Executive Education
Global strategy
Understanding and leveraging the rules of the game
By Lisa Murton Beets
Smart Business Dallas | May 2007
Mike W. Peng, Ph.D.
Provost’s Distinguished Professor of Global
Strategy
Executive director, Center for Global
Business
School of Management, University of Texas at Dallas
What do CEOs need to do strategically as their customers become
more global?
“Adapt or find new customers,” says
Mike W. Peng, Ph.D., Provost’s Distinguished Professor of Global Strategy and
executive director of the Center for Global
Business, School of Management, University of Texas at Dallas.
“It depends on the bargaining power of
your customer and your firm,” adds Peng,
author of the market-leading textbook,
“Global Strategy.” “If the customer says follow us to China or lose our business, you
may feel compelled to chase them. It’s
somewhat like playing chess. For instance,
Wal-Mart is a major customer of P&G. As
Wal-Mart becomes bigger and more global,
P&G has to become larger to counter-balance Wal-Mart. As a result, P&G recently
acquired Gillette.”
Smart Business talked to Peng about the
current definition of the term “global strategy” and how corporate officers and managers can take advantage of it.
How can we define global strategy?
I’ll simply define it as ‘strategy of firms
around the globe.’ This is substantially
broader than the traditional definition of
‘global strategy,’ which meant treating different countries as one worldwide or ‘global market.’ But that strategy has backfired
repeatedly. There is no world car, no world
drink. Toyota Camry is the best selling car
in the U.S., but not even among the top five
best selling cars in Japan. One size doesn’t
fit all. That is why in my book “Global
Strategy,” I advocate a more balanced view,
covering both global and local (nonglobal)
aspects of strategy, involving both foreign
(multinational) and local firms.
Why should managers be interested in global strategy?
In this age of globalization, every manager needs to be strategic. Expertise in global strategy is often highly sought-after,
especially when your career progresses to
higher levels. More managers will find that
traveling to, competing in and even living in countries such as Brazil, China, India
and Mexico will be a part of their routine.
What top three factors must an effective
global strategy take into account?
In three words, industry, resources and
institutions.
Industry-based view: What industry is
the company in? Some industries are high-tech, others low-tech; some are location-bound, others nonlocation-bound. For
example, in the semiconductor industry, it
doesn’t matter where your semiconductor
chips are made, they are all the same, and
customers expect that. On the other hand,
if you produce potato chips, where you
make these chips will matter a great deal.
Resource-based view: Among numerous companies in the same industry, why
do a few outstanding ones stand out? What
are they doing that their competitors fail to
duplicate? For example, the success of
Southwest Airlines has nothing to do with
planes or fuel. All airlines essentially fly the
same planes. Why can Southwest fly high
year-in and year-out, and many other airlines fly in and out of bankruptcy all the
time? The simple answer is that Southwest has resources and capabilities that are very
unique.
Institution-based view: Institutions are
the rules of the game. Rules in other countries can make life difficult for newcomers.
For example, if a U.S. company wanted to
acquire a company in Japan, there would
be many roadblocks because rules governing mergers and acquisitions are different.
To conduct business in other countries,
you have to understand, respect and — if
possible — leverage the rules of the game.
Typically, what are these rules?
There are both formal and informal rules.
Based on a country’s culture, norms and
institutions, informal rules are not written.
Nothing can be taken for granted. For
example, there is no American law banning
a Chinese company from taking over a U.S.
oil company, but norms exist, so that is not
likely to happen. Two years ago, CNOOC of
China tried but failed. Likewise, American
companies would prefer to be able to
acquire Chinese companies as they would
domestically — but again, that is not likely
to happen any time soon.
What determines the international success
or failure of firms?
Acquiring and leveraging a competitive
advantage. The key is to sustain such an
advantage over time and across countries
(regions) through replication and innovation.
MIKE W. PENG, Ph.D., is Provost’s Distinguished Professor of
Global Strategy and executive director of the Center for Global
Business, School of Management, University of Texas at Dallas.
To learn more about the Center for Global Business, contact John
Fowler, director, at (972) 883-4697 or jfowler@utdallas.edu.
Reach Peng at (972) 883-2714 or mikepeng@utdallas.edu.
