Comparison Tools
(Risk-Return Analysis)

Simplified Market-Penetration Grid

Q: How digital connectivity affects country selection?

 When

Q: What factors you want to consider when deciding timing of FDI?

 Entry Modes inExpansion (How)
Entry Mode in International
International Expansion (How)

37
International Entry Mode Selection (How)
TRADE-RELATED ENTRY MODES INCLUDE:

Export
International Subcontracting
• OEM is one specific form of international subcontracting, in which a
foreign firm supplies a local company with the technology and
sophisticated components so that the latter can manufacture goods that
the foreign firm will market under its own brand in international markets.

Countertrade
• Barter
• Counterpurchase: a reciprocal buying agreement without “equal amount”
requirement
• Offset: one party agrees to purchase goods with a specified percentage of
its proceeds from an original sale
• Buyback: a firm provides a local manufacturer with capital equipment and
agrees to take a certain percentage of the output as partial payment 38
International Entry Mode Selection (How)
TRANSFER-RELATED ENTRY MODES INCLUDE:

International Leasing

International Licensing
• A foreign licensor grants specified property rights to the local licensee for
a specified period of time in exchange for a royalty fee

International Franchising
• The franchisor generally maintains the right to control the quality of
products and services so that the franchisee cannot damage the
company’s image

Build-Operate-Transfer (“turn-key investment”)

39
International Entry Mode Selection (How)
FDI-RELATED ENTRY MODES INCLUDE:

FDI-related entry modes include:

Branch Office
Cooperative Joint Venture
• Joint exploration
• R&D consortium
• Co-production (or co-service)
• Co-marketing
• Co-management (e.g., co-training)
• Long-term supply agreement
Equity Joint Venture
Wholly Owned Subsidiary
Umbrella Holding Company 40
Entry Mode Selection in International Expansion:
An Integrated Model
Firm-Specific Factors
e.g., strategic objective; type of international strategy
firm experience and resource; nature of knowledge

Entry Mode Selection

Country-Specific
• Trading-related Industry-Specific
Factors
• Representative/Branch Factors
e.g., market demand; Office
cultural distance; • Licensing-Franchising e.g., entry barriers;
infrastructure competition, structural
• Build-Operate-Transfer
conditions; uncertainty; relation
• Cooperative JV with suppliers and buyers
government policy;
property right system • Equity JV
• Wholly-Owned Subsidiary
• Umbrella company

Project-Specific Factors
e.g., project size; contractual risks; investment
commitment; project orientation; partner availability 41
CROSS-BORDER M&A CASE IN ACTION: NATURA 42
▪ Natura is a Brazilian multinational cosmetics and personal-care manufacturer, with operations in Argentina, Chile,
Colombia, the United States, France, Mexico, and Peru. The company, founded in 1969, also has more than 100 million
consumers, 80,000 products, and 1.8 million consultants. Its direct-to-consumer model is now largely digital

▪ It recently acquired British’s the Body Shop ($1.2B) in 2017, Australia’s Aesop ($68M) in 2014, and Avon of US ($2B) in 2019

▪ Natura relies on mature and robust data analysis to deliver contextually customized customer experiences. 99% of its
product order transactions are done digitally and globally. It has an online CRM monitoring system to analyze aggregate
data, sales, consumer interactions, and consultants

▪ Natura's digital platform now has over 900,000 users in Brazil and online sales grew in double-digits

▪ Its innovation index (% of revenue from new products launched in the last two years) is 68%

▪ It implements an open platform-as-a-service (PaaS) that delivers in-memory capabilities, core platform services, and
unique micro services for building and extending intelligent, mobile-enabled cloud applications. It uses the platform’s
geospatial capabilities to track orders from the factory to the home, its development capabilities to create APIs for supplier
management, and its data management capabilities to simplify the company’s complex data landscape

▪ Natura provides its 120,000 sales managers with dashboards that give them a full view of their data, and is using
blockchain to manage supply and governance from forest to production
A CASE EXAMPLE: NATURA’S ACQUISITION OF THE BODY SHOP 43
▪ Why Natura acquires the Body Shop from L'Oréal:

▪ A further step in Natura’s journey towards a global, multibrand, multichannel group based natural products

▪ The Body Shop brings highly complementary portfolio of products across categories

▪ The Body Shop itself needs turnaround, transformation and reviving

▪ Greatly expand Natura’s global and digital reach, transforming Natura into a global (from a regional) omni-channel leader in
personal care and beauty

▪ Value creation opportunity from cost synergy, revenue synergy and global footprint synergy, accelerating Natura’s international
growth. The deal gives Natura new sales channels and more exposure to developed markets

▪ The Body Shop has strong brand awareness, high repurchase rates from loyal consumers, and opportunities to increase digital
retail. The Body Shop is present in over 60 countries, 51% sales from EMEA, 26% from Asia, 21% from North America, 2% from
Latin America

▪ The Body Shop has products in: skin care, body care, makeup, bath and shower, fragrance, gifts and accessories; these products
can quickly reach Natura’s existing direct and digital selling channels, especially Latin America, North America, and Oceania (via
Aesop)

▪ Access to and benefit more from fortified global supply chain, reduce procurement costs, currency diversification, geographic
diversification, energize the franchise network, increase digital marketing in key developed markets, augment store appealing
A CASE EXAMPLE: NATURA’S ACQUISITION OF THE BODY SHOP
44
A CASE EXAMPLE: NATURA’S ACQUISITION OF THE BODY SHOP
45
A CASE EXAMPLE: NATURA’S ACQUISITION OF THE BODY SHOP
46
A CASE EXAMPLE: NATURA’S ACQUISITION OF THE BODY SHOP
47
A CASE EXAMPLE: NATURA’S ACQUISITION OF THE BODY SHOP
48
 Cross-border M&As

Merger & Acquisition (M&A)

Strategic Motives:

▪ Sharing resources for better returns and margins

▪ Bypass entry barriers
▪ Bolster market power
▪ Access to a target’s critical capabilities
▪ Reshape competitive scope
▪ Achieve technological, operational and financial synergies
▪ Cut costs through consolidation
▪ Accelerate innovation and development
▪ Harness economies of scale and scope
▪ Augment geographic expansion
▪ Faster growth than organic approach

Acquisitions - What Google is looking for? (5 min)

49
 Cross-border M&As

Merger & Acquisition (M&A)

Synergy creation:

▪ Vertical integration
▪ Geographic coverage
▪ Technological and innovation complementarity
▪ Product portfolio enhancement
▪ Greater market power
▪ Financing, capital structure and taxation

Cost Revenue Power

AB InBev SABMiller Merge (4 min)

50
 What - FDI Diversification
1. VERTICAL FDI: Vertical FDI occurs when the MNE enters a foreign
country or countries to produce intermediate goods that are intended for use
as inputs in its domestic (or other units of the MNE network)

Process
Activity
Home Foreign

Product Intermediate
Backward FDI

Product Marketing
Intermediate Forward FDI Product
 FDI Diversification
2. HORIZONTAL FDI: Horizontal FDI occurs when the MNE
enters a foreign country or countries to produce the same
product(s) tht are produced at home.

