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Published on March 14, 2008

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MBA Oxford Lectures – 2005 :  MBA Oxford Lectures – 2005 Cornelis A. “Kees” de Kluyver Henry Y. Hwang Dean and Professor of Management Peter F. Drucker and Masatoshi Ito Graduate School of Management Claremont Graduate University Claremont, CA 91711 St. Peter’s College, July 17-28, 2005 Slide2:  Part I – Globalization and International Trade by Cornelis A. “Kees” de Kluyver Henry Y. Hwang Dean and Professor of Management Peter F. Drucker and Masatoshi Ito Graduate School of Management Claremont Graduate University Claremont, CA 91711, U.S.A. Based in part on Cornelis A. de Kluyver and John Pearce, II, STRATEGY: A VIEW FROM THE TOP, Second Edition, Prentice Hall, 2006 Globalization Is Still Widely Misunderstood..:  Globalization Is Still Widely Misunderstood.. As a phenomenon/process There are many “myths” about globalization What it means for business The nature of the challenges Three Myths About Globalization:  Three Myths About Globalization Myths: The World Has Become Truly Global Globalization’s principal dimensions are economic, political and technological Globalization is a zero-sum game Myth 1: The World Has Become Truly Global:  Myth 1: The World Has Become Truly Global Reality: Measuring Globalization…:  Reality: Measuring Globalization… When you can measure what you are speaking about, and express it in numbers, then you know something about it. Lord Kelvin “Global” Trade/Investment Flows?*:  “Global” Trade/Investment Flows?* U.S. or NAFTA European Union Japan or Asia Growing but small as a percentage of the total *Source: Alan M. Rugman: The End of Globalization, Random House Business Books, 2000 Rest of the World: Negligible “Global” Business? – A Reality Check:  “Global” Business? – A Reality Check The World’s 500 largest corporations..* U.S.: 192 Europe: 159 Japan: 88 Rest of the World: 61 * Source: Fortune Global 500, 2003 The Globalization Index*:  The Globalization Index* Sample Questions: To what extent is a country global? Is globalization increasing or declining? What is the impact of the Web on the global economy? * Source: Foreign Policy Magazine Mar-Apr 2004. Globalization Index TM . Copyright 2001, A.T. Kearney and Carnegie Endowment for International Peace Slide10:  For the third year in a row, Ireland ranks as the most global nation in the survey, due to the country's deep economic links and high levels of personal contact with the rest of the world. Western Europe claimed 6 out of the 10 most globally integrated countries. The United States broke into the top 10, ranking first in the number of secure servers and Internet hosts per capita. Countries from Central and Eastern Europe, Australasia, and Southeast Asia also made it into the upper tier. Economic Integration: trade, foreign direct investment, portfolio capital flows, and investment income Technological Connectivity: Internet users, Internet hosts, and secure servers Personal Contact: international travel and tourism, international telephone traffic, and remittances and personal transfers (including worker remittances, compensation to employees, and other person-to-person and nongovernmental transfers) Political Engagement: memberships in international organizations, personnel and financial contributions to U.N. Security Council missions, international treaties ratified, and governmental transfers Findings - 2004 Slide11:  Ireland ranks as the most global nation Slide12:  Myth 2: Globalization’s Principal Dimensions Are Economic, Political, and Technological Other Dimensions Are Becoming Increasingly Important :  Other Dimensions Are Becoming Increasingly Important Trade, FDI, International calls & Internet traffic serve as useful measures of global interdependence but… Not all relevant dimensions can be quantified by this approach Spread of culture & ideas Forces beyond the ability of the individual nations Global warming Spread of infectious diseases Rise of transnational crime Significant Concerns and Counter Effects Have Developed…:  Significant Concerns and Counter Effects Have Developed… Global Village: Need for identity Environmental concerns Social Justice & Economic Participation Regionalism as a defense Perceived diminished power of states Slide15:  Levels of globalization vs. life expectancies at birth Finding: people in the more global countries tend to live the longest. The same holds true when only developing countries are examined. Life Expectancy Slide16:  Levels of globalization vs. levels of religious participation Does global integration lead to secularization? Religion Slide17:  Levels of globalization vs. women's well-being Does globalization create new job opportunities for women? Yes Women’s well-being Key: Globalization Has Acquired A New Dimension:  Key: Globalization Has Acquired A New Dimension Economic Political Technological Psychological Slide19:  Culture is the most visible manifestation of globalization, whether it is the appearance of new cultural