Session 16: Competing Around the World
The Third Dimension of Corporate Strategy
In previous sessions, we looked at the first two dimensions of corporate strategy: managing the degree of vertical integration and deciding which products and services to offer (the degree of diversification).
Now we turn to the third dimension: global strategy and competing effectively around the world.
Session 16 Objectives & Learning Outcomes
- LO 16-1: Define globalization, multinational enterprise (MNE), foreign direct investment (FDI), and global strategy.
- LO 16-2: Explain why companies compete abroad, evaluating the advantages and disadvantages.
- LO 16-3: Apply the CAGE distance framework to guide global expansion decisions.
- LO 16-4: Compare and contrast the different options MNEs have for entering foreign markets.
- LO 16-5: Analyze global strategy using the Integration-Responsiveness framework.
- LO 16-6: Apply Porter's Diamond framework to understand national competitive advantage.
The Global Paradox
"If Strategy is about winning, and Walmart is massively larger than IKEA, why do we consider IKEA the global winner?"
Walmart
The Financial GiantIKEA
The Global WinnerLesson: Global Strategy is not about how much you sell globally, but how well you cross borders relative to your size.
IKEA: The World's Most Profitable Retailer
From a small retail outlet in 1943 to a €55 billion global juggernaut shaping how the world furnishes its homes.
First Principle Inquiry
"How does a firm maintain a low-cost global standardization advantage while adapting to drastic demographic shifts like extreme urbanization?"
IKEA built its empire on massive suburban stores and 'build-it-yourself' flat-pack furniture. Yet, projections show that 70% of the world will live in dense cities by 2050, and younger generations loathe assembling furniture. Should IKEA abandon its core model entirely to survive?
Simulation: The Urbanization Challenge
Role-play: You are the CEO of IKEA. Foot traffic to your massive 320,000 sq. ft. suburban stores dropped from 1 billion pre-pandemic to around 850 million today. You must solve the "last-mile" and "assembly" friction points for urban Millennials. Choose your strategic initiative.
The world's most profitable global retailer is not Walmart but IKEA, a privately owned home-furnishings company from Sweden. By 2026, IKEA had nearly 520 stores in over 60 countries, employed over 250,000 people, and had revenues of more than €55 billion.
Known today for its iconic blue-and-yellow big-box retail stores that highlight its Swedish origins, its build-it-yourself furniture, and its focus on flat-pack furniture boxes, IKEA was the brainchild of 17-year-old Ingvar Kamprad, who opened a small retail outlet in 1943. Though IKEA is today a global phenomenon, it was initially slow to internationalize. It took 20 years before the company expanded beyond Sweden to neighboring Norway.
After honing and refining its core competencies of designing modern functional home furnishings at low cost and offering a unique retail experience in its home market, IKEA pursued an international strategy, expanding first throughout Europe and then beyond. This allowed IKEA to leverage its simple, straightforward design to sell the same style of home furnishings across the globe (Global-Standardization strategy). Its consistent product lines show that the IKEA aesthetic is welcome almost everywhere, growing quickly in developed markets and rapidly emerging economies such as China and India.
Supply Chain, Russia, and Geopolitics
From day one, IKEA strived to keep costs low to make products as affordable as possible without sacrificing design. To achieve economies of scale, they effectively manage a massive global supply chain. Although Asia accounts for a smaller fraction of IKEA's sales, this region provides roughly 35% of IKEA's inputs.
Geopolitical Reality Check: To protest Russia's invasion of Ukraine, IKEA closed all of its stores in Russia. Although Russia accounted for a mere 4% of IKEA's sales, it was a major supplier of wood, the most critical input for furniture companies.
Reinventing for the City & Solving the "Assembly" Pain Point
With projections that 70% of the world’s population will live in cities by 2050, IKEA is reinventing itself. It has firmly pushed toward newer retail formats, placing smaller stores in city centers like London, New York, and Paris. Despite the smaller format, IKEA offers its full range of products via a hybrid experience: in-store inventory coupled with online ordering for home delivery or click-and-collect locations.
Furthermore, research shows Millennials and Gen Z consumers are less inclined to spend frustrating hours assembling furniture. To address this major customer pain point, IKEA acquired TaskRabbit, a furniture assembly and delivery marketplace. They are even testing "IKEAbots" in Singapore to fully automate furniture assembly in the future.
Exhibit 16.1: IKEA Stores and Revenues (1974–2026)
Exhibit 16.3: Sales by Region
Exhibit 16.2: Top 5 Countries
What is Globalization?
