You are on page 1of 16

1

Globalization

Introduction
Globalization is defined by the spread and integration of people, goods, finance, knowledge and
culture across the planet and aims to expand business operations on a worldwide level. Each of
these dimensions of globalization has advanced since the dawn of civilization, at a pace
determined by the available technologies for transport and communications.
It is generally used to refer to economic globalization: the global distribution of the production
of goods and services, through reduction of barriers to international trade such as tariffs, export
fees, and import quotas and the reduction of restrictions on the movement of capital and on
investment. Globalization may contribute to economic growth in developed and developing
countries through increased specialization and the principle of comparative advantage. The term
can also refer to the transnational circulation of ideas, languages, and popular culture.

History of Globalization and Current


There are as many beginning points of globalization as there are definitions of it, in part due to
the fact that different definitions have different starting points. Nayan Chanda from the Yale
Center of the Study of Globalization estimates globalization began 8000 years ago, because at
that time all the forces that would push globalization forward was already in place. Chanda wrote
the following in his 2007 book Bound Together: "Essentially, the basic motivations that
propelled humans to connect with others - the urge to profit by trading, the drive to spread
religious belief, the desire to exploit new lands, and the ambition to dominate other by armed
might - all had been assembled by 6000 BCE to start the process we now call globalization".
The World Bank states that there have been three 'waves' of globalization. The first began in
1870 and ended at the beginning of World War I in 1914. It was characterized by a reduction in
trade barriers and and improvement in transportation technologies, which resulted in major
migration of about 10% of the world's population. The next wave occurred from 1950 to 1980
during which multiple trade agreements occurred between developed nations which left out the

developing world. The final(and current) wave of globalization(beginning 1980) in contrast has
been characterized by the willingness of developed nations to remove trade barriers in order to
attract foreign capital.
In a 2002 article in European Review of Economic History, Kevin H. O'Rourke and Jeffrey G.
Williamson calculated a starting date for globalization by analyzing four centuries of data. Their
theory was that globalization would be characterized by the fact that the prices of goods and
services are determined by global supply and demand. Therefor price levels in different countries
should be similar as globalization progressed. O'Rourke and Williamson used data from 1565 to
1936, and found that price convergence started around 1820.

Opponents of Globalization
Opponents of globalization point out to its negative effects. Some of them are listed below.

Developed nations have outsourced manufacturing and white collar jobs. That means less
jobs for their people. This has happened because manufacturing work is outsourced to
developing nations like China where the cost of manufacturing goods and wages are
lower. Programmers, editors, scientists and accountants have lost their jobs due to

outsourcing to cheaper locations like India.


Globalization has led to exploitation of labor. Prisoners and child workers are used to

work in inhumane conditions. Safety standards are ignored to produce cheap goods.
Job insecurity. Earlier people had stable, permanent jobs. Now people live in constant
dread of losing their jobs to competition. Increased job competition has led to reduction

in wages and consequently lower standards of living.


Terrorists have access to sophisticated weapons enhancing their ability to inflict damage.

Terrorists use the Internet for communicating among themselves.


Companies have set up industries causing pollution in countries with poor regulation of

pollution.
Fast food chains like McDonalds and KFC are spreading in the developing world. People
are consuming more junk food from these joints which has an adverse impact on their

health.
The benefits of globalization are not universal. The rich are getting richer and the poor
are becoming poorer.

Bad aspects of foreign cultures are affecting the local cultures through TV and the

Internet.
Enemy nations can spread propaganda through the Internet.
Deadly diseases like HIV/AIDS are being spread by travelers to the remotest corners of

the globe.
Local industries are being taken over by foreign multinationals.
The increase in prices has reduced the government's ability to sustain social welfare

schemes in developed countries.


There is increase in human trafficking.
Multinational Companies and corporations which were previously restricted to
commercial activities are increasingly influencing political decisions.