forms (such as Disneyland Paris) or the transformation of traditional cultural expressions into something a bit different (such as Egyptian McDonald's restaurants serving their patrons “McFalafel”). Cultural Globalization? Slide20:  Myth 3: Globalization is a Zero-Sum Game Economic Aspects of Globalization are still not well understood:  Economic Aspects of Globalization are still not well understood Benefits of international trade? theories show why countries should trade for products/ services even when they can produce them domestically Patterns of international trade? theories show why countries specialize the way they do Role of the government? theories help articulate the role of government policy Trade – The Big Picture:  Trade – The Big Picture Pattern of Trade Trade is based primarily on comparative advantage and specialization. Trade flows may arise from differences in technology, endowments, tastes, first-mover advantage, random. Gains from Trade Trade is not zero-sum, there are mutual gains to trade. But gains may be unequally distributed within a country. Result is pressure by concentrated groups for protectionism. Protectionism Attempts by government to shield economy from trade hurt welfare generally, but may improve welfare of sectors. Fundamentals of Trade:  Fundamentals of Trade Absolute vs. Comparative Advantage Gains from specializing in producing goods for which have a comparative, not absolute, advantage. Trade & Specialization Nations specialize their production and trade for what they have a comparative disadvantage in. Relative Wages What matters for trade is relative cost versus relative productivities. Mutual Gains from Trade Increased range of consumption choices for each nation relative to no trade (autarky). Winners and Losers from Trade:  Winners and Losers from Trade Trade & specialization result in: Lower prices and higher domestic consumption for imported products. Domestic Consumers benefit from lower prices and larger quantity and/or variety purchased. Large number of people each with small gains – Collectively large gains to the economy. Domestic Producers hurt as firms suffer losses, leave industry and workers lose jobs. Small number of firms/people each with significant losses Collectively NOT a big loss to the economy. Ignores dynamic effect on economy as workers move from losing to winning industries – our export firms. Instruments of Trade Policy:  Instruments of Trade Policy Tariffs are taxes levied on imported goods. Specific Tariff: levied as fixed amount on each unit of goods imported. Ad Valorem Tariff: a tax levied as a fraction of the value of goods imported. Export Taxes or Subsidies levied on exported goods. Either as specific tax (subsidy)or as an Ad Valorem tax (subsidy) on exports. Non-Tariff Barriers (NTB’s) Import Quotas: Limitations on the quantity of imports. Export Restraints: Limitations on quantity of exports (usually imposed by exporting country). Other NTB’s Slide26:  Tariff for a Small Country Price, P Quantity, Q SH PW D0 DH 2. Consumer surplus falls by areas: a + b + c + d 3. Producer surplus rises by area: a 4. Government revenue rises by area: c 5. Deadweight loss (cost of protection): b + d (= pro’dn loss + consump loss) S0 Other NTB’s :  Other NTB’s Government Procurement Provisions Restrict purchase of foreign goods by home gov’t agencies. Domestic Content Provisions Reserve some of value-added & product sales to home producers. Administrative Classification Import duty depends on classification, gives leeway to customs. Restrictions on Services Trade Less visible. Restrict foreign provision of certain services. Health, Safety, or other Standards Some standards reflect not safety concerns but restrictions on imports. Industrial Policy as an NTB:  Two firms, one industry, new aircraft decision. Produce or Not Produce. Payoff Table at right. Payoffs to each given strategy choice of other. Assume particular structure. Features: If both firms choose to produce new aircraft, both suffer losses. If either firm is sole producer, then they make substantial profits. Equilibrium: Advantage to firm that moves first. First-mover captures entire market, no incentive for other firm to enter. No unique equilibrium. A firm could guarantee market if had a credible commitment to enter. Industrial Policy as an NTB Subsidies as an NTB:  Subsidies as an NTB Targeted Gov’t subsidy can provide a credible entry commitment. Assume EU guarantees Airbus a $25 mill. Subsidy to produce new aircraft. New Payoff Table at right. Payoffs to Airbus change. Features: Profitable for Airbus to enter regardless of Boeing strategy. Boeing knows Airbus will enter, so Boeing will not to avoid loss. Equilibrium with Subsidy Subsidy ensures Airbus produces new aircraft & Boeing does not enter. EU Subsidy acts as deterrent to U.S. firm, allows EU industry to capture industry. World Trade Organization (WTO):  World Trade Organization (WTO) General Agreement on Tariffs and Trade, GATT (1947) Multi-lateral commitment to reducing trade barriers, sponsored Kennedy Round (1962 – 67) Tariffs reduced average 35% on 2/3 of manufactured goods. Tokyo Round (1974 – 79) Tariffs fall 1/3 on manufactures, restrict NTB’s, Non-reciprocity principle for developing countries. Uruguay Round (1986 – 93) Tariffs fall 34% on manufactures, agricultural subsidies cut 36% Textile quotas (MFA) phased out 2005, nat’l treatment for services under GATS, establish WTO to replace GATT. World Trade Organization, WTO (1995) Doha Development Round (1999 – ongoing) Focus on tariff reductions for development, agriculture tariff reductions, trade-related intellectual property issues (TRIP’s) Issues in Trade Negotiations:  Issues in Trade Negotiations Doha Development Round (1999 – ongoing) Tariff reductions for development G21 countries vs. G7 Agriculture tariff reductions: G21 & Cairns Group vs. EU and US Trade-related intellectual property issues (TRIP’s) Singapore issues Government Procurement programs Investment treatment Financial Service access Anti-Globalization (Seattle 1999) Anti-sweatshop campaigns, Child Labor opponents Fair trade advocates Trade and the environment, labor, women, etc. Other International Organizations:  Other International Organizations International Monetary Fund (IMF) Established as central bank to support Bretton-Woods system of fixed exchange rates Now International Lender of Last Resort for countries with debt and/or currency crises World Bank Established as international bank to promote development for poor countries. Used to fund large infrastructure projects (dams, etc) Recent focus on sustainable development and addressing income inequality International Capital Mobility:  International Capital Mobility Foreign Direct Investment (FDI): Movement of capital that involves ownership and control. Generally involves foreign subsidiary of Multi-National corporation (MNC) Flow of “real capital” primarily affects nation’s production or income. Foreign Portfolio Investment (Hot Money): Capital flows that do not involve ownership or control. Flow of “financial” capital primarily affects nation’s Balance of payments or exchange rate. Considerable international capital mobility today. Capital should flow to areas where expectation of higher return. Reasons for FDI:  Reasons for FDI Firms invest abroad: as response to large and growing international demand for their products. to secure access to mineral or raw material supplies. to access markets with high tariff or non-tariff barriers. EU “Tariff factories” to “get behind the tariff wall”. in countries with low relative wages. as defensive measure to protect market share. as means of risk diversification against economic or exchange rate fluctuations. Developed country firms invest in countries with similar per-capita incomes, and so similar demands for products. Regional Trade Blocs:  Regional Trade Blocs Free Trade Area All members of the bloc remove tariffs on each other’s products but retain independence in setting trade policy with non-members. Possibility of transshipments within FTA. Customs Unions All tariffs removed between members and common external trade policy for nonmembers – common external tariff. Common Market All tariff barriers and all barriers to factor movement removed between members plus common external trade policy. Economic Union Common market plus unification of economic institutions and economic policies. If adopt common currency adopted then termed a monetary union.. Trade Diversion or Creation?:  Trade Diversion or Creation? Trade Creation Regional trade bloc leads to shift in product origin from higher cost domestic producer to lower cost producer in member country. Similar effect to moving to free trade. Trade Diversion Regional trade bloc leads to shift in product origin from lower cost non-member producer (before tariff) to higher cost producer in member country. Opposite effect to moving to free trade. Regional Trade Arrangements desirable if Trade creation greater than trade diversion. The European Union:  The European Union Treaties of Rome, etc. 1951: establish European Steel and Coal Community 1957: European Economic Community established. Goal - Integrated market in goods, services, capital & people. European Community (EC) expands from original 6 to 15 members in 1973. Continues periodic expansion. 1968: eliminated tariffs on intra-EC trade & adopts common external tariffs. High growth rates of members 1961-1970 Disappointingly low growth 1970’s-1980’s 1986: Single European Act sets removal of all internal market restrictions for 1992. European Union Political implications of establishing supra-national institutions Cultural and social dimensions to economic liberalization The Euro, €:  The Euro, € European Monetary System (EMS) 1979: creation of new monetary unit, ecu plus Exchange Rate Mechanism, ERM European currencies linked target exchange rates within tight bands supported by all European governments. European currencies as a whole float against $, yen, etc. European Monetary Union (EMU) 1991: Maastricht Treaty established goal of common currency. 1999: 11 of 15 EU countries fix exchange rates to begin. 