Resource
Sharing
Home Foreign

Product A Product A
Geographical diversification
of home product A
 FDI Diversification

3. CONGLOMERATE FDI: Conglomerate FDI occurs when the

MNE enters a foreign country or countries to manufacture
products (or provide services) not produced (offered) by the
parent at home.

Information
Sharing
Home Foreign

Product A Product B
Product Diversification
 Greenfield investment overseas

A continuum of governance structures: picking the level of equity

Benefits Drawbacks

• Incremental • Slow
• Compatible with culture • Need to build new resources
• Internalizes learning • Unsuccessful efforts are
• Encourages difficult to recoup
intrapreneurship • Adds to industry capacity

54
Global corporate divestment

Foreign subunit’s weak

competitive position or weak
performance

Geopolitical
uncertainty/macroeconomic Opportunistic (including
volatility (e.g., tax policy, unsolicited approach by a
labor/immigration laws, trade buyer)
agreements, Brexit)

Need to fund new technology

Shareholder activism
investments
 Key steps of the subsidiary portfolio review

• Define your strategic objectives

• Develop key metrics
• Agree on ratings and weightings for metrics
• Collect and analyze data; clear about the scope of assets included in the deal
Phase 1 • Develop base-base valuation and dashboard

• Build or customize scenario model; know your buyer to better prepare negotiations
• Assign business units to preliminary buckets: Grow, exit, fix, sustain
• Understand legal and regulatory requirements to close
• Evaluate impact of potential actions
Phase 2 • Recommend portfolio strategy and execution plan

• Starting separation planning early

• Effective stakeholder communication
• Execute through divestments, acquisitions, joint ventures, tax structuring, margin enhancements or cost
reductions
Phase 3 • Or implement through foreign selling off, spinning off, LBOs, downsizing, downscoping, ownership
restructuring
 PART II GLOBAL STRATEGY

4. International Cooperative Strategies

57
 Building Global Alliances &
International Joint Ventures

Benefits
• Cost/risk sharing
• Knowledge acquisition
• Resource sharing
• Rationalizing production
• Reducing competition
• Increasing local acceptance
• Bypassing entry barriers

Challenges
Strategic fit, organizational
fit, and financial fit
58
Six-Cs Scheme for Partner Selection

Capacity Cooperative
Compatible Goals Culture

Partner Selection

Complementary Commensurate
Skills Risk
Commitment

UPS joint venture in China (4 min)

59
 Partner Attributes and Joint Venture
Success: 3-Fold Classification Scheme
Local Partner Attributes

Operational or Cooperation or Cash flow

task-related Partner-related related

Strategic Attributes Organizational Attributes Financial Attributes

▪ Marketing competence
▪ Relationship building ▪ Organizational leadership ▪ Profitability
▪ Technological skills ▪ Previous collaboration ▪ Liquidity
▪ Industrial experience ▪ Ownership type ▪ Leverage
▪ Strategic orientation ▪ Learning ability ▪ Asset efficiency
▪ Corporate image ▪ Foreign experience ▪ Credit rating
▪ Market power ▪ Human resource skills ▪ Governance structure

Strategic fit Organization fit Financial fit

International JV Success
60
GLOBAL PARTNERSHIP APPROACH 61
Determinants of Equity Arrangement
Regulation
Hostility Uncertainity

Environmental
Dynamics

Local Partner Equity Local Partner

Merit Arrangement Bargaining power
in IJV

Strategic Investment
need Organizational size
Dynamics
Knowledge Integration
protection requirement
Bargaining Foreign
power experience
62
 Control Mechanisms of IJVs

Nomination and Meeting of

appointment of key Board
personnel

Managerial Policies Provision of Patent

and Procedures Service
Non-Equity
IJV Control
Budget Resource allocation
Control and control

Contractual Interpersonal
Stipulation Relationships

63
 Managing Interparty Learning

Exercising Managerial
Control

Accentuating Cooperation & Trust

Staffing & Administrative Alliance

Nourishing Alliance Evolutions

Framework of Managing
Global Strategic Alliances

Managing Global Strategic Alliance

Thinking Ahed on Exit

64
Managing Interpartner Learning and
Knowledge Transfer
Appraising Learning
Opportunities and Challenges

Taking Steps in Learning

•Perception
•Abstraction/recording
•Internalization

Improving Interpartner Learning

•Scrutinizing Partner Commitment
•Improving knowledge flow
•Aligning with different cultures
•Building interpartner trust
•Integrating acquired knowledge
•Establishing reward systems
•Institutionalizing acquired skills 65
Accentuating Cooperation and Trust

Cooperation
• Between Partner Firms
• Between Alliance and Parents

Attachment Enhancement
Commitment Escalation

Conflict Reduction
Trust Development

66
 Thinking Ahead of Exit

Acquisition
Planned vs.
(Equity
Unplanned
Transfer)

Scenario Method
Friendly vs.
Dissolution
Unfriendly
EXIT

Agreed vs.
Restructuring
Disagreed

67
PART II GLOBAL STRATEGY

5. Glocalization Strategies

68
 Three Forms of Global Integration
Strategy for International Operations
MULTIDOMESTIC

The Multidomestic Strategy

• Units in various countries are
HQ independent
• Each unit treats its markets as distinct
from all others
• Corporate headquarters is not much more
than just another unit

69
 Three Forms of Global Integration
Strategy for International Operations
GLOBAL

The Global Strategy

• Units in various countries are under
centralized control from corporate
HQ headquarters
• Headquarters seeks out standardized
products suitable for a variety of markets
• Production is coordinated centrally to
create economies of scale

70
 Three Forms of Global Integration
Strategy for International Operations
HYBRID

The Hybrid Strategy

• Units coordinate their activities with
HQ headquarters and with one another
• Units in various countries may adapt to
special circumstances only they face
• Entire organization draws upon relevant
corporate resources wherever they are

71
 AAA (Diagnostic Imaging)

AGGREGATION
ADAPTATION

 Philips Medical Systems, the smallest of

the big three diagnostic-imaging firms,
historically emphasized adaptation but has
recently placed some focus on aggregation.

