Solberg, 1997

A Framework for Analysis of StrategyDevelopment in Globalizing Markets

This article describes the development of an analytical frameworkof strategic behavior in globalizing markets, based on differentstrands of literature (internationalization process, strategic groups,intra-industry trade, and global management). The framework con-sists of a three-by-three matrix with the following dimensions: theglobal structure of the industry (industry globality) and the firm'spreparedness for internationalization. In each ofthe nine resultingcells ("The Nine Strategic Windows") the author discusses conse-quences for strategic behavior of the firm. The author makes con-crete suggestions on company strategy, varying from "stay at home"to "strengthen your global position." In order to illustrate theframework, the study of a Norwegian ship equipment manufactureris briefiy discussed.

ABSTRACT

Levitt's (1983) now-classic article on the promises of globalstrategies sparked a long debate among academics (Bod-de wyn, Soehl and Picard 1986; Porter 1986; Wind and Dou-glas 1987). Levitt's main contention was that companiesoperating in increasingly homogenous global markets will beforced to standardize production and marketing programs.He asserted that this strategy is bound to give the companieseconomies of scale and a cost leadership position in the in-dustry. Even though Levitt's argument might be questionedon a number of grounds (the globalized consumer, the impor-tance of scale economies of standardized products/marketingstrategies), it has generated an important discussion on theeffects of the globalization trends on company strategy. Fur-thermore, one can argue that there has indeed been a trendtoward globalization of industries and markets, be it the in-stitutional infrastructure (EU, NAFTA, WTO), the technolog-ical infrastructure (telecommunications), or the increasedtransfer of people and ideas across countries and continents.

A large body of literature has evolved on strategic responsesto this development. The focus of this literature, however,has been mainly on large multinational enterprises (MNEs)(Hamel and Prahalad 1985; Porter 1986; Bartlett and Ghoshal1989; Yip 1992). These are the firms that enter global strate-gic alliances, that are known for worldwide marketing cam-paigns, and that appear in the international financial press.The strategic responses of small and medium-sized busi-nesses (SMBs) have, on the other hand, received relativelylimited attention.

Carl Arthur Solberg

Submitted March 1995Revised August 1995January 1996May 1996

©Joumal of Intemational MarketingVoi 5, No. 1, 1997. pp. 9-30ISSN 1069-031X

This article describes the development of a new model of in-ternationalization of the firm, which is applicable to bothSMBs and large global firms (see Figure 1). This framework isbased upon the two following premises:

1. The strategic behavior of firms depends on the inter-national competitive structure within the industry. Ina multidomestic market environment where the mar-kets exist independently from one another (Porter1986), the firm may consider entering foreign marketsgradually, with limited concern about competitive re-taliation, and with a marketing strategy adapted to theindividual situation in each market. In a more globalmarket environment, the interdependencies betweenmarkets affect the strategic deliberations of the mainactors in the market (Johanson and Mattson 1986;Hamel and Prahalad 1985). In this situation, the firmwill have to take the global market situation into ac-count when making moves in any one country. Onemay argue that SMBs do not operate in a league wheremarket interdependencies and competitive retaliationare being felt by management. However, since a num-ber of SMBs operate in niches where they meet spe-cialized divisions of large MNCs, this phenomenonmay make itself felt also to the SMB. The theories atwork in this context emanate from industrial organi-zation (Bain 1956) and its management corollary, thestrategic groups paradigm (Hunt 1972; Caves andPorter 1977). The theory of intra-industry trade(Crubel and Lloyd 1975; Krugman 1989) extends thecompetitive arena to the international market place.

2. The other premise behind this framework is partlybased on the Uppsala School of incremental learningand commitment of the firm toward international mar-kets (Johanson and Wiedersheim-Paul 1975; Johansonand Vahlne 1977). Aaby and Slater's (1989) review of55 studies of export performance seems to confirm thegeneral pattern of commitment, consistency, proactiveattitudes, and risk preparedness as being the main de-terminants of export success; the more committed andthe more experienced, the more the firm is prepared tomeet challenges in globalizing markets. The insightsfrom the interaction school of thought (H^kanson et al.1982) also help us explain the ability of firms to ex-pand in intemationai markets: the better developed themarketing network through customers, distributorsand other actors in the market, the better prepared thefirm is to embark on further international expansion.

10 Carl Arth ur Solberg

The framework that will be developed makes use of the twodimensions in Figure 1: "industry globality" and "prepared-ness for internationalization." Management should adopt in-ternational business strategies according to its scores onthose two dimensions. The resulting placement in tbe frame-work, tbe "Nine Strategic Windows," indicates tbe mainstrategic thrust of the company in international markets.

iMATURE

<O

ADOLESCENT

g

IMMATURE

Enternew

business

Consolidateyour export

markets

Stay athome

Preparefor

globalization

Considerexpansion ininternational

markets

Seekniches in

internationalmarkets

Strengthenyour global

position

Seekglobal

alliances

Preparefor a

buy-out

LOCAL POTENTIALLYGLOBAL

CLOBAL

INDUSTRY GLOBALITY

The next three sections describe how management may de-fine its placement in this framework and the rationale ofeach of the suggested strategies in the windows of the model.In a fourth section, tbe framework will be applied to a smallNorwegian manufacturer of electronic sbip equipment.