2000: new currency, the euro, €, begins to circulate, national currencies retired. Euro floats against all other currencies. Required new central bank, the ECB, and strict set of rules on national fiscal policy. Monetary and Fiscal Policies:  Monetary and Fiscal Policies European Central Bank (ECB) Based on U.S. Fed Reserve model. Set monetary, interest rate & exchange rate policies. Currently worries about high inflation, strong €, and slow economic growth. European Fiscal Policy High unemployment and social benefits. Future problems with state pension schemes. High budget deficits relative to Stability Pact level of 3% of GDP. Agricultural subsidies and enlargement. EU Accession:  EU Accession May 1, 2004 saw enlargement of EU to include: Poland, Czech Republic, Hungary, Slovak Republic, Slovenia, Lithuania, Cyprus, Latvia, Estonia, and Malta Features of these countries All have much smaller economies and much lower per capita GDP’s than existing EU members (except for Greece). Majority have increased trade with EU greatly in past 5 years. 2002 share of EU in exports - 63% up from 53% in 19 Increase in foreign direct investment capital flows from EU to these countries in anticipation of accession. Many have large fiscal problems with mushrooming public debt, high levels of unemployment, potential political instability. Also migration, financial market stability, and infrastructure concerns. Political and cultural differences EU Trade Issues:  EU Trade Issues Agriculture Common Agricultural Policy (CAP), recent announcements, relation to enlargement. GMO’s Soybeans, beef and hormones, Microsoft, finance Industrial Subsidies Airbus & Boeing, National champions, Golden shares Labor and (non-) migration Lack of mobility across countries Problems with pensions and social benefits. Mercosur:  Mercosur Southern Cone Common Market (Mercosur) Established 1991 by Argentina, Brazil, Paraguay and Uruguay. Chile and Bolivia join later as associates. Combined population exceeding 200 million, combined GDP over $1 trillion. Customs Union No tariffs between members, common external tariff. Also agreement on capital – no restriction on flows and protection against expropriation 1995: Intellectual property protections approved. Trade diversion Widely acknowledged that Mercosur has resulted in significant trade diversion, i.e. trade shifted into Mercosur and away from rest of world. From Trade to Strategy:  From Trade to Strategy Determinants of National Competitive Advantage: Porter’s Diamond:  Determinants of National Competitive Advantage: Porter’s Diamond Firm strategy, structure, and rivalry Demand conditions Factor endowments Related and supporting industries Chance Government Porter’s diamond - national competitive advantage:  Porter’s diamond - national competitive advantage Outgrowth of “new” trade theory Focus on four national attributes: factor endowments demand conditions related and supporting industries firm strategy, structure, rivalry Note: Governments can influence all four Implications for business:  Implications for business Location of production is a key variable Being a first mover, while risky, can have substantial payoffs Government policy can have an important influence on competitiveness Tariffs Subsidies Import quotas (and “voluntary” export restraints Local content requirements Administrative trade policies (bureaucratic hurdles) Toward A New Framework for Global Strategic Thinking:  Toward A New Framework for Global Strategic Thinking Based on Sources of Global Competitive Advantage Models of Industry Globalization Potential Strategic Trade Theory With Market dimensions that are business-specific, industry-specific force companies to rethink their strategic intent, global architecture, core competencies, and their entire current product & service mix And Non-market dimensions that are defined by Social, Political and Legal arrangements often involve public institutions are much more important in a global context reflect heterogeneity of global economy Sources of Global Competitive Advantage:  Sources of Global Competitive Advantage Strategic National Economies Economies Objectives Differences of scale of scope Achieving Benefiting from Expanding & Sharing of Global differences in exploiting potential investments & Efficiency/ factor costs costs Local Responsiveness Managing Risks arising from Balancing scale with Portfolio Risk policy induced strategic & operational diversification of changes flexibility risks Innovation Learning from Benefiting from Shared learning Learning & societal experience- cost across Adaptation differences reduction & innovation organizational components Market Dimensions/Issues of Global Strategy:  Market Dimensions/Issues of Global Strategy Issues: Will increased international presence improve our competitive position? What is the attractiveness of investing abroad compared with investment in the U.S.? How much geographic focus should we have? What are the key success factors in competing globally? Where should we concentrate