It is not just selling abroad. It is the process of closer integration and exchange between different countries and peoples, driven by falling trade barriers and better telecommunications.
MNE (Multinational Enterprise)
A firm that deploys resources in at least two countries.
Examples: Boeing, Infosys, Samsung.
FDI (Foreign Direct Investment)
Investing in value chain activities abroad.
Invested $1B to be closer to customers (Delta) and avoid tariffs.
Stages of Globalization
1.0 (1900-1941): Sales/Operations. (Slow)
2.0 (1945-2000): MNEs replicate home model. (Scale)
3.0 (21st Century): Seamless global networks. (Integrated)
The $85 Trillion World Economy
Globalization of Talent
6 million students study abroad annually.
The Fabric of Globalization
Globalization is the process of increasing interconnectedness and interdependence among the world's economies, cultures, and populations.
Key Dimensions
- Economic: Integration of national economies through trade, foreign direct investment (FDI), and global supply chains.
- Cultural: The exchange and blending of ideas, values, and artistic expressions, often leading to a more shared global culture.
- Political: Growth of a worldwide political system and international organizations like the United Nations and WTO that manage global issues.
- Technological: The spread of innovations like the internet, smartphones, and 5G that facilitate instant global communication and digital trade.
Major Drivers
- Trade Liberalization: Reducing or removing tariffs and trade barriers through agreements like the USMCA.
- Transportation Innovations: The invention of shipping containers, jet engines, and high-speed rail has dramatically lowered the cost and time of moving goods and people.
- Digital Connectivity: High-speed internet and mobile technology allow businesses to manage global workforces and reach international markets with ease.
Impact and Debate: Pros vs. Cons
Globalization has delivered significant benefits but remains highly controversial.
| Pros (Benefits) | Cons (Challenges) |
|---|---|
| Poverty Reduction: Lifted hundreds of millions out of poverty, particularly in Asia. | Income Inequality: Gains are often unevenly distributed, widening the gap between rich and poor. |
| Consumer Benefits: Access to a wider variety of products at lower prices. | Job Displacement: Manufacturing and low-skilled jobs often move to countries with lower labor costs. |
| Innovation: Faster sharing of technology and scientific research. | Environmental Damage: Increased transportation and production contribute to carbon emissions and deforestation. |
| Global Cooperation: Encourages nations to work together on issues like climate change and pandemics. | Cultural Loss: Risk of cultural homogenization where local traditions are overshadowed by dominant global cultures. |
Globalization in Daily Life: Prominent Examples
1. Economic
- Supply Chains: An iPhone is designed in the U.S., uses chips from Taiwan and sensors from Germany, and is assembled in China.
- MNCs: Brands like McDonald’s adapt menus locally (McAloo Tikki in India).
- Outsourcing: A London company using a call center in Manila and IT in Bangalore.
2. Cultural
- Entertainment: Global popularity of K-Pop (BTS) and Anime via streaming platforms like Netflix.
- Food Fusion: Finding sushi, tacos, and curry on the same street.
- Language: The rise of English as a "lingua franca" for international business.
3. Technological
- E-commerce: Living in rural France and buying a handmade rug from Morocco via Etsy, processed by PayPal.
- Social Media: Platforms like TikTok allow a dance trend to go viral globally in hours.
4. Enviro & Political
- Climate Agreements: The Paris Agreement is a political response to a problem no single nation can solve alone.
- Global Health: The rapid sharing of genetic data and worldwide distribution of vaccines during the COVID-19 pandemic.
To provide the most relevant application of these concepts for you, consider the following:
• Are you looking for examples for a specific case study or exam?
• Are you more interested in mitigating the cons or maximizing the pros of these examples?
• Should we focus our next strategic simulation on a specific industry (like fashion, tech, or food)?
16.2 Why Go Global? Three Strategic Drivers
First Principle Inquiry
"Why do firms exist beyond their native borders?"
Welcome. A company operates perfectly well in its home country. Why take on the immense risk, cost, and complexity of expanding into a foreign market? What is the irreducible root cause?
Simulation: Boardroom Decision
Role-play: You are the CEO of 'AeroBikes', a premium US e-bike manufacturer. Sales are plateauing. Review the proposals from your VP of Strategy. Which strategic move aligns with our First Principles?
1. Access Markets
US market saturated. Future growth is 100% international.
Expanded to UK, Australia, NZ to find growth beyond India.
2. Low-Cost Inputs
Powerhouse for decades. Now shifting to "Designed in China 2025" (AI, Robotics) as wages rise.
