What are global strategies What are the benefits of global strategies?
Global strategy as defined in international marketing as a type of strategy guide to
globalization. As opposed to a
multidomestic strategy a global strategy may be appropriate in industries where firms are faced
with strong pressures for cost reduction, but with weak pressures for local responsiveness. Therefore, it allows these firms to sell a standardized product worldwide. However, fixed costs (capital equipment) are substantial. Nevertheless, these firms are able to take advantage of scale economies (cost advantages that an enterprise obtains due to expansion) and learning curve effects, because they are able to mass produce a standard product that can be exported (providing that demand is greater
than the costs involved). A global strategy should address the following questions: Global strategies require firms to tightly coordinate their product and pricing strategies across international markets and locations; therefore, firms that pursue a global strategy are typically highly centralized. See multidomestic strategy. Categories: QuickMBA / Strategy / Global Strategy Global Strategic Management During the last half of the twentieth century, many barriers to international trade fell and a wave of firms began pursuing global strategies to gain a competitive advantage. However, some industries benefit more from globalization than do others, and some nations have a comparative advantage over other nations in certain industries. To create a successful global strategy, managers first must understand the nature of global industries and the dynamics of global competition. Sources of Competitive Advantage from a Global StrategyA well-designed global strategy can help a firm to gain a competitive advantage. This advantage can arise from the following sources:
Sumantra Ghoshal of INSEAD proposed a framework comprising three categories of strategic objectives and three sources of advantage that can be used to achieve them. Assembling these into a matrix results in the following framework:
The Nature of Competitive Advantage in Global IndustriesA global industry can be defined as:
Some industries are more suited for globalization than are others. The following drivers determine an industry's globalization potential.
The furniture industry is an example of an industry that did not lend itself to globalization before the 1960's. Because furniture has a high bulk compared to its value, and because furniture is easily damaged in shipping, transport costs traditionally were high. Government trade barriers also were unfavorable. The Swedish furniture company IKEA pioneered a move towards globalization in the furniture industry. IKEA's furniture was unassembled and therefore could be shipped more economically. IKEA also lowered costs by involving the customer in the value chain; the customer carried the furniture home and assembled it himself. IKEA also had a frugal culture that gave it cost advantages. IKEA successfully expanded in Europe since customers in different countries were willing to purchase similar designs. However, after successfully expanding to several countries, IKEA ran into difficulties in the U.S. market for several reasons:
Country Comparative AdvantagesCompetitive advantage is a firm's ability to transform inputs into goods and services at a maximum profit on a sustained basis, better than competitors. Comparative advantage resides in the factor endowments and created endowments of particular regions. Factor endowments include land, natural resources, labor, and the size of the local population. In the 1920's, Swedish economists Eli Hecksher and Bertil Ohlin developed the factor-proportions theory, according to which a country enjoys a comparative advantage in those goods that make intensive use of factors that the country has in relative abundance. Michael E. Porter argued that a nation can create its own endowments to gain a comparative advantage. Created endowments include skilled labor, the technology and knowledge base, government support, and culture. Porter's Diamond of National Advantage is a framework that illustrates the determinants of national advantage. This diamond represents the national playing field that countries establish for their industries. Types of International Strategy: Multi-domestic vs. GlobalMulti-domestic Strategy
Global Strategy
A fully multi-local value chain will have every function from R&D to distribution and service performed entirely at the local level in each country. At the other extreme, a fully global value chain will source each activity in a different country. Philips is a good example of a company that followed a multidomestic strategy. This strategy resulted in:
The multi-domestic strategy also presented Philips with many challenges:
Matsushita is a good example of a company that followed a global strategy. This strategy resulted in:
The global strategy presented Matsushita with the following challenges:
A third strategy, which was appropriate to Whirlpool is one of mass customization, discussed below. Global Cost Structure AnalysisIn 1986, Whirlpool Corporation was considering expanding into Europe by acquiring Philips' Major Domestic Appliance Division. From the framework of customers, costs, competitors, and government, there were several pros and cons to this proposed strategy. Pros
Cons
Since Philip's had a relatively small market share in the European appliance market, one must analyze the cost structure to determine if the acquisition would offer Whirlpool a competitive advantage. With the acquisition, Whirlpool would be able to cut costs on raw materials, depreciation and maintenance, R&D, and general and administrative costs. These costs represented 53% of Whirlpool's cost structure. Compared to most other industries, this percentage of costs that could benefit from economies of scale is quite large. It would be reasonable to expect a 10% reduction in these costs, an amount that would decrease overall cost by 5.3%, doubling profits. Such potential justifies the risk of increasing the complexity of the organization. Because of the different preferences of consumers in different markets, a purely global strategy with standard products was not appropriate. Whirlpool would have to adapt its products to local markets, but maintain