Figure 1.The Nine Strategic Windows

Most people bave an intuitive notion of how global an indus-try migbt be. Several writers have suggested indicators of in-dustry globalization tbat belp us define this concept (see forinstance Levitt 1983; Porter et al. 1986; Leontiades 1986; Yip1992). However, in the present context it is important to de-fine in more detail the determinants of industry globalitysince tbe strategic consequences apparently vary so mucbfrom one placement in tbe grid to tbe otber (see Figure 1). Inthe present framework, three indicators of industry globalityare introduced: industry structure, strength of the globaliza-tion drivers, and market interdependence.

INDUSTRY GLOBALITY

Industry structure is defined as tbe delineation of tbe compe-tition relevant to tbe firm. It is useful in this context to intro-duce the concept of strategic groups (Hunt 1972; Caves and

Industry Structure

A Framework for Analysis of Strategy Development in Globalizing Markets 11

Porter 1977) where suppliers in an industry gradually developdifferent sets of entry barriers and therefore end up coveringdifferent market sectors, only tangentially competing with eachother. This is one of the reasons why smaller firms using sub-optimal technologies and scales may profitably coexist withlarger, state-of-the-art, low-cost facilities. In many instances,because of blurred boundaries between customer segments, itmay therefore be difficult to identify the real competition. Inglobalizing markets, the analysis of competition appears to beeven more complex, given the multitude of combinations of en-try barriers and ensuing different competitive situations inindividual markets. In some industries MNEs dominate thecompetition (computers, semiconductors, soft drinks), whereasin other industries the competition is much more fragmented(service industries, furniture, building material, etc). In stillother industries there is a mixture of large MNEs and localniche companies that cater to basically the same market.

The type of structure is determined by the number of entrybarriers and the strength with which they appear. Scaleeconomies and product differentiation have been mentionedas typical entry barriers. Another important barrier is marketcontrol through distribution channels. In an internationalcontext, the role of government intervention plays an impor-tant role (trade barriers).

=^^==s^s=^====^= JQ what extent are the entry barriers affected by globalization?Globalization Drivers Globalization drivers have been discussed by a number of

writers (Leontiades 1986; Porter 1986; Yip 1992). The mostimportant ones seem to be: demand homogenization, tradeand capital market liberalization, firm activities in global mar-kets, technological environment, infrastructure (communica-tion), concentration of customer, and distribution structure.

The key questions are: 1) To what degree do globalizationdrivers occur, and 2) How do they impact on the ability ofthe industry players to build global market positions throughthe erection of entry barriers? For instance, does the state-of-the-art technology permit improved economies of scale andflexibility to cater to different market segments in a multi-tude of countries? Do the developments within the EU pro-mote intra-industry trade to the extent that marketinterdependencies in Europe might be expected to develop?Do the trade disputes between the United States and hertrading partners have a negative impact on further economicintegration in the world? Will the activities of MNEs in inter-national acquisitions, joint-venturing, and strategic allianceslead to a more concentrated global industry structure? Aremarket segments experiencing a gradual convergence, facili-tating the implementation of global marketing programs?Also, how imminent is the impact of changes in these fac-tors, and with what strength do they occur?

12 Carl Arthur Solberg

These questions are generally difficult to answer with anysatisfactory precision, and yet, the answers could providemanagement with critical information for strategy develop-ment. This could be done by introducing a scaling systemwhereby managers rate the impact of different developmentsin their industry.

If we are to capture a realistic picture of the industry global-ity, it is also necessary to gauge the degree of interdepen-dence among national markets. Market interdependence isone of the direct results of the process of international oli-gopolization. The ultimate consequence of this factor is thatany actor in the industry has to consider the outcomes for itscompetitive posture in several countries (or "all" the coun-tries in a truly global market) even when the strategy is im-plemented in only one country.

There are several measures that may capture this phenomenon.Intra-industry trade is one example and it varies greatly be-tween and within industry sectors (Grubel and Lloyd 1975;Krugman 1989). Another indicator of market interdependenceis the presence of MNEs and intemational strategic alliances inthe industry. As the number of cross border mergers, acquisi-tions, emd strategic alliances have considerably increased inthe last decade, this has itself resulted in greater concentrationof the intemational industry structure (Hagedoorn and Schak-enraad 1990). A final indicator of market interdependence isinternational price sensitivity (Leontiades 1984), where pricechanges in one country affect the price level in other countries.

Table 1 specifies useful indicators of industry globality. Onemay apply a 1-5 scale to get an estimate of the firm's locationon the multilocal-global continuum.

