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Case #1 Closing Case 1.1 : Emerging Markets–Microsoft’s Evolving
China Strategy [page 23].  Questions 1, 2, 3, 4,
and 5.  Covered by Chapter 1-4 

Read the chapters prior the case study to better answer the questions 

Mike W. Peng, PhD
Jindal Chair of Global Strategy

University of Texas at Dallas

Chair, Global Strategy Interest Group, Strategic Management Society (2008)

Decade Award Winner, Journal of International Business Studies (2015)
The Only Global Strategy Textbook Author Listed in

The World’s Most Influential Scientific Minds (2015)

Global Strategy
FOURTH EDITION

Australia • Brazil • Mexico • Singapore • United Kingdom • United States

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Global Strategy, Fourth Edition
Mike W. Peng

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WCN: 02-300

To Agnes, Grace, and James

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Brief Contents
Preface xviii

About the Author xxv

PART 1 FOUNDATIONS OF GLOBAL STRATEGY 1

1 STRATEGIZING AROUND THE GLOBE 2
OPENING CASE:

Emerging Markets: Samsung’s Global Strategy Group 3

CLOSING CASES:

Emerging Markets: Microsoft’s Evolving China Strategy 23

Emerging Markets: Samsung’s Global Strategy Group 25

The Global Strategy of Global Strategy 27

2 MANAGING INDUSTRY COMPETITION 32
OPENING CASE:

Emerging Markets: Competing in the Indian Airline Industry 33

CLOSING CASES:

Emerging Markets: Competing in the Indian Airline Industry 53

Emerging Markets: Competing in the Indian Retail Industry 54

Emerging Markets: High Fashion Fights Recession 56

3 LEVERAGING RESOURCES AND CAPABILITIES 60
OPENING CASE:

Enhancing Value, Rarity, and Inimitability at Burberry 61

CLOSING CASES:

Emerging Markets: From Copycats to Innovators 78

Enhancing Value, Rarity, and Inimitability at Burberry 80

IBM at 100 81

iv

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4 EMPHASIZING INSTITUTIONS, CULTURES, AND ETHICS 86
OPENING CASE:

Emerging Markets: One Rock Formation, Two Countries 87

CLOSING CASE:

Emerging Markets: One Rock Formation, Two Countries 106

PART 2 BUSINESS-LEVEL STRATEGIES 111

5 GROWING AND INTERNATIONALIZING THE ENTREPRENEURIAL FIRM 112
OPENING CASE:

Emerging Markets: The Rise of Alibaba 113

CLOSING CASES:

Emerging Markets: Amazon.com of Russia 130

Emerging Markets: Microfinance, Macro Success or Global Mess? 131

Emerging Markets: The Rise of Alibaba 133

6 ENTERING FOREIGN MARKETS 138
OPENING CASE:

Emerging Markets: SABMiller in Nigeria 139

CLOSING CASES:

Emerging Markets: Pearl River Goes Abroad 160

Emerging Markets: SABMiller in Nigeria 162

Enter the United States by Bus 163

7 MAKING STRATEGIC ALLIANCES AND NETWORKS WORK 168
OPENING CASE:

Emerging Markets: Etihad Airways’ Alliance Network 169

CLOSING CASES:

Emerging Markets: BP, AAR, and TNK-BP (also see Emerging Markets 7.1) 188

Emerging Markets: Etihad Airways’ Alliance Network 191

8 MANAGING GLOBAL COMPETITIVE DYNAMICS 196
OPENING CASE:

Emerging Markets: Emirates Airlines Fights Legacy Airlines 197

CLOSING CASES:

Emerging Markets: Emirates Airlines Fights Legacy Airlines 220

Emerging Markets: HTC Fights Apple 222

Brief Contents v

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PART 3 CORPORATE-LEVEL STRATEGIES 227

9 DIVERSIFYING AND MANAGING ACQUISITIONS GLOBALLY 228
OPENING CASE:

Emerging Markets: Emerging Acquirers from China and India 229

CLOSING CASE:

Emerging Markets: Emerging Acquirers from China and India 251

10 STRATEGIZING, STRUCTURING, AND LEARNING AROUND THE WORLD 258
OPENING CASE:

Emerging Markets: GE Innovates from the Base of the Pyramid 259

CLOSING CASES:

A Subsidiary Initiative at Bayer MaterialScience North America 277

Emerging Markets: GE Innovates from the Base of the Pyramid 279

11 GOVERNING THE CORPORATION AROUND THE WORLD 284
OPENING CASE:

Global Competition in How to Best Govern Large Firms 285

CLOSING CASES:

Emerging Markets: The Private Equity Challenge 306

Emerging Markets: GE Innovates from the Base of the Pyramid 309

12 STRATEGIZING WITH CORPORATE SOCIAL RESPONSIBILITY 316
OPENING CASE:

Emerging Markets: The Ebola Challenge 317

CLOSING CASES:

Emerging Markets: The Ebola Challenge 335

Launching the Nissan Leaf: The World’s First Electric Car 337

Glossary 343

Index 355

vi Brief Contents

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Contents
Preface xviii

About the Author xxv

PART 1 FOUNDATIONS OF GLOBAL STRATEGY 1

1 STRATEGIZING AROUND THE GLOBE 2
OPENING CASE:

Emerging Markets: Samsung’s Global Strategy Group 3

A GLOBAL GLOBAL-STRATEGY BOOK 4

WHY STUDY GLOBAL STRATEGY? 7

WHAT IS STRATEGY? 7

Origin 7

Plan versus Action 8

Strategy as Theory 9

FUNDAMENTAL QUESTIONS IN STRATEGY 13

Why Do Firms Differ? 13

How Do Firms Behave? 14

What Determines the Scope of the Firm? 16

What Determines the Success and Failure of Firms Around the Globe? 16

WHAT IS GLOBAL STRATEGY? 17

WHAT IS GLOBALIZATION? 18

Three Views on Globalization 18

The Pendulum View on Globalization 18

Semiglobalization 20

GLOBAL STRATEGY AND THE GLOBALIZATION DEBATE 20

ORGANIZATION OF THE BOOK 22

vii

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CHAPTER SUMMARY 22

CRITICAL DISCUSSION QUESTIONS 23

TOPICS FOR EXPANDED PROJECTS 23

CLOSING CASES:

Emerging Markets: Microsoft’s Evolving China Strategy 23

Emerging Markets: Samsung’s Global Strategy Group 25

The Global Strategy of Global Strategy 27

NOTES 28

2 MANAGING INDUSTRY COMPETITION 32
OPENING CASE:

Emerging Markets: Competing in the Indian Airline Industry 33

DEFINING INDUSTRY COMPETITION 34

THE FIVE FORCES FRAMEWORK 35

From Economics to Strategy 35

Intensity of Rivalry among Competitors 35

Threat of Potential Entry 37

Bargaining Power of Suppliers 39

Bargaining Power of Buyers 39

Threat of Substitutes 40

Lessons from the Five Forces Framework 41

THREE GENERIC STRATEGIES 41

Cost Leadership 42

Differentiation 42

Focus 44

Lessons from the Three Generic Strategies 44

DEBATES AND EXTENSIONS 44

Clear versus Blurred Boundaries of Industry 44

Threats versus Opportunities 46

Five Forces versus a Sixth Force 46

Stuck in the Middle versus All-Rounder 46

Industry Rivalry versus Strategic Groups 47

Integration versus Outsourcing 49

Industry-Specific versus Firm-Specific and Institution-Specific Determinants
of Performance 50

Making Sense of the Debates 50

viii Contents

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THE SAVVY STRATEGIST 51

CHAPTER SUMMARY 51

CRITICAL DISCUSSION QUESTIONS 52

TOPICS FOR EXPANDED PROJECTS 52

CLOSING CASES:

Emerging Markets: Competing in the Indian Airline Industry 53

Emerging Markets: Competing in the Indian Retail Industry 54

Emerging Markets: High Fashion Fights Recession 56

NOTES 58

3 LEVERAGING RESOURCES AND CAPABILITIES 60
OPENING CASE:

Enhancing Value, Rarity, and Inimitability at Burberry 61

UNDERSTANDING RESOURCES AND CAPABILITIES 62

RESOURCES, CAPABILITIES, AND THE VALUE CHAIN 63

FROM SWOT TO VRIO 67

The Question of Value 67

The Question of Rarity 68

The Question of Imitability 68

The Question of Organization 69

DEBATES AND EXTENSIONS 70

Firm-Specific versus Industry-Specific Determinants of Performance 71

Static Resources versus Dynamic Capabilities 72

Offshoring versus Non-Offshoring 73

Domestic Resources versus International (Cross-Border) Capabilities 75

THE SAVVY STATEGIST 75

CHAPTER SUMMARY 76

CRITICAL DISCUSSION QUESTIONS 77

TOPICS FOR EXPANDED PROJECTS 77

CLOSING CASES:

Emerging Markets: From Copycats to Innovators 78

Enhancing Value, Rarity, and Inimitability at Burberry 80

IBM at 100 81

NOTES 82

Contents ix

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4 EMPHASIZING INSTITUTIONS, CULTURES, AND ETHICS 86
OPENING CASE:

Emerging Markets: One Rock Formation, Two Countries 87

UNDERSTANDING INSTITUTIONS 88

Definitions 88

What Do Institutions Do? 89

How Do Institutions Reduce Uncertainty? 90

AN INSTITUTION-BASED VIEW OF BUSINESS STRATEGY 92

Overview 92

Two Core Propositions 94

THE STRATEGIC ROLE OF CULTURE 95

The Definition of Culture 95

The Five Dimensions of Culture 95

Cultures and Strategic Choices 97

THE STRATEGIC ROLE OF ETHICS 97

The Definition and Impact of Ethics 97

Managing Ethics Overseas 98

Ethics and Corruption 99

A STRATEGIC RESPONSE FRAMEWORK FOR ETHICAL CHALLENGES 100

DEBATES AND EXTENSIONS 102

Opportunism versus Individualism/Collectivism 102

Cultural Distance versus Institutional Distance 103

THE SAVVY STRATEGIST 103

CHAPTER SUMMARY 104

CRITICAL DISCUSSION QUESTIONS 105

TOPICS FOR EXPANDED PROJECTS 105

CLOSING CASE:

Emerging Markets: One Rock Formation, Two Countries 106

NOTES 107

PART 2 BUSINESS-LEVEL STRATEGIES 111

5 GROWING AND INTERNATIONALIZING THE ENTREPRENEURIAL FIRM 112
OPENING CASE:

Emerging Markets: The Rise of Alibaba 113

ENTREPRENEURSHIP AND ENTREPRENEURIAL FIRMS 114

x Contents

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A COMPREHENSIVE MODEL OF ENTREPRENEURSHIP 115

Industry-Based Considerations 115

Resource-Based Considerations 116

Institution-Based Considerations 117

FIVE ENTREPRENEURIAL STRATEGIES 118

Growth 118

Innovation 118

Network 119

Financing and Governance 120

Harvest and Exit 121

INTERNATIONALIZING THE ENTREPRENEURIAL FIRM 123

Transaction Costs and Entrepreneurial Opportunities 123

International Strategies for Entering Foreign Markets 123

International Strategies for Staying in Domestic Markets 124

DEBATES AND EXTENSIONS 125

Traits versus Institutions 125

Slow Internationalizers versus Born Global Start-ups 126

Anti-Failure Biases versus Entrepreneur-Friendly Bankruptcy Laws 127

THE SAVVY ENTREPRENEUR 128

CHAPTER SUMMARY 129

CRITICAL DISCUSSION QUESTIONS 129

TOPICS FOR EXPANDED PROJECTS 130

CLOSING CASES:

Emerging Markets: Amazon.com of Russia 130

Emerging Markets: Microfinance, Macro Success or Global Mess? 131

Emerging Markets: The Rise of Alibaba 133

NOTES 134

6 ENTERING FOREIGN MARKETS 138
OPENING CASE:

Emerging Markets: SABMiller in Nigeria 139

OVERCOMING THE LIABILITY OF FOREIGNNESS 140

UNDERSTANDING THE PROPENSITY TO INTERNATIONALIZE 141

A COMPREHENSIVE MODEL OF FOREIGN MARKET ENTRIES 142

Industry-Based Considerations 143

Contents xi

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Resource-Based Considerations 143

Institution-Based Considerations 144

WHERE TO ENTER? 146

Location-Specific Advantages and Strategic Goals 146

Cultural/Institutional Distances and Foreign Entry Locations 148

WHEN TO ENTER? 148

HOW TO ENTER? 150

Scale of Entry: Commitment and Experience 150

Modes of Entry: The First Step on Equity versus Non-Equity Modes 151

Modes of Entry: The Second Step on Making Actual Selections 153

DEBATES AND EXTENSIONS 156

Liability versus Asset of Foreignness 156

Global versus Regional Geographic Diversification 156

Old-Line versus Emerging Multinationals: OLI versus LLL 157

THE SAVVY STRATEGIST 158

CHAPTER SUMMARY 159

CRITICAL DISCUSSION QUESTIONS 160

TOPICS FOR EXTENDED PROJECTS 160

CLOSING CASES:

Emerging Markets: Pearl River Goes Abroad 160

Emerging Markets: SABMiller in Nigeria 162

Enter the United States by Bus 163

NOTES 164

7 MAKING STRATEGIC ALLIANCES AND NETWORKS WORK 168
OPENING CASE:

Emerging Markets: Etihad Airways’ Alliance Network 169

DEFINING STRATEGIC ALLIANCES AND NETWORKS 170

A COMPREHENSIVE MODEL OF STRATEGIC ALLIANCES AND NETWORKS 171

Industry-Based Considerations 172

Resource-Based Considerations 173

Institution-Based Considerations 175

FORMATION 177

Stage One: To Cooperate or Not to Cooperate? 177

Stage Two: Contract or Equity? 177

Stage Three: Positioning the Relationship 178

xii Contents

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EVOLUTION 179

Combating Opportunism 179

Evolving from Strong Ties to Weak Ties 179

From Corporate Marriage to Divorce 181

PERFORMANCE 182

The Performance of Strategic Alliances and Networks 182

The Performance of Parent Firms 183

DEBATES AND EXTENSIONS 183

Majority JVs as Control Mechanisms versus Minority JVs as Real Options 184

Alliances versus Acquisitions 184

Acquiring versus Not Acquiring Alliance Partners 185

THE SAVVY STRATEGIST 186

CHAPTER SUMMARY 187

CRITICAL DISCUSSION QUESTIONS 188

TOPICS FOR EXPANDED PROJECTS 188

CLOSING CASES:

Emerging Markets: BP, AAR, and TNK-BP (also see Emerging Markets 7.1) 188

Emerging Markets: Etihad Airways’ Alliance Network 191

NOTES 192

8 MANAGING GLOBAL COMPETITIVE DYNAMICS 196
OPENING CASE:

Emerging Markets: Emirates Airlines Fights Legacy Airlines 197

STRATEGY AS ACTION 198

INDUSTRY-BASED CONSIDERATIONS 199

Collusion and Prisoners’ Dilemma 199

Industry Characteristics and Collusion vis-à-vis Competition 201

RESOURCE-BASED CONSIDERATIONS 203

Value 203

Rarity 203

Imitability 204

Organization 204

Resource Similarity 204

Fighting Low-Cost Rivals 205

INSTITUTION-BASED CONSIDERATIONS 207

Formal Institutions Governing Domestic Competition: A Focus on Antitrust 207

Formal Institutions Governing International Competition: A Focus on Antidumping 209

