New Preface
1. The term globaloney was coined by the late American politician Clare Boothe Luce. See Albin Krebs, “Clare Boothe Luce Dies at 84: Playwright, Politician, Envoy,” New York Times, October 10, 1987.
2. After the United Kingdom voted to leave the European Union, the headline in the Washington Post was “Britain Just Killed Globalization as We Know It,” and after Donald Trump won the US presidency, the Guardian in London responded with “Globalisation Is Dead.” See Jim Tankersley, “Britain Just Killed Globalization as We Know It,” Washington Post, June 25, 2016; and Paul Mason, “Globalisation Is Dead, and White Supremacy Has Triumphed,” Guardian (London), November 9, 2016. See also “The Retreat of the Global Company,” Economist, January 28, 2017.
3. Pankaj Ghemawat, The Laws of Globalization and Business Applications (Cambridge, UK: Cambridge University Press, 2016).
Introduction
1. An authoritative global history of football is provided by David Goldblatt, The Ball Is Round (London: Viking, 2006). The globalization of soccer is also discussed by Gerald Hödl, “The Second Globalisation of Soccer” (San Francisco: Funders Network on Trade and Globalization, 16 June 2006), available at www.fntg.org/news/index.php?op=view&articleid=1237&type=0; and Franklin Foer, How Soccer Explains the World: An Unlikely Theory of Globalization (New York: HarperCollins, 2004).
2. Kofi A. Annan, “At the UN, How We Envy the World Cup,” International Herald Tribune, 10–11 June 2006, 5.
3. Geoffrey Wheatcroft, “Non-Native Sons,” Atlantic Monthly, June 2006.
4. Ibid.
5. Alan Beattie, “Distortions of the World Cup, a Game of Two Hemispheres,” Financial Times, 12 June 2006, 13.
6. The data on success on the playing field in this paragraph and the next one are based on Branko Milanovic, “Globalization and Goals: Does Soccer Show the Way?” Review of International Political Economy 12 (December 2005): 829–850 and an e-mail from him dated 13 August 2006, regarding the goal differentials in the 2006 World Cup.
7. Deloitte, Sports Business Group, “Football Money League: The Reign in Spain,” (Manchester, UK: Deloitte 2007), accessed at http://www.deloitte.com/dtt/cda/doc/content/Deloitte%20FML%202007.pdf.
8. Robert Hoffmann, Lee Chew Ging, and Bala Ramasamy, “The Socio-Economic Determinants of International Soccer Performance,” Journal of Applied Economics 5, no. 2 (November 2002): 253–272.
9. Mike Kepp, “Scoring Profits?” Latin Trade (magazine), December, 2000.
10. Uwe Buse, “Balls and Chains,” Spiegel Online, 26 May 2006.
11. “Blatter Launches Fresh Series of Blasts,” ESPN SoccerNet, 13 October 2005, http://soccernet.espn.go.com/news/story?id=345694&cc=5739.
Chapter 1: Semiglobalization and Strategy
1. For the original article, see Theodore Levitt, “The Globalization of Markets,” Harvard Business Review, May–June 1983, 92.
2. See, for instance, Wikipedia, s.v. “Global strategy,” http://en.wikipedia.org/wiki/Global_strategy.
3. See, for instance, Richard Landes, “Millenarianism and the Dynamics of Apocalyptic Time,” in Expecting the End: Millennialism in Social and Historical Context, ed. Kenneth G. C. Newport and Crawford Gribben (Wilco, TX: Baylor University Press, 2006).
4. This is due, of course, to the influence of Thomas Friedman’s The World Is Flat (New York: Farrar, Straus and Giroux, 2005), which has spent more weeks on various best-seller lists than all its globalization-related predecessors combined. Friedman’s book is hard to engage with directly, since its 450-plus pages contain no tables, charts, footnotes, or list of references. But see my article, “Why the World Isn’t Flat,” Foreign Policy (March–April 2007); as well as the exchange of letters with Friedman, among others, in the May–June 2007 issue of Foreign Policy.
5. Times TV, Mumbai, 10 August 2006.
6. Preliminary estimates for 2006 suggest that the merger wave for the year increased this ratio of FDI to gross fixed capital formation to about 12 percent.
7. Complete integration in the sense of borders not mattering will typically imply levels of internationalization somewhat less than 100 percent, to an extent that depends on the largest national shares of the activity in question. Thus, without any double-counting, the trade-to-GDP ratio for the world would, given the distribution of (nominal) GDPs, be about 90 percent at the borders-don’t-matter benchmark (100 percent minus the Herfindahl concentration ratio of GDPs, for reasons that the interested reader can work out). Additional normalized comparisons related to trade will be provided in chapter 2.
8. One problem is the focus on revenues rather than value added—for example, shipments of car parts from the United States to Canada, with cars being shipped back.
9. U.N. Conference on Trade and Development, World Investment Report, 2005 (New York and Geneva: United Nations, 2005).
10. Pankaj Ghemawat, “Semiglobalization and International Business Strategy,” Journal of International Business Studies 34, no. 2 (2003): 138–152.
11. This is, for instance, the escape hatch employed by Thomas Friedman when confronted with figure 1-1. See our exchange on “Why the World Isn’t Flat” in the May–June 2007 issue of Foreign Policy.
12. UNESCO, International Organization for Migration, World Migration 2005: Costs and Benefits of International Migration (Geneva: International Organization for Migration, June 2005).
13. Alan M. Taylor, “Globalization, Trade, and Development: Some Lessons from History,” in Bridges for Development: Policies and Institutions for Trade and Integration, ed. R. Devlin and A. Estevadeordal (Washington, DC: Inter-American Development Bank, 2003).
14. It is worth noting that trade economists continue to try to explain why there is so little trade rather than why there is so much of it, as will be elaborated in chapter 2.
15. The driver emphasized by Levitt, the convergence of tastes, is no longer taken very seriously. See John A. Quelch and Rohit Deshpandé, eds., The Global Market: Developing a Strategy to Manage Across Borders (New York: Jossey-Bass, 2004), particularly my chapter, “Global Standardization vs. Localization: A Case Study and a Model,” 115–145.
16. Technological improvements are also reported to have assumed that role in apocalyptic scenarios in general. See Kenneth G. C. Newport and Crawford Gribben, eds., Expecting the End: Millennialism in Social and Historical Context (Waco, TX: Baylor University Press, 2006).
