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This paper gives a detailed framework for evaluating how the Internet and the Web
affect the globalization potential of individual industries and the global strategies
that companies should adopt. It argues that the Internet does not have a uniform
effect across industries but has very different effects on speeding up globalization
in particular industries. The reader will learn how to diagnose Net effects on their
own industry. The paper also shows the reader how to use the Internet to better
exploit five types of global strategy: global market participation, global products
and services, global activity location, global marketing, and global competitive
moves.
Globalization and the rise of Internet are the two most powerful forces affecting
business now and for at least the next decade. Much has been written about each
subject, but separately. This article provides the first ever in-depth analysis of their
joint effects. How does the Internet era affect global strategy? How should
multinational companies re-evaluate their global strategies to take best advantage of
the Internet and the Web? This article provides a systematic diagnostic approach that
managers can apply. It demonstrates that the Internet does not have equal effects on all
industries. It interacts with existing industry globalisation drivers and strategies, having
more of a multiplicative than an additive effect (Figure 1). Hence, managers need to
understand the twin phenomena of globalisation and the Internet together rather than
separately. Together these two forces determine the potential to use global strategy
(Figure 2). We will look first at how the Internet affects industry globalization drivers,
then at the effects on global strategy and for multinational companies.
[Figure 1. Effect of Internet on Industry Globalisation Potential]
[Figure 2. Framework for Global Strategy in Internet Era]
Internet and global presence via the Web. Superior design in Web sites can make up for
currently low recognition. Both Schwab and Dell Computer completely shifted their
marketing and ordering systems to the Web. The dramatic effects on their businesses are
well recorded. Less obvious is that this shift helped propel both companies from the
possible category of suppliers to the must consider category. Even if someone does
not end up choosing Schwab or Dell, most potential customers now have to consider
these two companies.
The Internet enables global customers. Multinational companies increasingly
act as global customers by globally co-ordinating or centralising their purchases. But
there are many obstacles, both external (finding and co-ordinating with vendors around
the world) and internal (agreeing and co-ordinating requirements across international
subsidiaries). The Internet and the Web make it even easier to become global customers.
Customers can search the Web for suppliers from anywhere in the world. Or they can go
even further and place requests for proposals on their own websites and wait for vendors
to bid. General Electric created The Trading Partner Network as an on-line auction site
for customers and suppliers of non-production goods, such as office and computer
supplies and other non-production products and services that help to run day-to-day
business operations.
The Internet facilitates global channels. Analogous to global customers, there
may be channels of distribution that buy on a global or at least a regional basis. Their
presence makes it more necessary for a business to rationalise its worldwide pricing,
other terms of trade, and even its product offerings. The Web has accelerated the growth
of regional and global channels of distribution, allowing traditional bricks-and-mortar
channel firms to more easily complete their networks. And, of course, clicks-andlimited-mortar firms like Amazon.com jump straight into existence as global channels,
although the real Amazon distribution system was Amazon + Ingram (the United States
largest book wholesaler, based in Seattle, since displaced by Amazons own warehouse
operations) + United Parcel Service in the United States and various other package
deliverers elsewhere.
Thirdly, the rise of net intermediaries (pure click-and-mouse firms with no
physical assets) such as Autobytel.com and Carbusters.com creates a new dimension
to long-time vendor-distributor relationships. In the automobile sector, carmakers
have traditionally focussed on mostly sub-national, and occasionally national, area
agreements. The new Internet channels bypass these relationships to seek out the best
deals either on a national basis (as Autobytel does in the United States) or on a panEuropean basis as does the Carbusters.com partnership with Which? (Britains
consumer association). The immediate effect is that carmakers are rethinking their
European pricing, having a degree of price convergence forced upon them.
The Internet makes global marketing more possible. Multinational companies
now try to use as much as possible global rather than national marketing. The Internet
has two effects on global marketingenabling and demanding.
