1. Drivers Model

2.4 Industry Globalization DriversYip identifies four sets of “industry globalization drivers” that underlie conditions in each industry that create the potential for that industry to become more global and, as a consequence, for the potential viability of a global approach to strategy. Yip first developed this framework in his book Total global strategy: Managing for worldwide competitive advantage (1992), chaps.

How customer behavior distribution patterns evolve. Define how customer behavior distribution patterns evolve, including the degree to which customer needs converge around the world, customers procure on a global basis, worldwide channels of distribution develop, marketing platforms are transferable, and “lead” countries in which most innovation takes place can be identified. Scale or scope economics, experience effects, sourcing efficiencies, and technology advantages that shape the economics of an industry.—the opportunity for global scale or scope economics, experience effects, sourcing efficiencies reflecting differentials in costs between countries or regions, and technology advantages—shape the economics of the industry. Defined by the strategic actions of globally competing firms in deciding in which markets to compete. Are defined by the actions of competing firms, such as the extent to which competitors from different continents enter the fray, globalize their strategies and corporate capabilities, and create interdependence between geographical markets. Include such factors as favorable trade policies, a benign regulatory climate, and common product and technology standards.

Include such factors as favorable trade policies, a benign regulatory climate, and common product and technology standards. Market DriversOne aspect of globalization is the steady convergence of customer needs. As customers in different parts of the world increasingly demand similar products and services, opportunities for scale arise through the marketing of more or less standardized offerings. How common needs, tastes, and preferences will vary greatly by product and depend on such factors as the importance of cultural variables, disposable incomes, and the degree of homogeneity of the conditions in which the product is consumed or used.

This applies to consumer as well as industrial products and services. Coca-Cola offers similar but not identical products around the world. McDonald’s, while adapting to local tastes and preferences, has standardized many elements of its operations. Software, oil products, and accounting services increasingly look alike no matter where they are purchased.

Drivers Model

The key to exploiting such opportunities for scale lies in understanding which elements of the product or service can be standardized without sacrificing responsiveness to local preferences and conditions.Global customers have emerged as needs continue to converge. Large corporations such as DuPont, Boeing, or GE demand the same level of quality in the products and services they buy no matter where in the world they are procured. In many industries, global distribution channels are emerging to satisfy an increasingly global customer base, further causing a convergence of needs. Finally, as consumption patterns become more homogeneous, global branding and marketing will become increasingly important to global success. Cost Globalization DriversThe globalization of customer needs and the opportunities for scale and standardization it brings will fundamentally alter the economics of many industries. Economies of scale and scope, experience effects, and exploiting differences in factor costs for product development, manufacturing, and sourcing in different parts of the world will assume a greater importance as determinants of global strategy.

At bottom is a simple fact: a single market will no longer be large enough to support a competitive strategy on a global scale in many industries.Global scale and scope economics are already having far-reaching effects. On the one hand, the more the new economies of scale and scope shape the strategies of incumbents in global industries, the harder it will be for new entrants to develop an effective competitive threat. Thus, barriers to entry in such industries will get higher.

At the same time, the rivalry within such industries is likely to increase, reflecting the broadening scope of competition among interdependent national and regional markets and the fact that true differentiation in such a competitive environment may be harder to achieve. Competitive DriversIndustry characteristics—such as the degree to which total industry sales are made up by export or import volume, the diversity of competitors in terms of their national origin, the extent to which major players have globalized their operations and created an interdependence between their competitive strategies in different parts of the world—also affect the globalization potential of an industry. High levels of trade, competitive diversity, and interdependence increase the potential for industry globalization. Industry evolution plays a role, too.

As the underlying characteristics of the industry change, competitors will respond to enhance and preserve their competitive advantage. Sometimes, this causes industry globalization to accelerate. At other times, as in the case of the worldwide major appliance industry, the globalization process may be reversed. Government DriversGovernment globalization drivers—such as the presence or absence of favorable trade policies, technical standards, policies and regulations, and government operated or subsidized competitors or customers—affect all other elements of a global strategy and are therefore important in shaping the global competitive environment in an industry. In the past, multinationals almost exclusively relied on governments to negotiate the rules of global competition. Today, however, this is changing. As the politics and economics of global competition become more closely intertwined, multinational companies are beginning to pay greater attention to the so-called nonmarket dimensions of their global strategies aimed at shaping the global competitive environment to their advantage (see the following section).

This broadening of the scope of global strategy reflects a subtle but real change in the balance of power between national governments and multinational corporations and is likely to have important consequences for how differences in policies and regulations affecting global competitiveness will be settled in the years to come.