17. Frances C. Cairncross, The Death of Distance: How the Communications Revolution Will Change Our Lives (Boston: Harvard Business School Press, 1997), 4.
18. The calculation is based on guesstimates of U.S. Internet traffic at the end of 2005 from Andrew Odlyzko of the University of Minnesota; of the U.S. share of worldwide traffic, from RHK/Ovum, market consultants; and of total cross-border traffic from TeleGeography’s Global Internet Geography. For a discussion of Professor Odlyzko’s methododology and its application to end-2002, see “Internet Traffic Growth: Sources and Implications,” in Optical Transmission Systems and Equipment for WDM Networking II, ed. B. B. Dingel, Proc. SPIE, vol. 5247, 2003, 1–15. The figure for end-2005 was provided by him in a phone conversation on 22 March 2007.
19. National Association of Software and Service Companies, “The IT Industry in India: Strategic Review, 2006” (New Delhi: NASSCOM, December 2005). Thomas Friedman cites Nandan Nilekani, the CEO of the second-largest Indian IT services company, Infosys, as the inspiration for his image of a flat world. But Nandan has pointed out to me that although Indian software programmers can now serve the United States from India, access is assured, in part, by U.S. capital’s being invested—quite literally—in that outcome. I read this as suggestive of barriers, and of the idea that country of origin matters—even for capital, which we often think of as stateless.
20. The characterization of Google’s strategy in Russia in this paragraph is based on Eric Pfanner, “Google’s Russia March Stalls,” International Herald Tribune, 18 December 2006, 9, 11.
21. Jack Goldsmith and Tim Wu, Who Controls the Internet? Illusions of a Borderless World (New York: Oxford University Press, 2006), 149.
22. Jeffrey Sachs and Andrew Warner, “Economic Reform and the Process of Global Integration,” Brookings Papers on Economic Activity, 25th Anniversary Issue (1995).
23. Francis Fukuyama, The End of History and the Last Man (New York: Free Press, 1992).
24. Samuel Huntington, The Clash of Civilizations and the Remaking of World Order (New York: Simon & Schuster, 1996).
25. Steve Dowrick and J. Bradford DeLong, “Globalization and Convergence,” paper presented for National Bureau of Economic Research Conference on Globalization in Historical Perspective, Santa Barbara, CA, 4–5 May 2001.
26. “The Future of Globalization,” The Economist, 29 July–4 August 2006, front cover.
27. Dani Rodrik, “Feasible Globalizations,” in Globalization: What’s New? ed. M. Weinstein (New York: Columbia University Press, 2005).
28. The Cola Conquest, video directed by Irene Angelico (Ronin Films, Canberra, Australia, 1998).
29. Ibid.
30. Roberto C. Goizueta, remarks made to World Bottler Meeting, Monte Carlo, 25 August 1997, available at http://www.goizuetafoundation.org/world.htm.
31. Roberto C. Goizueta, quoted in Chris Rouch, “Coke Executive John Hunter Calling It Quits,” Atlanta Journal and Constitution, 12 January 1996.
32. Sharon Herbaugh, “Coke and Pepsi Discover New Terrain in Afghanistan,” Associated Press, 26 November 1991.
33. The Coca-Cola Company, Annual Report, 1997.
34. “Coke’s Man on the Spot,” BusinessWeek Online, 3 May 1999, available at www.businessweek.com/1999/99_18b3627119.htm.
35. Douglas Daft, quoted in Betsy McKay, “Coke’s Daft Offers Vision for More-Nimble Firm,” Wall Street Journal, 31 January 2000.
36. Douglas Daft, “Back to Classic Coke,” Financial Times, 27 March 2000.
37. Douglas Daft, “Realizing the Potential of a Great Industry,” remarks at the Beverage Digest “Future Smarts” Conference in New York, 8 December 2003, posted in the “Press center/viewpoints” section of the Coke Web site, www2.coca-cola.com/presscenter/viewpoints_daft_bev_digest2003_include.html.
38. For additional discussion of hype around growth, see Pankaj Ghemawat, “The Growth Boosters,” Harvard Business Review, July 2004.
39. Bruce Kogut, “A Note on Global Strategies,” Strategic Management Journal 10, no. 389 (1989): 383–389.
40. Pankaj Ghemawat and Fariborz Ghadar, “Global Integration ≠ Global Concentration,” Industrial and Corporate Change, August 2006, especially 597–603.
41. Reid W. Click and Paul Harrison, “Does Multinationality Matter? Evidence of Value Destruction in U.S. Multinational Corporations,” working paper no. 2000-21, Board of Governors of the Federal Reserve System, Washington, DC, February 2000; and Susan M. Feinberg, “The Expansion and Location Patterns of U.S. Multinationals,” working paper, Robert H. Smith School of Business, University of Maryland, College Park, 2003.
42. Orit Gadiesh, “Think Globally, Market Locally,” Financier Worldwide, 1 August 2005.
Chapter 2: Differences Across Countries: The CAGE Distance Framework
1. David Orgel, “Wal-Mart’s Global Strategy: When Opportunity Knocks,” Women’s Wear Daily, 24 June 2002.
2. For purposes of the following discussion, I’ll treat Puerto Rico as distinct from the United States—that is, as “international”—except as otherwise noted.
3. For further discussion of gravity models, see Edward E. Leamer and James Levinsohn, “International Trade Theory: The Evidence,” Handbook of International Economics, vol. III, ed. G. Grossman and K. Rogoff (Amsterdam: Elsevier B.V., 1995).
4. Note that the median distance across all possible country-pairs falls in between these two distances.
5. The estimates reported here are based on my own work with Rajiv Mallick and, although still very large in absolute terms, are significantly lower than the ones reported in Pankaj Ghemawat, “Distance Still Matters: The Hard Reality of Global Expansion,” Harvard Business Review, September 2001, whose estimates were based on early work by Jeffrey Frankel and Andrew Rose, “An Estimate of the Effects of Currency Unions on Growth” unpublished paper, University of California, Berkeley, 2000. Our lower estimates mostly reflect our greater care in dealing with numerous observations coded as zero and our stricter focus on separate countries as opposed to politically distinct entities.
6. I’m counting “Colony/Colonizer” because both countries shared the same colonizer: Great Britain.
7. John F. Helliwell, “Border Effects: Assessing Their Implications for Canadian Policy in a North American Context,” in Social and Labour Market Aspects of North American Linkages, ed. Richard G. Harris and Thomas Lemieux (Calgary: University of Calgary Press, 2005), 41–76.
