Tony Frost: The advent of the internet and advances in
communication and transport have sped up the rate and
lowered the cost of launching global strategies and managing
across borders
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Tony Frost is associate professor of international business
at the Richard Ivey School of Business. He gives his thoughts
on the importance of global strategy, and the challenges that
businesses face when trying to cross borders.
How important is it for companies to think globally
when implementing new strategies?
It is vital for those companies who have already globalised
some portion of their value chain, but I think what is important
is that all organisations, even small regional companies, think
globally. This is true even for companies who focus primarily
on serving local markets/customers and intend to maintain that
focus. One reason for this is that today all companies are affected
(whether they know it or not) by global forces, such as trade
regimes, commodity prices, exchange rate fluctuations, customer
trends and business cycles. Even companies that have purely
domestic operations can have a significant exchange rate risk
if their competitors have a different sourcing strategy.
Consider the airline industry. All players, even those that
only fly domestically, are greatly affected by global forces
on both the revenue side (global business cycles, terrorism,
war, pandemics) and the cost side (fuel prices, exchange rates).
Less obvious, globalisation provides potentially important
learning and innovation opportunities. New technologies, market
trends and new business models can and do pop up all over today.
Has the importance of thinking globally grown over
recent years?
It certainly has. We have seen in many industries a clear trend
towards global participation and a global consolidation of industries.
This has been driven by many things, including governments relaxing
trade barriers so global strategies are facilitated and not
blocked. Think about previously "national" industries
such as banking, beer, insurance and airlines. Every country
used to have its own national champion in beer for example.
Now, the industry is dominated by global giants.
The advent of the internet and advances in communication and
transport have sped up the rate and lowered the cost of launching
global strategies and managing across borders.
Competition itself has driven global strategy development.
If your key competitor starts sourcing from China, what are
you going to do? You can't allow them to gain a cost advantage.
So there is a circularity: everyone is trying to gain an advantage,
and a key arena for this competitive one-upmanship has been
the launching of global strategies - both front end and back
end global strategies. Where one rival goes, the other is forced
to follow.
What are the main difficulties that companies may face
when implementing strategy in a global context?
The classic difficulty of implementing a global strategy is
known as the "liability of foreignness". This arises
from the position of multinationals as outsiders in foreign
markets and the resulting asymmetries they experience relative
to domestic (i.e. host country) firms. These asymmetries occur
along many dimensions, including access to markets, relationships
with governments, regulators and resources.
Probably the key difficulty foreign companies experience is
in trying to adapt to local demand cultures as customer preferences
are culturally and historically rooted. This knowledge is embedded
and is difficult for those not intimately familiar with that
context to appreciate.
What negative effects can the introduction of multinationals
(MNCs) into emerging markets have on local enterprises?
Research on foreign market entry shows mixed outcomes for local
industry. There tends to be an uplifting of productivity in
the local industry. MNCs themselves tend to be high productivity
enterprises - good for customers and good for local employees
of these firms (MNCs tend to pay higher wages).
Weak local firms do tend to die out after MNC entry. Paradoxically,
this also helps industry productivity by getting rid of inefficient
operations. But strong local firms have shown they can respond
to the challenge. In some markets they have driven seemingly
superior competitors out of the market.
What methods are used by MBA programmes, such as yours,
to teach global strategy? How effective are these methods perceived
to be?
Global strategy must be taught through diverse methods because
it draws on and requires a diverse set of methods. These include
hard, soft and analytical/strategic thinking skills.
Hard skills include macroeconomics, global accounting know-how
and exchange rate management. Soft skills include managing in
diverse environments and unfamiliar cultures. Market entry,
joint venture management and mergers and acquisitions come under
analytical and strategic thinking skills.
We teach these primarily by using lots of case studies. They
are as close to reality as you can get in a classroom. By doing
lots of cases, students build skills in pattern recognition
and response. We also get students to make decisions in real-world
scenarios. Another important aspect of teaching global strategy
is the field projects we do that have a global scope and programmed
trips to other countries.
SCMP
20th May, 2009
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