Magazine Fall 2011

Should You Have a Global Strategy?

A globally integrated strategy isn’t right for every company. One important factor to consider is the combined market share of the largest companies in your industry — and how that’s changing.

Chris Carr and David Collis Reading Time: 11 min 

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Image courtesy of Flickr user Electrolux Design Lab.
Companies such as Electrolux leveraged domestic scale before expanding their geographic footprints to further economies of scale.

Image courtesy of Flickr user Electrolux Design Lab.

Senior executives weighing strategies appropriate for today’s global economy will hear contradictory advice. Some say you need to move quickly, before competitors, to establish a worldwide presence; others cite data showing that this approach is often less profitable. Those making the case for taking a global approach, including Thomas L. Friedman in his book The World Is Flat, argue that success requires treating the world as a single entity. Those advocating a more geographically restricted, regional strategy say that the world is, at best, semi-integrated, and that smart companies can capitalize on regional and country differences. The reality is that neither approach is appropriate for every circumstance. Therefore, executives need to understand when to pursue one route and when to pursue the other.

In our view, the criteria need to be tied to the dynamics of the particular industry, specifically the concentration levels of the four largest competitors (what we call the global concentration ratio, or CR4). Our analysis of 50 industries reveals extremely high global concentration ratios — averaging 50%, which is 1.5% higher than eight years earlier. The small increase does not by itself say that industry is becoming more global. In fact, it conceals dramatic differences from industry to industry: Some, such as steel and cement, have seen huge increases in concentration; others, such as autos, have actually seen declines. To appreciate the strategic implications, we frame and describe four competitive scenarios, according to the level of the global CR4, and whether it has been rising or falling. (See “Global Concentration Trends By Industry.”) Each scenario offers a different opportunity for profit and different implications for how companies can compete.

A Case for Globalization

Economists such as Frederic M. Scherer and David Ross found that by the time the four largest players in a domestic industry achieved a combined market share approaching 40%, they had fully recognized their interdependence. Attempts by one company to increase market share would spur responses from rivals, encouraging oligopolistic collusion.

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About the Authors

Chris Carr is a professor of corporate strategy at the University of Edinburgh Business School in Scotland. David Collis is the Thomas Henry Carroll Ford Foundation adjunct professor of strategy at Harvard Business School.

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Comments (4)
Sukanya Badri
Insightful article that captures the spirit of international business very well. 

But business managers may need to consider one more aspect thats a recent trend - reverse globalization. With countries showing trends of turning nationalistic, will there be a significant impact on global business?
pavan.gandhok
Kudos to the authors - truly insightful and very useful article . I will certainly be recommending it to for my Exec Eḍ class participants
Joseph gabriella
Currently consulting for a global Japanese imaging company aiming to better integrate and control their far-flung operations, I found this article quite valuable. Like quite a few Japanese enterprises, this firm tends to focus too much on control considerations at the expense of strategic ones. Prioritizing the latter equally with control factors would likely facilitate these firms' development and implementation of more flexible, profitable operations by achieving a better balance at local, regional, and global levels.
Steven Weiss
I thought your article was fantastic.  I consulted with the senior management of The Coca-Cola Company for over twenty years.  We constantly debated the merits of a global, local or a combination of the two. global/local).  We looked at per-captia consumption, culture, the beverage market, need states, and I could go on and on.  Coca-Cola is a global brand, however, the relevancy of the brand was a key factor for every market.  The package sizes were tailored for a marketplace.  There were global advertising campaigns for Coca-Cola.  There also were local campaigns  for the brand.  Of all of the choices I have outlined my preface is global guidelines and local implementation of those guidelines.  However, there were many instances where local strategies were developed and successful implemented.  Great article.