Infosys, TCS, Wipro. Built on English-speaking talent + cost arbitrage. US giants (IBM, Google) invest heavily in Bangalore.
3. New Competencies
- AstraZeneca: Moved to Boston (Biotech).
- Unilever: Shanghai (Consumer insights).
GE Healthcare (India): Created the $800 MAC 400 ECG in Bangalore (vs $2000 US models). A "Reverse Innovation" now sold globally.
The Shift to Globalization 3.0: Many MNEs are now replacing the one-way innovation flow from Western economies to developing markets with a polycentric innovation strategy.
GE Global Research orchestrates a "network of excellence" with hubs in NY, Bangalore, Shanghai, and Munich. Emerging economies are becoming hotbeds for low-cost innovations like the MAC 400 (India) and Vscan (China) that disrupt developed markets.
16.3 The Liability of Foreignness
Expanding is dangerous. You don't know the culture, rules, or customers.
Stranger in a Strange Land
Disaster. Germans found "smiling greeters" creepy and hated having groceries bagged. Walmart lost billions.
Failed initially. Indians eat savory breakfasts (Idli, Dosa), not sweet donuts. Had to pivot to burgers.
16.4 Where to Compete?
Distance is Not Just Miles (CAGE Framework)
First Principle Inquiry
"What makes two places truly 'far' apart in business?"
Consider Target's catastrophic failure when expanding into Canada in 2013. Canada is right next door. They share a language, a border, and similar wealth. Why did Target lose billions?
Simulation: CAGE Distance Calculator
Select a target market to compare against the Home Market (United States). Observe how the dimensions of distance shift.
The CAGE Distance Framework (Exhibit 16.4)
Distance
Distance
Distance
Distance
Cultural
Values, Religion, Language
Ex: Beef in India
McDonald's had to reinvent menu (Maharaja Mac).
Administrative
Laws, Currency, Politics
Ex: Eurozone
Low distance within EU. High distance for US-China.
Geographic
Physical, Climate, Time
Ex: Himalayas
India & China are neighbors, but trade is hard.
Economic
Income, Infrastructure
Ex: Luxury vs Value
Mercedes in Germany vs. Maruti in India.
Cultural Distance
Gillette's Sharp Lesson in India
The Failure: Vector (2002)
In 2002, P&G launched the Vector razor in India. Research showed Indian men had thicker hair, so they added a plastic unclogging bar. It flopped. Why? The research was done with Indian students at MIT, not in India. A crucial insight was missed: most Indian men don't have running water. They shave using a cup of water. Without running water to rinse it, the "unclogging" bar clogged the razor instantly.
The Success: Gillette Guard
Learning from the face-palm moment, Gillette sent 20 people to India to spend 3,000 hours with 1,000 consumers in their homes. The result was the Gillette Guard. It had a single blade (for safety, not just closeness), an easy-rinse design for cup shaving, and a low cost. It became a bestseller.
Admin/Political Distance
The Vodafone Tax Saga
The Context (2007)
Vodafone acquired a 67% stake in Hutchison Essar, a major Indian telecom player. The deal took place offshore in the Cayman Islands between two foreign entities.
The Regulatory Shock (2012)
India's tax department demanded $2.2 billion in capital gains tax. When the Supreme Court ruled in Vodafone's favor, the government passed a retrospective tax law to override the court ruling and claim the money anyway.
The Impact
This move highlighted significant Administrative Distance risk. The unpredictability of India's regulatory environment spooked foreign investors, showing that legal institutions were not always independent of political will. (Note: The tax was finally scrapped in 2021).
Key Takeaway: Administrative distance includes legal stability. Unpredictable regulations act as a massive barrier to foreign investment.
Geographic Distance
Amul's Fresh Milk Challenge
The Context
Geographic distance isn't just miles; it's logistics, time zones, and climate. For Amul Dairy, exporting shelf-stable products to the U.S. was easy. But fresh milk? That's a different beast.
The Hurdle: Perishability
The extreme physical distance between India and the U.S. makes exporting fresh milk, buttermilk, and paneer logistically impossible. Maintaining an unbroken cold chain across thousands of miles adds massive costs, destroying margins in a competitive market.
The Solution (2024)
Amul didn't ship milk; they shipped the recipe. They partnered with the Michigan Milk Producers Association to process milk locally in the U.S. using Amul's standards.
Key Takeaway: When geographic distance makes trade impossible (e.g., perishables), switch from "Exporting" to "Strategic Alliance" (local production).