 Siemens Medical Solutions emphasizes Philips Medical Systems

aggregation and uses some arbitrage.
GE Healthcare
ARBITRAGE
 The most successful of the three, GE
Healthcare, beats each of its rivals on two Siemens Medical Solutions
out of the three A's.
Global Integration and Control Systems

Output control:
• An MNE sets appropriate targets or outcome indicators for its subunits
abroad and then monitors their performance relative to these targets

Bureaucratic control:
• Consists of a limited and explicit set of codified rules and regulations that
overseas subunits must follow

Cultural control:
• Embodies symbols, language, ideology, practices, visions, norms, and
images that shape the behavior of overseas employees

Information control:
• Uses information system to integrate and coordinate geographically
dispersed businesses
73
 A Virtuous Cycle of Global Capability Expansion

THE RAT-CAT CYCLE

A company can enhance its capabilities by exploiting those that are relevant, appropriable
and transferable (RAT) in another target country. Then, after the company augments its
capabilities by competing in the new market, it can enhance its overall capabilities by
identifying those newly acquired capabilities that are complementary, appropriable and
transferable (CAT) to all or part of the rest of the organization.

Exploit RAT
capabilities

Existing Target country

capabilities value proposition

Augmented Target country

capabilities derived capabilities

Enhance CAT
capabilities
 Why Globalize R&D
▪ Globalizing R&D may provide a vehicle for access to or extract from a host country’s technical resources,
scientific talent or local expertise

▪ Globalizing R&D may enhance an MNE’s global competitive advantages via improved proximity and
responsiveness to local customers

▪ Globalizing R&D may enable an MNE to enjoy the benefits arising from international division of labor in
R&D among multiple countries

But Challenges:

1. Maintaining minimum efficient scale in foreign R&D operations is not always easy
2. The leakage of proprietary knowledge poses a serious threat
3. Globalizing R&D inevitably increases coordination and control costs
4. Managing cross-cultural team is not always easy too
5. Retaining quality local employees is another challenge

Despite the above challenges, we have witnessed increased globalization of R&D activities in recent years. Overall, overseas R&D
activities have added net value to firm growth in the global marketplace and created sustained competitive advantages

Caterpillar Global R&D (4 min)

 Type of Global R&D Units
▪ A Corporate Technology Unit: To generate basic, long-term technology of exploratory nature for use
by the corporate parent

▪ A Specialized Technology Unit: To develop specialized technologies, products or processes

predefined by headquarters to serve the global market (global technology unit) or the regional
market (regional technology unit)

▪ A Technology Transfer Unit: To conduct the transfer of the corporate parent’s technology to a
subsidiary and provide local technical services

▪ An Indigenous Technology Unit: Built overseas to develop new products or processes specifically for
the host market

Microsoft R&D center in Israel (2 min)

 Structuring Global R&D Activities
▪ Ethnocentric centralized R&D structure: All major R&D activities are concentrated in one home country
(may comprise a corporate technology unit and a few transfer units)

▪ Polycentric decentralized R&D structure: A decentralized federation of R&D sites with no or weak
supervision from headquarters (a group of indigenous technology units)

▪ Specialized centers of excellence structure: A group of specialized technology units are assigned global
mandates, each in a different product or business area

▪ Global central lab structure: To leverage a firm’s centralized technological resources to create new
products for a much wider global domain (shift from ethnocentric as global market breadth increases)

▪ Globally integrated network structure: Filled by a number of R&D units with different roles, types, areas,
and locations. Competence centers assume leadership roles for the entire company in defining strategies
and coordinating
 Organizational Models for Global R&D

Polycentric Integrated Network

Decentralized
Autonomous

(Global
(Indigenous Technology Units)
Technology Units)

Specialized Centers
of Excellence
(Specialized or
Regional
Technology Units)

Ethnocentric
Global Central Lab
Centralized
(Corporation
Central

(Technology
Technology Units)
Transfer Units)

Narrow Market Breadth Broad

Example: SAP’s Global Labs
(the global strategy)
Samsung’s global R&D network
(hybrid/transnational strategy)
 Staffing Global Operations
▪ Ethnocentric Staffing: Parent country nationals are selected for key positions regardless of location
(Japanese MNCs tend to do so)

▪ Polycentric Staffing: Host country nationals are hired for key positions in local subunits but not at
corporate headquarters

▪ Regiocentric Staffing: Recruiting is conducted on a regional basis (recruit within Latin America for a
position in Argentina)

▪ Geocentric Staffing: The best managers are recruited worldwide regardless of nationality.

▪ Most successful MNEs in globalization have had a much higher proportion of foreign citizens in senior
management (20-25%)

▪ Firms typically start with nationals who have international experience and then move on to foreign
nationals

▪ Global staffing goes far beyond recruiting; it includes training, rotation, promotion, feedback, appraisal,
cultural adaptation, and the like
 REVERSE ADAPTATION 82

▪ Contrasting local adaptation, which focuses on foreign multinationals learning about and
adapting to local (host country) culture and environment, reverse adaptation is a situation in,
extent to, or process by which an MNE’s host country subsidiaries and their local employees
learn, assimilate and modify their personal behavior (e.g., values, norms, habits) and
professional competence (e.g., standards, goals, language, knowledge, capabilities) in order to:

▪ Fit the MNE’s global mindset and culture and

▪ Meet the MNE’s requirements for being internationally reassigned to work elsewhere

▪ It reverses adaptation from “foreign to local” (foreign companies adapting to local/host country
culture and environment) to “local to foreign/global” (local employees adapting to global
mindset/culture and global competence for international reassignment)
 REVERSE ADAPTATION
83
Definition Reasons Benefits Challenges

Local employees ▪ Increased global flow of talent ▪ Global capability & ▪ Difficulty and costs in
learn, assimilate, and expertise knowledge enhancement global talent
modify their ▪ Heightened integration of ▪ Leverage talent development
talent and knowledge availability worldwide ▪ Greater training and
personal behavior
management ▪ Foster global culture and developing costs for
(e.g., values, norms ▪ Intensified reverse innovation global coherence cultivating local
and habits) and and global capability building ▪ Accelerate the global leaders to become
professional ▪ Growing importance of growth of brainpower global leaders
competence (e.g., “global” managers and ▪ Improve cross-border ▪ Retention difficulty of
goals, language, employees for MNEs communication, globally competent
▪ Increased offshoring, learning, sharing and local talent after
knowledge,
modularization, digitization cooperation cultivation
capabilities) to fit
and specialization prompt local ▪ Spur internal consistency ▪ Take long time and
the MNE’s global employees to work globally across globally dispersed involve many
mindset and global ▪ Local firms and MNEs vie for units processes to foster
competence the same global talent, ▪ Help balance global local talent’s global
requirement so that propelling MNEs to build mandate and cultural experience and skills
they can be globally global talent pool by embeddeness ▪ Institutional hurdles
cultivating local talent ▪ Use reverse adaptation in implementing int’l
deployed
▪ Increased costs of dispatching for global strategy development
expatriates, and not every alignment and cross- programs overseas
suitable talent is willing to border coordination
work overseas
 Expatriate Workforce:
Advantages / Disadvantages
• Advantages To Using ▪ Disadvantages to using
Expatriates: expatriates:

▪ There is a disincentive to the

▪ Frequently, locals are not local workforce whose
ready to take the promotion is blocked and who
responsibility earn poor wages

▪ Expatriates contribute ▪ Expatriates can rob a

essential knowledge and company of skill
corporate history development, insight
development, and initiative of
locals
▪ Expatriates serve as a
mechanism for performance ▪ Expatriates also have a high
control, and transmit risk of failure
corporate culture and goals
 How to become a good expatriates

1. Technical competence
2. Physical mobility
3. Realistic expectations
4. International
experience
5. Language skills
6. Relational abilities
7. Communication skills
8. Empathy and respect
for others
9. Open mindedness
10.Strong motivation
J&J’s Global HR Strategy

86
The 10 Competencies
 Management Development
▪ Skills:
▪ Partnering with colleagues
▪ Sharing responsibility with managers in other units
▪ Cross-border communication
▪ Matrix management
▪ Broad global perspective and international experience

▪ Development:
▪ Develop global mindset via action learning
▪ Assess potentiality
▪ Cross-border work groups
▪ Solutions for business needs

▪ Promoted on-the-job training

▪ Develop managers individually and in the context of their organizational
roles
 International Development Program
Program Overview
IDP is designed to accelerate the global growth capabilities of J&J by
ensuring that the company has increased numbers and quality of top-level
leaders who can effectively operate in a diverse, global environment

Program Objectives
▪ Accelerate the development of critical global leadership skills
▪ Exposure to an international, cross-functional and/or cross-sector
development experience
▪ Awareness of Best Practices
▪ Practice dealing with diversity
▪ Opportunity for internal networking
 Qualifications for IDP
▪ Candidates should be in the slate for leadership roles:
▪ Global critical Positions
▪ Regional Critical Positions
▪ Local, Regional, Global Management Board

▪ At least 2 years of work experience with J&J and have been through 2 performance cycles
with an organization

▪ Need to be business fluent in the language of the host country of the assignment location

70% of skills from

20% of skills through
on-the-job projects 10% of skills from
feedback and
and assignments formal training
coaching
 MNE Social Responsibilities
▪ Globalization has increased calls
for MNEs to use their resources to
alleviate a wide variety of social
problems

▪ Globalization has resulted in the

proliferation of new laws and
regulations that direct business
activities to address diverse
social problems

▪ MNE’s corporate social

responsibility is typically focused
on the relationships with several
major stakeholders—namely, host
governments, the public, business
partners, consumers and
employees

▪ ESG score (environmental, social,

and governance)?

Q: Global CSR vs. Local CSR? How to balance?

 OECD Globalization of the Fight
Against Corruption

▪ The OECD has a policy statement in the OECD Guidelines

outlawing corruption and corrupt practices
▪ OECD adopted the Combating Bribery of Foreign Officials in
International Business Act (CBFOIB)
▪ It makes the payment of bribes to elected or appointed foreign
officials a criminal offense and abolishes its tax deductibility

▪ Similarly, the Foreign Corrupt Practices Act (FCPA) of the United

States makes corruption and corrupt practices illegal in the
United States
PART III DIGITAL GLOBAL STRATEGY

1. Rewards and Risks

93
 DIGITAL ERA OF GLOBALIZATION 94
▪ Globalization is entering a new era defined not only by cross-
border flows of goods, capital, services and investment but
increasingly by flows of ideas, knowledge, data and talent. The
economic value of data and information now exceeds goods

▪ Digital globalization combines the two most fundamental

forces in today’s world business - digitization and globalization,
fortifying deeper, broader, and more intricate interconnections
between nations, businesses and individuals

▪ This connectivity redefines who participates in globalization,

how international expansion is undertaken, where the
economic returns flow, and how new capabilities must be built

2020

Cross-border data flows added $3 trillion to world

GDP in 2015 (McKinsey)
Key digital technologies (2 min)
DEFINING DIGITAL GLOBALIZATION 95
▪ Digital globalization means the state of a digital form of
globalization that connects nations, industries, companies and
individuals all over the world through

▪ (1) Flows of data, information and knowledge

▪ (2) Flows of goods, services, investment, capital, and

technologies that are digitally enabled or supported. It
does so in four ways:

▪ By transforming flows of physical goods into new

digital ones
▪ By making it possible to track physical goods
digitally
▪ By creating digital platforms that enable small
firms and even individual entrepreneurs to play
on a global stage
▪ Digitally organizing worldwide operations
EVERY MNE INVOLVES DIGITAL 96
Digital MNEs: Tech MNEs:

▪ Microelectronics (e.g., Intel, Samsung, Micron)

▪ E-commerce marketplace (e.g., Amazon, Alibaba, eBay, JD)
▪ AI & machine learning (e.g., Nvidia, Baidu, Google)
▪ Specialized internet e-business (e.g., Expedia, Priceline) ▪ Quantum computing (e.g., IBM, D-wave, Rigetti)
▪ Search engines (e.g., Google, Baidu, Yahoo) ▪ Photonics, sensing & imaging (e.g., Magic Leap, IPG)
▪ Social media and networks (e.g., Facebook, WeChat, WhatsApp, ▪ Robotics (e.g., ABB, Mitsubishi, Yaskawa, Apex)
Twitter, YouTube, LinkedIn, Instagram) ▪ Fintech (e.g., Ant Fin, Adyen, Qudian, Xero)
▪ Sharing platforms (e.g., Airbnb, Uber) ▪ Cloud computing (e.g., Ali, Amazon, Microsoft, IBM, Google)
▪ IoT (e.g., Vates, VironIt, HQSoftware, TP-Link)
▪ Digital solutions (e.g., PayPal, Salesforce, ADP, FirstData, Alipay)
▪ Big data & analytics (e.g., Zoho, Salesforce, Cloudera)
▪ Digital media (e.g., Neflix, Comcast, Time Warner) ▪ 3D printing (e.g., Proto, 3D Systems, Stratasys)
▪ Digital technology integration (e.g., IBM, HP Enterprise, Sony) ▪ AR & VR (e.g., Next/Now, Igloo Vision, Sileria)

ICT MNEs: All else:

▪ Digital applications for designing, executing,

▪ Software and services (e.g., Microsoft, HP Enterprise, Oracle, SAP, Red Hat) monitoring and managing global operations within
▪ Devices and components (e.g., Apple, Samsung, Intel, Huawei) the MNE and with outside players (digital
▪ Data systems (e.g., EDS, Sciencesoft) architecture) for
▪ Telecom equipment vendors (e.g., Ericsson, Nokia, Huawei, Cisco,
Samsung, Qualcomm) ▪ Speed
▪ Efficiency Connection
▪ Telecom services (e.g., AT&T, Verizon, Vodafone, China Mobile)
▪ Growth
▪ Customers
IMPETUS OF DIGITAL CONNECTIVITY
97
▪ MNEs are much better and faster in connecting with their worldwide consumers and ecosystem players, being constantly
pushed to reassess business models and create new global strategies

▪ Digital platforms provide new and established players with “plug-and-play” infrastructure and opportunities to put
themselves in front of a vast built-in global customer base

▪ But, they are monumentally affected by digital globalization in a multitude of ways with a multitude of ramifications.
Global connectivity pushes more MNE activities further into geographically dispersed yet operationally disaggregated
(offshoring and specialization), resulting in more specialized activities that are increasingly finely sliced yet better
connected

▪ MNEs have been relocating or disaggregating some traditional roles previously played by home country corporate
headquarters to some spatially distant hubs located in some most critical foreign markets or regions. Digital architecture
is the most important enabler for organizing global operations

▪ Connectivity accelerates globalizing R&D, knowledge diffusion, and access to new markets in innovative ways.
Digitization also automates global manufacturing,

▪ Digitization opens a new chapter for global talent management. Virtual team members from different units, functions
and countries can work together seamlessly and flawlessly
Fine-grained understanding of digitization
DIGITAL GLOBALIZATION AND MNES
99
▪ MNEs today use some 44 million worldwide 20th Century 21st Century
freelancers as a new source of global talent
1. Tangible flows of physical goods 1. Intangible flows of knowledge, data
because of this connectivity
and information
2. Information & ideas diffusely 2. Instant global access to information
▪ New forms of flow for physical products and
slowly across borders
services gain momentum through a surge (often
joined with novel ways) of global e-commerce, 3. Physical infrastructure is central to 3. Digital infrastructure is central too
specialized online marketplaces, offshore flows
outsourcing, co-distribution, and social media 4. Big multinationals drive flows 4. Growing role of small ventures &
marketing businesses
5. Insignificant role by worldwide 5. Significant influence by global
▪ Digital globalization brings down the cost of consumers and individuals consumers and individuals
cross-border interactions and transactions,
6. Weak power of emerging 6. Strong participation and influence of
creating new markets and user communities
economies emerging economies
with global scale, and providing MNEs with a
huge base of potential customers and effective 7. Immature global open markets for 7. Significantly improved global open
ways to reach them intermediaries markets for intermediaries and services
8. Restricted global business 8. Prevalent global business ecosystems
ecosystems
9. Innovation and knowledge flows 9. Knowledge and innovation flows in
from developed to developing both directions
countries
10. Strong multilateral governance 10. Weakened multilateral governance
with more complex geopolitics
 DIGITAL GLOBALIZATION AND MNES 100
▪ Distance, space and time related governance or monitoring cost for cross-border transactions decreases as a result of this
connectivity

▪ Digital globalization ushers MNEs to become global network-based cosmopolitan organizations

▪ Within an MNE, digital globalization spurs intra-organizational sharing, orchestration and integration for cross-border
activities

▪ Externally, MNEs build a nexus of network with business eco-system players vertically (with global suppliers, distributors
and customers), horizontally (with global competitors) or diagonally (with supporting service providers) to cope with
and extract values from digital globalization
DIGITAL GLOBALIZATION AND NEW OLI ADVANTAGES
101
▪ The OLI advantages in the classic eclectic paradigm are still important but this importance
is not as strong as before in the wake of digital globalization

▪ Meanwhile, we suggest that the new or additional O-L-I, namely, Open resources,
Linkages and Integration advantages are amplified

▪ Open resources advantage:

▪ Greater availability of specialized and professional industrial and service providers

▪ Increased availability of global open resources such as applied technology, advanced machinery,
key components, latest instruments, sophisticated materials, and industrial designs
▪ Global freelancers
▪ Modularity and standardization of industrial norms
▪ Greater willingness of existing MNEs to sell or license out their technologies and other key
resources
DIGITAL GLOBALIZATION AND NEW OLI ADVANTAGES
102
▪ Linkage (interfirm and intrafirm) advantage:

▪ Digital globalization bolsters interfirm networking and collaboration advantages much further
because it hugely reduces costs, or eases difficulties, associated with communication,
coordination and sharing
▪ It further improves effectiveness, quickness and fluidness of such sharing
▪ Intrafirm – MNEs become digitally networked, orchestrated and governed organizations in which
virtual and intranet technologies, global ERP, HCM, CRM, data intelligence, cloud computing all
create new and more opportunities for linkage-based advantages

▪ Integration advantage:

▪ Digital connectivity advances offshoring and outsourcing, thus increasing disaggregation of some
value chain activities and increasing geographic dispersiveness
▪ But, digital globalization buttresses integration between the MNE and its partners, vendors,
distributors and logistics providers, engendering a digital platform that guides the entire global
value chain
▪ Connectivity fosters efficient organization and sharing within the MNE and supports
orchestration of global tasks performed by various foreign subunits
DIGITAL GLOBALIZATION-BASED ADVANTAGES
103
Traditional O-L-I advantages reduce New O-L-I advantages increase

Open Resources Advantage ↑

Ownership advantage ↓
▪ More global resources available
▪ Growing importance of
▪ MNEs are advantageous in
dynamic capability
utilizing these resources
▪ Growing importance of
creatively composing all Linkage Advantage ↑
available resources ▪ MNEs benefit from better
connected inter-firm linkages
Location advantage ↓ Global
▪ MNEs benefit from better
▪ Greater relevance of spatial Connectivity
orchestrated intra-firm linkages
dynamics and evolution
▪ MNEs benefit from better
▪ Reduced cross-border barriers
linkages from global customers
▪ Declined distance & cost factors
Internalization advantage ↓ Integration Advantage ↑
▪ Connectivity fosters efficient
▪ Improved & better connected
organizing and sharing
intermediate markets
▪ Digital technologies help better
▪ Growing externalization gains
synchronize global activities
BUT, NEW RISKS ARISE 104
▪ First, digital globalization makes MNEs more dependent on others, and are thus subject to more contagious effects from all risks
facing them and facing others. The impact of external shocks is magnified in a more interconnected world, and ripple effects spread
even faster in a more digital world (the 2008 financial crisis illustrates this)

▪ Second, digital globalization also makes MNEs more vulnerable to external instabilities (e.g., natural disasters, epidemic diseases,
power shortfalls, political instability, and social unrest) facing their global suppliers, distributors and other ecosystem players