In terms of enabling global marketing, Internet/Web based marketing has
inherent global reach. Second, users share a common style of interactionthey have
been conditioned to interact with electronic communications in a certain way
browsing, searching, and impatient. Third, most users, by self-selection, have a
working knowledge of English, itself the far dominant language of the Internet, even
though more than half of the 280 million Internet users speak languages other than
English (Kushner 2000).2
In terms of demanding global marketing, the Internet and the Web mandate
that vendors use globally standard brand names. A simple example suffices to
illustrate this new commandment. In an earlier era, Amazon.com would probably have
been Amazon.com in Brazil only, but Mississippi.com in the United States,
Thames.com in the United Kingdom, Rhine.com in Germany, and Yangstze.com in
China. In the Internet era, the founder of Amazon.com chose the worlds largest river
as his companys global brand name. Similarly, other elements of the marketing mix,
particularly price, need to be more uniform than in the pre-Net era.
The Internet highlights lead countries. Global competitors need to participate
in countries that are industry leaders of innovation, fashion or prestige. The Internet has
two effects. First, it makes it easier for customers to identify lead countries and to
monitor their offerings. The Web lets everyone visit Paris or Tokyo or Los Angeles.
Consumers can rapidly identify the trends and fashions in lead countries and will
become increasingly dissatisfied with inferior domestic offerings. The fall of the
Berlin Wall cut demand for East German cars, such as the Trabant, from a ten-year
backlog to zero. The Web brings down Berlin Walls all over the world.
barriers to global spread are bypassed. For example, many already globalized companies
are running down their international distribution systems, while newly internationalising
companies need spend much less on international distribution. Second, value chains and
business systems are being broken up or deconstructed (Evans and Wrster 1999). 3
Inevitably, this means a consolidation of players and market share at the deconstructed
stages and therefore a larger scale. On the one hand this means that there is less pressure
on the new entities to globalise. But on the other hand, these new entities have a clearly
focussed business model and competitive advantage that is easily transferable and
leverageable internationally.
This reduction in economies of scale and transaction costs will particularly help
smaller firms from emerging markets. For example, small firms in Asia will be able to
combine to achieve global reach, reducing the customer proximity advantage of firms in
developed economies.
The Internet enhances global sourcing efficiencies. The market for supplies
may allow centralised purchasing to achieve savings in the cost of production inputs. A
primary Web phenomenon has been the creation of Web-based purchasing systems that
are global. Before the Net, globally centralised purchasing required complex, paper- and
phone-based co-ordination of the needs of geographically dispersed subsidiaries and
suppliers. With the Net, subsidiary requirements can be managed in a more efficient and
democratic process through Intranets. And relationships with vendors can be managed
on a global basis on Extranets. For example, the Big Three U.S. automakers created the
Automotive Exchange Network (ANX) to support automated interactions with their
parts suppliers. ANX defines a set of technology and service-quality standards for
exchanging critical transaction and planning documents over the Web (Frook 1998). 4
European and Japanese automobile companies are developing similar systems. In
electronics, Matsushita is building Internet links among its 100 factories in Japan, and
3,000 of its 7,000 suppliers.
The Internet speeds up global logistics. A favourable ratio of sales value to
transportation cost enhances the ability to concentrate production into global-scale units.
The Web facilitates the operation of global production and supply networks. Boeing
Company created the Boeing partners network to connect with its 40,000 trading
partners around the world. For example, 45 separate regulatory agencies in the United
States, Canada, Japan, Russia, and several European nations, use the Boeing Intranet to
collaborate on its space station project. These networks can also be supported by third
party services, such as Information Resources Associates Extranet Support Centre.
The Internet exploits differences in country costs. Differences in country costs
and skills can provide a strong spur to globalization. The Internet does not change
relative country costs and skills but it enables many activities to be shifted to lower cost
countries. First, the Internet can used as a means of efficient communication and coordination to make possible the off-shoring of activities that would otherwise be too
complex to manage. For example, some consulting firms have shifted their document
production work to India, communicating via the Net and taking advantage of time zone
differences as well as lower costs. While U.S. and Europe-based consultants sleep,
when they do sleep, their documents and presentations are being produced for them.
