0:04
Building on these ideas is
that industry economics matter.
How they matter
is that there are
three questions to ask
about every industry.
How large are the
economies of global scale?
In some industries like
semiconductors and
pharmaceuticals and tires,
they can be very large.
Others such as
hair-cutting, hospitals,
supermarkets, they can
be almost non-existent.
Second, how large are the
economies of global scope?
By global scope, what I mean
is that where the customer says,
even if we love your
product or service,
we want you to be global,
otherwise, we are reluctant
to do business with you.
Therefore, this is
the customer-driven
economies of global scope.
These economies as
I noted earlier,
for instance, in
enterprise software,
those economies are very high.
In certain other industries,
for example, look at Walmart.
You or I, if you live
in the United States,
you may like Walmart.
You may shop there, but you
don't really care if Walmart
also competes in China or Japan
or the UK. It's irrelevant.
But on the other
hand, if you are
Procter & Gamble and
you're buying
software from Oracle,
you do care whether Oracle
is a global company or not.
Third, economies
of global delivery
which is, how much does
it cost as a ratio of
the total cost to produce
the product or service
in one corner of
the world and have
it delivered to another
corner of the world?
Think about semiconductor chips.
The cost of transportation is
almost nothing as compared
to the cost of the chip itself.
On the other hand, think
about a product like
toothpaste or Coca-Cola bottles.
The cost of delivery
would just become
nightmarishly high as compared
to the cost of production.
In some industries, economies of
global delivery
can be very high,
in other industries, very low.
If we put it together that
there are some industries where
essentially, these
three types of
global economies can be high.
Those industries I call
globally-integrated industries.
In certain other industries,
these economies are
essentially low to
non-existent and then we would
call them multi-domestic
industries.
Examples, take hospitals.
Every country in the world
has a hospital industry,
at least one hospital even
in the tiniest country,
which means that the hospital
industry is worldwide.
But how many multinational
hospital chains do you know?
The answer maybe almost none,
which means that the worldwide
hospital industry,
actually, is nothing
but an aggregation of
domestic hospital industries.
That's why we call these
multi-domestic industries.
At the other end, look at
semiconductors and
pharmaceuticals and tires.
You go to any country in the
world and say, which are
the big semiconductor
companies that
compete that occupy
the market share?
It'll probably be
the same answer,
the Intel and Texas Instruments,
Qualcomm and so on.
What we have here is that
the world almost is
like one village.
This become strategically
important because
it's in globally-integrated
industries that we are
likely to see an early and
more rapid emergence of
global champions. In
multi-domestic industries,
yes, globalization is
entirely possible,
for example, Walmart,
but at the same time,
it will be a relatively
slower pace of
globalization and also the
type of strategies that
companies need to put in place
in order to globalize
will be very
different for
globally-integrated industries
vis-à-vis multi-domestic
industries.