Geographic Failure
Rural Logistics (PepperTap/Doodhwala)
The Failures: PepperTap & Doodhwala
Startups like PepperTap and Doodhwala aimed to revolutionize grocery delivery in India. They failed largely because they underestimated the Geographic Distance within India itself.
The Hurdle: Last-Mile Connectivity
In suburban and rural India, lack of standardized addresses and poor road infrastructure made last-mile delivery highly inefficient and costly. Drivers spent too much time locating customers.
Infrastructure Woes
Bad roads and traffic congestion increased delivery times and vehicle maintenance costs. A lack of quality local warehousing meant inventory had to travel further, making the business model unsustainable for low-margin, high-volume products outside major cities.
Key Takeaway: Geographic distance includes internal infrastructure. Scaling logistics models from urban to rural settings fails if infrastructure doesn't support low-margin, high-volume delivery.
Administrative Distance
Regulatory & Institutional Mismatches
Karuturi Global (Ethiopia)
Leased 100k hectares in Ethiopia. Failed due to shifting regulations, land disputes with indigenous communities, and the government cancelling the lease. Highlighted the risk of weak property rights institutions.
Satyam Scandal (Internal)
Massive accounting fraud ($1B+). While internal, it damaged "Brand India" globally, increasing the perceived administrative distance (trust/governance risk) for foreign investors.
Home Depot (China)
Failed because the Chinese government focuses on large construction, and labor is cheap. Chinese consumers don't "Do-It-Yourself" (DIY); they hire cheap labor ("Do-It-For-Me"). Administrative and economic mismatch.
Google (China)
Exited due to direct conflict with government censorship laws. A purely political/administrative incompatibility.
Economic Distance
Income & Aspirations
Tata Nano ("The Cheap Car")
Marketed as the "world's cheapest car" to target low-income families upgrading from scooters.
The Mistake: Marketing created an economic perception gap. In India, a car is a status symbol. Nobody wanted to be seen driving the "cheapest" car. It failed because it ignored the aspirational aspect of economic distance.
16.5 Strategies for Entering Foreign Markets
Assuming an MNE has decided why and where to enter a foreign market, the critical remaining decision is how to do so.
The Investment & Control Continuum
Modes of Foreign-Market Entry (Exhibit 16.7)
(Licensing, Franchising, JV)
(Acquisition, Greenfield)
HOW DO MNEs ENTER FOREIGN MARKETS?
Assuming an MNE has decided why and where to enter a foreign market, the remaining decision is how to do so. The chart above displays the different options managers have when entering foreign markets, along with the required investments necessary and the control they can exert.
On the left end of the continuum are vehicles of foreign expansion that require low investments but allow for only a low level of control. On the right are foreign-entry modes that require a high level of investments in terms of capital and other resources, but afford a high level of control. Foreign-entry modes with a high level of control such as foreign acquisitions reduce the firm’s exposure to two particular downsides of global business: loss of reputation and loss of intellectual property.
Exporting—producing goods in one country to sell in another—is one of the oldest forms of internationalization (part of Globalization 1.0). It is often used to test whether a foreign market is ready for a firm’s products. When studying vertical integration and diversification (in earlier sessions), we discussed in detail different forms along the make-or-buy continuum. Strategic alliances (including licensing, franchising, and joint ventures) and acquisitions are popular vehicles for entry into foreign markets.
The framework illustrated above, moving from left to right, has been suggested as a stage model of sequential commitment to a foreign market over time. Though it does not apply to globally born companies such as internet companies, it is relevant for manufacturing companies that are just now expanding into global operations. In some instances, the host country requires foreign companies to form joint ventures in order to conduct business there, but some MNEs prefer greenfield operations—building new, fully owned plants and facilities from scratch.
Case Example: Manufacturing Entry
Motorola received permission to build a fully owned plant in China when it entered (in the 1990s), as did Tesla when it built its Giga factory in Shanghai, with the first cars (Models 3/Y) rolling off the assembly line in 2020. Tesla cars built in China are for the domestic market and for export to European markets. Estimates indicate that Tesla’s production cost per car is about 30% lower in China than in the United States, with no quality differences.
LO 16-4: Compare and contrast the different options MNEs have for entering foreign markets.
16.6 How to Compete?
MNEs face two opposing forces when competing globally: Cost Reduction versus Local Responsiveness. The "Globalization Hypothesis" suggests consumer needs are converging (e.g., iPhones are desired everywhere), favoring cost reduction. However, national differences (culture, infrastructure) persist, requiring local adaptation.
First Principle Inquiry
"How do we balance the universal need for efficiency with the local demand for relevance?"
If a company standardizes its product globally, it achieves massive economies of scale (low cost). But what does it sacrifice?