Second, the deconstruction of activities creates specialised Web-based functions such as
customer service (particularly for information-rich services) that can easily be shifted to
lower cost locales. The information database can remain in the home or other key
country while being accessed by Internet from lower cost and perhaps less secure
countries.
in theory, be able to catch these at the frontier. But in practice, most governments miss
significant proportions of the increasing numbers of relatively low value items.
The Internet spurs global technical standards. Differences in technical
standards among countries affect the extent to which products can be globally or
regionally standardised. The move to put standards on government websites and to
allow public access is gradually increasing the transparency of the standard setting
process, and should encourage the spread of globally compatible standards. For example,
Japan is lobbying other G8 nations for unified global rules on e-commerce financial
trading.
The Internet confronts diverse marketing regulations. Differing marketing
regulations affect the extent to which uniform global marketing approaches can be used.
Governments lag in their efforts to regulate marketing on the Internet. Differences in
rules on Internet marketing can themselves pose a barrier to globalization. For example,
the European Union is applying increasingly strict rules to prevent marketing e-mail
from originating outside the EU. So many e-marketers are finding that, just like old
economy producers, they need to set up operations inside the EU. Germany forbids all
unsolicited marketing contact of consumers, including via e-mail. France forbids e-Bay
and similar Internet auction services from allowing French users to access websites
outside France itself.
The Internet depends on legal systems. Both overly weak and overly strong
legal systems of individual countries pose deterrents to international business. The
critical issue with the Web revolves around the protection of free speech. Jurisdictions
vary in the protection extended to content on websites, particularly as regards
pornography and defamation. With pornography the problem lies with the huge
variations in interpretation. What may be quite innocent in a liberal nation may be
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deemed criminal elsewhere. With defamation, some jurisdictions allow portal and web
operators the defence that they do not know what is mounted by content providers. Other
jurisdictions do not allow this defence. In response many portal and web operators are
shifting operations to host countries with more liberal Internet rules.
Web operators and e-businesses face the general problem that their inherent
global reach exposes them to the laws, especially consumer protection ones, of all
countries. The European Union poses a special case of this general problem, with
currently conflicting legislative proposals (Dibb Lupton Alsop 2000).5 On the one hand,
a proposed EU Directive would apply the internal market clause common in the EU.
This would allow an e-operator to adhere only to the laws of its own country, and rely on
the EU principle of mutual recognition. On the other hand, a proposed Brussels
Regulation would give the courts of a consumers country of habitual residence
jurisdiction over suppliers for goods and services, thus exposing e-operators to the
varying laws of all fifteen EU states. Companies can try to protect themselves with
disclaimers such as this site is not open to contractual offers by French consumers. But
there is a large degree of legal uncertainty as to whether such a disclaimer would be
valid. Adoption of the operator country of jurisdiction rule would favour smaller,
national companies (who lack the resources to understand and comply with the laws of
fifteen states). Adoption of the consumer country of jurisdiction rule would generally
discourage e-commerce but also favour larger, multinational companies, who can
inherently cope much more easily with multiplicity.
More generally, a number of countries still place restrictions on their citizens
access to the Internet, both in general and for types of sites and content. The Indian
Federal government even considered requiring all Internet cafes to record the names and
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addresses of customers and of the sites they visited. Fortunately, this proposal was
dropped but some Indian state governments may still implement such restrictions.
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In the Internet era, even 24 hours looks slow. Internet services have, by their
nature, very strong network effects and related first mover advantages. Failure to
rapidly extend into key markets can allow local rivals to take pre-emptive positions.
Perhaps the most dramatic example of this effect is America Onlines slowness in
international expansion. Its delay allowed ISPs (initial service providers) in other
countries to build up locally dominant positions. AOL now trails Freeserve in the UK,
UOL in Brazil, T-Online in Germany, and Tiscali in Italy. On the other hand, start-ups,
in particular, need to understand the tradeoffs involved in multi-country launches. One
of the reasons for the dramatic failure in 2000 of boo.com, the U.K.-based fashionretailer, was its attempt to launch simultaneously in 18 countries, something that some
of the largest e-business companies never attempted. Boo.com should have realised
that, as a speciality retailer and not an ISP, pre-emption and first mover advantage
were not nearly as important as developing a viable business in at least one country.