HISTORY OF HONDA
Honda is the worlds largest motorcycle manufacturer since 1959 and the worlds largest
manufacturer of internal combustion engines measured by volume, producing more than 14
million internal combustion engines each year. It is established by Soichiro Honda in 1948. Due
to the World War II, Soichiro Honda developed and produced small 2-cycle motorbike engines. It
is because during that time Japan was facing gasoline storage and they needed inexpensive
transportation that need less gasoline (The non-hub story 2010).
Now, the ranking of Honda in automobile manufacturer around the world is number sixth. The
first Japanese automobile manufacturer that releases a dedicated luxury brand is Honda. Besides
that, Honda is also producing lawn and garden equipment, tillers, robotics, marine engines,
personal watercraft and power generators. The headquarters of Honda is located at Minato,
Tokyo, Japan (Wikipedia 2010).

Macro-environment for automobile industry


in host country (PEST analysis):
Firstly, the automotive sector is an important yet complicated sector. However, they could use
PESTLE analysis to help them in making strategies. PESTLE analysis is a tool that can help
organizations making strategies by letting them know about the external environment so they
could plan their operate time whether they want to operate now or operate in the future. PESTLE
stands for political, economic, social, technological, legal and environment.

Political
The people will see a continued progress in the ruinous steps which have forced the industry into a social
politico economic corner. Whether this is related to flat demand or to the industrys creation of an ever-wider
range of vehicles that many buyers seem to care little about, there is a problem. The manufacturing is like
linked approach to the policies of governments, the earnings of banks. Little wonder then that so many
emerging countries are keen to develop an auto sector or that there is such a political pressure to protect it in
the developed countries. The worlds vehicle industry is currently dominated by little more than a handful of
firms, each wielding colossal financial, emotional and political power. The manufacturing closely to dealing
with political institutions has not always been bright. It tends to be good on technical issues, although it has not
always fully presented the longer-term options, but in order to make the choices and their clear.

Economic

5
For much of the developed world, and increasingly for the developing world, the automotive industry is a
pillar industry, a flag of economic progress. Without an automotive industry, it is impossible to develop an
efficient steel business, a plastic industry or a glass sector other central foundations of economic progress.
The automotive industry has been a core industry, a unique economic phenomenon, which has dominated the
twentieth century. However, the industry now suffers from a series of structural schisms and has become
riddled with contradictions and economic discontinuities. For the capital markets and the finance sector, it has
lost a lot of its significance, as a result of ever declining profits and stagnant sales. The proliferation of
products means that it has become hopelessly wasteful of economic resources. While all these and more sound
like a very gloomy assessment of such a vast economic phenomenon, the industry is not in the end despondent.
A different future is possible for the industry, a highly desirable one.

Social
The worlds automotive industry affects the society as a whole. It employs millions of people directly, tens of
millions indirectly. Its products have transformed society, bringing undreamed-of levels of mobility, changing
the ways people live and work. The social value of the additional mobility that this industry brings involves the
value of the people being able to commute over longer distances easily, among many others. For most of its
existence the motor industry has been a model of social discipline and control and it is not just that the auto
sector offers a pillar of something else. There are, on the other hand, particular social issues to address in
many developing countries, often those that are the result of an undertone of religious faith. The automotive
industry has the role to play in helping develop the mobility of such countries and it can be achieved at an
acceptable social cost of the country is prepared to learn the necessary lessons from those who have traveled
this route before it, and to make the necessary investments.

Technological
The automotive industry works on a scale so awesome and has an influence so vast that it is often difficult to
see. The level and diversity of technologies that it must deploy are increasing, which imposes both new
investment burdens and new uncertainties and risks. Roughly a million new cars and trucks are built around
the world each week they are easily the most complex products of their kind to be mass-produced in such
volumes. The industry uses manufacturing technology that is the cutting edge of science. But still, the potential
for developing coordination skills, intellectual capabilities and emotional sensitivities through electronic
technologies remain far from fully exploited. There are numerous additional near-term technological
opportunities to adapt the automobile to changing energy availability. The possibilities suggest that automotive
technology is unexpectedly robust and provides a powerful defence against energy starvation even if the real
price of oil climbs steadily during the next couple of decades.