value-added activities? How much can we standardize core products or services? Dimensions: Market positioning Market Participation Products / Services Activity Concentration Partnering Coordination of Decision Making Non-Market Dimensions of Global Strategy :  Non-Market Dimensions of Global Strategy Dealing with Political risk Country/ Socio-cultural Risk Dealing with Government/Regulatory Institutions Trade Policy Issues Special Interest Politics Corporate Governance Summary:  Summary Globalization is still largely misunderstood The pressure for corporate globalization is driven not so much by diversification or competition as by the needs & increasingly global preferences (psychology) of customers. Global Strategy is different Elements of Strategic Trade Theory Market and non-market dimensions Market and Non-Market Dimensions must be integrated for global success Slide52:  Acknowledgements Sources:   Cornelis A. de Kluyver and John A Pearce II, STRATEGY: A VIEW FROM THE TOP, Second Edition, Prentice Hall, 2006 George S. Yip, TOTAL GLOBAL STRATEGY: Managing for Worldwide Competitive Advantage, Prentice Hall, 1992, Chapters 1 and 2.   Foreign Policy, March-April 2004 Part II: Creating Global Competitive Advantage by Cornelis A. “Kees” de Kluyver Henry Y. Hwang Dean and Professor of Management Peter F. Drucker and Masatoshi Ito Graduate School of Management Claremont Graduate University Claremont, CA 91711, U.S.A.:  Part II: Creating Global Competitive Advantage by Cornelis A. “Kees” de Kluyver Henry Y. Hwang Dean and Professor of Management Peter F. Drucker and Masatoshi Ito Graduate School of Management Claremont Graduate University Claremont, CA 91711, U.S.A. Based in part on Cornelis A. de Kluyver and John Pearce, II, STRATEGY: A VIEW FROM THE TOP, Second Edition, Prentice Hall, 2006 Analysis: Four sets of drivers shape industry globalization:  Industry Globalization Potential Analysis: Four sets of drivers shape industry globalization Market Drivers Evolution of customer needs Global customers Global Channels Transferability of marketing Governmental Drivers Trade barriers Regulatory climate Technology/ standards Economic Drivers Nature of industry Economies of scale/ location Differences in country costs Competitive Drivers Interdependence between countries/ regionc Globalization of competitors Source: Yip Market drivers: How global are your customer needs?:  Market drivers: How global are your customer needs? Need Benefit Requirements At which level is your customer global? Source: Jeannet Market drivers: How global are purchasing patterns?:  Market drivers: How global are purchasing patterns? How do your customers prefer to do business? Competitive drivers: Compete where? With whom? How?:  Competitive drivers: Compete where? With whom? How? The world Regional Countries Questions to ask... How many different Do you always Do you always Do you cross environments do you face the same face the same subsidize in face? competitors? strategy? different markets? Economic drivers: What defines critical mass?:  Economic drivers: What defines critical mass? Identify critical business elements that demand a minimum scale, usually in the form of fixed costs R&D Manufacturing Market presence Product/ Service support Such critical mass considerations drive many of today’s mergers and acquisitions Question: Do we have the required critical mass? Market/Economic/Competitive drivers: Key success factors? :  Market/Economic/Competitive drivers: Key success factors? Leverage Country A Application elsewhere KSF’s KSF’s Questions to ask: 1. What are the Key Success Factors? 2. Can they be leveraged globally? Government drivers: What regulations or standards affect us?:  Government drivers: What regulations or standards affect us? Telecoms Banking Pharmaceuticals Patent issues? Does this logic affect you? Your customers? Your suppliers? Does it change your global strategic perspective? Insurance Regulation/ Deregulation or Standards Creating Global Advantage – Five Key Choices:  Creating Global Advantage – Five Key Choices Market participation Activity Concentration Standardization Integration Risk posture Market participation: “Must” Markets?:  Market participation: “Must” Markets? A successful global strategy is shaped around the notion of “must” markets/opportunities... “must” markets/ opportunities Needed for reasons Needed because they define Needed because the of product volume a cutting edge technology outcome of global competitive leadership leadership is decided there Assessment for your business? Activity concentration: global resource allocation is complex:  Activity concentration: global resource allocation is complex Activity concentration: Integration?:  Activity concentration: Integration? Strategic alliances can boost contribution to fixed cost while expanding global reach Implication: Vertical and horizontal integration are becoming less important to growth/profitability What should (can) we standardize? :  What should (can) we standardize? Integration of Activity:  Integration of Activity Strategic