Market Interdependence

Industry structureCompetitive structureCustomer structureSupplier structure

Global Industry Multilocal Industry

Concentrated FragmentedConcentrated FragmentedConcentrated Fragmented

Table 1.Indicators of Industry Globality

Globalization driversIntemational demand patternTVade and investment policy and practiceInternationalization of customers/suppliers

Homogeneous HeterogeneousLiberal ProhibitiveHigh Low

Market interdependenceIntra-industry trade HighInternational price sensitivity HighCoordination of marketing campaigns by MNEs High

LowLowLow


-^—-—'^——^•^———^•'-— Considering the three factors discussed above, we end upA Typology of Industry Structure ^jth the following three categories of industry structure: Na-

tionally oriented industries—or multidomestic industries(Porter 1986), potentially global industries, and finally"truly" global industries.

1. A multidomestic or multicountry industry is onewhere the basic structure is dominated by national ac-tors and a fragmented competition. In this industrythere are no signs of globalization drivers that willpull the industry toward a more international orienta-tion. The plumber and hairdresser trades are perhapsthe archetypes in this category. There are rare exam-ples of industries in this category that neverthelesshave some internationally active firms (for instancefirms in the paint or the building materials industry).

2. A potentially global industry embodies the possibilityof becoming global if exposed to the "right" set ofglobalization drivers. There are two main types of po-tentially global industries. The first one consists offragmented industries with an element of exporting toneighboring markets and/or where multinational ac-tors have made some inroads into the individual na-tional markets. International trade is important, butthere are no dominant players in the market. Furni-ture, clothing, building materials, and some foodproducts are found in this group. The second type ofpotentially global industry is the "third country" in-dustry structure, where international competition in-deed exists, but it is confined to countries notsupplying the products themselves (defense indus-tries are one example, where for instance German,French, and U.S. companies compete to get a contractin a third country, for example Indonesia, with no na-tional supplier). Both categories may become moreglobal, but for different reasons.

3. Global industry is characterized by the presence of a lim-ited number of global, dominating players in the indus-try, catering to major segments of the market. There is,however, usually an undergrowth of smaller, segment-oriented companies that specialize in particular applica-tion areas in the market, and that operate on aworldwide basis. The aircraft business is a typical exam-ple of this structure, with three leading Western suppli-ers (Boeing, McDonell Douglas, Airbus), and a range ofother companies specializing in, for instance, commuterplanes (Saab, Cessna, Fokker etc.). A major feature ofmajor players in a global industry is that they, throughtheir extensive distribution network, are able to rapidlyintroduce product innovations on a world scale basis.

14 Carl Arth ur Solberg

The preparedness for internationalization consists of twofactors: international organizational capacity and relativemarket share in the firm's reference market.

PREPAREDNESS FORINTERNATIONALIZATION

This dimension involves the firm's ability to develop and carryout strategies in the international marketplace, and includesboth the number of managers and employees engaged to carryout international operations and the degree of internationalculture embedded in the organization. Many researchers, forexample, have noted tbat successful exporting hinges primar-ily on management commitment. This commitment is nur-tured by tbe gradual maturing of company management indeveloping proactive attitudes toward international businesswitb increased international sales (Johanson and Wieder-sheim-Paul 1975; Jobanson and Vahlne 1977; Cavusgil 1984;Aaby and Slater 1989; Johanson and Vablne 1990). Tbere-fore, one proxy of international organizational capacitycould be tbe level of international sales.

Altbough the international organizational capacity is en-hanced by increased international exposure, many compa-nies either lag bebind the "norm" or on the contrary are ableto leapfrog a step in the internationalization process (Welchand Luostarinen, 1988). Therefore, a more thorough analysisof the organizational capacity is needed to make correctionsto the somewhat "arithmetic" approach of using only tbe ra-tio of international sales to total sales. In tbis connection it isappropriate to make use of Welcb and Luostarinen's (1988)framework of six internal dimensions (foreign operationmethods, sales objects, markets served, organizational struc-ture, personnel—skills and experience, finance) to give ameasure of the firm's capability to internationalize.

International OrganizationalCapacity

The strategic importance of market share is emphasized by tbeBoston Consulting Group (BCG) in the much-used BostonConsulting Croup Crid. In the Profit Impact of Market Strategy(PIMS), evidence is rendered to support the relation betweenmarket share and return on investment (ROI) (Buzell and Caie1987). In the present context, relative market share is a proxyfor the relative strength of the firm in its major markets and,hence, its ability on one hand to withstand competitive at-tacks, and on the other hand to finance—through higher ROI—a further global development of the firm.

One problem of using the BCC-matrix is to determine themarket shares ofthe players. In the car industry, for instance,market sbare may be defined as a share of the total market, asa share of the station wagon market, of the small car market,of tbe bigb-end market, etc. In each instance, manufacturerslike Volvo or Toyota will be positioned in different places in

Market Share inReference Market


the grid. The importance of properly defining the concept ofwhat we may call the reference market is illustrated by Leon-tiades (1984), who shows how Ford, IBM, and Texas Instru-ments perform much better in their UK operations in termsof ROI than their local counterparts, despite lower marketshares in this market. Translating his findings to the presentcontext, one may say that the reference market is no longerconstrained to the UK, but rather, has to be defined in an in-ternational context. The determinants of the market shareconcept should therefore be related to:

• The ability of the marketer to position the product in asegment, which can then be defined as the "total" marketor reference market. It is in this market that the customersperceive the marketer's products, and it is therefore alsoin this market that competition really takes place.

