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This report looks at how firms can explore opportunities that globalization offers if they wish to grow with established or new products in a new or existing market. The report looks at a number of strategic options which can be pursued to gain competitive advantage over other firms. Strategic options which are available mainly offered by the ansoff matrix are discussed. Other strategic options such as Foreign Direct Investment (FDI), Collaborative ventures, Exporting, Take over, mergers, acquisitions, franchising and licensing and many more.
Examples of firms that exploited opportunities that Globalization offers are also discussed in this report. Some of the companies are Samsung, Virgin group, Vodafone, SWIFT, LNM (Mittal), Google, Motorola, McDonalds, Sony, BMW, SABMiller and many more.
Globalization of markets refers to the gradual integration and growing interdependence of national economics. Globalisation allows firms to view the world as an integrated market place. Globalisation has a broader meaning and also refers to the interconnectedness of national economies and the growing interdependence of buyers, producers, producers, supplies and government in different countries. Market globalization in manifested in by the production and marketing of branded products and services worldwide. Declining trade barriers and the ease with which international business transactions take place due to the internet and other technologies are contributing to a gradual integration of most national economies into a unified market. Early civilization in the Mediterranean Middle East, Asia, Africa and Europe have all contributed to the growth of cross-border trade over time. Bursts of cross-border trade have been triggered by world events and technological discoveries.
The globalization of markets has opened up countless new business opportunities for internationalizing firms. Globalisation allows firms to explore opportunities in new established markets, with new or existing products. According to H. Ansoff, firms wishing to go international can use the Ansoff product and/or market matrix which provides a simple way of generating four basic alternative direction for strategic development; Market Penetration, Product Development, Market Development and Diversification.
Firms can go global with the following scenarios. An existing product in an existing market (market penetration consolidation), an existing product in a new market (Market Development), a new product in an existing market (Product Development); and a new product in a new market.
Market Penetration Consolidation
This strategic option is when a firm increases share of its existing product range, is on the face of it the most obvious strategic direction. It builds on existing strategic capabilities and does not require the firm to venture into uncharted territory. The organization’s scope is exactly the same. Greater market share implies increased power vis-a-vis buyers and supplies, greater economies of scale and experience curve benefits.
Firms seeking greater market penetration may face two constraints; Retaliation from compellation and legal constraints.
Retaliation and Competitors
Increasing market penetration is likely to exacerbate industry rivalry as other competitors in the market defend their share. Increased rivalry might involve price wars or expensive marketing battles, which may cost more than any market shares gains are actually worth. In low growth or declining markets, it can be more effective simply to acquire competitors. For example; in the steel industry the Indian LNM (Mittal) moved rapidly in the 2000s to become the largest steel producer in the world by acquiring struggling steel companies around the world. Acquisition can actually reduce rivalry.
Greater market penetration can raise concerns from official competition regulators concerning excessive market power. Most countries have regulators with the powers to restrain powerful companies or prevent mergers and acquisitions that would create such excessive power. Example in the UK, competition commission can investigate any merger or any acquisition that would account for more than 25% of the national market and either half a deal or proposed measures that would reduce market power.
This is when firms focus defensively on their current market with current products.
This is where firms deliver modified or new products to existing markets. This strategy can be undertaken by firms who wish to explore opportunities in existing market with a new product. This is a limited extension of organisational scope. Product development implies greater degrees of innovation firms who wish to explore opportunities in established markets with new products can fare challenges because it is expensive and high-risk activities because of the following:
New Strategic Capabilities – Product development typically involves mastering new technologies that may be unfamiliar to the firm. For example, banks entered online banking at the beginning of this century but suffered many setbacks with technologies so radically different to their traditional high street branch means of delivering banking services.
Project Management Risk – Product development projects are typically subject to the risk of delays and increased costs due to project complexity and changing project specification over time. For example, 7.6bn Airbus A380 double-decker air line project, which suffered two years of delays in the mid 2000’s because of wiring problem. Air bus had managed reveral new aircraft developments before but the high degree of customization required by each airline customer and incompatibilities in computer-aided design software, led to greater complexity than the Airbus project management could handle.
