Competing on a Global Basis

Two hundred giant corporations, most of them larger than many national economies, have sales that in total exceed a quarter of the world’s economic activity. On that basis, Philip Morris is larger than New Zealand and operates in 170 countries. International trade in 2003 accounted for one-quarter of US GDP, up from 11% in 1970.

Many companies have conducted international marketing for decades – Nestle, Shell, Bayer, and Toshiba are familiar to consumers around the world. But global competition is intensifying. Domestic companies that never thought about foreign competitors suddenly find them in their backyards. Newspapers report on the gains of Japanese, German, Swedish, and Korean car imports in the US market and the loss of textile and shoe markets to imports from developing countries in Latin America, Eastern Europe, and Asia. Many companies that are thought to be American firms are really foreign firms. Dannon, Red Roof Inn, Wild Turkey, Interscope, and L’Oreal for example are all French owned.

Although some businesses may want to eliminate foreign competition through protective legislation, the better way to compete is to continuously improve products at home and expand into foreign markets. A global industry is an industry in which the strategic positions of competitors in major geographic or national markets are fundamentally affected by their overall global positions. A global firm is a firm that operates in more than one country and captures R&D, production, logistical, marketing, and financial advantages in its costs and reputation that are not available to purely domestic competitors.

Global firms plan, operate, and coordinate their activities on a worldwide basis. Ford’s “world truck” has a European made cab and a North American built chassis, is assembled in Brazil, and is imported into the United States for sale. Otis Elevator gets its door systems from France, small geared parts from Spain, electronics from Germany, and special motor drives from Japan; it uses the United States for systems integration. One of the most successful global companies is ABB, formed by a merger between the Swedish company ASEA and the Swiss company Brown Boveri.

ABB’s products include power transformers, electrical installations, instrumentation, auto components, air conditioning equipment, and railroad equipment. The company has annual revenues of $32 billion and 200,000 employees. Its motto: “ABB is a global company local everywhere.” English is its official language (all ABB managers must be conversant in English) and all financial results must be reported in dollars. ABB aims to reconcile three contradictions: to be global and local; to be big and small; and to be radically decentralization with centralized reporting and control. It has fewer than 200 staff at company headquarters in Switzerland, compared to the 3,000 people who populate the Siemens headquarters. The company’s many product lines are organized into 8 business segments, 65 business areas, 1,300 companies and 5,000 profit centers, with the average employee belonging to profit center of around 50 employees. Managers are regularly rotated among countries and mixed nationality teams are encouraged. Depending on the type of business, some units are treated as super local businesses with lots of autonomy, while others are governed with major central control and are considered global business.

A company need not be large, however to sell globally. Small and medium sized firms can practice global nichemanship. The Poilane Bakery sells 15,000 loaves of old style bread each day in Paris – 2.5% of all bread sold in that city via company owned delivery trucks. But each day, Poilane branded bread is also shipped via FedEx to loyal customer in roughly 20 countries around the world.

Most companies would prefer to remain domestic if their domestic market were large enough. Managers would not need to learn other languages and laws, deal with volatile currencies, face political and legal uncertainties, or redesign their products to suit different customer needs and expectations. Business would be easier and safer. Yet several factors are drawing more and more companies into the international arena:

* The company discovers that some foreign markets present higher profit opportunities than the domestic market.
* The company needs a larger customer base to achieve economies of scale.
* The company wants to reduce its dependence on any one market.
* Global firms offering better products or lower prices can attack the company’s domestic market. The company might want to counterattack these competitors in their home markets.
* The company’s customers are going abroad and require international servicing.