some global integration in order to realize cost benefits. This strategy is known as "mass customization." Whirlpool acquired Philips' Major Domestic Appliance Division, 47% in 1989 and the remainder in 1991. Initially, margins doubled as predicted. However, local competitors responded by better tailoring their products and cutting costs; Whirlpool's profits then began to decline. Whirlpool applied the same strategy to Asia, but GE was outperforming Whirlpool there by tailoring its products as part of its multi-domestic strategy. Globalizing Service BusinessesService industries tend to have a flat experience curve and lower economies of scale. However, some economy of scale may be gained through knowledge sharing, which enables the cost of developing the knowledge over a larger base. Also, in some industries such as professional services, capacity utilization can better be managed as the scope of operations increases. On the customer side, because a service firm's customers may themselves be operating internationally, global expansion may be a necessity. Knowledge gained in foreign markets can used to better service customers. Finally, being global also enhances a firm's reputation, which is critical in service businesses. High quality service products often depend on the service firm's culture, and maintaining a consistent culture when expanding globally is a challenge. A good example of a service firm that experienced global expansion challenges is the management consulting firm Bain & Company, Inc. In consulting, a firm's most important strategic asset is its reputation, so a consistent firm culture is very important. Bain faced the following challenges, which depend on the firm's strategy and which affect the ability to maintain a consistent culture:
Modes of Foreign Market EntryAn important part of a global strategy is the method that the firm will use to enter the foreign market. There are four possible modes of foreign market entry:
These options vary in their degree of speed, control, and risk, as well as the required level of investment and market knowledge. The entry mode selection can have a significant impact on the firm's foreign market success. Issues in Emerging EconomiesIn emerging economies, capital markets are relatively inefficient. There is a lack of information, the cost of capital is high, and venture capital is virtually nonexistent. Because of the scarcity of high-quality educational institutions, the labor markets lack well trained people and companies often must fill the void. Because of lacking communications infrastructure, building a brand name is difficult but good brands are highly valued because of lower product quality of the alternatives. Relationships with government officials often are necessary to succeed, and contracts may not be well enforced by the legal system. When a large government monopoly (e.g. a state-owned oil company) is privatized, there often is political pressure in the country against allowing the firm to be acquired by a foreign entity. Whereas a very large U.S. oil company may prefer acquisitions, because of the anti-foreign sentiment joint ventures often are more appropriate for outside companies interested in newly privatized emerging economy firms. Knowledge Management in Global FirmsThere is much value in transferring knowledge and best practices between parts of a global firm. However, many barriers prevent knowledge from being transferred:
Furthermore, even when the transfer is successful, there often is a temporary drop in performance before the improvements are seen. During this period, there is danger of losing faith in the new way of doing things. To facilitate knowledge transfer a firm can:
Country ManagementCountry managers must have the following knowledge:
Country organizations can assume the role of implementor, contributor, strategic leader, or black hole, depending on the combination of importance of the local market and local resources.
The least favorable of these roles is the black hole, which is a subsidiary in a strategically important market that has few capabilities. A firm can find itself in this situation because of company traditions, ignorance of local conditions, unfavorable entry conditions, misreading the market, excessive reliance on expatriates, and poor external relations. To get out of a black hole a firm can form alliances, focus its investments, implement a local R&D organization, or when all else fails, exit the country. Country managers assume different roles (The New Country Managers, John A. Quelch, Professor of Business Administration, Harvard Business School).
Recommended Reading Bartlett, Christopher A., and Sumantra Ghoshal, Managing Across Borders: The Transnational Solution Ohmae, Kenichi, The Borderless World: Power and Strategy in the Interlinked Economy QuickMBA / Strategy / Global Strategy Home | Site Map | About | Contact | Privacy | Reprints | User Agreement The articles on this website are copyrighted material and may not be reproduced, What are the benefits of pursuing global strategy?Here are seven of the most common advantages involved with expanding your business on an international scale:. New Revenue Potential. ... . The Ability to Help More People. ... . Greater Access to Talent. ... . Learning a New Culture. ... . Exposure to Foreign Investment Opportunities. ... . Improving Your Company's Reputation. ... . Diversifying Company Markets.. What is global strategies and example?This is called a global strategy. For example, the luxury goods company Gucci sells essentially the same products in every country. Importantly, global strategy on this website is a shorthand for all three strategies above.
What are the main global strategies?Four main global strategies form the basis for global firms' organizational structure. These are domestic exporter, multinational, franchiser, and transnational. Each of these strategies is pursued with a specific business organizational structure (see Table 16-3).
What are the strategies in globalization?The two dimensions result in four basic global business strategies: export, standardization, multidomestic, and transnational. These are shown in the figure below. International business strategies must balance local responsiveness and global integration.
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