If product development is risky and expensive, firms wishing to explore opportunities to go global can use Market Development has a strategy where the firm offers existing products to new markets. Markets development might take three forms:
New statement. For example in the public services, a collage might offer its educational services to older students than its traditional intake, perhaps via evening courses.
New Users. An example would be aluminium, whose original users packaging and cutlery manufactures are now supplemented by users in aerospace and automobiles.
It is essential that market development strategies are based on products or services that meet the critical success factors of the new market. Strategies based on simply off-loading traditional products or services in new markets are likely to fail. Moreover, market development faces similar problems as product development. In terms of strategic capabilities, market developers often lack the right marketing skills and brands to make progress in a market with unfamiliar customers. On the management side the challenge is coordinating between different segments, users and geographics, which might all have different needs. Example
Diversification is defined as a strategy that takes an organisation away from both its existing products. (Johnson et al, pp 262). It radically increases the firm scope. A good deal of diversification in practice involves building a relationship with existing markets or products. Market penetration and product development entail some diversifying adjustment of product or markets. Diversification is just one of the directions for Globalisation and needs to be considered alongside its alternatives.
Opportunities which may drive firms to go global are
Efficiency gains can be made by applying the organization’s existing resources existing resources or capabilities to new markets and products or services. These are also called Economics of Scope. If an organisation has utilized resources or competences that it cannot effectively close or sell to other potential users, it can make sense to use these resources or competences by going global using diversification into new activity.
Stretching Corporate Parenting Capabilities.
At the corporate parent level, managers may develop a competence at managing a range of different products and services which can be applied even to businesses which do not share resource at the corporate parenting skills as the dominant general management logic. For example, a French Conglomerate LVMH includes a wide range of business form champagne through fashion and perfumes, to financial media that share few operation resources or competences.
Increasing Market Power.
With many businesses, an organisation can afford to cross-subsidize one business from the surplus earned by another, in a way that competitors may not be able to.
Types of Diversification
Firms wishing to explore opportunities in new or established markets, with new or existing products can diversify through Related diversification or Unrelated diversification.
This is corporate development beyond current products and markets, but within the capabilities or the value network of the organisation ( ). For example, Procter and Gamble are diversified corporation, but virtually all of their interests are in fast moving consumer goods distributed through retailers. Their various business benefit therefore from shared capabilities in research and development, consumer marketing, building relationships with powerful retailers and global brand development.
Related Diversification can be done in two ways;
Vertical integration describes either backward or forward integration into adjacent activities in the value network. Backward integration refers to development into activities concerned with the inputs into the company’s current business. Forward integration refers to development into activities which are concerned with a company’s outputs.
Horizontal integration is development into activities which are complementary or adjacent to present activities.
Unrelated Diversification is the development of products or services beyond the current capabilities or value network. Unrelated diversification is often described as a Conglomerate Strategy because there are no obvious economies of scope.
Globalisation allows companies to explore opportunities in new or established markets with new or existing with new or existing products. Firms go global to mainly maximize profits by increasing their market share and exploiting opportunities in other geographic areas.
As market globalization intensifies, firms are compelled to respond to challenges and exploit new advantages. Many firms proactively pursue globalization as a strategic move. They become more aggressive at identifying foreign market opportunities, seeking partnerships with foreign firms and building organisational capabilities in order to enhance their competitive advantage.
Market globalization is driven by a number of factors
World Wide Reduction of Barriers to Trade and Investment.
Many national governments have reduced trade and investment barriers, this has accelerated global economic integration. For example, in South Africa, tariffs on the imports of automobile, industrial machinery and countless other products have declined nearly to zero encouraging free international exchange of goods and services. The China government has committed its self to make its market more accessible to foreign companies. Reduction of trade barriers is also associated with the emergence of regional economic integration blocs, which is a key dimension of market globalization.