▪ Third, information security and cyberattacks arise as a new type of international risk for virtually all MNEs. High-profile hacks and
data breaches have already hit many of the world’s largest companies (cybercrime costs $400 billion in annual losses, Fortune 2015)

▪ Fourth, digital globalization makes an MNE’s reputation maintenance and crisis management immensely critical, intricate, sensitive
and fragile. Contagion effects that jeopardize the MNE’s worldwide reputation due to its corporate or executive wrongdoing multiply
through social media and other connectivity channels

▪ Fifth, digital globalization fosters the emergence and growth of a large number of new types of global rivals, especially those
building on digital platforms. Despite their smallness or newness, these new global players are fast and agile, often adopting a
connectivity-enabled new business model that allows them to appropriate new and fitted customer value propositions

▪ Finally, managing intra- and interfirm networks across national, cultural and institutional boundaries is a daunting undertaking.
Complexity increases as networks grow. Relational or networking capabilities are increasingly considered as one of the core
competencies. The increased and widened regulations by many governments cover a number of areas in data protection such as the
General Data Protection Regulation (GDPR) in Europe
ASSESSING DIGITIZATION RISKS IN INTERNATIONAL BUSINESS 105

Digital Global
Connectivity Risks

Interdependence Information Global New Institutional and

Risks in Security & Reputation Global Rivals Infrastructural
International Cyberattacks for Fragility Risk
Business Global Operations

Aggregated Risk Scale In a Foreign Market

Prohibitive High Moderate Low

106
 A case in action: Zoom
▪ Zoom is a lifeline for most of us, and particularly businesses, during the COVID-19 pandemic. It
suddenly became King of the quarantine economy. Its video-conferencing app keeps millions
connected. Overnight, Zoom became a primary social platform for businesses, students, universities,
friends, teams across every continent

▪ The Silicon Valley-based company, founded by Eric Yuan, a former Cisco vice president of
engineering, in 2011, produces both a free version of its app (40 min) and an enhanced version for
those willing to pay. In March 2020, it was worth more than Uber and Lyft combined, or combined
value of the four big U.S. airlines

▪ Zoom has edge over rivals: Very easy and simple to use, rich features, fits a variety of collaboration
platforms, wireless content sharing, easy access from all devices, the presenter has the ability to
show slides and share them with others, breakout groups for large meetings, customizable
backgrounds, automated in-meeting recording and transcription services,. While other freemium and
price-accessible models (Skype) exist, most of them can’t match Zoom for pure quality

▪ Zoom is a born-global company. It quickly expanded into big markets such as UK, Japan, France,
Germany, Australia, Canada, Italy, Spain, to name only a few. It now has 13 global data centers
including more than 500 engineers in China. Foreign revenue grows 115% year-over-year, especially
from Asia and EMEA

▪ Foreign users get access to multilingual prompts in German, Danish, Japanese, Korean, Russian,
Chinese in addition to existing languages. Zoom is a late mover in the industry but holds a stronger
international foothold than all rivals

▪ Zoom International charges global expansion, with the primary office in Tennessee (US) and foreign
offices in Sydney, Dubai, and Moscow
 Do you know
Differences between AI and data science/advanced data analytics?

▪ Data Science is a job that performs analysis of

data, AI is a tool for creating better products
and conveying them with autonomy

▪ Data Science builds models that use statistical

insights. AI is for building models that emulate
cognition and human understanding

▪ Data Science does not involve a high degree of

scientific processing as compared to AI

▪ Data Science is a comprehensive process that

involves pre-processing, analysis, visualization
and prediction. AI is the implementation of a
predictive model to forecast future events

108
 A case in action: SAS
▪ SAS is the largest privately owned software company in the world and one of the best companies
to work for. It develops, supports and markets a suite of analytics software also called SAS
(statistical analysis system), which captures, stores, modifies, analyzes and presents data

▪ SAS is the largest market-share holder in the advanced analytics segment with a 36.2% share and
the fifth largest for business intelligence software with a 6.9% share. SAS sells its software with
an emphasis on subscription models that include support and updates, as opposed to software
licenses

▪ SAS’s revenues: 46% from the Americas, 42% from Europe, Middle East and Africa, and 12% from
Asia-Pacific. SAS has about 5,200 employees at its headquarters in Cary, North Carolina, 1,600
employees elsewhere in the US and 6,900 in Europe, Asia, Canada or Latin America

▪ Evolving from a specialized provider for statistical

software to one of the leading global player in AI and
advanced analytics software

▪ To better serve globally, SAS builds NLS system -

National Language Support is a set of features that
enable a software product to function properly in
every global market for which the product is
targeted. SAS contains NLS features to ensure that
SAS applications can be written so that they conform
to local language conventions. NLS in SAS enables
users in regions such as Asia and Europe to process
data successfully in their native languages and
environments

109
 Global platforms and ecosystems

▪ Platforms constitute a shared set of technologies, components, services, architecture, and relationships that serve
as a common foundation for diverse sets of actors to converge and create value (Apple’s iOS platform; Microsoft
‘s Xbox; Sony’s PlayStation; Airbnb)

▪ Some platforms operate entirely on data flows (e.g., Linkedin), while others bundle physical and digital (online
marketplace)

▪ Platform-based ecosystems denote these sets of actors who are aligned to pursue a focal value proposition and
who exhibit varying types of mutual dependencies borne out of their co-specialization and complementarities in
the platform context

Platform as a venue for ▪ New ways of

open innovation internationalization
▪ New ways of building
knowledge and
relationships
Platform as a ▪ New ways of creating and
delivering value to global
multisided marketplace customers
 Global platforms and ecosystems

▪ Characteristics:

▪ Platform architecture – (a ) Modularity (b) Interface openness (c) Core and peripheral components (d)
Complementarity (e) Loose coupling (f) Co-specializing, co-creating and co-developing

Platforms & Ecosystems Networks & alliances

Premise A coordinated multi-sided marketplace or open A coordinated operation network with higher
innovation place that is loosely structured coupling and embeddedness

Structure The platform leader acts as an orchestrator Hub and spoke - the hub firm acts as a broker

Partners Autonomous actors from diverse industries work for Upstream and downstream partners at varying
complementary & extended products or services stages of the same value chain

Features Modularity and interface openness are prerequisite Modularity and interface are not preconditions

Power Market power and dependence (core) determines Network position (centrality) determines
PART III DIGITAL GLOBAL STRATEGY

