Globalisation Foreign Market
At present, one of the most addresses topics in the world is that of globalisation which refers to a global strategy usually adopted by a company that wishes to expand its base from its home country and to another country and a foreign market. This strategy when integrated across different countries is what makes a global strategy. A company decides to go global such that it can achieve a better competitive and financial performance.
Adopting a global strategy involves growth of an organisation wherein it penetrates into another market of the world further handling diverse cultures, different requirements of the market and customers, different ways of buying and selling, etc. This further includes managing a wide variety of products and business strategies across countries and also getting acquainted to the different business environments (Mellahi et al, 2005).
The following essay, with the help of written theories, shows how a company's strategy can be globally successful by analysing the market environment of the new country. It also mentions the advantages and disadvantages of a company that follows a global strategy when competing internationally with suitable business examples.
Since the 1990's, many companies debated on whether they should globalise their businesses. This popularity of globalisation has come from the word “global” which means being everywhere, being worldwide. However, having a Global Strategy, a company does not have to be everywhere. All it must have are the capabilities of going anywhere, exploring any markets, making use of any available resources and assets and finally being able to make good profits (Yip, 2003).
A global strategy refers to a strategy in which a company expands and competes in an international market, outside their domestic market place. In order to succeed in the foreign markets, high ethical standards and a clean image need to be maintained. It can achieve global long-term competitiveness by being present in the key countries like the United States, UK, China, Japan, Germany, France, etc (Lasserre, 2007).
In order to move from a domestic or international strategy to a global strategy, a company faces many challenges, one of which is the need to develop a single strategy which can be adopted all over the world along with maintaining the flexibility to adapt to the environment and local business methods (K.Mellahi et al, 2005). This further can be expressed with a dimension suggested by Levitt (1983) that a global strategy of a company is to standardise its products and operations in all different countries (cited in Zou and Cavusgil, 1995). Eg. Apple being a global company has a standard production technique for its iPod's to be sold in all countries it operates.
In contrast to Levitt's theory, Hamel and Prahalad (1985) suggest that there is a need for flexibility and for developing a variety of products to be sold in different markets such that technologies and distribution channels can be shared (cited in Yip, 2003). Thus, standardisation as a single approach does not make an effective global strategy and may fail to fully satisfy customers. There should be a limit to which the products can be standardised to a certain extent; else the company will suffer a loss for their products will not be entertained in the market. For instance some of the standardised electronic products produced by Motorola were excluded from the Japanese markets as these products operated at a higher frequency than was permitted in Japan (Yip, 2003).
According to Hill and Jones 2005, when integrating into another market outside the home market, it is important to customise the product with tastes and preferences of customers in that market place. They further suggest that a company should differentiate their product offering and marketing strategy from country to country making an effort to adapt itself to the diverse demand arising from national differences like culture, habits, attitudes, etc. This can be better explained with an example of one of the world's largest retailer, Wal-Mart. This company when expanded its wings in China, had to adapt itself to their culture and market behaviour such that it could survive the competition among retailers. However customising a product can increase the management costs for a company.
Thus it depends on the company and their decision for how much to standardise and how much to customise. There is always a universal need that exists wherein the tastes and preferences of customers may be similar, but not identical. Consumer goods like mobile phones and computers are examples in this case, wherein there is a similar need which can be fulfilled by standardising production across the globe. A company that has managed this balance of standardise and customise is Dell which has created an international brand name for itself in a very competitive market. This company specialises in standardising its manufacturing process and also customising its products according to its customers' needs and preferences.
For a company competing at an international level, creating a global strategy can prove beneficial as it helps to improve the quality of products and services which in return can enhance customer preferences (Yip, 2003). A leading example of this strategy could be The Coco-Cola Company, which has achieved a worldwide familiarity for its ‘Coco-Cola' drink and enjoys customer preference because of its standard nature. This would further help the manufacturer and supplier to produce and supply a standard product on a large scale to multinational customers.