8. For examples of each, see, respectively, Prakash Loungani et al., “The Role of Information in Driving FDI: Theory and Evidence,” paper presented at the North American Winter Meeting of the Econometric Society, Washington, DC, 3–5 January 2003; Richard Portes and Helen Rey, “The Determinants of Cross-Border Equity Flows,” Journal of International Economics 65 (February 2005): 269–296; Juan Alcácer and Michelle Gittelman, “How Do I Know What You Know? Patent Examiners and the Generation of Patent Citations,” Review of Economics and Statistics, forthcoming; and Ali Hortacsu, Asis Martinez-Jerez, and Jason Douglas, “The Geography of Trade on eBay and MercadoLibre,” working paper, University of Chicago, 2006.
9. Gert-Jan M. Linders, “Distance Decay in International Trade Patterns: A Meta-analysis,” paper no. ersap679, presented at 45th Congress of the European Regional Science Association, Vrije Universiteit, Amsterdam, 23–25 August 2005, available at http://www.ersa.org. For additional evidence on the regionalization of international trade, see chapter 5.
10. For a more detailed review of frameworks for country analysis, refer in particular to “Note on Country Analysis,” on my Web site, www.ghemawat.org.
11. See Geoffrey G. Jones, “The Rise of Corporate Nationality,” Harvard Business Review, October 2006, 20–22; and, for a more detailed discussion, Geoffrey G. Jones, “The End of Nationality? Global Firms and ‘Borderless Worlds,’” Zeitschrift fur Unternehmensgeschichte 51, no. 2 (2006): 149–166.
12. Jan Johanson and Jan-Erik Vahlne, “The Internationalization Process of the Firm: A Model of Knowledge Development and Increasing Foreign Market Commitments,” Journal of International Business Studies 8, no. 1 (1977): 22–32.
13. See, for instance, “Marketing Mishaps,” NZ Marketing Magazine 18, no. 5 (June 1999): 7.
14. See, for instance, Bruce Kogut and Harbir Singh, “The Effect of National Culture on the Choice of Entry Mode,” Journal of International Business Studies 19 (1988), 411–432; Luigi Guiso, Paola Sapienza, and Luigi Zingales, “Cultural Biases in Economic Exchange,” unpublished paper, University of Chicago, 2005; Jordan I. Siegel, Amir N. Licht, and Shalom H. Schwartz, “Egalitarianism and International Investment,” working paper no. 120-2006, European Corporate Governance Institute (ECGI) Finance Research Paper Series, Brussels, 21 April 2006.
15. William P. Alford, To Steal a Book Is an Elegant Offense: Intellectual Property Law in Chinese Civilization, Studies in East Asian Law (Stanford, CA: Stanford University Press, 1995).
16. This section has benefited greatly from my joint work on China versus India with Thomas Hout of the Boston Consulting Group and the University of Hong Kong.
17. Thomas G. Rawski, “Beijing’s Fuzzy Math,” Wall Street Journal (Eastern edition), 22 April 2002, A18.
18. “Dim Sums,” The Economist, 4 November 2006, 79–80.
19. “Extending India’s Leadership in the Global IT and BPO Industries,” NASSCOM-McKinsey Report, New Delhi, December 2005.
20. Raymond Hill and L. G. Thomas III, “Moths to a Flame: Social Proof, Reputation, and Status in the Overseas Electricity Bubble,” mimeographed working paper, Goizueta Business School, Emory University, Atlanta, May 2005.
21. Donald J. Rousslang and Theodore To, “Domestic Trade and Transportation Costs as Barriers to International Trade,” Canadian Journal of Economics 26, no. 1 (February 1993): 208–221.
22. For a more detailed description of the Star case, see Pankaj Ghemawat and Timothy J. Keohane, “Star TV in 1993,” Case 9-701-012 (Boston: Harvard Business School, 2000; rev. 2005) and Pankaj Ghemawat, “Star TV in 2000,” Case 9-706-418 (Boston: Harvard Business School, 2005); and for a more detailed analysis, see Pankaj Ghemawat, “Global Standardization vs. Localization: A Case Study and a Model,” in The Global Market: Developing a Strategy to Manage Across Borders, ed. John A. Quelch and Rohit Deshpande (New York: Jossey-Bass, 2004), 115–145.
23. Rupert Murdoch, quoted in the Times (London), 2 September 1993, reprinted in Los Angeles Times, 13 February 1994; and, for instance, “Week in Review Desk,” New York Times, 29 May 1994.
24. See, for example, Stephen Hymer, The International Operations of National Firms (Cambridge, MA: MIT Press, 1976); and Srilata Zaheer, “Overcoming the Liability of Foreignness,” Academy of Management Journal 38, no. 2 (1995): 341–363.
25. Subramaniam Rangan and Metin Sengul, “Institutional Similarities and MNE Relative Performance Abroad: A Study of Foreign Multinationals in Six Host Markets,” working paper, INSEAD, Cedex, France, October 2004.
26. For more details on the analysis that follows, see Pankaj Ghemawat, “Distance Still Matters: The Hard Reality of Global Expansion,” Harvard Business Review, September 2001, 137–147.
27. The alert reader will note that I am supplementing (actually, dividing) the measures of market size or income that traditionally occupy the horizontal axis of country portfolio analysis planning grids with measures of distance.
28. Jeremy Grant, “Yum Claims KFC Growth Could Match McDonald’s,” Financial Times, 7 December 2005, 19.
Chapter 3: Global Value Creation: The ADDING Value Scorecard
1. Compare the most prominent writers in this vein: Christopher A. Bartlett and Sumantra Ghoshal, Managing Across Borders: The Transnational Solution (Boston: Harvard Business School Press, 1989). As they put it, “For all the companies we studied, the key challenge in responding to the demands of the 1980s was not to define a strategy, but to overcome the unidimensional organizational capabilities and management biases that stood in the way of building a new, more complex, and dynamic transnational posture.” Just in case you didn’t get it, the objectives and content of cross-border strategy—the why and the what—are supposed to be obvious, but organization (the how) is not. To me, this is placing the cart squarely before the horse, given the general acknowledgment, even by organizational scholars, that organizational structure, broadly defined, has to be contingent on strategy. For more discussion see chapter 7.
