developing a global strategy

Sources: DHL Global Connectedness Index, 2011

Concept based on WORLD 3.0 Global prosperity and how to achieve it,

Harvard Business Review Press, Copyright, 2011 1

NAFTA

LAFTA

EU

ASEAN

World is flat.

The world is one huge market.

Anything or anyone can go anywhere, anytime.

Do you think this is true?

Are there barriers to connectedness?

2

Global Connectedness – Goods & Service Trade

In comparison to total economic activity (GDP), what percent is global?

When asked about global interaction, the traditional data to compare a

country’s external merchandise/service trade with it’s total GDP.

So, lets start there.

Global Trade

3

Total GDP

Global Connectedness – Merchandise & Service Trade

With both merchandise and service international trade at only 30% of the

world GDP, there is still a great deal of growth potential. This 22% could

actually be closer to 15% if you consider re-exporting of semi-finished

products exported to another country for final processing and supplied to

the end user. We could be connected a great deal more.

1930

9% of GDP

2015

22% of GDP

Growth in trade

connectedness

Source: DHL Global Connectedness Index, 2016

4

Japan’s Global Connectedness – Merchandise & Service Trade

Japan’s external trade ratio is well below the average.

It is mainly due to it large domestic market. It has

much room for expansion.

Outward

15%of GDP

Inward

16%of GDP


From worldwide suppliers

To worldwide

markets

5

USA’s Global Connectedness – Merchandise & Service Trade

The United States’ external trade ratio is below the

average. It is mainly due to it large domestic market

too. It can expand much more.

Outward

8% of GDP

Inward

13% of GDP


USA

From worldwide

suppliers

To worldwide

markets

6

China’s Global Connectedness – Merchandise & Service Trade

The China’s external trade ratio is closer to the average. This

might be one of the main reasons China has such high growth. It

is helped by valuable imports and it is financed by exports. In the

future, serving the domestic market will become more important as

wealth is created.

Outward

21%of GDP

Inward

15% of GDP


China

From worldwide

suppliers

To worldwide

markets

7

Global Connectedness – Foreign Direct Investment (FDI)


FDI peeked

in

2000

20%of capital

formation

Foreign direct investment (FDI) to capital formation (Total investment in fixed assets)

FDI settled in

2010

10%of capital formation

FDI fell in

2007

15%of capital

formation

There is great global economic benefits of FDI (financial transfer, technical

transfer, business knowhow transfer, etc.)

8

Global Connectedness – Financial Movement

Source: “Home Bias in International Equity Portfolios: A Review (August 2007)

Foreign equity investment (share purchase only)

Foreign equity investment

2005 ~ 2007

20%of all investments

There is much room for foreigners investing in foreign companies. It

trust and better communication continues to grow so should

investment. 9

Global Connectedness – Communication & Information

20%of all internet connections are international.

5%of all phone calls are international.


We could communicate and share information much more than we are

now. This would build trust, investment and greater prosperity.

10

53/140Bits per second per

internet user

International calls

International email

63/140Outward per minutes/capita

112/140Inward per minutes/capita


(World ranking among 140 countries (99% of world GDP and 95% of population)

Japan’s Global Ranking – Telephone/Internet Communication

Of 140

countries

Outward calls

Inward calls

11

Outward email data

Inward email data

Visiting foreign countries & foreign populations

1.9%Of Japanese

population is

from another

country.

Source: UN report Trends in International Migrant Stock: The 2015 Revision.

14.3%Of USA

population is

from another

country.

Connecting face-to-face

What percent of the world population are from foreign countries?

3% of the world population live outside of their home country.

What percent of the world population have studied in a foreign country?

2% of university student have studied outside their country.

What professionals are foreigners in the US?

33% of USA engineers are from foreign countries.

27% of USA mathematician, statisticians and computer science

specialists are from foreign countries.

24% of USA scientists and researches are from foreign countries. 12

United Arab Emirates 7,826,981 83.7

Singapore 2,323,252 42.9

Switzerland 2,438,702 28.9

Israel 2,046,873 26.5

New Zealand 1,132,736 25.1

Germany 12,005,690 14.9

United States 46,627,102 14.3

Sweden 1,639,771 14.3

United Kingdom 8,543,120 11.3

France 7,784,418 11.1

Greece 1,242,514 11.1

Italy 5,788,875 8.0

Russia 11,643,276 7.7

Turkey 4,580,678 5.81

Japan 2,437,169 1.9

India 5,338,486 0.4

Egypt 297,448 0.4

China 848,511 0.1

Indonesia 295,433 0.1

Vietnam 68,290 0.1

Visiting foreign countries & foreign populations

Connecting face-to-face (foreign population & percentage of total population)

THE BENEFIT: Advanced cultural diversity, learning,

teaching, blending, interaction and understanding 13

20% 40% 60% 80% 100%0

Source: Concept based on Redefining Global Strategy,

Crossing Borders in a World Where Differences Still Matters, Harvard Business School Press, Copyright, 2007