• The effects of the learning curve and economies of scaleinitially constitute the basis for the argument about theimportance of market share. This factor is important inthat a cash cow position in key markets may constitute aprerequisite to financing expansion into new markets.

The problems of defining the reference market and the ensu-ing problems with relevant information about market sharesin foreign markets may be alleviated by introducing proxiesfor this measure. Market network may constitute such a com-plementary or substitute measure for market share. The func-tion of this dimension is to gauge the company's ability toreach key markets through its network. The more global theindustry structure is, the more important becomes the pres-ence of an active and widespread network. Only in this wayis it possible for a firm to put weight behind a threat of retal-iation in the home base of a potential entrant (Hamel andPrahalad 1985). This, then, means that it is not enough tohave a foothold, but that the firm should have an entrenchedposition in the market (Solvell 1987).

Table 2 sums up the most important indicators of prepared-ness for internationalization. Again, a 1-5 scale may be usedto gauge the individual indicators of this dimension.

Table 2.Indicators of Preparedness for

Internationalization International organizational capacityInternational sales ratioMarket presence in key marketsModes of operation

Market share in reference marketMarket share in major marketsHQ interaction with distribution network

HighPreparedness

HighHighHigh control

DominantHigh

LowPreparedness

LowLowLow control

InsignificantLow


Pulling these factors together will give us a construct denot-ing the firms' preparedness for internationalization:

1. The globally immature company. These have no orlimited export activity and at the same time have nodominant position in their present markets. In interna-tional markets, this company will be particularly vul-nerable in that it has limited experience and anunfavorable market share position.

2. The adolescent company. There are two types: thosewith virtually no foreign experience, but with a firmposition in the home market (the home market adole-scent); and those with a small to medium market shareat home, and with extensive experience from interna-tional marketing (the international adolescent). Firmsin the first category have the necessary economicstrength to carry out an international marketing cam-paign, but lack the experience and organizational cul-tiure to do so and will probably make many mistakes intheir first attempts to go abroad—following the incre-mental internationalization model. Firms in the sec-ond category may have the required skills but not thestrength to compete in global markets.

3. The internationally mature company. These compa-nies have a dominant position in major markets andthey are dependent on international sales—both ex-ports and sales by foreign subsidiaries—with all thatentails of experience and ensuing organizational ca-pacity. Companies with these features should be wellprepared to take on globalization challenges. It is im-portant to emphasize that this third category is not re-served only for large MNEs; many SMBs (or at least"MBs") have achieved considerable positions in keyworld markets within their narrow niche, making tra-ditional thinking of world players rather obsolete. Itshould furthermore be stressed that preparedness forinternationalization has to be considered relative tothe market situation confronted by the firm. The re-quirements are much less demanding in a multicoun-try market situation than in a global market situation.This point is partly taken care of by the inclusion ofmarket share in reference markets, the latter denotingthe scope of the competitive challenges.

Company Profiles inGlobalizing Markets

We will now revert to the "Nine Strategic Windows" (see Fig-ure 1) and discuss the strategic position of the individual firm.Before doing so, it is important to consider the effect of theglobalization drivers on market shares in reference markets. A

THE STRATEGIC THRUST-THE "NINE STRATEGICWINDOWS"


movement to the right in the grid entails a larger referencemarket and a resulting weaker relative share for the firm ofthis market and vice versa. In a globalizing industry, there-fore, the passive firm will see its preparedness for interna-tionalization gradually deteriorate.

This section describes the strategic posture of firms in eachof the nine strategic windows of the matrix. It is important tonote that the alternative strategies suggested in the nine win-dows delineate the major international strategic focus of topmanagement. Many other tasks relating to technology, mar-keting, human resource management, or financial subjectshave not been captured by the matrix. Yet, the proposed fo-cus will have ramifications for these areas, and the way inwhich the company chooses to carry out these strategies willdepend to a large extent on factors such as financial strengthand human resource base. These two factors have thereforebeen included in the discussion of the different approachesto help define the relevant strategies.

Window 1: "Stay at Home" In this window, each country-market is isolated from one an-other by different kinds of entry barriers, and the threat ofcompetitive entry from international or global players is lim-ited and not likely in the near future. With limited interna-tional experience and a weak position in the home (reference)market there is little reason for the firm to engage in devel-oping a position in international markets. The main focus offirms located in this part of the model should be on improv-ing their performance and position in their home market.

If the company has a weak financial position, it should con-sider strategies like cost reduction and/or market reposition-ing at home. With a better financial position and amanagement that takes a keen interest in international busi-ness development, it should consider initiatives outside itshome market. One reason justifying such a step is the allegedrelation between success and export involvement (Solberg1988). International sales will be a new dimension to thecompany and will force it to sharpen its competitive advan-tage. This in turn will also pay rewards in the home market.Firms in this window that embark on a cautious internation-alization process are normally "protected" by the multido-mestic nature of the individual national markets. They canthen take a stepwise approach, whereby the company canmove slowly and learn the "rules of the game" step by stepwithout risking counterattacks in their home market.