Standardisation of a product contributes its own set of benefits to a global strategy. This helps in reducing costs for a company which can be achieved by pooling together all production activities and creating economies of scale. As a result, the company can focus on increased profitability by developing location economies and low-cost strategies. This can be achieved by making production, marketing, R&D concentrated at few favourable locations (Hill & Jones, 2001). In order to decide which place will be the most suitable for carrying out major production activities, a company needs to scan the globe for least expensive sources of raw materials. They can choose countries where labour is abundant and economical eg. India or China (Mendenhall et al, 1995).
On the other hand, while deciding on the location of economies in global strategy of a company, it is always advisable to have some alternative sources available for the production process (Mendenhall et al, 1995). For example, Ford has assembled all its manufacturing activities for ‘Fiesta' cars in South Korea. If someday Korean workers happen to go on a strike, then the entire Fiesta production would come to a halt.
In following a global strategy when all the subsidiaries are situated in different countries and headquartered in one country, it is useful to create interdependency amongst various country markets keeping in mind the two dimensions suggested by Porter (1986):- configuration of value-adding activities and co-ordination of the activities (cited in Zou and Cavusgil, 1995).
A global strategy involves the ability of a company of transforming competencies developed in core home market to other emerging countries where competitors lack those competencies. These value-added activities usually have distinctive characteristics that help in distinguishing the product with a low or premium price (Hill & Jones, 2001). The global fast food chain McDonald's, expanded internationally in different countries with its distinctive hamburgers maintaining business standards along with being instrumental to changing local customs. This further helps in obtaining efficiency and specialising its products and resources in the new market. It extends a competitive advantage by co-ordinating interdependencies among markets and also favours the transfer to know-how from the headquarters to subsidiaries (Porter 1986).
However Lasserre, 2007 further suggests that sometimes the geographical distance between the country where the company is headquartered and the country in which it performs its operations is so much that it becomes less conducive to communicate despite the availability of all technologies. In addition, having all its activities centralised in one country may increase the management costs through increased coordination and may also not give fair chances for a company to get itself acquainted with the cultures and working patterns of different countries in which it operates.
A global strategy involves building a corporate name and identity for the firm that will apply to all subsidiaries. This will enforce market power through concentration of marketing efforts on a single name further making communication to all customers globally easier. In this case, the ‘name' of the company becomes its asset for entering a foreign market (P.Lasserre, 2007). Eg. Financial institutions like Citigroup and American Express are global companies which can be easily recognised only by their name without the need for any further introduction. A few more brands like Coco-Cola, Levi's, Microsoft, etc are names of world brands. Nevertheless, this attention on the name can help ignore national differences and hence major sources of growth.
Thus it is important that equal attention may be given to both the advantages and disadvantages of following a global strategy when a company has decided to compete internationally in different world markets.
Conclusion
In general, it can be said that a global strategy involves global R&D which helps in learning about different markets, different problem solving methods, different cultures and competitors (DeMeyer, 1992 cited in P.Lasserre, 2007). This study can be helpful when developing a global strategy as it would give a clear vision of the company as a global competitor.
The above essay also points out that a business firm can evaluate the advantages and disadvantages of following a global strategy. It suggests that standardisation by itself is not enough for a business unit to maximise its performance and profits while competing internationally. It involves a bag full of tricks which include customising the products and adapting to the new market culture, concentrating on value-added activities which differentiate the product in a competitive market, and also co-ordinating the value-chain activities in order to reduce costs and increase efficiency. All these activities when put together will create a successful global strategy which will help the company in achieving its performance goals and a competitive advantage.
In addition, it is always advisable for a company to observe any changes that take place in the market environment to ensure that their performance goals are being achieved.
References:
Lasserre, P., 2003. Global strategic management. Basingstoke: Palgrave Macmillan.
Mellahi, K., Jedrzej, G., Frynas, P., 2005. Global strategic management. Oxford: Oxford University Press.
Yip, G., 2003. Total Global Strategy 2. Pearson Education: New Jersey.
Hill, C., Jones, G., 2001. Strategic Management- An Intergrated Approach. Houghton Mifflin Co.
Mendenhall, M., Punnett, B., Ricks, D., 1995. Global Management. Basil Blackwell Publishers: UK.
Zou, S., Cavusgil, S.T., 1995. Global Strategy: a review and an integrated conceptual framework. European Journal of Marketing 30(1). MCB University Press.
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