2. According to one recent study, 6 percent of the articles published between 1996 and 2000 in the top twenty academic management journals had international content and, of that subset, 6 percent focused on multinational enterprise strategies and policies. See Steve Werner, “Recent Developments in International Management Research: A Review of the Top 20 Management Journals,” Journal of Management 28, no. 3 (2002): 277–306. To quote Werner himself, “Other than strategic alliances and entry mode strategies there is very little research on MNC strategies.”
3. See C. Northcote Parkinson, Parkinson’s Law and other Studies in Administration (Boston: Houghton Mifflin, 1956).
4. Raymond Hill and L. G. Thomas III, “Moths to a Flame: Social Proof, Reputation, and Status in the Overseas Electricity Bubble,” mimeographed working paper, Goizueta Business School, Emory University, Atlanta, May 2005.
5. See, for instance, Steven Prokopy, “An Interview with Francisco Garza, Cemex’s President—North American Region & Trading,” Cement Americas, 1 July 2002, available at www.cementamericas.com/mag/cement_cemex_interview_francisco/.
6. For more—but not unmanageable—detail, see my strategy textbook, Strategy and the Business Landscape, 2nd ed. (Upper Saddle River, NJ: Prentice Hall, 2005), especially ch. 2 and 3.
7. See Michael E. Porter, Competitive Strategy (New York: Free Press, 1980).
8. See Michael E. Porter, Competitive Advantage (New York: Free Press, 1985); and Adam M. Brandenburger and Harborne W. Stuart Jr., “Value-Based Business Strategy,” Journal of Economics & Management Strategy 5, no. 1 (1996): 5–24.
9. Christopher Hsee et al., “Preference Reversals Between Joint and Separate Evaluations of Options,” Psychological Bulletin 125, no. 5 (1999): 576–590.
10. Janet Adamy, “McDonald’s CEO’s ‘Plan to Win’ Serves Up Well-Done Results,” Wall Street Journal Europe, 5–7 January 2007, 8.
11. This point emerges from surveys that were conducted by Paul Verdin of the Solvay Business School of the University of Brussels and that he has been kind enough to share with me.
12. See, for instance, Richard E. Caves, Multinational Enterprise and Economic Analysis, 3rd ed. (Cambridge: Cambridge University Press, 2007), ch. 1.
13. Country-of-origin effects were discussed in a bit more detail in chapter 2.
14. Wendy M. Becker and Vanessa M. Freeman, “Going from Global Trends to Corporate Strategy,” McKinsey Quarterly 3 (2006): 17–28.
15. For an application of the ADDING Value test to the DaimlerChrisler merger—which it fails—see my Web site, www.ghemawat.org.
16. Similar patterns show up over the last quarter century in terms of regional concentration, with the exception of West Europe, where initial concentration levels were particularly low and have since increased, albeit to levels that are still relatively low.
17. On this bias, see, for example, Timothy G. Bunnell and Neil M. Coe, “Spaces and Scales of Innovation,” Progress in Human Geography 25, no. 4 (2001) 569–589.
18. The Shiseido example is drawn from Yves L. Doz, José Santos, and Peter Williamson, From Global to Metanational: How Companies Win in the Knowledge Economy (Boston: Harvard Business School Press, 2001), 65–67.
19. On sustainability, see the short discussion of barriers to imitation—one of the four threats to sustainability—in Pankaj Ghemawat, “Sustainable Advantage,” Harvard Business Review, September–October 1986, 53–58. For a full-length, up-to-date treatment, see Pankaj Ghemawat, “Sustaining Superior Performance,” in Strategy and the Business Landscape, 2nd ed. (Upper Saddle River, NJ: Prentice Hall, 2006), ch. 5. On judgment, see Pankaj Ghemawat, Commitment (New York: Free Press, 1991), ch. 7. And on creativity, see my Web site, www.ghemawat.org.
Chapter 4: Adaptation: Adjusting to Differences
1. See, for instance, evidence on how even “high-involvement exporters” tend to be insufficiently adaptive, in Douglas Dow, “Adaptation and Performance in Foreign Markets: Evidence of Systematic Under-Adaptation,” Journal of International Business Studies 37 (2006): 212–226.
2. David Whitwam and Regina Fazio Maruca, “The Right Way to Go Global: An Interview with Whirlpool CEO David Whitwam,” Harvard Business Review, March 1, 1994.
3. In addition to the academic research available on this industry, which has attracted particular attention in the is-versus-isn’t globalizing debate ever since Ted Levitt’s 1983 article on the globalization of markets, I have written an industry note on it as well as cases on two leading competitors and have interviewed the managers of two other leading competitors.
4. Actually, given the ambiguities in sizing up the market and relevant sales, this list of ten might better be thought of as ten of the top twelve competitors (including all the very largest ones) rather than strictly as the top ten.
5. Charles W. F. Baden-Fuller and John M. Stopford, “Globalization Frustrated: The Case of White Goods,” Strategic Management Journal 12 (1991): 493–507.
6. John A. Quelch, quoted in Barnaby J. Feder, “For White Goods, a World Beckons,” New York Times, 25 November 1997.
7. Conrad H. McGregor, “Electricity Around the World,” World Standards Web site, http://users.pandora.be/worldstandards/electricity.htm.
8. Larry Davidson and Diego Agudelo, “The Globalization That Went Home: Changing World Trade Patterns Among the G7 from 1980 to 1997,” unpublished paper, Indiana University Kelley School of Business Administration, Bloomington, IN, November 2004.
9. J. Rayner, “Lux Spoils Us for Choice,” Electrical and Radio Trading, 4 March 1999, 6.
10. Another candidate for inclusion under the heading of externalization includes market-based controls, which in at least some settings have been demonstrated to lead to better performance than do microcontrols. See Srilata Zaheer, “Overcoming the Liability of Foreignness,” Academy of Management Journal 38 (1995): 341–363.
11. Martin Lindstrom, private communication to author, November 24, 2006.
12. Ted Friedman, “The World of the World of Coca-Cola,” Communication Research 19, no. 5 (October 1992): 642–662.
13. See Donald F. Hastings, “Lincoln Electric’s Harsh Lessons from International Expansion,” Harvard Business Review, May 1999, 163–178; and Ingmar Björkman and Charles Galunic, “Lincoln Electric in China,” Case 499-021-1 (Paris: INSEAD, 1999).