Window 2: "Consolidate YourExport Markets"

An environment with limited competitive threat is also true offirms in this window. Still, entrepreneurial companies havesucceeded in entering foreign and, most often, neighboring


markets. This is the case of Scandinavian manufacturers ofbuilding products, furniture, sports wear, etc., which theysell in each others markets and to some extent to the Euro-pean continent. What, then, are the strategic options for acompany in this situation?

If the company has a weak financial position, managementshould review both the market and product mix and concen-trate on the strategic business units (SBUs) that rewardabove-average returns. The remainder should be divested orharvested in a "traditional BCG-manner" (Kotler, 1994). Thecash generated from this operation should be used to rein-force the strategic position of the SBUs that are left. Given therelatively protected market climate (multidomestic markets)the company may work its way out in what could be termeda "calm international setting."

If the company has a strong financial base, it should alsoconsider penetrating into major existing markets and assessentering new ones. Due to the relatively closed markets (mul-tidomestic), licensing and/or foreign direct investments aretwo possible entry modes for market expansion. Even thoughthere are no signs of a globalizing market environment, thecompany should capitalize on its international marketingknow-how and competitive and financial strength. One day,the market factors may start to move in the global direction,and the company should be positioned to play a new role.

In this strategic window, the company has achieved a leader-ship position in its most important markets. The individualmarkets are nationally oriented, the competition is made upof nationals, and the market accessibility is limited. The caseof the financially weak company is similar to that in Window2: consolidate, review your product/market mix. A companywith sound finances, in contrast, should either seek to ex-pand further in new international markets or enter new busi-ness areas in its home market. In this way, the companygradually builds its position in individual markets, therebyenhancing its ability to implement aggressive strategies whenglobalization eventually occurs in the industry.

Window 3: "Develop NewBusiness"

In this window, the markets have been exposed to globaliza-tion drivers to the extent that competition across borders isthe rule, although it is not yet global. Firms in this positionare often vulnerable because they lack both management andfinancial resources to confront the market situation.

If the company's top management lacks interest/skills in inter-national operations, the board of directors should initiate pro-grams to develop a more internationally proactive management

Window 4: "Seek Niches inInternational Markets"


team. With a more proactive management in place, the com-pany should identify niches in international markets. By de-veloping niche strategies, the company erects entry barriersand redefines its role in the market (increasing its relativeshare in its reference market). The company will, therefore,be less vulnerable to global competitive forces. The questionis, of course, to what extent will a newcomer in internationalmarkets be capable of discerning niches in the market wherethe company can live "peacefully."

The suggested strategies are in this case either to expandstepwise in neighboring markets, following the "traditional"internationalization process ladder (Johanson and Vahlne1977), and/or—if the company has sound finances—to ex-pand through acquisitions. This latter route to international-ization, however, is a perilous one. Several studies (see forinstance Kitching 1967) have found that only a minor part ofinternational acquisitions live up to expectations. If the com-pany has no previous international experience, it will mostlikely lack the necessary organizational capacity to cope withforeign mergers and acquisitions. Of course, if the companyhas extensive experience of buy-outs in the home market,this may compensate for such shortcomings.

Window 5: "ConsiderExpansion in Intemational

Markets"

The middle of the grid denotes a situation full of potentialboth within the company and in the market. The companyhas "climbed" the internationalization ladder and manage-ment is characterized by a proactive stance toward further in-ternational involvement. The challenge for management inthis case is to carve out a position in the markets where theirkey competitors have a stronghold. This will increase thecompany's ability to react to competitive pressures in theevent of a drive toward global markets.

The expansion strategy that is selected will vary according tothe specifics of the situation (for instance competitive struc-ture, barriers to trade, demand pattern, etc.). Penetrating thehome turf of key competitors, the company may wish to ex-pand by inviting them to form strategic alliances, so as not toexacerbate the competitive situation. If the impeding factor isbarriers to trade, for instance a closed distribution system(consumer goods with a handful of very powerful retailchains), the company may again be advised to enter intosome form of alliance with major players in the market, tobuy a market share. Another way to get around the barriers isto enter into licensing agreements and joint ventures. Thechoice of one approach or the other will vary according to fi-nancial strength of the company.

Exporting is still another possible entry approach, whichmay be feasible if the barriers and demand patterns do not


constitute effective barriers to entry. In many ways, graduallyincreasing the company's market presence through what onecould term "controlled" exports, is preferable because thecompany slowly but surely builds the international experi-ence necessary to take on even bigger tasks in the future(Newbold et al. 1979); in this way the international organiza-tional culture is allowed time to become embedded in thecompany (Solberg 1988).