Industrialization, Economic Development and Modernization.
Industrialization implies that emergency markets are moving from being low value-adding commodity producers, dependant on low-cost labour, to sophisticated competitive producers and exporters of premium products such as electronics, computers and aircraft. For example, Brazil has become a leading producer of private aircraft and the Czech Republic excels in the production of automobiles. India is now a leading supplier of computer software.
Integration of World Financial Markets.
Integration of world financial markets makes it possible for internationally active firms to raise capital, borrow funds and engage in foreign currency transactions.
Financial services firms follow their customers to foreign markets. Cross-Border transactions are made easier partly as a result of the ease with which funds can be transferred between buyers and sellers, through a network of international commercial banks. For example, Society for Worldwide Interbank Financial Telecommunication (SWIFT) connects over 7,800 financial institutions in some 200 countries, it facilitates the exchange of financial transactions.
Advances in Technology.
Technology is a remarkable facilitator of globalization and provides means for internationalization. Firms wishing to explore opportunities in other countries or connects can interact more effectively with foreign partners or subsidiaries and value-chain members than ever before. Technology advances have made the loss of international operation as affordable for all types of firms. For example, information technology allows firms to more efficiently adapt products for international rich markets Intel and Motorola, two of the world’s premier technology companies, both receive a substantial portion of their revenue from sales in china because China is a place to be when it comes to technological progress.
It is very important for firms wishing to explore their opportunities globally through development of new products to take technology seriously for its spurs good appeal to a global audience.
To adequately explore the opportunities that globalization possess forms can pursue a number of strategies that forms wishing to explore opportunities the global market can pursue.
Market Penetration and Consolidation. Market penetration is where an organisation gains market share with existing products in an existing market. For example LNM (Mittal) an Indian company rapidly in the 2000s to become the largest steel producers in the world. Acquisitions can actually reduce rivalry thereby increasing market share by taking out independent players and consolidating them under one umbrella.
However, this strategy has constraints such as Retaliation from competitors and legal constraints. For example, Gaz de France and Suez, two utility companies with dominant positions in France and Belgium, decided to merge in 2006, the European Commission insisted that the two companies reduce their power by diverting some of their subsidiaries and opening up their networks to competitors.
Consolidation mainly focuses defensively on their current markets with current products.
Product Development is where firms deliver new products or modified products to existing markets. An example of a firm which developed its products is Sony, it developed its products from walkman portable music system from Audio tapes, through CDs to MP3 based systems. Effectively it involved the same markets but the technologies are vatically different.
Another example is Samsung which developed its brand and this has continuously rising strong. According to Jan Luedermana, global managing director of Inter Brand said that “Samsung’s key success factor is management ambition and determination to make Samsung a continuos product developing brand”.
However, product development can be an expensive and high-risk activity for two reasons, new strategic capabilities and project management. For example, a £7.6 billion Airbus A380 double-decker air project, suffered 2 years of delays in the mid 2000s because of wiring problems.
Market Development is where existing products are offered in new markets. For example, German car maker BMW launched a new factory in South Carolina, US in order to readily access the huge US market. Globalisation drove BMW to relocate key value-adding activities to most advantageous location in the world.
Diversification is a strategy that takes an organisation away from both its existing markets and its’ existing products. An example of a firm which used diversification to go global is the Virgin group. Virgin in one of UK’s largest private companies, its highest profit business was Virgin Atlantic which had developed to be a major force in the international airline business, among them where financial services, trains, cinemas and music stores. It later globalised or went global spreading to other continents such as Africa, Asia and North America.
Another company which diversified in a related industry, horizontally is Internet search company, Google which spread into news, images and maps amongst other services and Zodiac a French firm which was founded in 1896 to manufacture only dirigible airships but due to the downfall in the market of Airships, Zodiac decided to leverage its technical expertise and moved from dirigibles to inflatable boats. It later diversified further because of increasing competition from Italian manufacturers by taking over Aerazur, a company specialised in parachutes, but also in life vests and inflatable life rafts.
