Global Strategy and Business Environment
What this domain tests
Global Strategy and Business Environment examines how firms choose where to compete, how they enter markets, and how industry structure and national institutions shape performance. Questions typically ask you to diagnose a situation (industry attractiveness, country distance, entry mode) and defend a choice with a framework, rather than to describe the framework itself.
Core rules and concepts
- Industry structure - Porter's Five Forces (rivalry, buyer power, supplier power, entry threat, substitutes) plus complementors. Structure sets the average profit pool; position sets the firm's share of it.
- Firm advantage - VRIO: value, rarity, imitability, organisation. A resource must pass all four to yield a sustained advantage.
- Distance - Ghemawat's CAGE separates Cultural, Administrative, Geographic and Economic distance. Administrative distance (regulation, currency, trade blocs, corruption) usually predicts entry-mode choice more strongly than culture does.
- Integration–responsiveness - global (scale-driven standardisation), multidomestic (local adaptation, decentralised), transnational (both, via shared platforms and dispersed centres of excellence), international (home replicas).
- AAA - adaptation, aggregation (regional platforms, economies of scale) and arbitrage (exploiting factor-cost gaps).
- Entry ladder - export, contractual (licence, franchise, contract manufacturing), equity alliance or JV, wholly owned greenfield or acquisition. Each step buys control and costs commitment and reversibility.
Worked example
A German maker of diagnostic imaging equipment targets a market where public hospitals must buy from locally registered manufacturers and 30% local content is required for tender eligibility. Export is blocked by procurement rules; licensing risks transferring proprietary software; a wholly owned plant carries high political and demand risk. Reason: the binding constraint is administrative, not cultural, so the firm needs a local legal entity with local production. A JV with a 51% stake plus a licensing agreement limited to non-core hardware satisfies local-content rules, retains control of the imaging software, and stages capital. Build a step-up clause to raise equity after two tender cycles.
Traps that cost marks
- Treating multidomestic and transnational as synonyms; transnational requires simultaneous global efficiency and local responsiveness.
- Choosing entry mode on one criterion (market size) while ignoring institutional voids and IP risk.
- Applying a home-country industry analysis to a market where the state is the dominant buyer.
- Recommending 'go global' without specifying which activities are centralised and which are local.