Global Connectedness – Overall Summary

Level of international connection

International to domestic telephone calls

Foreign university students to total

Management research with global content to total

Charity to foreign country to domestic

Foreign direct investment to capital formation

Foreign tourists to total

Foreign related patents to domestic

Foreign held stock to domestic

Foreign trade to GDP

Immigrants to total population

14

40% 80% 120% 160% 200%0

Source: Pankaj Ghemawat and Rajiv Malick, “The Industry-Level Structure of International Trade Networks: A

Gravity-Based Approach”, working paper, Harvard Business School, February 2003

Global Connectedness – Overall SummaryFactors that improve connected (over average)

Common

language

Colony or

colonizer

Common

currency

Common land

border

Common regional

trading block

+188%

+114%

+125%

+42%

+47%

15

Looking at foreign markets & production bases

Differences from us & other regions

Source: World 3.0 GLOBAL PROSPERITY AND HOW TO ACHIEVE IT

Are all other regions very different from us?

Are there great differences between us and the other location?

Is there great distance between us and the other location?

In World 3.0 both distance and differences still matter greatly. Those

differences must be explored in each case to determine the ideal level of

connectedness. Some issues should be kept at the local level, other

issues at the global level.

Yes No

16

CAGE - Differences


G-Geographic – Are there great geographic differences?

E-Economic – Are there great economic differences?

A-Administrative – Are there great administrative differences?

C-Culture – Are there great cultural differences?

Yes No

17

C- Cultural Differences – Industry Sensitivity Indicators


Country of Origin – Is country of origin a major concern?

Language – Is high language communication skill required?

Tastes – Are there great preference/standards differences?

Traditions – Are there strong historic traditions in the industry?

Yes No

18

A- Administrative Differences – Industry Sensitivity Indicators


Government Involvement – Is the government involved in

funding, procurement, standard-setting, etc?

Yes No

National Priority – Is this industry of strategic national priority?

Rigidity/flexibility – Are the products highly specialized,

capital intensive (can affect potential and risks)?

Restraints – Are there strong operating procedure restrictions

(imports, exports, FDI)?

19

G- Geographic Distance – Industry Sensitivity Indicators


Hazards/fragile – Is quality transportation and freight hazards a concern?

Weight/Value – Are the products high weight & low value?

Perishable – Does the product lose its value quickly (time-sensitive)?

Yes No

20

E – Economic Distance – Industry Sensitivity Indicators


Yes No

Cost Content – Is the product costing heavily dependent on local

factors (labor, material process, equipment, etc.)?

Scale – Is it difficult to standardize the product

to suit a wide range of international markets?

Pricing – Are the products price sensitive? Price negotiations on

price is very common when deciding to buy?

Distribution – Is the supply chain poorly developed and very

different from your home market?

21

What global connectedness offers (ADDING)

Source: Redefining Global Strategy, Pankaj Ghemawat, Harvard Business School Press, 2007

A – ADDING BUSINESS, production volume/economies of scale

D – DECREASING COSTS through regional costing differences

D – DIFFERENTIATING, offering different products

and solutions to increase willingness to pay more

I – IMPROVING COMPETITIVE ADVANTAGE

and bargaining power

N – NORMALIZE RISKS as success in one market

balances failures in others

G – GENERATING CAPACITY by spreading

and diffusing knowledge

22

ADDING Value Scorecard – A – Adding volume, or growth


Confirm the goals of entering a foreign market

or producing overseas

Forecast the profit potential of added growth and volume

Forecast potential on a global level, regional level,

national level, distributor level and end-user level

Determine the company capacity for expansion

Determine the effect of volume on competitiveness

Determine added supply requirements

23

ADDING Value Scorecard – D – Decrease Costs

Source: Redefining Global Strategy, Pankaj Ghemawat, Harvard Business School Press, 2007 24

Confirm where the cost reduction will come from

(separate all costs)

Explore any added cost that might occur

Explore any potential indirect costs

Project long-term cost increases

Determine fixed cost, variable costs and break-even point

Determine main factors that determine costs

increases/decreases (like currency movements)

Estimate any potential shortages that could influence costs

ADDING Value Scorecard – D – Differentiating

& increasing willingness to pay


Look at R & D-to-sales and advertising-to-sales ratios

in industry and your strengths among competitors

Focus on customer willingness to pay and product benefit

to them

Project impact of differentiation by global changes

Anticipate competitor reaction to your global strategy

Segment market appropriately

25

ADDING Value Scorecard – I – Improving bargaining power


Determine international differences in industry profitability

Determine any market entry/exit bearers

Determine customer switching bearers

Determine potential for substitution

Determine change on influence with suppliers

Determine change on influence on customers

Determine moves of competitors to response to your

cross-border operation

Explore and react to regulatory and nonmarket restraints

and local business ethics

26

ADDING Value Scorecard – N – Neutralizing risks


Identify the key risks in your industry

(capital intensity, labor concerns, supply

shortages, legal restrictions,

demand volatility)

Assess how much cross-boarder operations

reduce or increase risks

Compare benefits to risks by cross-boarder

operation

27

Risk rating for material development projects in rural areas

Source: Nippon Export and Investment Insurance

A Japan, Singapore, Germany, USA, Britain

B South Korea, Spain, Slovakia

C China, Malaysia, Poland, Chile

D Russia, India, Thailand, Mexico, Algeria, Morocco

E Philippines, Turkey, Hungary, Colombia

F Vietnam, Greece, Egypt, Angola

G Cambodia, Honduras, Cameroon, Bolivia

H North Korea, Myanmar, Iraq, Lebanon, Libya

Review national risk rating by governments, insurance companies

and financial institutions. They specialize in risk management.