Legal
The automobile industry is subject to numerous technical directives and regulations, as well as legislation of a
more legal nature. The legislation covers areas such as competition law, intellectual property law, consumer

6
protection and taxation, and emissions (air quality and fuels). When the auto parts industry reached full
development, accelerated technological efforts were made to create a web of local suppliers that would make it
possible to meet the growing legal requirements for the national integration of production.

Environmental
Other than the vehicles themselves, and the roads and fuel needed to run them; the business is intricately tied
to the manufacture of a wide range of components and the extraction of precious raw materials. Indirectly, it
brings people road congestion, too many fatalities and a wave of other environmental troubles. The effect to
the automotive companies are that they needed to establish R&D centres to take advantage of research
infrastructure and human capital, so that they can develop vehicle products locally to satisfy the requirements
of the environmental and safety regulations more effectively.

PEST of Honda in Malaysia


Political
Malaysia is a developing country. From the year 1960 to 1971, the countrys economy was dependent on
farming and primary commodities such as rubber and tin. Nowadays, Malaysia is a middle-income country
with a multi-sector economy. The GDP growth rate was 5.8% in 2006 and 5.9% in 2007. Domestic demand
and dynamism in exports are the main reasons for the economic constancy in Malaysia. Malaysias economic
is now depending on industry, agriculture, and services sector, which contributes nearly 115% to the GDP at
2007. Along with the research, Malaysia is one of the worlds main exporters of vehicle parts, accessories and
components and to Thailand, Singapore, Taiwan, Indonesia, Japan and UK. The automobile parts industry in
Malaysia is maintaining the high reputation among their valuable customers locally and also in other country.
Engineering capabilities, industrial master plans, and technology advancements are the main factors for the
high reputation. The demand for Malaysias automobile parts are continually increasing, especially among
major automobile companies like Mercedes, Mazda, Ford, General Motors, Suzuki, Nissan and Mitsubishi.
Besides that, there are 343 automobile parts manufactures in Malaysia. Is up until now, RM 8.2 billion was
invested by automotive components and parts manufactures in auto parts industry (MSC, 2007).

Economics
Malaysia is dedicated to fulfill its multilateral commitments under WTO and AFTA and has taken steps to
liberalize its duty structure. Other measures have been taken as well. Since 2001, the equity policy for the
automobile sector has been relaxed to allow up to 51% foreign equity on a case by case basis. Besides that, in
Malaysia manufacturers and assemblers are currently free to multi-source from the most competitive suppliers
globally, uninhibited from local content policy requirements (ELM, 2007).

Social
Malaysias population was estimated at 25.2 million in 2007, every years growth rate of 1.7 percent. More
than 60 percent of the population in Malaysia is Malays and other is Indians (8 percent) and Chinese (32
percent). Approximately 44 percent from the total population is consider to be trained or skilled workers with
basic qualifications or higher. Malaysians employees work a minimum of 48-hours per week and also have
more holidays compared with China. Until now, the labors costs are still relatively standard compare with
other countries in Asia, including Vietnam and China. In addition, Malaysians salary can be divided into two
types: one is monthly minimum wages and the other is average wage for an employee in the manufacturing
industry (Kiat, 2008).

Technological
Malaysias infrastructure is good and presents considerable benefits to automobile supply chain operation.
Malaysia has 80,328-km road network, highways, and main roads. This mode of transport represents 90% of
the goods and passengers traffic in Malaysia. In addition, Malaysia has rail network of more than 2,000 km,
mainly located in Kuala Lumpur and along the coast of the Strait of Malacca. The railway service in Malaysia
is continuously improving by the government. Such as KTM and LRT. Besides that, there are three main ports
and two airports in Malaysia currently growing in terms of exports. Such as KLIA and LCCT. (Kiat, 2008).