But the implication is not just a change in speed. With a website, a company
reaches overseas customers from the start, even if it is not ready to serve them.
Unsolicited foreign orders will start coming in. So companies will have to backfill
quickly to provide support operations and services. Of course, a company can choose
to not serve some or all foreign customers and post such notices prominently on their
websites. But that creates negative messages on first contact. By the time the
company is ready to serve those markets, they may have lost significant goodwill.
Even those companies who intend to serve markets still have a lot to learn about the
design of their websites. It can be as simple as getting their geography right. The
website for one major Japanese electronics firm somehow fails to locate the United
Kingdom within Europe nor offers the United Kingdom as a standalone choice
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contrasting origins: Iranian, British, and American. Companies, too, can choose to
position their products as global from nowhere or global from somewhere.
[Figure 7. AnanovaCybercaster]
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Web to improve their services. DHL is piloting a Web system to let shippers
determine duties and tariffs before their products cross international borders. Maersk
Logistics, a subsidiary of the Danish conglomerate A. P. Moller Group, markets a
Web-based supply-chain system in 55 countries. Many companies now handle their
global after-sales service through their Web sites. Cisco, for example, handles 80
percent of its service over the Web.
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The advent of Web translation software for both Web creators and Web users
will reduce the problems of language.7 But companies probably want to control the
translation rather than rely on third party software translating for their users.
Automatic translations will not be able to avoid the translation mistakes common in
international marketing and in machine translators.
National style on the Net. Translation may not be enough. Like traditional
advertising, Net ads may need to adapted for national styles. Pioneering web users
and e-business customers to date have tended to be younger (the generation that grew
up with personal computers) and for these Netizens a Net style has overridden
national styles. A 1999 study comparing Korean and American Web advertising found
differences only in the informativeness of advertising messages, but not in creative
strategy or technological level (Kyu-won, Cho and Leckenby 1999). 8 But as ecommerce reaches into older and more traditional segments of populations, national
culture and style will become more important. Two issues seem prominent: the degree
of busyness and clutter, and the degree of formality in addressing users.
Global brand names on the Net. As argued earlier, the Net mandates globally
uniform brand names, at least at the umbrella level (e.g., FedEx), and perhaps even at the
sub-brand or product level (e.g., FedEx International Priority). Although local customers
may stay mostly within national sites, it is very easy to stray. Becoming an international
customer requires a few clicks not a cross-border journey. So companies, will find it
increasingly difficult to maintain national variations in brand and sub-brand names.
FedEx used to keep different brand names in different countries. But now, it uses all
globally common names.
The Net also makes it easier to build global branding and recognition,
particularly for Web names with the right connotations. Chinadotcom was a tiny,
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Hong Kong company that jumped to almost instant global recognition by virtue of its
name. The brand recognition led to a highly successful initial stock offering, building
a market capitalisation of $3 billion by January 2000, which in turn fuelled a long
string of acquisitions and partnership deals.
Global packaging on the Net. While physical packages do not travel through
the Internet, pictures of them are often displayed on Websites. Companies need to
think out a deliberate policy as to whether they wish to facilitate or discourage crossborder recognition or comparison. The knee-jerk reaction may be that we do not want
our customers comparing prices and items across our different national Websites. But
then they may migrate to competitors sites that make comparison easy. In 1980,
Michael Porter advised companies to keep their customers as ignorant as possible
(Porter 1980).9 In 2000, it is both insulting and futile to try to keep net-savvy
customers ignorant. The competition is not down the street or in the next town or
country, but a few clicks away.
Global advertising on the Net. Companies that sell over the Net (e.g., book
and travel sellers) and those that only present or advertise themselves on it (e.g.,
automakers) face different international challenges, while those who do both (e.g.,
airlines) face both challenges.