The Ansoff framework helps firms with strategic options to pursue in different market. However, like other models, it has its own limitations. It is imperative to look at other strategic models such as PESTEL and SWOT. For example, the Ansoff analysis of McDonalds a US company was launched in India using market development. It suffered huge losses because of the Indians do not eat beef from cows, cultural aspects are very important when choosing a strategy to explore in internationalization.
Therefore, when conducting a strategic analysis, it is essential that the SWOT and PESTEL are critically analyzed also.
Other strategic options that a firm which wants to explore opportunities in new or established market with new or existing products or services are:
Firms can use strategic alliances, which is an arrangement between two companies who have decided to share resources in a specific project or business.
Franchisees and licensees, a company can enter a new market through franchising or licensing by using well established brand names to gain competitive advantage and build on its own brand. For example, McDonalds has given licensees to firms such Mr. Green, Vulet services and many others.
Acquisitions, mergers and take over are strategic options open to firms wishing to go global. For example, Zodiac took over Aerazur, a company specializing in parachutes, life vests and inflatable life rafts. Another example is SAB, a South African Brewery which Acquired Miller in 2002 to become SABMiller, this acquisition made them become the second largest Brewery in the world acquired Miller in 2002 to become the second largest Brewery in the world. Thereby, creating a completion advantage over other firms.
Foreign Direct Investment can also be used to explore opportunities globally. This is a strategy in which a firm establishes a physical presence abroad by acquiring productive assets such capital technology, labour, land, plant and equipment. For example, Vodafone, one of the leading wireless phone services providers which offers telecommunication and data services, multi media portals, cellular operations, satellite services and retail shops. In 1993, Vodafone had invests in mobile phone networks in Australia, Greece, Hong Kong, Malta and Scandinavia. The firm bought stakes in operations throughout Europe, the Americans and parts of Asia and Africa. Vodafone drew funds from global capital markets.
Collaborative venture is essentially a partnership between two or more firms and includes equity joint ventures, project-based non equity ventures. A joint venture is essentially a special type of collaboration involving equity investment by the parent firms. For example, Procter and Gamble (P&G) is in a joint venture with Dolce & Gabbana (D&G) an Italian fashion house. Under the deal, P&G produces perfumes, while D&G markets them in Europe, leveraging the strength of its strong local brand name. Samsung, the Korean electronics firm began internationalizing in 1970’s through joint ventures with foreign-technology suppliers such as Sonya, NEC and Corning Glass works.
The partnership allowed Samsung to acquire product designs and marketing outlets and gave management increasing confidence in foreign operations. Samsung’s earliest foreign manufacturing effort was via a joint venture in Portugal, launched in 1982.
Exporting can be another strategic option for firms wishing to go global. This is a strategy of producing products and services in one country and selling and distributing them to customers located in other countries, this can be done through franchising and licensing.
Globalisation offers many opportunities which firms wishing to maximize, profits, market share and other stakeholders expectation can explore. International trade has opened up these opportunities which opened up these opportunities which until right strategies can fully be exploited. As market globalization intensifies, firms are compelled to respond to challenges and exploit new opportunities. Globalisation has fostered a new dynamism in the world economy the emergence of regional economic integration blocs, growth of global investment and financial flows, the conâ€¦. of buyer lifestyles and needs and the globalization of production.
Firms wishing to go global can gain competitive advantage when they apply correct strategies in a particular region, country or continent. Firms can pursue a number of strategies. The Ansoff framework which looks at established and/or new market strategies to pursue are market penetration or consolidation, product development, market development and diversification.
Firms can pursued the above strategic in many ways such as
Exporting existing or established products or services in new or existing market.
Forming strategic alliances with other firms by sharing resources in a specific project.
Franchising and Licensing.
Acquisitions, mergers and takeovers.
Firms in a global market can operate successfully by engaging strategies that will aid in achieving competitive advantage over other global barriers and threats that globalization faces
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