The internationally mature company in a potentially global = = ^ = = = = ^ = = = = = ^ =market is well positioned to prepare itself for eventual shifts Window 6: "Prepare fortoward a more global market. The analysis of the imminence Globalization"and impact of the globalization drivers is critical to compa-nies in this cell. To what extent, for instance, will the harmo-nization of standards in the EU impact on industry structure?To what extent will our company's reactions to the develop-ment in itself bring about change in the industry structure?

A company with comfortable financial strength is in a posi-tion to adopt an aggressive stance to the possible changes inthe industry through, for instance, acquisitions. Norsk Hy-dro's Fertilizer Division is an example of such behavior.Since the middle of the 1970s they have stubbornly and con-sistently carved out a dominant position in the European fer-tilizer industry through acquisitions and joint ventures. Theindustry structure may still be classified as potentiallyglobal, but Norsk Hydro is well placed to meet a more globalmarket situation and also to influence this development.

A financially weaker company will have to play with other"instruments" to gain a market position. One alternative is toseek alliances with major actors in the individual markets.Jordan of Norway (toothbrushes), for example, is either a mar-ket leader or number two in major markets in Europe. With asales volume of some US$100 million, however, it is a dwarfagainst the big retail giants in Europe. In order to achieve aleverage in this situation, Jordan seeks alliances through in-teractive participation with major local distributors of hy-giene products, who have the necessary market power to dealwith supermarket chains in each individual market.

One important distinction between the above types of al-liances and "strategic alliances" lies in the scope of these lat-ter. The competitive arena is more global and the event of afailure is more consequential in strategic alliances than is thecase of local joint ventures or acquisitions in individual mar-kets (Hamill and El-Hajjar, 1990). According to Perlmutterand Heenan (1986), "Not all efforts to mold internationalcoalitions are either strategic or global; some are mere exten-sions of traditional joint ventures—localized partnership witha focus on a single national market." The above alliances

A Framework for Analysis of Stra tegy Developm en t in Globalizing Markets 21

seem to fall into this category. However, the aggregate effectsof these local alliances may be to position the company to actmore globally. Thus, the actions taken by the company mayin themselves constitute a globalizing driving force; NorskHydro's Fertilizer Division may be a case in point.

Window 7: "Preparefor a Buy-Out"

In this strategic window, the company already finds itself ina global market and is a local dwarf among multinational gi-ants. The company most likely has only a few possibilities tosurvive as an independent unit. There may be a slim oppor-tunity to carve out a niche based on specific skills that re-spond to particular needs in a limited segment of the worldmarket. In such a niche the company may develop a "pro-tected" life. It may divert into either of the following threewindows: Window 4, "Seek niches in international markets"through redefining the nature ofthe business, for instance, byentering more protected segments of the market (governmentcontracts, fragmented or innovative distribution channels);Window 8, "Seek global alliances" by inviting a third partywith the necessary "preparedness for internationalization" toenter into a licensing agreement or to take a (majority) stakein the firm; Window 5, "Consider expansion in internationalmarkets" through a combination ofthe two. If this is not pos-sible, the company should seek ways to increase its net worthso as to attract potential partners for a future buy-out bid.

In this window, one will find a number of hi-tech entrepre-neurs with technological innovations targeting an internationalaudience. In Scandinavia and other small countries there are agreat many companies falling into this category, mainly ema-nating from the engineering oriented milieu of technologicaluniversities. Their home markets are often too limited to war-rant sufficient economies of scale and the orientation of man-agement is toward the technology rather than toward themarket. The challenge for these companies lies in the conflictbetween the lack of international organizational culture and ofmarket or financial power on one hand, and the threat of largerinternationally oriented competitors with a broad marketingcoverage entering the arena on the other. This threat is exacer-bated by the speed by which hi-tech innovations are diffused,copied or improved by competitors (Ohmae, 1985).

Window 8: 'Seek GlobalAlliances"

In this cell, the company is adolescent, and finds itself in aglobal market. With medium preparedness, the firm in thisposition may use strategic alliances in order to cope withlarger and more powerful competitors, either through exten-sive joint venturing or through marketing, subcontracting, orR&D arrangements. In this position the firm has acquired thenecessary skills in international business operations (adoles-cent) and should be able to cope with the challenges posed

22 Gar! Arthur Solberg

by complex negotiations with potential partners, without los-ing its independence. By means of an alliance, the firm mayovercome its competitive disadvantages, whatever the field ofactivity (economies of scale, marketing network, technologydevelopment and so on. Porter 1986). The difference betweenthe financially strong and weak company lies essentially inthe leverage it will have in negotiations with its future part-ners, and in its capability to take initiatives. It seems, how-ever, that companies in this position in the grid will not beable in the long run to defend their market position on theirown, unless they are able to identify niches, or in other wordschange the position in the grid to the left and upward(through a larger market share in a smaller reference market).