Simulation: Strategic Positioning Matrix
Read the case brief below. Based on the firm's need for Cost Reduction vs. Local Responsiveness, classify their strategy.
Integration-Responsiveness Framework (Exhibit 16.8)
Strategies of Global Competition
Integration-Responsiveness Details (Exhibit 16.9)
| Strategy | Characteristics | Benefits & Risks | Global Giants | Indian Examples |
|---|---|---|---|---|
|
International
Low Cost Pressure Low Local Pressure |
Leverage home-based core competencies. Sell the same product globally. |
|
Rolex Sells Swiss luxury worldwide without adaptation. |
Royal Enfield Sells the "Himalayan" rugged experience globally. |
|
Multidomestic
Low Cost Pressure High Local Pressure |
Maximize local responsiveness. Duplication of key functions across countries. |
|
Nestlé Customizes food products heavily by country. |
Godrej Consumer Tailors products specifically for African/Indonesian needs. |
|
Global-Standardization
High Cost Pressure Low Local Pressure |
Economies of scale. Global division of labor. Standardized commodities. |
|
Lenovo Sells standardized computer hardware globally. |
Infosys / TCS Delivers standardized IT services via a Global Model. |
|
Transnational
High Cost Pressure High Local Pressure |
"Think Globally, Act Locally." Combines high differentiation with low cost. |
|
Unilever Attempts to standardize back-end, keep front-end local. |
Tata Motors Integrates JLR (Luxury/Global) tech with Indian operations (Local). |
16.7 National Competitive Advantage
Why do some nations lead? Porter's Diamond Framework.
First Principle Inquiry
"Why do certain nations consistently produce the world's best firms in specific industries?"
Traditional economics states that nations succeed based on natural resources (land, unskilled labor). Does this explain why Japan, a nation with almost zero natural resources, dominates global auto manufacturing?
Simulation: Deconstructing the Diamond
Case: The German High-Performance Auto Industry (BMW, Porsche, Mercedes). Click on each node of the Diamond to uncover why Germany dominates this sector globally.
Natural resources (oil, minerals) are often not needed to generate world-leading companies. In fact, many resource-rich countries (e.g., Venezuela, Iran) are not home to leading global firms. In contrast, countries that lack natural resources (e.g., Japan, Singapore, Switzerland) often develop world-class human capital to compensate.
Michael Porter advanced a framework to explain National Competitive Advantage—why some nations outperform others in specific industries. It consists of four interrelated factors known as Porter's Diamond.
1. Factor Conditions
"Constraint breeds creativity."
A nation's position in factors of production, such as skilled labor or infrastructure, necessary to compete in a given industry. Paradoxically, disadvantages in basic factors can create pressures to invest in advanced factors.
Silicon Valley: Density of specialized engineering talent fueled the tech boom.
Infosys / TCS: Leveraged English-speaking engineering graduates to overcome infrastructure gaps.
2. Demand Conditions
"Tough customers create great firms."
The nature of home-market demand. Sophisticated and demanding local customers push firms to innovate and improve quality.
Nokia (Finland): Remote populations demanded reliable mobile comms for survival.
Paytm / UPI: Lack of POS terminals + demonetization created huge demand for digital payments.
3. Competitive Intensity
"Diamonds are forged under pressure."
Companies that face a highly competitive environment at home tend to outperform global competitors. Fierce domestic rivalry forces efficiency.
German Auto: Intense rivalry + Autobahn forces superior engineering performance.
Telecom (Jio): Brutal price wars created the world's cheapest mobile data and extreme efficiency.
4. Related & Supporting Industries
"Success attracts success."
The presence of supplier industries and related industries that are internationally competitive allow for fast knowledge sharing and innovation spillover.
Toyota: A network of world-class suppliers enabled lean manufacturing and knowledge sharing.
Chennai Auto Cluster: A dense network of component makers supports Hyundai, BMW, and Ford factories.
The Strategist's Summary
Global strategy is a balancing act. You must navigate the CAGE Distance, choose the right Entry Mode to protect your IP, and balance Cost vs. Localization.
Global Domination: The CEO Challenge
Take the helm of TechNova. Navigate 5 critical strategic crossroads. Feedback is delayed until the end. Only the best strategists survive.
Mission Briefing
TechNova dominates the US market. Shareholders demand global growth. You must expand internationally without destroying the company.
Scenario Title
Scenario description...
Test Your Knowledge
Have you mastered the concepts of Global Strategy, CAGE, and Entry Modes? Complete these 15 questions to certify your understanding.