14. Interview with former Lincoln Electric executive, February 26, 2007.
15. Kayla Yoon, “Jinro’s Adaptation Strategy,” paper prepared for International Strategy course, Harvard Business School, Boston, fall 2005; “Localizing the Product and the Company Is the Key to Success in the Japanese Market,” Business Update of Osaka 1 (2003), available at www.ibo.or.jp/e/2003_1/index.html. Note that while the company has recently changed hands because of financial mismanagement and fraud, the Jinro brand continues to perform well in the marketplace.
16. In addition, Jinro’s concentration on Japan and East-Southeast Asian markets—and on the Korean diaspora in the United States—reflects the complementary lever of focus and its heavy reliance on a Japanese distributor who later became a business partner reflects the lever of externalization, both of which will be discussed later on.
17. Simon Romero, “A Marketing Effort Falls Flat in Both Spanish and English,” New York Times, 19 April 2004.
18. Warren Berger, “The Brains Behind Smart TV: How John Hendricks Is Helping Shape the Future of a More Intelligent World of Television,” Los Angeles Times, 25 June 1995, magazine section 16.
19. Yasushi Ueki, “Export-Led Growth and Geographic Distribution of the Poultry Meat Industry in Brazil,” Discussion Paper 67, Institute of Developing Economies, JETRO, Japan, August 2006.
20. Bruce Kogut and Harbir Singh, “The Effect of National Culture on the Choice of Entry Mode,” Journal of International Business Studies 19 (1988): 411–432.
21. Recognition of some of these costs and risks is presumably part of the reason that, according to data compiled by the Securities Data Company, the number of cross-border joint ventures has fallen by as much as four-fifths since the mid-1990s, while cross-border mergers and acquisitions have surged.
22. The description that follows is based on Anton Gueth, Nelson Sims, and Roger Harrison, “Managing Alliances at Lilly,” IN VIVO (Norwalk, CT: Windhover Information, Inc.), June 2001; telephone conversation with Dominic Palmer of Accenture, 7 December 2006.
23. Of course, it hasn’t been all plain sailing. For a detailed discussion of a key alliance that nearly went sour but was successfully rehabilitated, see Leila Abboud, “How Eli Lilly’s Monster Deal Faced Extinction—but Survived,” Wall Street Journal, 27 April 2005.
24. Jeffrey L. Bradach, Franchise Organizations (Boston: Harvard Business School Press, 1998).
25. See, for instance, Eric von Hippel, Democratizing Innovation (Cambridge, MA: MIT Press, 2005).
26. Steve Hamm, “Linux Inc.,” BusinessWeek, 31 January 2005, 60–68.
27. Erik Brynjolfsson, Yu (Jeffrey) Hu, and Michael D. Smith, “Consumer Surplus in the Digital Economy: Estimating the Value of Increased Product Variety at Online Booksellers” Management Science 49, no. 11 (November 2003).
28. Chris Anderson, The Long Tail: Why the Future of Business Is Selling Less of More (New York: Hyperion, 2006).
29. John Menzer, conversation with the author, 12 October 2004.
30. Martin Lindstrom, “Global Branding Versus Local Marketing,” 23 November 2000, at www.clickz.com.
31. Jeremy Grant, “Golden Arches Bridge Local Tastes,” Financial Times, 9 February 2006, 10.
32. Carliss Y. Baldwin and Kim B. Clark, Design Rules: The Power of Modularity, vol. 1 (Boston: Harvard Business School Press, 2000).
33. Pankaj Ghemawat, Long Nanyao, and Gregg Friedman, “Ericsson in China: Mobile Leadership,” Case 9-700-012 (Boston: Harvard Business School, 2001; rev. 2004).
34. Nicolay Worren, Karl Moore, and Pablo Cardona, “Modularity, Strategic Flexibility, and Firm Performance: A Study of the Home Appliance Industry,” Strategic Management Journal 23 (2002): 1123–1140.
35. Richard Waters, “Yahoo Under Pressure After Leak,” Financial Times, 19 November 2006.
36. For some examples of innovations that involve melding knowledge from different parts of the world, see Yves Doz, José Santos, and Peter Williamson, From Global to Metanational: How Companies Win in the Knowledge Economy (Boston: Harvard Business School Press, 2001).
37. Roberto Vassolo, Guillermo Nicolás Perkins, and María Emilia Bianco, “Disney Latin America (A),” Case PE-C-083-IA-1-s, IAE (Buenos Aires, Argentina: Universidad Austral, March 2006).
38. James Murdoch and Bruce Churchill, telephone interview by author, 1 May 2001.
39. The first name sported by Starbucks stores was not Starbucks, but “Il Giornale,” so one could make the case that Starbucks is actually Italian cultural imperialism at work, although in a transformed state. See Howard Schultz and Dori Jones Yang, Pour Your Heart into It: How Starbucks Built a Company One Cup at a Time (New York: Hyperion, 1997).
40. Sarah Schafer, “Microsoft’s Cultural Revolution: How the Software Giant Is Rethinking the Way It Does Business in the World’s Largest Market,” Newsweek, 28 June 36.
41. Amyn Merchant and Benjamin Pinney, “Disposable Factories,” BCG Perspective 424 (March 2006).
42. The Philips story is from Pankaj Ghemawat and Pedro Nueno, “Revitalizing Philips (A),” Case N9-702-474 (Boston: Harvard Business School, 2002); and Pankaj Ghemawat and Pedro Nueno, “Revitalizing Philips (B),” Case 9-703-502 (Boston: Harvard Business School, 2002).
43. See, for example, Charles Handy, “Balancing Corporate Power: A New Federalist Paper,” Harvard Business Review, November–December 1992, 59–68.
44. Survey by the International Consortium of Executive Development Research, as reported in B. Dumaine, “Don’t Be an Ugly-American Merger,” Fortune, 16 October 1995, 225.
45. Thomas P. Murtha, Stefanie Ann Lenway, and Richard P. Bagozzi, “Global Mind-Sets and Cognitive Shift in a Complex Multinational Corporation,” Strategic Management Journal 19, no. 2 (1998): 97–114.
46. See, for example, P. Christopher Earley and Elaine Mosakowski, “Cultural Intelligence,” Harvard Business Review, October 2004, 139–146.
47. The description that follows is based on Samsung, Samsung’s New Management (Seoul: Samsung Group, 1994); Youngsoo Kim, “Technological Capabilities and Samsung Electronics’ International Production Network in East Asia,” Management Decision 36, no. 8 (October 1998): 517–527; B. J. Lee and George Wehrfritz, “The Last Tycoon,” Newsweek (international edition), 24 November 2003; and Martin Fackler, “Raising the Bar at Samsung,” New York Times, 25 April 2006.