Finally, the firm has reached a position where it operates inglobal markets, and where it is among the market leaders in Window 9: "Strengthen Yourkey markets. Within its industry the company is among the Global Position"major "chess players" in the global marketplace. Even if thisseems to be the end station of a long voyage toward the"global village," the dynamism of international trade willforce the players in this window to be alert and carry out pre-ventive and more proactive policies. Changes in demand pat-terns and customer preferences, the volatility of the referencemarket, changes in the cost position of both the differentcountries and the individual players in the market, new tech-nologies, political events, etc., will all contribute to a marketbeing constantly on the move. A key element to become aglobal player—or a "Triad Power" (Ohmae 1985)—seems tobe to secure access to the Japanese market. Without a firmfoothold in this large and still growing market, the "global"firm is vulnerable to Japanese competitive attack in othermarkets. Citing Kverneland (1988, p. 225); "Japanese firms'success in certain global industries could make counter-com-petitive actions in Japan an important component of com-petitors' worldwide strategy."

Companies in Window 9 should therefore identify the piv-otal elements in this picture and develop an organization ca-pable of rapidly reacting to changes and events in the "globalvillage." During the 1980s different network-based organiza-tional models were suggested (Hedlund 1986; Prahalad andDoz 1987; Bartlett and Ghoshal 1989) in a response to thechallenges posed by a global industry structure. Bartlett andGhoshals (1989) model of transnational companies (thinkglobal—act local) may epitomize the organizational chal-lenges of companies in this window.

This section will briefly describe the case of one company. Itwill discuss how the company has positioned itself in thepresent matrix and which strategic conclusions one may

CASE COMPANY—NORCONTROL AUTOMATION

A Framework for Analysis of Strategy Development in Clobalizing Markets 23

draw firom this position. The company was studied at twopoints in time, first in 1989 and then again four years later.The company is a Norwegian manufacturer of electronic con-trol systems for ship automation, Norcontrol Automation(NA). During that period of time the company had increasedits sales from 62 million NOK (around 9 million USD) toclose to 256 million NOK (40 million USD). The main reasonfor this dramatic increase lies in a major marketing drive inthe Far East, chiefly in South Korea, which delivers aroundone-third of the world tonnage.

The Situation in 1989In 1989 the structure of the ship equipment industry wasdeemed to be potentially global in terms ofthe present frame-work. One key factor contributing to this location was thestate ofthe industry structure with some large players mainlyoperating in their home countries or in "third countries." Forinstance the largest operator in the industry by the end of the1980s was the Japanese Terasaki, which concentrated on thehome market. Industry players like ABB (in Finland) andAEG (Germany) also operated mainly in their respectivehome markets. The only truly internationally oriented com-panies (apart from Norcontrol) were at the time Siemens ofGermany, Valmet and Autronica of Norway, and S0ren T.Lyngs0e of Denmark. The shares of the largest players inworld markets outside Japan were estimated as follows (esti-mates based on company information): Siemens 15 percent,S0ren T. LyngS0e 10 percent, Valmet 10 percent, Autronica10 percent, Norcontrol 5 percent.

At the time the company had a preparedness-for-international-ization rate below medium, basically because of medium-to-low market shares in international markets and because theinternational organizational culture was restricted to the topmanagement of the company. Indeed its sales force was inter-nationally oriented with customer relations in many impor-tant markets, but these relations were not embedded in the restof the organization. Furthermore, the company was extremelyproduct oriented in the sense of adopting a flexible, but highlyonerous stance toward adaptation of products. In 1989 thecompany hired a new managing director with extensive inter-national experience and with great ambitions to turn the poorfinancial performance of the company. NA had in fact strug-gled with returns on sales of around or below zero and an eq-uity ratio of less than 5 percent several years in a row.

Two AlternativeStrategic Windows

NA was, as a result, placed between Windows 4 and 5, closeto Windows 7 and 8. As a consequence, the company was inthe position to assess at least two strategic options. Therecommendations built in the matrix and discussed with thecompany management in 1989 were as follows:

24 Garl Arthur Solberg

A change in the competitive structure, through extensivestrategic alliances between important players in the market-place, or through a more open market access as a result ofeases in regulations (e.g. EU92) would potentially lead thesefirms in a more global market structure. It was, therefore, im-portant to identify key markets in order to develop a firmfoothold with a number of key customers in the market.Without such a stance, the company risked lagging behind its(larger) international competitors, gradually losing marketposition and competitive stamina.

A factor strongly contributing to the urgency of an offensivestrategy was the fact that in a globalizing market, price anddistribution network will often "make it or break it," not nec-essarily because other factors like product quality and ser-vice are less important, but because large, multinationalcompetitors (like Siemens) generally are able to offer pre-cisely that: quality and service at a competitive price. Themain reason lies in their capabilities in low-cost, large-scaleproduction, and also their extensive market network, en-abling them to turn over the necessary volumes to achievescale advantages. Therefore, NA was advised to develop newmarkets and networks enabling them to achieve thresholdvolumes in manufacturing and R&D. The way in which thisnetwork and market expansion was to be carried out wouldlargely depend on the firm's management competence and fi-nancial resources.

