Evolution to Global Industries

Few industries begin as global industries, but they tend to evolve into them over time. A number of triggers most common in creating global industries will be discussed. They involve either establishing or enhancing the sources of global competitive advantage or reduc-ing or eliminating impediments to global competition. The latter will not lead to globalization, however, unless significant sources of stra-tegic advantage are present. In all cases, it takes a strategic innova-tion by a firm or firms to make the industry global even though eco-nomic or institutional changes may have created the potential.


Increased Scale Economies. Technological advances that in-crease scale economies in production, logistics, purchasing, or R & D clearly provide a trigger for global competition.

Decreased Transportation or Storage Costs. Falling transport or storage costs are a clear stimulus to globalization. The long-run real decline in transportation that has occurred in the last twenty years is one of the key causes of the increased global competition we observe today.

Rationalized or Changed Distribution Channels. If distribu-tion channels are in flux, the burden of foreign firms gaining access to them may be eased. Rationalized channels may have the same ef-fect. For example, if distribution for a product shifts from many fragmented retailers to a few national department stores and mass merchandiser chains, the problem of gaining distribution facing the foreign firm may shrink dramatically.

Changed Factor Costs. Shifts in factor costs can strongly en-hance the sources of globalization. Increases in the cost of labor, en-ergy, and raw materials can shift the optimum production or distri-bution configuration in ways that make global competition more beneficial.

Narrowed National Economic and Social Circumstances. The need for differing product varieties and marketing tasks and the problems of obtaining local distribution stem in part from differ-ences in the state of economic circumstances of different geographic markets. They differ in their state of economic development, relative factor costs, income level, nature of distribution channels, available marketing media, and so on. As geographic markets become more similar in their economic and cultural circumstances as they relate to a particular industry, the potential for world competition in-creases, provided sources of global advantage are present in the in-dustry. For example, energy cost increases in the United States, bringing it more in line with those abroad, coupled with a general re-duction in per-capita income disparity between the United States and other countries, are causing U.S. automobile firms to move aggres-sively into small cars for sale worldwide; the automobile industry is becoming increasingly global. Rapid growth in the Far East and South America relative to the United States and Europe seems to be bringing the economic circumstances of these markets closer to-gether for consumer goods, and increased global competition in con-sumer products may be a result.

Reduced Government Constraints. Government policy changes that remove quotas, reduce tariffs, promote international cooperation on technical standards, and the like serve to increase the possibilities for global competition. For example, the formation of the European Economic Community promoted a major increase of U.S. direct investment in Europe.


Even in the absence of environmental triggers, a firm‘s strategic innovations can begin the process of globalization.

Product Redefinition. If required product differences among countries lessen, other potential advantages from global competition may be reaped. Sometimes national product differences erode natu-rally as the industry matures and products become standardized. However, firms can redesign products to make them acceptable in many markets, as General Motors and other firms are doing with the “world car.” In other cases, a marketing innovation which redefines the image or concept of the product is sometimes instrumental in un-locking possibilities for global competition. For example, Honda re-defined the image of a motorcycle in the United States to a practical, easy to ride, clean-cut mode of transportation and away from the image of a greasy, powerful, threatening device ridden by leather- jacketed hoods. With new U.S. volume to combine with Japanese volume, Honda was able to reap substantial global economies of scale in motorcycle production. Redefining product image may also ease difficulties in gaining access to distribution.

Indentification of Market Segments. Even if there are re-quired product differences among countries, there may be segments of the market that are common to many countries and that are being poorly served in many of them. For example, Japanese and Euro-pean firms were able to take significant positions in the United States in the sale of small forklifts and small refrigerators because these market segments were badly served by U.S. manufacturers, who concentrated on the main part of their businesses. These seg-ments required distinct technology, facilities, and/or marketing ap-proaches which were subject to global economies and unmatchable by domestic firms. There may also be segments of the market less subject to impediments to global competition. In printing, for exam-ple, the long-run high-quality segment that is least sensitive to lead times is served on a global basis while other segments remain na-tional.

Reduced Costs of Adaptations. The impediment to global competition posed by national product differences is eased if firms can create ways of lowering the cost of altering basic products to meet these local needs. Matsushita, for example, is reportedly close to developing a television receiver capable of receiving signals of both the PAL and SECAM technologies that have differentiated France and other countries. Needs in telecommunications switch-ing equipment vary dramatically by country, but Erickson has been developing a library of modular software packages which can be used to adapt a common piece of hardware to local needs. Any inno-vation that modularizes a product for easy adaptation or increases its range of compatibility opens up possibilities for global competi-tion. So do production technology changes that lower the cost of producing special varieties.

Design Changes. Design changes leading to more standardized components that are subject to global purchasing economies, or those requiring new components subject to such economies, can trig-ger shifts toward global competition.

Deintegration of Production. In some industries government constraints requiring local production can be circumvented by as-sembling locally while producing some or all components centrally. If scale economies stem largely from one or more key components, their central production can strongly stimulate globalization of com-petition.

Elimination of Constraints from Resources or Perception. The entry of new firms can eliminate resource constraints to global competition. New entrants may also be able to start fresh with new strategies unencumbered by having competed in the industry in its preglobal era. For example, Japanese firms and recently firms from other Asian countries, such as Hong Kong, Singapore, and South Korea, have been quite successful in transforming industries in this way.

Foreign firms have sometimes been better able to perceive possi-ble product redefinitions or opportunities for serving segments glob-ally than U.S. firms, often because they have had experience com-peting in this way in their home markets. For example, Japanese motorcycle firms have long faced a market in which the motorcycle was a regular form of transportation; European firms have long pro-duced small refrigerators because of historically smaller European dwelling units compared to those in the United States, among other reasons.


In many industries, globalization has hinged critically on for-eign firms having access to the U.S. market because of its uniquely large size. Recognizing the strategic nature of the U.S. market, for-eign firms have pressed for innovations in order to gain access to it. On the other hand, U.S. firms, because they were based in this huge market, have sometimes felt less pressure to design truly global methods of competition.

It is striking how freely U.S. government policy has allowed ac-cess to this volume, compared to the policies of many other govern-ments. Some of this freedom is a legacy of postwar efforts to help the Japanese and German economies.

Source: Porter Michael E. (1998), Competitive Strategy_ Techniques for Analyzing Industries and Competitors, Free Press; Illustrated edition.

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