2. Paths & Processes

112
DIGITIZATION CHANGES INTERNATIONALIZATION PROCESS
113
▪ First, distance matters less:
▪ Digital globalization nullifies geographic distance barriers and costs. Such distance or diversity can even be transformed
into positive gains when digital globalization is fruitfully leveraged
▪ digital globalization makes quite some MNE functions and activities essentially virtual, shifting a significant portion of
costs to variable status through offshoring and outsourcing
▪ Connectivity also slackens liabilities of foreignness in the sense that firms have new, less time-bound, ways of acquiring
knowledge and learning about doing business abroad

▪ Second, incremental commitment matters less:

▪ Connectivity enables MNEs to more easily and quickly access to both upstream and downstream resources of other
firms (protected or open)
▪ Connectivity creates flatness in reaching global customers, linking global suppliers, and utilizing global resources,
thereby creating ample opportunities to leapfrog
▪ Critical capabilities and assets are more readily obtainable via mergers and acquisitions, depending much less on
gradual in-house building of such capabilities

▪ Third, path dependence matters less:

▪ Digital globalization creates new types of MNEs (e.g., digital disrupters) who are lean, agile, aggressive, and cost
advantageous
▪ Startups are more readily to become “born global” spurred by digital globalization via not only digital tools, platforms,
communication channels but also better connections with foreign customers, suppliers, capital, industry designers,
professional service providers, and even freelancers
A CASE EXAMPLE: OCEAN SPRAY DIGITAL STRATEGY IN CHINA 114
▪ Ocean Spray is a nearly 90 years old American integrated marketing cooperative of 700 cranberry and 70 grapefruit growers, with
more than $2B in revenue, handling 7 million barrels of cranberries (65% of global supply) from US, Canada & Chile. It sells in over
50 countries with 30 manufacturing locations and #1 brand in juice category in 5 countries

▪ The number of relevant households for Ocean Spray is 60 million, spending on average $3,750 on food. China has 150 million
relevant households, spending on average $4,500 on food. The company projects that its revenues generated from China will be
greater than from US in 10 years. Online shoppers in China in 2020 is over 600 million, three times bigger than in US

▪ Ocean Spray’s China strategy is to follow Chinese consumer purchase behavior and use e-commerce as its primary channel in
China through Alibaba’s Tmall and JD.com. Online sales generate over 75% of revenue for the company there

▪ Takeaway's: Know your consumer – get as close as possible; Eliminate “middle man” they form black boxes – build flexible
business models; Focus – Don’t go after 1.4 B people; Digital ecommerce is fast replacing Brick & Mortar; Localization of product,
package and price is critical

$500M
A CASE EXAMPLE: DAJIANG INNOVATIONS (DJI) 115

▪ DJI, founded in 2006 and headquartered in Shenzhen, is a world leader in camera drones, and a successful INV

▪ Its success lies in its creative use, design and integration of global open resources and technologies in aerial
imaging, autopilot, camera stabilization, remote control, data storage and transmission, GPS, vision sensor,
videography. Many of these technologies are digital

▪ Through innovative design, creative integration and modular production, DJI makes these complex technologies
into simplified, easy-to-use, and cost efficient products that serve mass global markets for consumers,
professionals and enterprises

▪ It teams up with Berkeley-based 3D Robotics for advanced business-focused drones

▪ DJI acquired Swedish high-end camera company, Hasselblad, for new imaging technologies

▪ DJI partners with San Francisco-based Skycatch to deliver 1000 industrial drones for Komatsu. It combines DJI’s
Matrice 100 enterprise drone platform (hardware) with Skycatch’s high precision and 3D technologies for arerial
surveying (software)
Assess digital infrastructure of a foreign market
 Assessing the institutional infrastructure

▪ International managers need to diagnose digitization-related institutional environment that involves regulatory,
legal, and governmental parameters of foreign countries as well as home country institutional policies vis-à-vis
foreign country businesses & government

▪ Many governments have neither afforded restriction free open Internet policy nor protected adequately privacy of
Internet users, becoming a critical impediment against the value of digital connections. Internet censorship, access
blockage, servers location requirement, FDI ownership restriction are extensive

▪ Foreign e-businesses (e.g., eBay) may find it difficult to gain access to local online banking which is regulated in many
countries, thus discouraging local consumers to purchase goods or use services

▪ Disruptions also often come from unpredictable changes and variations of laws and rules from political, legal,
legislative, governmental and media forces or events

▪ Checklist:

1. Ease of entry and exit 7. IPR (including domain name)

2. Entry mode and ownership 8. Distribution/channel restrictions
3. Technology requirement 9. Marketplace behavior
4. Industry standards 10. Access blockage
5. Censorship & surveillance 11. Privacy, data and identity protection
6. Location of servers 12. Cyber crimes & spam punishment
 Digital M&As:
An example of Microsoft’s acquisition of Linkedin

• Microsoft acquired Linkedin for $26.2 billion in 2016, the largest acquisition for the former which paid $196 per
share or 50% premium of Linkedin closing price, attempting to bring together “the world’s leading professional
cloud and the world’s professional network”

• Expected synergies:

1. Microsoft is transforming from Windows platform-centric business to enhance its CRM (customer relationship
management) business, but it ranked only 4th behind Salesforce, SAP and Oracle

2. It desperately needed a big business social network company with build-in insight about who is connected to whom.
Linkedin’s global users are Microsoft’s core demographic who may use across many Microsoft products. This results in
some enhancement of both global scale and global scope

3. This acquisition strengthens Microsoft’s enterprise market segment both domestically and internationally

4. Linkedin Sales Navigator is well aligned with Microsoft’s Dynamics Cloud business, lifting Microsoft’s CRM position

5. Linkedin is strong on mobile, where Microsoft is weak for years. 60% of Linkedin’s traffic originates from mobile device

6. Financially, Linkedin was undervalued before the deal, and Microsoft was sitting on more than $100 billion in cash and
short-term investments.
 Digital M&As:
An example of Salesforce top-6 acquisitions
Acquirees Year Value Business
Tableau June 2019 $15.7B #1 analytics platform
Mulesoft March 2018 $6.5B API integration connecting back office systems
Demandware June 2016 $2.8B B2C enterprise cloud commerce solutions
ExactTarget June 2013 $2.5B On-demand one-to-one email marketing software
applications
ClickSoftware August 2019 $1.35B Operational intelligence
Krux October 2016 $800M Smart content, commerce and marketing

Application integration Data Integration Organizational Integration

Develop a common architecture (APIs) Create a common metadata layer Trailhead for training, Community
that unites and supports Sales Cloud, architecture, allowing customers to cloud for open communication
Sales Cloud and Industry Cloud access to SF’s Einstein AI, Wave
Analytics, community cloud, and all
other services

Salesforce Global Partner Program:

Through SF Commerce Cloud and App Exchange (the world’s largest business app
marketplace), empowering worldwide partners and brands of all sizes and industries to
provide personalized experience for multicultural shoppers that span web, mobile, social
and in-store
PART III DIGITAL GLOBAL STRATEGY