ACTUAL AND POTENTIAL IMPACTS OF


GLOBALIZATION TO HONDA
Movement of capital
If the companys capital flows around different countries, the production base of a developing economy would
get to enhance. Then, it could enable savings for the entire globe and exhibited high investment potential. It is
very important for the country which developing their economy. Developing countries would prefer more on
foreign direct investment rather than portfolio investment because portfolio investment does not have a direct
impact on the productive capacity expansion.

Brand awareness
Honda will become more famous when they globalize their company. It will create the opportunity to let the
public know more about this company. For example like what is the item that selling in the company, where is

8
their headquarters and etc. Since Honda is producing variety of items, it will be better for public to know the
details about this company.

Technology
When Honda has been globalized, the brand awareness of Honda will definitely increase so it could attract
more specialist or industry people who wanted to join their company and create new items with them. Besides
that, it could help to improve the technology of the world. It is because whenever Honda had come out with a
new item, they will sell or share it in all around the world. Therefore, even though the country does not create
that item, they also have the opportunity to use it. So it means that the technology of the world will be
increasing.

Reduce global warming


Honda had produced Hybrid vehicles in order to solve our earth problems like reduce the air pollution and the
amount of petroleum which is getting lesser and lesser. Hybrid vehicles are encouraged to use by public as it
could at least help out a little for our earth to reduce the global warming issues.

STRATEGIES TO OVERCOME THE


POTENTIAL IMPACTS OF
GLOBALISATION
Build new office or factory
In order to create Honda awareness, Honda should build more office and factory at other area where Honda
does not have any office or factory at there. It could make the public to have more working opportunity and at
the same time they will more understand about Honda. Besides that, Honda could also try to export their
produced items to other potential country which they have not export any of their items to that country in order
to create awareness.

New recruitment
In order to create more and more technology items, Honda should hire more specialists or people who familiar
with this industry to join Honda. It is because when they create new technology item, it will make our life
easier. For example, Honda had created the ASIMO robot to assist us with our daily life. It can also help the
people who are not convenience to move around or disable person to do those daily tasks such as pour water,
sweep the floor and etc.

Create variety of items


In order to reduce the global warming problem and at the same time can satisfy the customers
needs, Honda have to create variety of items for them to choose. Therefore, everyone will use
their items and help to save our environment. It can benefit both sides which is Honda and the
earth environment. It is because if Honda really does that then Honda could earn the profit while
the environment is getting protected with lesser pollution. For example, Honda could design
more Hybrid vehicles in order public could have more choices to choose when they choosing
Honda Hybrid vehicles.

Strategy
5 Brilliant Strategies That Make Honda One Of The World's Most
Innovative Companies

Honda associates at a plant in Lincoln, Ala., that recycles 80 million pounds of scrap metal each
year.
The path to writing "Driving Honda: Inside The World's Most Innovative Car Company" began
with a question that perplexed me: If globalization was supposed to be such a boon to