48. “Interbrand/BusinessWeek Ranking of the Top 100 Global Brands,” Business-Week, 7 August 2006.
Chapter 5: Aggregation: Overcoming Differences
1. Robert J. Kramer, Regional Headquarters: Roles and Organization, (New York: The Conference Board, 2002).
2. John H Dunning, Masataka Fujita, and Nevena Yakova, “Some Macro-data on the Regionalisation/Globalisation Debate: A Comment on the Rugman/Verbeke Analysis,” Journal of International Business Studies 38, no. 1 (January 2007): 177–199.
3. Susan E. Feinberg, “The Expansion and Location Patterns of U.S. Multinationals,” unpublished working paper, Rutgers University, New Brunswick, NJ, 2005.
4. Alan Rugman and Alain Verbeke, “A Perspective on Regional and Global Strategies of Multinational Enterprises,” Journal of International Business Studies 35, no. 1 (January 2004): 3–18.
5. These nine “tri-regional” companies were, in decreasing order of total sales revenues, IBM, Sony, Philips, Nokia, Intel, Canon, Coca-Cola, Flextronics, Christian Dior, and LVMH.
6. This quote is from http://www.toyota.co.jp/en/ir/library/annual/pdf/2003/president_interview_e.pdf.
7. For additional details on Dell’s production network, see Kenneth L. Kraemer and Jason Dedrick, “Dell Computer: Organization of a Global Production Network,” Center for Research on Information Technology and Organizations, University of California at Irvine, December 1, 2002; and Gary Fields, Territories of Profit (Palo Alto: CA: Stanford University Press, 2004).
8. Paul Verdin of Solvay Business School is one of those who recognizes the importance of focusing on regional strategy, rather than RHQs. See for example, Paul Verdin et al., “Regional Organizations: Beware of the Pitfalls,” in The Future of the Multi national Company, ed. Julian Birkinshaw et al. (London: John Wiley, 2003).
9. Philippe Lasserre, “Regional Headquarters: The Spearhead for Asia Pacific Markets,” Long Range Planning 29, no. 1 (1996): 30–37.
10. Another typology is provided in Hellmut Schütte, “Strategy and Organisation: Challenges for European MNCs in Asia,” European Management Journal 15, no. 4 (1997): 436–445. Schütte divides RHQs into those directed at corporate headquarters in the sense of being concerned with strategy development and implementation—including Lasserre’s scouting and strategic stimulation functions—and those directed at regional operations that try to enhance efficiency and effectiveness through coordination and pooling.
11. Michael J. Enright, “Regional Management Centers in the Asia-Pacific,” Management International Review, Special Issue, 2005, 57–80.
12. Dell historically ensured that this kind of duplication didn’t occur in development, where there are significant global economies of scale, by centralizing that function at headquarters in Austin, although it has begun to migrate certain development activities to Asia as well.
13. Department of Trade and Industry, as reported in the Economist, 4 November 2006, 113.
14. Nick Scheele, “It’s a Small World After All—Or Is It?” in The Global Market: Developing a Strategy to Manage Across Borders, ed. John A. Quelch and Rohit Deshpande (San Francisco: Jossey Bass, 2004), 146–157, especially p. 150 for the quote.
15. For background on Ford and Ford 2000, see Douglas Brinkley, Wheels for the World (New York: Viking, 2003); as well as Scheele, ibid.
16. Karl Moore and Julian Birkinshaw, “Managing Knowledge in Global Service Firms: Centers of Excellence,” Academy of Management Executive 12, no. 4 (1998): 81–92.
17. See, for instance, David B. Montgomery, George S. Yip, and Belen Villalonga, “Demand for and Use of Global Account Management,” Marketing Science Institute Report 99-115 (Stanford, CA: Stanford Graduate School of Business, 1999); and David Arnold, Julian Birkinshaw, and Omar Toulan, “Implementing Global Account Management in Multinational Corporations,” Marketing Science Institute Report 00-103 (Stanford, CA: Stanford Graduate School of Business, 2000).
18. Thomas Friedman, “Anyone, Anything, Anywhere,” New York Times, 22 September 2006.
19. Eleanor Westney, “Geography as a Design Variable,” in The Future of the Multinational Company, ed. Julian Birkinshaw et al. (London: John Wiley, 2003), 133.
Chapter 6: Arbitrage: Exploiting Differences
1. For details on the assumed cost savings and the results of the store checks, see Pankaj Ghemawat and Ken A. Mark, “Wal-Mart’s International Expansion,” Case N1-705-486 (Boston: Harvard Business School, rev. 2005), available on my Web site, www.ghemawat.org.
2. The Lego Group, “Company Profile 2004,” available at www.lego.com/info/pdf/compprofileeng.pdf; and Sarah Bridge, “Trouble in Legoland,” The Mail on Sunday, 13 November 2004.
3. This belief is particularly entrenched in regard to capital, since most modern financial theory is predicated on the absence of arbitrage opportunities in financial markets, also referred to as the law of one price. But even in finance, one can think of conspicuous exceptions to this “law”; for example, American Depositary Receipts that trade at significantly different prices from the equity shares in other countries that underlie them.
4. Andrew Yeh, “Woman Breaks Mould to Top List of China’s Richest People,” Financial Times, 11 October 2006, 3.
5. Bumrungrad International, Bangkok, Web page, www.bumrungrad.com.
6. “Health Tourism,” Esquire, August 2006, 63–64.
7. Louis Uchitelle, “Looking at Trade in a Social Context,” International Herald Tribune, 30 January 2007, 12.
8. Haig Simonian, “Swiss Query Tax Deals for Super-Rich Foreigners,” Financial Times, 30 January 2007, 3.
9. LAN Santander Investment Chile Conference, September 2006, available at www.lan.com/files/about_us/lanchile/santander.pdf.
10. Lynette Clemetson, “For Schooling, a Reverse Emigration to Africa,” New York Times, 4 September 2003, available at www.nytimes.com/2003/09/04/education.