3. Organizing & Executing

120
CONNECTIVITY COMPETENCE 121
▪ We define connectivity competence as the firm’s savviness in three interlocking and
sequential constituents, including connectivity technologies, connectivity intelligence, and
connectivity capabilities

▪ Connectivity technologies (e.g., ICT, digital, surfing, stream, navigation, control,

monitoring, Internet of Things, and data analytics) are important yet peripheral in this
competence set

▪ Connectivity intelligence transcends connectivity technologies into valuable information,

real time forecasts, and inter-firm and intrafirm sharing, which in turn significantly help
the firm to make critical business decisions

▪ Connectivity capabilities connote the firm’s distinctive skills and expertise that transform
connectivity technologies and intelligence into sustained competitive advantages. Such
capabilities may involve unique processes, experiential knowhow and formalized routines
that enable the MNE to maximize global growth opportunities and enduring returns from
organizing geographically dispersed operations
CONNECTIVITY COMPETENCE 122
▪ Connectivity competence bolsters the MNE’s global spanning capabilities, technologically,
geographically, organizationally and culturally

▪ Many MNEs, for instance, use a globally scaled cloud-based HR system that offers
organizational consistency in talent management across the globe. They also create virtual
teams that span borders, using digital tools for remote collaborations

▪ Connectivity competence helps make decision making easier and less costly. Customized
ERP system, for example, not only collects data and information from global value chain
but also provides and shares an integrated view of knowledge across various units

▪ Connectivity also brings a shift toward decentralized decision making, a condition that
fosters the MNE’s strategic flexibility, and helps make the virtual organizational form work
 Digital Global Masters

What: Using digital technology to transform customer experience, operational processes, and business models

Customer Operational Business

Experience Processes Model
Cross-Border Transferability

Cross-Border Orchestration
Customer touch Process Digitally modified
points digitization business

Combined Employee New

experience engagement digital business

Performance Localizing business

Personalization
management models

Connect – Collaborate - Combine

 A CASE EXAMPLE:
124
DISNEY STREAMLINES ITS INTERNATIONAL AND DIGITAL BUSINESSES
▪ Disney was reorganized in 2018 – The new structure consolidates Disney’s direct-to-consumer services, digital technology,
data platforms, and global media operations into a single, worldwide business to capitalize on growth opportunities

▪ This new division serves as a global, multiplatform media, technology and distribution organization for world-class content
created by Disney’s Studio Entertainment and Media Networks groups. The new segment also comprises Disney-branded
direct-to-consumer streaming service, Disney-controlled Hulu, and newly launched ESPN+ streaming service, programmed in
partnership with ESPN

▪ Management of global advertising for Disney’s media properties–including ESPN, ABC, Freeform and the Disney Channels–
moves also from Media Networks to this new segment, giving advertisers a one-stop-shop for reaching global audiences
across all of Disney’s media properties

▪ Disney’s program-sales operations—including global distribution of film and television content is also integrated into the
Direct-to-Consumer and International business segment

▪ Disney’s International Channels is also be consolidated into the new business segment. Disney’s International Channels are
renowned for providing incomparable branded entertainment programming that is both universally appealing and locally
relevant, and the production of localized content will continue to grow under the new structure

▪ The Walt Disney International team of regional managers across EMEA (Europe/Middle East/Africa), Asia and Latin America
now reports to Kevin Mayer, former Chief Strategy Office and now Chairman of the new segment
Digitizing and Executing Global Business Models

Archetype Choices Facilitating Channels Execution

Re-inventing
Global partnerships & COORDINATION
industries
platforms
▪ Prioritizing
▪ Synchronizing
Substituting products ▪ Global transferring
& services
Reverse
innovation
SHARING
Crafting new digital
businesses
▪ Capabilities
Global open ▪ People
resources ▪ Processes
Rethinking value ▪ Technology
propositions ▪ Information
▪ Knowledge
Technological
▪ Brands
advancement &
Reconfiguring & re- ▪ Global supply chain
integration
bundling services

why digital strategies fail (4 min)

 Global Engagement

Connect the Encourage wider Foster new ways of

organization conversations working

1. Wikis 1. Executive involvement 1. Closing knowledge gaps

2. Microblogs 2. Digital champions 2. Increasing engagement
3. Social networks 3. Reverse mentoring 3. Solving business issues
4. Video conferencing 4. Local voices 4. Generating new ideas

WIRING ADOPTING SCALING

IBM acquires Red Hat (2 min)

 Managing Global Operations for the Digital Age

Standardizing Sharing Better decision

Agility,
AND making &
People Process AND streamlined
adaptation &
Empowering Monitoring processes
responsiveness

Orchestrating Intra AND Innovation, Scaled &

Information Technology AND Inter-MNE Improvisation profitable
Unleashing networking & Improvement glocalization

Headquarters
Digital Hubs/Platforms
Foreign Subsidiaries
A CASE IN ACTION: EAGLEWARE’S GLOCALIZATION
128
▪ Eagleware (now a part of Keysight Technologies), a leading supplier of high-frequency design software for radio frequency industry with its
core product - GENESYS design software, has been active in both globalization and localization. This software has its own international
version, available to engineers and designers for whom English is not their first language

▪ Designers can label parts, write equations and notes, and name files and workspace objects in their native languages. This may be
Japanese, Korean, Chinese, Russian, or any language compatible with Microsoft Windows. Designers use their local language keyboards,
and key layouts may be easily changed to support multilingual workspaces. Since GENESYS is a Unicode application, files can be exchanged
worldwide with full compatibility

▪ To make GENESYS even more accessible, Eagleware has also localized its software suite by translating menu commands, dialog boxes, error
messages, and tool tips into a growing list of languages, currently including Japanese, Korean, and Chinese. With internationalization and
localization, the entire process of architecture design, synthesis, linear, nonlinear and simulation, physical design, test, and documentation
can be accomplished in the user's local language

▪ Its parent company, Keysight, is a 5G designer in the world. Its end-to-end design and test solutions enable the mobile industry to
accelerate 5G product design development from the physical layer to the application layer and across the entire workflow. Over 200
network operations in 85 countries are now performing testing and trials on, with some already deploying

While 5G technology is highly complex, it offers more

promises not merely for consumers but for MNEs. It
makes faster, easier, and more reliable to streamline
and synchronize global workflow across stages and
functions – design, validation, manufacturing,
deployment within the MNE, and industry
collaborations with other firms. Example: 5G makes
possible and reliable to do remote surgery on a human
brain. With 5G, massive machine-type communications
and exchanges connect billions of “things” to the
internet (e.g., smart farming, optimal traffic
management, telemedicine)