Contents xiii

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ATTACK AND COUNTERATTACK 210

Three Main Types of Attack 210

Awareness, Motivation, and Capability 212

COOPERATION AND SIGNALING 213

LOCAL FIRMS VERSUS MULTINATIONAL ENTERPRISES 213

DEBATES AND EXTENSIONS 215

Strategy versus IO Economics and Antitrust Policy 215

Competition versus Antidumping 216

THE SAVVY STRATEGIST 218

CHAPTER SUMMARY 219

CRITICAL DISCUSSION QUESTIONS 220

TOPICS FOR EXTENDED PROJECTS 220

CLOSING CASES:

Emerging Markets: Emirates Airlines Fights Legacy Airlines 220

Emerging Markets: HTC Fights Apple 222

NOTES 224

PART 3 CORPORATE-LEVEL STRATEGIES 227

9 DIVERSIFYING AND MANAGING ACQUISITIONS GLOBALLY 228
OPENING CASE:

Emerging Markets: Emerging Acquirers from China and India 229

PRODUCT DIVERSIFICATION 231

Product-Related Diversification 231

Product-Unrelated Diversification 231

Product Diversification and Firm Performance 232

GEOGRAPHIC DIVERSIFICATION 233

Limited versus Extensive International Scope 233

Geographic Diversification and Firm Performance 233

COMBINING PRODUCT AND GEOGRAPHIC DIVERSIFICATION 235

A COMPREHENSIVE MODEL OF DIVERSIFICATION 236

Industry-Based Considerations 236

Resource-Based Considerations 237

Institution-Based Considerations 239

The Evolution of the Scope of the Firm 240

xiv Contents

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ACQUISITIONS 243

Setting the Terms Straight 243

Motives for Mergers and Acquisitions 244

Performance of Mergers and Acquisitions 245

Restructuring 248

DEBATES AND EXTENSIONS 248

Product Relatedness versus Other Forms of Relatedness 248

Acquisitions versus Alliances 249

THE SAVVY STRATEGIST 249

CHAPTER SUMMARY 250

CRITICAL DISCUSSION QUESTIONS 251

TOPICS FOR EXPANDED PROJECTS 251

CLOSING CASE:

Emerging Markets: Emerging Acquirers from China and India 251

NOTES 254

10 STRATEGIZING, STRUCTURING, AND LEARNING AROUND THE WORLD 258
OPENING CASE:

Emerging Markets: GE Innovates from the Base of the Pyramid 259

MULTINATIONAL STRATEGIES AND STRUCTURES 260

Pressures for Cost Reduction and Local Responsiveness 260

Four Strategic Choices 261

Four Organizational Structures 264

The Reciprocal Relationship between Multinational Strategy and Structure 266

A COMPREHENSIVE MODEL OF MULTINATIONAL STRATEGY, STRUCTURE, AND LEARNING 267

Industry-Based Considerations 267

Resource-Based Considerations 268

Institution-Based Considerations 269

WORLDWIDE LEARNING, INNOVATION, AND KNOWLEDGE MANAGEMENT 271

Knowledge Management 271

Knowledge Management in Four Types of Multinational Enterprises 271

Globalizing Research and Development (R&D) 272

Problems and Solutions in Knowledge Management 273

DEBATES AND EXTENSIONS 274

Corporate Controls versus Subsidiary Initiatives 274

Customer-Focused Dimensions versus Integration, Responsiveness, and Learning 275

THE SAVVY STRATEGIST 275

Contents xv

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CHAPTER SUMMARY 276

CRITICAL DISCUSSION QUESTIONS 277

TOPICS FOR EXPANDED PROJECTS 277

CLOSING CASES:

A Subsidiary Initiative at Bayer MaterialScience North America 277

Emerging Markets: GE Innovates from the Base of the Pyramid 279

NOTES 280

11 GOVERNING THE CORPORATION AROUND THE WORLD 284
OPENING CASE:

Global Competition in How to Best Govern Large Firms 285

OWNERS 287

Concentrated versus Diffused Ownership 287

Family Ownership 288

State Ownership 288

MANAGERS 288

Principal–Agent Conflicts 289

Principal–Principal Conflicts 289

BOARD OF DIRECTORS 291

Board Composition 291

Leadership Structure 292

Board Interlocks 292

The Role of Boards of Directors 292

Directing Strategically 293

GOVERNANCE MECHANISMS AS A PACKAGE 294

Internal (Voice-Based) Governance Mechanisms 294

External (Exit-Based) Governance Mechanisms 294

Internal Mechanisms + External Mechanisms = Governance Package 295

A GLOBAL PERSPECTIVE 296

A COMPREHENSIVE MODEL OF CORPORATE GOVERNANCE 297

Industry-Based Considerations 297

Resource-Based Considerations 298

Institution-Based Considerations 299

DEBATES AND EXTENSIONS 301

Opportunistic Agents versus Managerial Stewards 301

Global Convergence versus Divergence 301

State Ownership versus Private Ownership 302

xvi Contents

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THE SAVVY STRATEGIST 304

CHAPTER SUMMARY 305

CRITICAL DISCUSSION QUESTIONS 306

TOPICS FOR EXPANDED PROJECTS 306

CLOSING CASES:

Emerging Markets: The Private Equity Challenge 306

Emerging Markets: GE Innovates from the Base of the Pyramid 309

NOTES 311

12 STRATEGIZING WITH CORPORATE SOCIAL RESPONSIBILITY 316
OPENING CASE:

Emerging Markets: The Ebola Challenge 317

A STAKEHOLDER VIEW OF THE FIRM 319

A Big Picture Perspective 319

Primary and Secondary Stakeholder Groups 320

A Fundamental Debate 320

A COMPREHENSIVE MODEL OF CORPORATE SOCIAL RESPONSIBILITY 322

Industry-Based Considerations 322

Resource-Based Considerations 324

Institution-Based Considerations 327

DEBATES AND EXTENSIONS 330

Domestic versus Overseas Social Responsibility 330

Active versus Inactive CSR Engagement Overseas 331

Race to the Bottom (“Pollution Haven”) versus Race to the Top 332

THE SAVVY STRATEGIST 332

CHAPTER SUMMARY 334

CRITICAL DISCUSSION QUESTIONS 334

TOPICS FOR EXPANDED PROJECTS 335

CLOSING CASES:

Emerging Markets: The Ebola Challenge 335

Launching the Nissan Leaf: The World’s First Electric Car 337

NOTES 339

Glossary 343

Index 355

Contents xvii

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Preface
The first three editions of Global Strategy aspired to set a new standard for
(1) global or international strategy courses, (2) strategic management courses,
and (3) international business courses at the undergraduate and MBA levels.
They have been widely used in Angola, Australia, Austria, Brazil, Britain, Canada,
Chile, China, Denmark, Egypt, Finland, France, Germany, Hong Kong, India,
Indonesia, Ireland, Israel, Lithuania, Macau, Malaysia, Mexico, the Netherlands,
Netherlands Antilles, New Zealand, Norway, Peru, Philippines, Portugal, Puerto
Rico, Romania, Russia, Singapore, Slovenia, South Africa, South Korea, Spain,
Sweden, Switzerland, Taiwan, Thailand, and the United States. Based on the
enthusiastic support from more than 30 countries, the first three editions
achieved unprecedented success. Available in Chinese, Portuguese, and Spanish,
Global Strategy is global.

For the first time, going completely digital, the fourth edition endeavors
to accomplish even more. It continues the market-winning framework centered on
the “strategy tripod” and has been thoroughly updated to capture the rapidly moving
research and events. …