Window 5: Consider Expansionin International Markets

NA was at the time too weak to expand rapidly on their own.At the same time they risked being swept out of the marketby multinationals actively seeking global strategies. This im-plied that the company, having limited resources, should asan alternative strategy, "Seek niches in international mar-kets," where the investments in international networks weremore compatible with its resources. In this context, seekingniches entailed setting up barriers to entry preventing themultinationals to take an interest. The challenge, however,seemed to be to identify a set of customers that had suffi-ciently pronounced special requirements to allow NA to dis-tinguish themselves from their larger competitors. As aconsequence, the real challenge was to make the companymore market oriented, so as to come to grips with its cus-tomer base and establish and nurture long-term relationswith its customers. In this way the firm would enhance itsability to identify niches.

Window 4: Seek Niches inInternational Markets

During the foin"-year period, some changes in the competitivestructure had indeed occurred. Valmet and Lyngs0e hadmerged to form a more powerful market player, and Autron-ica was acquired by the British company, Whessoe. These

The Situation Four Years Later


changes in industry structure have moved the industry glob-ality to the right in the matrix. NA had also undergone greatchanges during the four-year period.

1) NA's financial resources toward the end of the 1980swere strained to the extent that it would not be able tosurvive without a sound financial backing of new own-ers. This situation was aggravated by the move to theright on the globality axis. The company was finallytaken over by a large state-owned manufacturer of de-fense electronics, with long-term aspirations in the in-formation technology industry. Once the ownershipissue was solved, management could actively carry outnew strategies to capture shares in new markets.

2) The company had shown an impressive growth ofsome 300 percent over the four year period. The ex-pansion strategy was aggressively implemented in se-lected markets—i.e.. South Korea, and in Europe tothe extent that the firm today is a market leader out-side Japan. As a result, NA is much better prepared toconfront a potential international entry of their largestJapanese competitor, although not in its home ground.According to company management, time has nowcome to consolidate the situation, through an increasein headquarter control of market activities, establish-ment of a market intelligence system, and a more sys-tematic approach to its international network.

To sum up, one may say that NA chose an aggressive expan-sion strategy, opting out of the more cautious niche strategyalternative. In this way the company achieved the economiesof scale requested by a world leader. In order to maintain itsposition, the company has implemented consolidationmoves (headquarter control, etc.). This would not have beenpossible without ownership reshuffles and a more marketoriented management orientation.

One may say that the company had climbed the internation-alization ladder and by 1993/94 found itself in the upper partof the matrix ("Prepare for Globalization"). According to themodel, NA was then in a position to preemptively introduceitself to the home ground of its biggest international competi-tors (in the present case, Japan) in order not to be overrun inits own strongholds by price subsidized market entry (Hameland Prahalad 1985).

framework presented in this article demonstrates the ef-of different international settings on business and mar-

keting strategy. The approach taken differs from otherframeworks in that it accounts for the combined effects of the


degree of globality in the particular industry, the impact ofglobalization drivers, and the degree of international pre-paredness of a company.

The case study shows that the model forces managementthrough an analytical framework that gives signals to itsstrategic development. The signal followed in the presentcase was to expand in international markets in order to se-cure a broader market foothold and satisfactory scaleeconomies in a globalizing industry. The more general man-agerial implication of the model is that company manage-ment should carefully assess the outcome of a gradualconcentration of competition. This concentration may takeplace in any industry depending on the underlying barriersto entry and the globalization drivers affecting the industry.

Although the author has used the "Nine Strategic Windows"in a number of companies, it is vital to further validate themodel through additional research. One important aspect ofthis research is to develop measures that properly translatethe dimensions of the matrix: industry globality, prepared-ness for internationalization, and the individual strategicpostures hypothesized in each window. Both longitudinalcase studies and cross-sectional studies (both across indus-tries and countries) are needed to explore the potential mer-its of the framework suggested in this article.

From his experience in using the framework, the author be-lieves it is critical to discern between the state of the global-ity and the globalization drivers. In the former, the specificstructinre of the industry is the object of analysis. The analy-sis of industry structure does not entail the study of theprocess leading to the state. Rather, it is essential to define ameasure of the extent to which the industry structure makescompetitors in different local markets mutually interdepen-dent in international markets.

An analysis of the globalization drivers calls for a thoroughunderstanding of the forces at work. These forces are, in or-der of importance: 1) technological development (initiatingchanges in mobility barriers and thereby strategic groups); 2)trade and capital market liberalization (lowering interna-tional entry barriers); and 3) internationalization and concen-tration of customer structure (forcing suppliers to enter intostrategic alliances or acquisitions).

One may ask whether it is possible to create an all-encom-passing framework of analysis in which international new-comers and SMBs share space in the grid with largemultinational enterprises. The issues confronting these dif-ferent categories of companies are undoubtedly widely dif-ferent, and one may argue that they cannot be discussed in


THE AUTHORCarl Arthur Solberg is associateprofessor of intemational market-ing at the Norwegian School ofManagement.

the same context. However, the firamework does not dealwith large MNEs as such, but rather with individual strategicbusiness units within MNEs. In this perspective, many SBUsof large multinationals may embody certain common featureswith those of SMBs.

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