11. “Remittances Becoming More Entrenched: The Worldwide Cash Flow Continues to Grow,” on Limits to Growth Web page, www.limitstogrowth.org/WEB-text/remittances.html; and “Moldova: Unprecedented Opportunities, Challenges Posed By $1.2 Billion Aid Package,” RadioFreeEurope/RadioLiberty Reports, 5 January 2007, www.rferl.org/reports/pbureport.
12. Peter Czaga and Barbara Fliess, “Used Goods Trade: A Growth Opportunity,” OECD Observer, April 2005, www.oecdobserver.org/news; http://www.oecdobserver.org/news/fullstory.php/aid/1505/Used_goods_trade.html; and http://commercecan.ic.gc.ca/scdt/bizmap/interface2.nsf/vDownload/ISA_3745/$file/X_5392834.DOC.
13. For a more detailed examination of these issues, see Pankaj Ghemawat, “The Forgotten Strategy,” Harvard Business Review, November 2003, 77. This section is drawn largely from that article.
14. Pankaj Ghemawat and Tarun Khanna, “Tricon Restaurants International: Globalization Re-examined,” Case 700-030 (Boston: Harvard Business School, 1999).
15. Robert Plummer, “Brazil’s Brahma Beer Goes Global,” BBC News, 4 December 2005, available at http://news.bbc.co.uk/2/hi/business/4462914.stm.
16. Rick Krever from Deakin University, Melbourne, quoted in Kylie Morris, “Not Shaken, Not Stirred: Murdoch, Multinationals and Tax,” ABC online, 2 November 2003, www.abc.net.au/news/features/tax/page2.htm.
17. For a very interesting overview, see Moises Naim, Illicit: How Smugglers, Traffickers, and Copycats Are Hijacking the Global Economy (New York: Doubleday, 2005).
18. “Attractions of Exile,” Financial Times, 11 October 2006.
19. See, for instance, Jonathan Fahey, “This Is How to Run a Railroad,” Forbes, 13 February 2006, 94–101.
20. This earnings breakdown is based on EBITDA—earnings before interest, taxes, depreciation, and amortization, and is for 2005–2006.
21. Michael Y. Yoshino and Anthony St. George, “Li & Fung (A): Beyond ‘Filling in the Mosaic’ 1995–1998,” Case No. 9-398-092 (Boston: Harvard Business School, 1998).
22. Gene Grossman and Esteban Rossi-Hansberg, “The Rise of Offshoring: It’s Not Wine for Cloth Anymore,” paper prepared for Federal Reserve Bank of Kansas City symposium, The New Economic Geography: Effects and Policy Implications, Jackson Hole, WY, 24–26 August 2006, available at www.princeton.edu/~grossman.
23. The calculations are based on Pankaj Ghemawat, Gustavo A. Herrero, and Luiz Felipe Monteiro, “Embraer: The Global Leader in Regional Jets,” Case 701-006 (Boston: Harvard Business School, 2000); and Canadian payroll data.
24. “Chinese Jet Expects to Snare 60 Percent of Domestic Market,” China Post (Taiwan), April 6, 2007.
25. Ashraf Dahod, “Starent Networks,” presentation at the Cash Concours (Tewksbury, MA), 5 October 2006.
26. Arie Y. Lewin, Silvia Massini, and Carine Peeters, “From Offshoring to Globalization of Human Capital,” unpublished draft, (Duke University, Durham, NC) January 2007.
27. The following section on Indian pharmaceuticals is based in part on unpublished research by J. Rajagopal and K. V. Anantharaman of the Global Life Sciences & Healthcare practice of Tata Consultancy Services (Bangalore, India), which I draw on here with their permission. Other sources used are cited below as appropriate.
28. “Billion Dollar Pills,” The Economist, 27 January 2007, 61–63.
29. F. M. Scherer, quoted in Shereen El Feki, “A Survey of Pharmaceuticals,” The Economist, 18 June 2005, 16.
30. Robert Langreth and Matthew Herper, “Storm Warnings,” Forbes, 13 March 2006, 39.
31. See, for instance, Eva Edery, “Generics Size Up the Market Opportunity,” March 2006, www.worldpharmaceuticals.net/pdfs/009_WPF009.pdf.
32. “Billion Dollar Pills.”
33. Leila Abboud, “An Israeli Giant in Generic Drugs Faces New Rivals,” Wall Street Journal, 28 October 2004.
34. Such opportunities are not confined to emerging markets. In late 2005, the U.S. government threatened to override the patents on treatments for avian flu if companies that controlled them did not expand U.S. production facilities.
35. For a description of Ranbaxy’s basic strategy, which was set more than a decade ago, see Pankaj Ghemawat and Kazbi Kothavala, “Repositioning Ranbaxy,” Case 9-796-181 (Boston: Harvard Business School, 1998).
36. Abraham Lustgarten, “Drug Testing Goes Offshore,” Fortune, 8 August 2005, 67–72.
37. A less stringent regulatory environment is sometimes also cited as a source of advantage.
38. National Association of Software and Service Companies, “The IT Industry in India: Strategic Review, 2006” (New Delhi: NASSCOM, December 2005).
39. Andrew Jack, “Patently Unfair?” Financial Times, 22 November 2005, 21.
40. Amelia Gentleman, “Patent Rights Versus Drugs for Poor at Issue in India,” International Herald Tribune, 30 January 2007, 10. For additional discussion of some of the tactics used by Big Pharma to discourage would-be imitators, see Pankaj Ghemawat, Strategy and the Business Landscape (Upper Saddle River, NJ: Pearson Prentice Hall, 2006), 100–103.
41. James Kanter, “Novartis Plans Lab in Shanghai,” International Herald Tribune, 6 November 2006, 11.
42. Arie Y. Lewin and Carine Peeters, “The Top-Line Allure of Offshoring,” Harvard Business Review, March 2006, 22–24.
43. For a detailed case study, see Pankaj Ghemawat, “GEN3 Partners: From Russia, with Rigor,” on my Web site, www.ghemawat.org.
44. See “China Overtakes Japan for R&D,” Financial Times, 4 December 2006, 1. I am grateful to Tom Hout for pointing out this interesting example.
45. Jim Hemerling and Thomas Bradtke, “The New Economics of Global Advantage: Not Just Lower Costs but Higher Returns on Capital” (Boston: Boston Consulting Group, December 2005).
46. The software comparisons are based on many years of work in that industry; the pharmaceutical comparisons are an extrapolation of earlier calculations in Rajesh Garg et al., “Four Opportunities in India’s Pharmaceutical Market,” McKinsey Quarterly 4 (1996): 132–145.