Integration Strategic interdependence of business units Operational Integration Sharing of strategic capabilities Administrative Integration Centralized vs. decentralized decision making Global strategic intent should explicitly consider risk:  Global strategic intent should explicitly consider risk Market share objectives may require earlier or greater commitments to a market than current returns can justify If overdone or implemented poorly, activity concentration carries risk Diminished responsiveness to local needs Greater exposure to cyclical trends, currency risk, political risk And any globalization strategy incurs substantial coordination costs Summary: Global strategy dimensions:  Summary: Global strategy dimensions Summary: Global strategy dimensions:  Summary: Global strategy dimensions What does “global” mean? What is a global brand?:  What does “global” mean? What is a global brand? Source: Basu The global brand strategy matrix:  The global brand strategy matrix Same The Message Different The Offer Same Different Global Global “Mix” Message Global Global Offer Change Question: What does “global” mean? Global Mix: One offer, One message:  Global Mix: One offer, One message Key drivers: Homogeneous benefits/use patterns Economies of scale E-channels Deregulation M&A Identical competitive patterns Advantages: Cost/Synergies Category killers Disadvantages: Non-responsiveness Inhibits creativity? Global Change: “Best-Fit” Approach:  Global Change: “Best-Fit” Approach Key drivers: Conglomerate Growth Critical differences in product/service use Varying competitive structures Channel diversity Regulatory differences Expertise linked to markets Advantages: Responsiveness Support from local managers Disadvantages: Cost Inadequate transfer of learning Global offer: One product/service, different positioning:  Global offer: One product/service, different positioning Key drivers: High fixed cost/ technological inflexibility Similar core benefits Market separation Centralized sourcing Advantages: Economies of scale Creativity/Adaptation Disadvantages: High promotional budgets “Contamination” of message Confused global customers Global message: identical positioning worldwide:  Global message: identical positioning worldwide Key drivers: Strong brands Customer mobility Low cost for product adaptation Advantages Leverage brand identity Competitiveness Disadvantages: Local R&D Confusing “global” customers Internal factors can undercut or support globalization efforts:  Internal factors can undercut or support globalization efforts Structure: Network organizations are proving increasingly effective…:  Structure: Network organizations are proving increasingly effective… Organizational design is no longer bound by physical arrangements - knowledge and human resources have become the focus of structure Companies will increasingly structure their operations around their communications networks - span of communication replaces span of control Decentralization of corporate headquarters will allow more effective global coordination People: International skills will be in great demand:  People: International skills will be in great demand Hybrid background, with early experience of other cultures and languages Work experiences in more than one industry, preferably including services Commitment to corporate values Coordination: Globalizing management processes is key:  Coordination: Globalizing management processes is key Developing global capability...:  Developing global capability... Most companies follow a path of learning… From multi-domestic to global or transnational strategy From local to global roles/responsibilities From local to global learning Globalization is CEO-led:  Globalization is CEO-led Implementation: A Top Management Responsibility Conflict resolution Authority to make key decisions Resource allocation Key tasks: Closing capability gaps Maintaining strategic focus Organizational learning Managing expectations Balance “Can” with “Should” for global competitive advantage...:  Balance “Can” with “Should” for global competitive advantage... Global Needs Analysis Common Elements Capability Analysis: What Can We Successfully Do? Global Leverage Strategy Customer Purchasing Competitor Size Regulatory Economic Shared values are critical :  Shared values are critical Organizational structures and formal systems can help, but are no substitute for nurturing a set of core values Human resources policies aimed at hiring and developing local talent, fairness worldwide, greater employee involvement, and reward for performance will gain in strategic importance Two approaches to creating change: Outcome and Behavior Control:  Two approaches to creating change: Outcome and Behavior Control Outcome Control Structure: Independent, self-contained units Rewards, Incentives: Substantial part of overall compensation, tied to a single, quantifiable objective Resource Allocation: Tight expenditure controls People: Focus on industry experience, aligning incentives with performance Corporate Office: Small, focused