Below is just on source rating anywhere in these countries. The

higher the risk, the greater the profit potential must be.

Highest

Lowest

RISK

28

ADDING Value Scorecard – G – Generating knowledge,

resources and capacity


Access local specifications and learn user requirements

Access local distribution requirements

Explore similar capacities that could be of value

Hold discussions with suppliers, consultants, target users,

distributors, political leaders and local firms

Hire people who are open, willing to learn and adapt

Create cross-boarder teams in diverse locations

Expand on cross-boarder interaction and assignments

Explore

valuable

diversity

29

Strategies for Global Value Creation


TRANSFER

EXPERTISE

Offer

new value

ADAPTATION

Make appropriate

market &

production

adjustments WEALTH

CREATION

Confirm profit

potential

30

Strategies for Global Value Creation - Adaption


ADAPTATION

Make appropriate

market &

production

adjustments

31

Strategies for Global Value Creation - Adaption


Design: reduce

process costs

Use production standardization,

platforms and modules to

reduce production costs

Focus: reduce

need for costly

variation

Target a specific region,

segment, product line or

value chain process

Innovation:

improve

effectiveness

Explore new

applications and

combinations for

the foreign market

Variation

Modify the product and

marketing promotional

program.

Externalization: reduce

variation burden

Outsource certain functions through

strategic alliances, franchising, etc.

32

Strategies for Global Value Creation – Transfer Expertise


TRANSFER

EXPERTISE

Offer

new value

33

Transferring expertise – Regional strategies


1. Regional or home focus: One processing location

mainly service home market. Small amount of second

market attention

2. Regional portfolio: Move to one off-shore foreign direct

investment to supply that market

3. Regional hub: Create an off-shore production operation

to serve the surrounding markets in that region

4. Regional platforms: Standardize components in each

production operation to supply several regions

5. Regional mandates: Awarding certain regions

assignments to specialize in specific global

responsibilities and roles.

6. Regional networks: A broad configuration of

coordinated processes to supply the whole cross-

boarder network of markets

90% of global companies

34

3. Regional hub

R2R1

1. Regional focus

R2R1

2. Regional portfolio

R2R1

= One product line

R = Region = minor effort

= minor effort

Home production,

major and minor

markets.

Major and minor

production, cross

sharing products

Major and minor

production, major

and minor markets

Increasing complexity & managerial challenge

with regional development issues,

supervision issues and coordination issues

Transferring expertise – Regional strategies review

35

6. Regional networks

R2R1

4. Platforms

R2

5. Regional Mandates

R2R1R1

Even more of a complex

managerial challenge

= One product line

R = Region = minor effort

= minor effort

R4R3

Products and

components for

global markets

Massive,

coordinated and

controls worldwide

supply system.

HQ request for

production

specialization for

global markets

Transferring expertise – Regional strategies review

36

Strategies for Global Value Creation – Wealth creation


WEALTH

CREATION

Confirm profit

potential

37

Wealth Creation – Questions to ask


1. Volume: Can wealth be created by adding volume

across-boarders?

2. Costs: Can costs be reduced by cross-boarder projects?

3. Differentiation: Can differentiation be created by cross-

boarder activities which increase willingness to buy?

4. Bargaining Power: Will bargaining power be improved

by crossing boarders?

5. Risks: Will risks be reduced by going across boarders?

6. Capacity: Will added skills, valuable experience and

knowledge be gained which will increase capacity

through foreign market activities?

38

Combinations of global value creation strategies


Selling products across boarders

Transfer

expertise mainly as is

Adapt mainly to local

market

Producing products across boarders

Ideal point

Ideal point

Where should your company be on these lines?

Where is the competition on these lines?

What will be your competitive advantage?

39

Getting started using a refined global strategy analysis


1. Performance Review: In what regions is the customer

underserved for your product? Can they be profitably

supplied?

2. Industry’s competitive environment: Who are the top

players in the industry? What cross-boarder production is

there? Are products standardized? Are prices moving up

or down? What is the relationship between costing and

volume? What is the main distribution method? How

important is advertising/marketing, R&D, labor costs,

capital investment in your industry?

3. CAGE: Do the CAGE analysis and determine market

differences.

4. Global Value Creation: Using the ADAPTATION, TRANSFER

EXPERTISE, WEALTH CREATION material, determine what

value could be created.

5. ADDING: Do the ADDING analysis and determine your ideal

strategy.

40

41

A successful global strategy has many benefits:

1. It can help a company expand when its industry is declining.

2. It can help a company reduce its costs much more that it can

in its home market only.

3. It can make a company far more competitive than its

competitors.

4. It can give a company bargaining power it does not have in

its domestic market only.

5. It can reduce a company’s overall risks.

6. It can provide great experiences which will develop its

overall abilities.