47. See Pankaj Ghemawat, “Tata Consultancy Services: Selling Certainty,” case available on my Web site, www.ghemawat.org.
48. Minyuan Zhao, “Doing R&D in Countries with Weak IPR Protection: Can Corporate Management Substitute for Legal Institutions?” Management Science 52, no. 8 (2006): 1185–1199.
49. See Offshoring Research Network (ORN), https://offshoring.fuqua.duke.edu/community/index.jsp.
50. For the most exhaustive exegesis of the jackalope that I have found—which cites references dating back to the 1500s—see Chuck Holliday and Dan Japuntich, “Jackalope Fans, Take Note,” updated 22 August 2005, ww2.lafayette.edu/~hollidac/jackalope.html.
Chapter 7: Managing Global Differences: The AAA Triangle
1. This literature essentially started with a discussion, nearly forty years ago, of the tension between pressures for unification within companies and for fragmentation that different national environments can create: see John Fayerweather, Inter national Business Management: A Conceptual Framework (New York: McGraw-Hill, 1969). C. K. Prahalad and Yves L. Doz, in The Multinational Mission: Balancing Local Demands and Global Vision (New York: Free Press, 1987), elaborated on this tension as the widely cited trade-off between global integration and national responsiveness.
2. Until recently, the only aspect of arbitrage that had attracted much attention was the exploitation of international differences in knowledge. Compare Christopher A. Bartlett and Sumantra Ghoshal, Managing Across Borders: The Transnational Solution (Boston: Harvard Business School Press, 1989; 2nd ed. 1998). While such knowledge arbitrage is interesting, there is, as we have seen, much more to arbitrage in general.
3. For an excellent overview of this literature, see Richard E. Caves, Multinational Enterprise and Economic Analysis, 3rd ed. (Cambridge: Cambridge University Press, 2007).
4. See, for instance, Michael E. Porter, Competitive Strategy (New York: Free Press, 1980), ch. 2; and Michael E. Porter, Competitive Advantage (New York: Free Press, 1985), ch. 1.
5. For further discussion of the costs of conflict, compromise, and coordination—in a multibusiness context rather than a multigeographic one—see Pankaj Ghemawat and Jan W. Rivkin, “Choosing Corporate Scope,” in Strategy and the Business Landscape, 2nd ed., by Pankaj Ghemawat (Englewood Cliffs, NJ: Prentice Hall, 2001).
6. Note that advertising-to-sales and R&D-to-sales ratios are the two most robust markers of the incidence of multinational companies, but that advertising economies of scale still operate primarily at the local or regional level, whereas R&D is more likely to be characterized by global economies of scale or scope. Advertising-to-sales ratios, therefore, have affinities with adaptation, which is focused on local responsiveness, and R&D-to-sales ratios relate to aggregation, which is focused on international economies of scale or scope. And labor expenses-to-sales ratios are an obvious proxy for the prospects of labor arbitrage—although we should keep reminding ourselves that arbitrage encompasses a much wider array of international differences than simply labor costs. Thus, the oil companies, the largest global companies by many measures, built their worldwide operations around differences in the prices of raw materials.
7. All figures are for 2005, unless otherwise noted. The account is largely based on Pankaj Ghemawat, “Philips Medical Systems in 2005,” Case 706-488 (Boston: Harvard Business School, 2006); D. Quinn Mills and Julian Kurz, “Siemens Medical Solutions: Strategic Turnaround,” Case 703-494 (Boston: Harvard Business School, 2003); and Tarun Khanna and Elizabeth A. Raabe, “General Electric Healthcare, 2006,” Case 706-478 (Boston: Harvard Business School, 2006).
8. Jeffrey R. Immelt, quoted in Thomas A. Stewart, “Growth As Process,” Harvard Business Review, June 2006, 60–71.
9. Joon Knapen, “Philips Stakes Its Health on Medical Devices,” Dow Jones Newswires, 9 June 2004.
10. This example and the discussion of Standard Oil are based on Mira Wilkins, ed., The Growth of Multinationals (Aldershot, England: Edward Elgar Publishing, 1991), 455.
11. This description is based on press releases from and articles about Cisco. See, in particular, “Cisco Chooses India As Site of Its Globalization Center and Names Wim Elfrink Chief Globalization Officer,” 6 December 2006, http://newsroom.cisco.com/dlls/2006/ts_120606.html; and Rachel Konrad, “At Globalization Vanguard, Cisco Shifts Senior Executives to India’s Tech Hub,” Associated Press, 5 January 2007.
Chapter 8: Toward a Better Future: Getting Started
1. See Karl Polanyi, Conrad M. Arensberg, and Harry W. Pearson, eds., Trade and Market in the Early Empires; Economies in History and Theory (Glencoe, IL: Free Press, 1957); and Karl W. Deutsch and Alexander Eckstein, “National Industrialization and the Declining Share of the International Economic Sector, 1890–1959,” World Politics 13 (1961): 267–299.
2. Heather Timmons, “Goldman Sachs Rediscovers Russia,” New York Times, 3 February 2006.
3. Max H. Bazerman and Michael D. Watkins, Predictable Surprises: The Disasters You Should Have Seen Coming and How to Prevent Them (Boston: Harvard Business School Press, 2004).
4. For an even longer list, see the twenty-three core global risks discussed in World Economic Forum, Global Risks 2007 (Davos, Switzerland: World Economic Forum, January 2007).
5. On the implications of a general liquidity crisis see, for instance, Niall Ferguson, “Sinking Globalization,” Foreign Affairs 84, no. 2 (March–April 2005): 64–77.
6. Muhammad Yunus, Nobel lecture, Oslo, Norway, 10 December 2006, accessed at http://nobelprize.org/nobel_prizes/peace/laureates/2006/yunus-lecture-en.html.
7. Frank Luntz, Words That Work: It’s Not What You Say, It’s What People Hear (New York: Hyperion, 2007).
8. McKinsey Global Institute, “Offshoring: Is it a Win-Win Game?,” (San Francisco, August 2003), http://hei.unige.ch/~baldwin/ComparativeAdvantageMyths/IsOffshoringWinWin_McKinsey.pdf.
9. Despite the steps being presented in a neat sequence, a global strategy audit usually requires some back-and-forth iteration across them.
10. Compare the discussion and debunking of the belief that increasing global integration leads to increasing global concentration, for example (chapters 1 and 3).