Global strategy

Global strategy is the challenge of adapting your strategy to new countries and new conditions. It is useful when you want to go international. Why do companies go international? Most of the time, companies use reasons like "our home market is too small", "It is key to have global access to clients", "This is the only way to survive"... Most companies do not think this through enough. Sometimes the strategy, to start with, is questionable. Most of the time, globalization fails because the implementation is actually bad.

What you should ask before going international
Before you decide to gro abroad, you need to understand where and how to invest.

Step 1: Use the CAGE framework to understand the attractivity of the targeted market Step 2: Choose the correct entry mode. For simple exportation to full-on green fields. Step 3: Choose a relevant governance mode. It has to be adapted to your sector, your strategy and the targeted country. Step 3: Be systematic. Allow your company to learn and build capabilities and knowledge with time.

The importance of Nations
Companies acquire competitive advantages through innovation, both using new technologies and new ways of doing things. Most of the innovations are incremental, based on small progress rather than huge breakthrough. Some innovation create a competitive advantage by creating new market opportunity or exploiting segment previously ignored. If the competition is slow to respond, you have the time to create your advantage.

Innovation often come from outside the company or the field or the country. Innovation often requiere to look at an old problem in a new way, perceiving oppotunities missed by the others. It can also be bringing ideas and technologies and/or skills from other places.

Innovation need to be pursued and protected. A competitor will always find a way to catch up or copy an innovation, reducing the competitive advantage. Companies need to keep innovating to substain their advantage even if it means making a previous advantage obsolete.

National competitivenes
National competitiveness cannot be corelated to either macroeconomic factors (interest rate, exchange rate, etc), labor cost and abundance, or natural ressources. For each of these factors, we can identify countries that suceed or failed with or without them.

The most logical explication seems to relateto productivity. Productivity is the value of the output produced by each unit of labor or cpaital. The previous factors influence competitiveness when they influence productivity.

No nation can be competitively productive in all aspect of its economy. Therefore nations should focus foreign investements and trade in the industry where they are the most productive.

Competitiveness of a nation should not be seen as a national indicator but rather be focused on each and every industries and industries segment. Once we have this framework in mind, we can finaly understand why some companies, based in some countries, are better than others.

Distance still matters (HBR)
Distance does not necessarily relate to miles and km. We can analyze distance in at least 3 others dimensions: cultural distance (religion, race, norms, language), Administrative (currency, colony-colonized, ...) and Economic (income, distribution, ...).

Before moving to a new country, it is important to consider all aspect and how they will impact your business.

Traditional approach
Traditionaly, business use CPA (Country Potential Analysis) to evaluate the likelihood of a sucessfull foreing business developpement. This analysis is based on national GDP, consumer wealth, propensity to consume, etc. It fails to take into accountthe cost and risk of doing business this specific market.

But GDP and trade a not that strongly related. 1% increase in GDP lead to only 0.7-0.8% increase in trade. On the other hand, when you multiply distance by 5 you divided trade by 5. Common currency or common trade agreement increase trade by 300+%.

These 4 factors must also be ponderate according to industry and company specificity.

Readings
The competitive advantage of nations - Michael Porter

Organizing for worldwide effectiveness - Christopher A. Barlett, Sumantra Ghoshal