10

multinationals, why are so many large manufacturers struggling to make money outside of their
home markets
Few global manufacturers would admit it publicly, but in many private conversations with
executives I heard some version of this statement: "We're selling more products than ever in
China and South America and other emerging markets, but our profit margins there are
minuscule to flat, when they even exist."
To address this puzzle, I sought to find companies that could serve as successful models for
multinationals operating in a globalized commercial environment; I hoped to identify the
characteristics that make an individual business more likely to generate high profit margins,
innovate, behave in socially responsible ways, and be strategically creative wherever it
establishes a foothold. Almost immediately, Honda Motor Co. fit the bill.
To begin with, Honda has looked outward from its home shores well before other manufacturers
considered making or even selling products overseas. As long ago as the 1950s, when Honda
was only a few years old, the company's founder, Soichiro Honda, bemoaned the limited growth
opportunities in "little Japan," declaring that Honda Motor must "maintain an international
viewpoint" and perceive the rest of the world as its potential customer base and factory footprint.
It's no surprise, then, that Honda began selling motorcycles in the U.S. as early as 1959 and autos
a few years later. Nor that Honda stunned the auto industry with its 1974 Civic, the first car to
meet stringent U.S. Clean Air Act emissions standards even as the large American automakers
and Toyota were claiming it was impossible to economically produce an engine that lived up to
the act's goals. Or that Honda became the first non-domestic automaker to successfully
manufacture cars in the U.S. when it opened its Anna plant in 1982.
Honda's aggressive early globalization strategy in the U.S. was followed by similar successful
forays in other parts of the world: It was the first Japanese company to produce cars in China and

11

its earnings record in India and Southeast Asia and other far-flung regions is the envy of the auto
industry.
In large part because of its approach to global operations, Honda, a relative industrial newbie,
has a lot to boast about: By a large margin, Honda is the preeminent engine maker in the world
with an output of more than 20 million internal combustion motors annually; Honda has never
posted a loss in its history, and its automobile operating profit ratios of about 5% consistently top
the industry; Honda's stock price has nearly doubled since September 2008, when the global
economy collapsed; and Honda vehicles are the most durable and long-lasting of any automaker,
with 75% of its cars and trucks sold in the last 25 years still on the road.
What then has made Honda excel so adeptly as a global multinational? The secret strategic sauce
that distinguishes Honda from other manufacturers can be broken down into five ingredients:

1. Don't globalize, localize.


Unlike Toyota and most other multinationals in any industry, Honda is not a top-down company,
controlled by headquarters. Instead, Honda manufacturing subsidiaries virtually everywhere
around the world operates autonomous companies, designing and producing vehicles based on
local conditions and consumer behavior.
In "The Machine That Changed the World," the landmark book about automobile lean
manufacturing, the authors praised Honda's localization strategy for "its conviction about doing
it all in one place" - in other words, combining engineering, design, and manufacturing functions
in each of its large local facilities. By contrast, virtually all industrial companies keep R&D and
other technical and design functions close to home, where they can be managed by executives
who are miles removed from local preferences and circumstances.

12

2. Embrace paradox.
Honda is a questioning, knowledge-rich organization, which demands that its workers at all
levels continually poke holes in the status quo. They do that through daily, often spontaneous
meetings known as "waigaya" during which decisions, large and small, are reevaluated and
turned on their head in hopes of finding a better strategic or tactical choice.
Throughout its relatively short history, Honda has welcomed paradox as a way to promote
critical thinking and reassess the so-called common wisdom, shaping new responses to ingrained
expectations. As one Honda executive put it: "Waigaya to me means perpetual dissatisfaction. At
our company, self-satisfaction is the enemy." The value of this system to a multinational
organization is immeasurable.
Nothing is more important for global companies today than having the dexterity to be
simultaneously local and international, to swiftly respond to regional preferences while scaling
operating tactics and manufacturing improvements around the world. And as Honda's success in
the international arena demonstrates, this capability is directly linked to unremittingly
reexamining with every new automobile model more broadly, with every new undertaking
what is already believed to be true.

3. Robots? Not so fast.


Even as most major industrial corporations view robots and other forms of automation as the
best way to reduce costs and maintain productivity, Honda prefers a different path. Honda's
factories are purposefully the most labor intensive in the auto industry, employing robots only in
areas that are dangerous or otherwise obviously less fit for humans than machines.
Honda believes that assemblers become disengaged and their enthusiasm for their jobs and, by
extension, local innovation is muted by the presence of machines whose sole purpose is to build
cars cheaper and faster than humans.

