K Fundamentals of Global Strategy LUY Strategic Management Collection A Business Model Approach V Mason A. Carpenter, Editor ER Cornelis A. de Kluyver Fundamentals of Global Strategy will provide you with a strategic perspective of the opportunities and risks associated with staking out a global competitive presence. It defines crafting a global strategy in terms of change: how a com- pany should change and adapt its core (domestic) business model to achieve a competitive advantage as it expands its market presence or sourcing arrange- Fundamentals ments abroad. The conceptual framework underpinning this definition has three fundamental building blocks: a company’s core business model, the vari- ous strategic decisions a company needs to make as it globalizes its reach, and of Global a number of globalization strategies for creating a global competitive advantage. Unique to this book is integration of Pankaj Ghemawat’s well-known AAA FUND framework for creating global competitive advantage (aggregation, adaptation, and arbitrage) with a business model approach to strategy formulation. This Strategy A format directly links AAA strategies to key globalization decisions associated MENT with creating a global value proposition, with developing a global market pres- ence, with creating a global supply chain infrastructure, and with adapting a A Business Model company’s global organization and management model. A L S Cornelis A. de Kluyver is Dean and the James and Shirley Rippey Distinguished O Approach F Professor at the Lundquist College of Business at the University of Oregon. Prior GLOB to coming to Eugene, Oregon, he was the Masatoshi Ito Professor of Manage- ment at the Peter F. Drucker and Masatoshi Ito Graduate School of Management at Claremont Graduate University. From 2000 to 2006 he served there as the A L STR Henry Y. Hwang Dean of the School and as Executive Director of the Peter F. Drucker Research Library and Archives. Prior to coming to Claremont Graduate University, he held academic appointments at George Mason University, at the A TE University of Virginia, and at Purdue University. Between 1986 and 1991 he was G a Partner at Cresap, McCormick and Paget, a Towers Perrin company, where he Y Cornelis A. de Kluyver led numerous global strategy assignments. Dr. de Kluyver has served on several corporate and nonprofit boards. He was a member of the first Blue Ribbon Com- mission on Executive Compensation convened by the National Association of Securities Dealers, which focused on developing standards for stock option grants. He holds a Ph.D. in Operations Research from Case Western Reserve, an MBA from the University of Oregon, and undergraduate degrees from the University of Oregon and Nyenrode Business University in the Netherlands. Strategic Management Collection Mason A. Carpenter, Editor ISBN: 978-1-60649-072-3 90000 www.businessexpertpress.com 9 781606 490723 www.businessexpertpress.com Business Expert Press was one of the premiere publishers that began in 2008 offering DRM-Free e-content – eBooks with absolutely no restrictions. Built by a panel of librarians, we believed that students, researchers, teachers and professionals around the world would benefit beyond measure by accessing our DRM-free eBooks. Continuing on this success, BEP pushes forward with this mission of support by providing Open Access to the titles below. These books were chosen to increase discoverability of our authors’ work, and are listed in The Directory of Open Access. BEP’s Open Access titles are governed by the Creative Commons Attribution 4.0 International Public License. https://creativecommons.org/licenses/by/4.0/legalcode Fundamentals of Global Strategy A Business Model Approach Fundamentals of Global Strategy A Business Model Approach Cornelis A. de Kluyver Dean and James and Shirley Rippey Distinguished Professor Lundquist College of Business University of Oregon Fundamentals of Global Strategy Copyright © Business Expert Press, LLC, 2010. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means—electronic, mechanical, photocopy, recording, or any other except for brief quotations, not to exceed 400 words, without the prior permission of the publisher. First published in 2010 by Business Expert Press, LLC 222 East 46th Street, New York, NY 10017 www.businessexpertpress.com ISBN-13: 978-1-60649-072-3 (paperback) ISBN-10: 1-60649-072-9 (paperback) ISBN-13: 978-1-60649-073-0 (e-book) ISBN-10: 1-60649-073-7 (e-book) 10.4128/9781606490730 A publication in the Business Expert Press Strategic Management collection Collection ISSN: 2150-9611 (print) Collection ISSN: 2150-9646 (electronic) Cover design by Jonathan Pennell Interior design by Scribe Inc. First edition: July 2010 10 