World 3.0. How to Succeed Between Global and Local by Pankaj Ghemawat

Do you have an International Strategy?

 October 11, 2012  Jareau Almeyda  General Business

As the world moves more and more towards globalized production strategies and the global market place, have you ever wondered what it takes to manage that challenge? It’s much more than a political battle. Pankaj Ghemawat, Harvard Business professor, author, and Global Strategy professor at IESE Business School in Barcelona, developed a very pertinent framework which outlines an approach for global integration.

Ghemawat calls it the AAA Triangle, one ‘A’ for each strategy.
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• Adaptation: when a firm works the local environment, maximizing their local relevance.
  • Think about Subway opening up sub shops in Argentina. How should they adapt their production model, their value chain, their offerings, and their advertising strategy to match the local market’s needs?
• Aggregation: when a firm strives for global or regional economies of scale by creating operational segments or standardizing products/services on a regional or global level.
  • Think about those packages of toothpaste that you’ve seen where the labels are written in both English and French. What kind of research determined that it’s profitable to print 2 languages on packages and sell the same product in 2 different markets?
• Arbitrage: when a firm exploits and benefits from the differences between regions or countries.
  • An example of this would be benefiting from the cheap cost of labor of the Brazilian workforce, shipping those products out for sale in Europe, while managing the whole operation in the United States. The idea here is this: the cost of labor in the US would be more expensive than the cost of labor in Brazil, plus the cost of shipping to Europe.

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Easy enough, right? Not so fast. Most managers make the mistake of initially driving forward with all 3 strategies; upon closer examination, we should see that the three forces occasionally work against one another. The key here is to identify which mix fits your business model, and then proceed, cautiously I might add.

Here’s a tip:

For each of these, try to figure out their competitive advantage, their optimal configuration, how best to coordinate each, what controls and metrics will you need for each, throw in there a little bit of corporate diplomacy, and sprinkle a bit of direction from the top guys, and you just might get lucky with the recipe. No one ever guarantees success for your first attempt – it’s a learning process. As long as you have an understanding of the elements, you’ll, at very least, drive in the right direction.

Even within the same industry, firms can differ sharply in their global strategic profiles. - Pankaj Ghemawat

How long it takes you, and whether or not you arrive… well, that’s what your boss is looking to you to figure out.

By the way, check out the source link below, it contains the Harvard Business case with all the detail you need to really work this AAA Triangle framework.

Happy strategizing.

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HBR > Mar 2007 > Managing Differences: The Central Challenge of Global Strategy

http://RyanShin.egloos.com/1334060

HBR > Mar 2007 > Managing Differences: The Central Challenge of Global Strategy
Pankaj Ghemawat

The main goal of any international strategy should be to manage the large differences that arise at the borders of markets. Yet executives often fail to exploit market and production discrepancies, focusing instead on the tensions between standardization and localization. In this article, Pankaj Ghemawat presents a new framework that encompasses all three effective responses to the challenges of globalization. He calls it the AAA Triangle. The As stand for the three distinct types of international strategy. ThroughAdaptation, companies seek to boost revenues and market share by maximizing their local relevance. Through Aggregation, they attempt to deliver economies of scale by creating regional, or sometimes global, operations. And through Arbitrage, they exploit disparities between national or regional markets, often by locating different parts of the supply chain in different places--for instance, call centers in India, factories in China, and retail shops in Western Europe. Ghemawat draws on several examples that illustrate how organizations use and balance these strategies and describes the trade-offs they make as they do so. Because most enterprises should draw from all three As to some extent, the framework can be used to develop a summary scorecard indicating how well the company is globalizing. However, given the tensions among the strategies, it's not enough simply to tick off the corresponding boxes. Strategic choice requires some degree of prioritization--and the framework can help with that as well. While it is possible to make progress on all three strategies, companies usually must focus on one or two when trying to build competitive advantage.

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Uploaded on May 11, 2011

In today's world, how do we strike a successful balance between the global and the local? This is at the core of the World 3.0 concept and achieving global prosperity. But what is World 3.0? Global strategist and Anselmo Rubiralta Professor of Global Strategy at IESE Business School Pankaj Ghemawat breaks down the notion, contrasting it with World 1.0, which sees the world as composed of self-contained nation states and World 2.0, which seeks an erroneous homogenized approach to globalization.

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the

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d world 3.0

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refers to a mindset that sees both the barriers between countries

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as well as the bridges between them as important

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by contrast that with world 1.0

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which is a mindset that sees the world as being composed of self-contained

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nation-states and world 2.0

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which refers to sum up the exaggerated conceptions

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above the death a distance the end of the nation-state

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the world being flat that have been propounded recently

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to explain why world 3.0 is an antidote to the fears that we have about

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globalization

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it's useful to step back in human history

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through much of human history are natural in polls

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when faced with threats has been to band together

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often with blood relatives are people like this

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as a way of defending ourselves so

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the instinct to retreat in the face

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I love difficult economic climates

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or other kinds of problems is understandable

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but what consideration of the data show is that those fears

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are largely unnecessary and that we can make much more progress

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by actually widening circles 0 cooperation

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rather than pulling back on them world 3.0

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implies that governments have dual roles

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as integrators and as regulators

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whether a particular government in a particular country

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needs to do more to regulate or less to regulate

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depends of course on the specifics up the situation

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but the broader notion is that they are still

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large gains to be tapped by integrating further

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and that most of the side effects if any

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can be alleviated by carefully targeted regulations

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rather than by turning are back on integration itself

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businesses need to

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explicitly adopt a world 3.0 perspective

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as opposed to fix eating on the notion a borderless world

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because the notion of a borderless world is responsible for most of the mistakes

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that we see in international business if you really believe

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that borders don't matter you're much more likely

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to follow strategies that fail to address local needs

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trigger local backlash is and in some sense

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give fuel to the anti-globalization movement

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as well as hurting profitability world 3.0

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in contrast stresses what I call

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building a cosmopolitan corporation a corporation

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bed understands appreciates

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and leverages the differences across countries as opposed to simply ignoring

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them

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and pretending that everything can be sold exactly the same way

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around the world while it's hard to find a perfect

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exemplar a world 3.0 it certainly feasible to think of companies who

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often through trial and error have moved in the direction suggested by world 3.0

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take for example the case have MTV

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job fifteen years ago

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about the wisdom it it MTV was that all bloody

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ok like that sounds exactly the same in any language

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and that was the period have complete standardization

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in contrast white people quickly figured out was that music preferences

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are very very different across countries and so

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MTV then moved from a phase have complete standardization

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to starting to localize what MTV

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does in different markets having

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achieve successful localization the emphasis shifted back

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to trying to think about okay how do we add value

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across these local operations that to me is the essence the world 3.0 thinking

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recognizing the difference is but also trying to figure out how you address

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those differences

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in a way that is more than a purely world 1.0

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let's do a different thing in every market kind of approach

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did