13

As Honda sees it, that output and quality standards are too often set to the levels that the
technology can achieve and rather than the boundless creativity of human imagination.
Consequently, to enhance performance in a local facility, a new piece of equipment would have
to be purchased, instead of a new potentially revolutionary process invented. "Once you
automate, you're incapable of further improvement," said Sean McAlinden, chief economist
at the Center for Automotive Research, paraphrasing Honda's perspective.

4. Put an engineer in the hot seat:


Since Honda's founding in 1949 all of the company's CEOs (including the father of the company,
Soichiro Honda) have been engineers, veterans of Honda's prized autonomous research and
development unit. That's an extraordinary record: Conventional wisdom among multinationals
holds that the most effective chief executives are specialists in marketing, sales, or perhaps
accounting - anything but engineering.
As a result, even CEOs in technologically based industries, like pharmaceuticals or
computer hardware and software, tend to know little about designing or manufacturing the
products that they sell or managing the global supply chain or factory footprint. That's often why
CEOs favor centralization in which their most loyal lieutenants near headquarters oversee
distributed operations, acting as both a trusted proxy and informant for the chief executive.
Reared in R&D, Honda CEOs' strengths lie in product and process innovation, primarily in
designing new vehicle models and features and in conceiving fresh techniques for building them
faster and better. Consequently, their success as managers is measured not by quarter-to-quarter
results but instead by how well they cultivate individual creativity throughout the organization
and how well they disburse Honda's unique corporate culture to its decentralized localization
strategy to produce continuous innovation.

14

5. Focus on factory flexibility:


Unlike other manufacturers, Honda can seamlessly produce multiple autos on a single assembly
line, one after another, and switch a line over to a newly designed vehicle within hours. By
contrast, it can take months for Honda's rivals to retool a factory for a new vehicle.
One way Honda achieves this is through in-house engineering co-located at each major
production facility, serving as an independent operation that is focused solely on local
needs. Any problems that arise in the flexible factory can be addressed immediately by this team
- which at most companies resides near headquarters and reports to corporate top executives ensuring that the steady stream of automobiles going through the line is not impeded.
Such an efficient and nimble factory is the Holy Grail for all manufacturers and Honda
has earned high marks from auto analysts for its ability to deftly navigate this challenge. In
globalization terms, the advantage Honda gains is in being able to alter production and capacity
of individual models at a moment's notice, depending on local sales trends and the success of
competitive brands.
Honda invented the flexible factory through an innovation known as synchronized engineering:
all of the vehicles coming into a factory's assembly zones share common designs, such as similar
locations and installation techniques for functions like brakes or transmission. As a
result, assemblers are agnostic about which car they are building because in the factory only
small variations differentiate, say, an Odyssey from an Accord V6.

Challenges
When India opened its automotive sector in the mid-1980s, the countrys largest maker of motor
scooters, Bajaj Auto, confronted a predicament similar to what many emerging-market
companies face. Honda, which sold its scooters, motorcycles, and cars worldwide on the strength
of its superior technology, quality, and brand appeal, was planning to enter the Indian market. Its
remarkable success selling motorcycles in Western markets and in such nearby countries as
Thailand and Malaysia was well known. For the independent-minded Bajaj family, a joint