on analyzing results Behavior Control Rewards, Incentives: Focus on long-term career progression; performance measurement based on multiple quantitative and qualitative goals People: Internal career paths; active career development focused on industry and company-specific experience Culture: Focus on common corporate culture designed to allow managers to move freely among divisions Corporate Office: Experienced corporate managers function as advisors and monitors Globalization Requires Flexibility and a Tolerance for Ambiguity:  Globalization Requires Flexibility and a Tolerance for Ambiguity Creative, global management cadre Worldwide shared values and global identity Global resource development and deployment Long-term planning, flexible implementation Willingness to become politically involved Innovation in all aspects of the business Acknowledgements:  Acknowledgements Sources:   Cornelis A. de Kluyver and John A Pearce II, STRATEGY: A VIEW FROM THE TOP, Second Edition, Prentice Hall, 2006 George S. Yip, TOTAL GLOBAL STRATEGY: Managing for Worldwide Competitive Advantage, Prentice Hall, 1992, Chapters 1 and 2.   Jean-Pierre Jeannet, MANAGING WITH A GLOBAL MINDSET, Financial Times/Prentice Hall, 2000, Chapters 4 and 5..   Lectures at Templeton College by Professor Kunal Basu, Spring 2000, with permission. Slide87:  Epilogue: Global governance issues by Cornelis A. “Kees” de Kluyver Henry Y. Hwang Dean and Professor of Management Peter F. Drucker and Masatoshi Ito Graduate School of Management Claremont Graduate University Claremont, CA 91711, U.S.A. Based in part on Cornelis A. de Kluyver and John Pearce, II, STRATEGY: A VIEW FROM THE TOP, Second Edition, Prentice Hall, 2006 Part IV - Epilogue “Global” corporate governance will become a major issue…:  “Global” corporate governance will become a major issue… Dealing with rapid, global change Exercising global oversight/risk management Balancing stakeholder concerns Driver: Changes in the global business environment:  Driver: Changes in the global business environment The globalization of product markets The globalization of corporate (capital) structures, risk management A globally underdeveloped regulatory system Driver: Changes in business culture…:  Driver: Changes in business culture… Less government interference (in a growing part of the world) but increasing economic volatility Global and local identities, ties, allegiances, and conflicts Alliances, Knowledge-based, virtual business models Driver: Growing cross-border investment …:  Driver: Growing cross-border investment … Worldwide cross-border M&A transactions now top $500 billion/year, between 1 and 2 percent of world GDP, and are widely expected to increase further… A rising proportion of this investment is targeted at companies in developing countries Driver: The growing importance of global performance…:  Driver: The growing importance of global performance… For most global companies, an increasing proportion of revenues and profits come from outside their “home”country Corporations around the world increasingly tap into international debt and equity markets Driver: The evolving needs of global investors…:  Driver: The evolving needs of global investors… Involvement and liquidity Short-term and long-term value Risk taking and predictability Tomorrow’s corporate governance must respond on all dimensions…:  Tomorrow’s corporate governance must respond on all dimensions… Ability to deal with change Global efficiency and multi-cultural tailoring and worldwide innovation Global oversight/risk management Accountability and value creation and crisis prevention Balancing stakeholder concerns globally Short-term and long-term value creation The good news: Long-term value creation is rapidly becoming the norm:  The good news: Long-term value creation is rapidly becoming the norm U.S.: The virtues of customer, capital and employee loyalty are being (re)discovered Germany: Excessive regulation, stifling practices are being dismantled or re- examined Japan: Transparency, accountability and independent oversight are on the horizon The bad news: Governance systems will be slow to change… :  The bad news: Governance systems will be slow to change… The Anglo-American model The German model The Japanese model Five propositions…:  Five propositions… #1: Long-term value creation will increasingly become the guiding governance principle across the globe #2: Boards will become stronger, more global in orientation, and more independent #3: The (global) regulatory void will be filled #4: “Distributed” global governance will provide answers… #5: Information technology will enter – and change – the board room Slide98:  Thank You Cornelis A. “Kees” de Kluyver Henry Y. Hwang Dean and Professor of Management Peter F. Drucker and Masatoshi Ito Graduate School of Management Claremont Graduate University Claremont, CA 91711, U.S.A. Based in part on Cornelis A. de Kluyver and John Pearce, II, STRATEGY: A VIEW FROM THE TOP, Second Edition, Prentice Hall, 2006

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