9 8 7 6 5 4 3 2 1 Printed in the United States of America. Abstract This book looks at the opportunities and risks associated with staking out a global competitive presence and introduces the fundamentals of global strategic thinking. We define crafting a global strategy in terms of change: how a company should change and adapt its core (domestic) business model to achieve a competitive advantage as it expands globally. The con- ceptual framework behind this definition has three fundamental building blocks: a company’s core business model, the various strategic decisions a company needs to make as it globalizes its operations, and a range of glo- balization strategies for creating a global competitive advantage. A business model is defined in terms of four principal components: (a) market participation—who its customers are, how it reaches them and relates to them; (b) the value proposition—what a company offers its cus- tomers; (c) the supply chain infrastructure—with what resources, activi- ties and partners it creates its offerings; and finally, (d) its management model—how it organizes and coordinates its operations. Globalization requires a company to make strategic decisions about each component of the business model. Market participation decisions include choosing which specificmarkets or segments to serve, domestically or abroad; what methods of distribution to use to reach target customers; and how to promote and advertise the value proposition. Globalization decisions about the value proposition touch the full range of tangible and intangible benefits a company provides to its customers (stakeholders). Decisions about a company’s value chain infrastructure deal with such questions as, What key internal resources and capabilities has the com- pany created to support the chosen value proposition and target markets? What partner network has it assembled to support the business model? How are these activities organized into an overall, coherent value creation and delivery model? Finally, strategic decisions about the global manage- ment dimension are concerned with a company’s choices about a suitable global organizational structure and decision-making process. We use Pankaj Ghemawat’s well-known “AAA Triangle” framework to define three generic approaches to global value creation. Adaptation strate- gies seek to increase revenues and market share by tailoring one or more components of a company’s business model to suit local requirements or preferences. Aggregation strategies focus on achieving economies of scale or scope by creating regional or global efficiencies; they typically involve standardizing a significant portion of the value proposition and grouping together development and production processes. Arbitrage is about exploit- ing economic or other differences between national or regional markets, usually by locating separate parts of the supply chain in different places. Key Words Global strategy, global competitive advantage, business model, value cre- ation, value proposition, value disciplines, market participation, supply chain infrastructure, global management model, global industry, global branding, innovation, outsourcing, offshoring Contents List of Figures. viii Preface . ix Acknowledgments. xiii Part I UnderstandIng globalIzatIon . .1 Chapter 1 Competing in a Global World. 3 Chapter 2 The Globalization of Companies and Industries . 23 Chapter 3 Generic Strategies for Global Value Creation. 43 Chapter 4 Global Strategy as Business Model Change . 65 Part II GlobalIzIng the bUsIness Model . .91 Chapter 5 Target Markets and Modes of Entry. 93 Chapter 6 Globalizing the Value Proposition. 115 Chapter 7 Global Branding . 139 Chapter 8 Globalizing the Value Chain Infrastructure. 161 Chapter 9 Global Supply-Chain Management. 185 Chapter 10 Globalizing the Management Model. 203 Appendix A Global Trade: Doctrines and Regulation . 225 Appendix B Suggested Cases. 235 Notes. 239 References. 245 Index . 251 Figures Figure 3.1 AAA strategies and their variants 44 Figure 4.1 Components of a business model 65 Figure 4.2 Global strategy: A conceptual framework 69 Figure 4.3 Choosing a value proposition: Value disciplines 81 Figure 5.1 Market participation 94 Figure 6.1 The value proposition globalization matrix 122 Figure 10.1 Global aggregation/local adaptation matrix 214 Preface This book looks at the opportunities and risks associated with staking out a global competitive presence and introduces the fundamentals of global strategic thinking. We define crafting a global strategy in terms of change—how a company should change and adapt its core (domestic) business model to achieve a competitive advantage as it expands globally. The conceptual framework behind this