15

venture with Honda was not an option. But faced with Hondas superior resources, what else
could the company do?
A closer look at the situation convinced Bajajs managers that Hondas advantages were not as
formidable as they first appeared. The scooter industry was based on mature and relatively stable
technology. While Honda would enjoy some advantages in product development, Bajaj would
not have to spend heavily to keep up. The makeup of the Indian scooter market, moreover,
differed in many ways from Hondas established customer base. Consumers looked for low-cost,
durable machines, and they wanted easy access to maintenance facilities in the countryside.
Bajaj, which sold cheap, rugged scooters through an extensive distribution system and a
ubiquitous service network of roadside-mechanic stalls, fit the Indian market well. Honda, which
offered sleekly designed models sold mostly through outlets in major cities, did not.
Instead of forming a partnership with Honda, Bajajs owners decided to stay independent and
fortify their existing competitive assets. The company beefed up its distribution and invested
more in research and development. Its strategy has paid off well. Honda, allied with another
local producer, did quickly grab 11% of the Indian scooter market, but its share stabilized at just
under that level. Bajajs share, meanwhile, slipped only a few points from its earlier mark of
77%. And in the fall of 1998, Honda announced it was pulling out of its scooter-manufacturing
equity joint venture in India.
Bajajs story points to the two key questions that every manager in emerging markets needs to
address: First, how strong are the pressures to globalize in your industry? Second, how
internationally transferable are your companys competitive assets? By understanding the basis
for competitive advantage in your industry, you can better appreciate the actual strengths of your
multinational rivals. And by assessing where your own competitive assets are most effective, you
can gain insights into the breadth of business opportunities available to you. Lets take each
question in turn.
Despite the heated rhetoric surrounding globalization, industries actually vary a great deal in the
pressures they put on companies to sell internationally. At one end of the spectrum are
companies in such industries as aircraft engines, memory chips, and telecommunications
switches, which face enormous fixed costs for product development, capital equipment,
marketing, and distribution. Covering those costs is possible only through sales in multiple
markets. A single set of rules governs competition worldwide, and consumers are satisfied with
the standardized products and marketing appeals that result.
Despite the heated rhetoric surrounding globalization, industries actually vary a great deal in the
pressures they put on companies to sell internationally.
At the other end of the spectrum are industries in which success turns on meeting the particular
demands of local consumers. In beer and retail banking, for example, companies compete on the
basis of well-established relationships with their customers. Consumer preferences vary
enormously because of differing tastes, perhaps, or incompatible technical standards.
Multinationals cant compete simply by selling standardized products at lower cost.

16

Alternatively, high transportation costs in some sectors may discourage a global presence. In all
of these industries, companies can still prosper by selling only in their local markets.
Most industries, of course, lie somewhere in the middle of the spectrum. International sales bring
some advantages of scale, but adapting to local preferences is also important. By thinking about
where their industry falls on the spectrum, managers from emerging markets can begin to get a
picture of the strengths and weaknesses of their multinational competitors. But they need to place
their industry carefully. As Bajaj found, industries that seem similar may be far apart on the
spectrumpressures to globalize scooters turn out to be much weaker than those to globalize
automobiles. Bajaj may go global in the future, as the Indian market evolves, but it has no need
to do so now.
Once they understand their industry, managers need to evaluate their companys competitive
assets. Like Bajaj, most emerging-market companies have assets that give them a competitive
advantage mainly in their home market. They may, for example, have a local distribution
network that would take years for a multinational to replicate. They may have longstanding
relationships with government officials that are simply unavailable to foreign companies. Or they
may have distinctive products that appeal to local tastes, which global companies may be unable
to produce cost effectively. Any such asset could form the basis for a successful defense of the
home market.
Some competitive assets may also be the basis for expansion into other markets. A company can
use its access to low-cost raw materials at home, for example, to undercut the price of goods sold
in other countries. Or a company may use its expertise in building efficient factories to establish
operations elsewhere. Assets that may seem quite localized, such as experience in serving
idiosyncratic or hard-to-reach market segments, may actually travel well. By paying close
attention to countries where market conditions are similar to theirs, managers may discover that
they have more transferable assets than they realize. The more they have, the greater their chance
of success outside the home base.
These two parametersthe strength of globalization pressures in an industry and the degree to
which a companys assets are transferable internationallycan guide strategic thinking. If
globalization pressures are weak, and a companys own assets are not transferable, then, like
Bajaj, the company needs to concentrate on defending its turf against multinational incursion.
We call a company employing such a strategy adefender. If globalization pressures are weak but
the companys assets can be transferred, then the company may be able to extend its success at
home to a limited number of other markets. That sort of company is an extender.

You might also like