The international advertising challenge for e-sellers is to find e-copy (graphics, words,
and click structure) that is either equally compelling for all target nationalities and
countries or else find simple ways to customise. For example, Amazon.com simply
changes the books featured on its home page in each country site. In addition, a side
bar on the home pages lists the top 100 books sold on that countrys Amazon sitea
very simple and automatic method of local customisation.
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of the mix a they have separate physical embodiments and are often presented to the
buyer at different times. On the Net, all elements of the mix can appear on the same
page at the same time and even the distribution element can be performed over the
Net. But the different elements still play different roles--for example, advertising copy
creates an image for the offer, a picture of the product constitutes part of the offer
itself, and the price and terms of sale constitute an attempt to close the sale. In global
marketing, distinguishing between these different roles becomes even more important
as the e-marketer tries to manage multiple websites in multiple countries interfacing
with multiple customer nationalities and segments. The global e-marketer has to
practice unblurring.
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using deep linking, metatags and other techniques to hijack potential customers
choosing the right mix of competitive and co-operative behaviour with rivals and
other partners
Conclusions
The Internet and the Web are accelerating the forces of globalization. But different
industries and companies face different opportunities. The analysis of industry
globalisation drivers suggests the following broad distinctions:
Industries that have been held back from globalisation by government barriers will
find ways to bypass those barriers. Industries, such as healthcare, that are have
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differential national regulations but common customer needs, will offer opportunities
to use the Internet to bypass those barriers. The flying doctor may be replaced by
the Web doctor.
Internet Era. Managers should use the concepts and frameworks in this article to conduct
a combined Internet and globalisation potential analysis of their industry and their global
strategy. There are two key questions:
1. Which strategies and activities should be on a global (or regional basis) rather than a
national basis?
2. Which activities should be moved onto the Internet or Web?
In both cases, an aggressive posture would shift the burden of proof--assume that
activities should be global and on the Internet unless you can prove otherwise. The most
innovative companies now live by this creed. Is your company ready to embrace this
challenge? If not, it will probably fail at Net speed!
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taught at Harvard, Oxford, Stanford and UCLA. His books include Total Global
Strategy (published in nine languages), Asian Advantage, and Strategies for Central
and Eastern Europe. He thanks Anna M. Dempster for her assistance.
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Table 1
26
Table 2
Reduces need to have local physical presence in many downstream and support
activities
Allows virtual networks that concentrate and pool expertise and resources from
separate locations
Global Marketing
27
Industry
Globalisation
Potential
Effect of
Internet Use
Strength of
Globalization Drivers
28
Use of Internet
in Industry and
its Key Country Market
Use of Global
Strategy
Industry
Globalization
Drivers
direct effects
feedback effects
29
10
20
30
40
United States
Sweden
Canada
Singapore
Australia
Britain
South Korea
Hong Kong
Germany
Taiwan
Japan
Italy
France
Spain
Russia
Brazil
Mexico
Argentina
China
India
30
50
31
32
33
Source: www.ananova.com
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NOTES
See George S. Yip "Global Strategy ...In a World of Nations?" Sloan Management
Review, Vol. 31, No. 1, Fall 1989, pp. 29-41; and George S. Yip, Total Global
Strategy: Managing for Worldwide Competitive Advantage, Englewood Cliffs, N.J.:
Prentice Hall, 1992.
1
See Philip Evans and Thomas S. Wrster, Blown to Bits: How the New Economics
of Information Transforms Strategy, Boston, MA: Harvard Business School Press,
1999.
4
See DLA Upstream, EU E-Commerce Policy, (London: Dibb Lupton Alsop, March
2000, pp. 2-7).
.
6
Estimate by Communications, a technology research group in New York City,
reported in Kushner 2000.
7
Kyu-Won, Chang-Hoan Cho, John D. Leckenby A Comparative Analysis of Korean and U.S. Web
Advertising, paper presented to 1999 Annual Conference American Academy of Advertising,
Albuquerque, New Mexico (uts.cc.utexas.edu/~kwoh/3A/99AAA.html)
Porter, Michael E. Competitive Strategy: Techniques for Analyzing Industries and
Competitors. Free Press, New York, 1980.
9