Strategies in Action

STRATEGIES IN ACTION

 

 

 

 

INTRODUCTION

 

 

            A much accepted idea in the contemporary society dwells on the matter that the world today is becoming relatively small. National borders are opened to facilitate the unrestricted transfer of goods, services, technology and information. Lifestyles in one nation are somehow dictated by lifestyles and trends in another as the Internet and mass media break the barriers of geographical location and time. Today, the world is a global community as globalization takes place in a rapid pace and continuous to penetrate every sphere of societal living. Globalization often brings into discussion the concept of trade liberalization as a potent force of development. Trade liberalization and globalization go hand in hand as the exchange of goods, manpower and technology across national boundaries become the key characteristic of the globalization process. Thus, the modern world basically thinks of the multi-national corporations when confronted with discussions about globalization. Multi-nationals are some of the major players of globalization and are said to be the drivers of trade liberalization. These corporations extend their operations, technology and human force into foreign locations to deliver goods and services to the global consumers. This giant operational step necessitates strategies that do not only work for the local setting but should also be accepted by the worldwide audience.

GLOBAL STRATEGY

           

            The growing pressure and importance of competing in the international market has driven managers to give renewed attention to the design and mechanisms of a global strategy and the globalization of markets. Advocates of adopting a uniform global business strategy or standardization claim that the fundamental needs of humans across the world are not dictated by national or cultural idiosyncrasies. They argue that humans essentially need the same things to satisfy their basic wants, thus, cultural diversity should not be a major consideration for business officials in their pursuit of global strategies and operations. The concept of a standardized global business strategy posits that   the various products sold locally can be appreciated in the international markets with only some minor modifications in product attributes ( 1997). There are three fundamental levels of the development of a global strategy – export and import activities, foreign licensing and technology transfer, and foreign direct investment (2002). No matter what level, the overall global strategy is said to render a range of benefits in achieving economies of scale such as maintaining the home country image of the product, minimizing costs of product changes, easier handling processes and manner of stocking the product, faster delivery, and minimal managerial time and effort ( 1997).

             (1992) argue that companies pursue global operation in order to exploit global synergies abounding in the international business arena. This means that when firms go global, they expose and share the core factors of the multi-national operation such as marketing, research and development and manufacturing for joint utilization of other multinationals. A basic example of this approach to global strategy is Honda Motors which globally leverages the advanced engine technology in motorcycles of the company to ensure expansion into the automobile, snow-blower and lawn mower industry segments of the global market. A second example is Yves Saint Laurent which leverages its prestigious global brand name in high-end fashion to extend its business scope into the perfume, cosmetic and cigarette industry domains worldwide. The two companies’ and all other companies who seek a share of the global market want to take advantage of global synergies in order to gain competitive advantage. Global synergies through a global strategy have clear implications with competitive advantage as a positive impact on corporate profitability becomes a possibility. The chain reaction is basically realized through improved innovative capacity or some form of cost reduction on the part of the multi-national company Taking Honda as an example once more, the company’s engine technology which is originally developed for producing motorcycles, becomes virtually available for the production of engines in the various capacities in which Honda used it across the globe, with lesser costs (). Global synergies made possible by global strategy offer competitive advantage to a multi-national firm in five areas: efficiency, strategic, risk, learning, and reputation. Competitive advantage in efficiency takes place because adopting a global strategy would enable a company to gain access to more consumers and markets which enhance economies of scale. There is also a possibility that the firm can harness raw materials and labor force of other countries as the operation penetrates other territories (2006). Cleveland (2006) says that firms adopting global strategy can purchase expertise instead of develop it or have access to specialized skills that the firm presently lacks by opening employment opportunities in new locations (). Further, technical proficiency is enhanced by expanding in markets with greater expertise in certain aspects of technology (2005). Also, global strategy results to operational flexibility since exchange rates of currency change over time which gives the firm more opportunities for earning (2006). The multi-national firm can also enhance customization of products by exploiting skills patterned after the customs of the home market ( 2006). Strategic competitive advantage through global strategy comes because there is a possibility that the firm would be the first provider of a certain product in the market/country which expands operational efficiency, the presence of transfer price and cross subsidization among countries. Global strategy can also provide firms with a more comprehensive risk management since the firm has to diversify macroeconomic risks and operational risks due to differences in business cycles, labor issues, and natural settings of countries. The fourth source of competitive advantage in global strategy is increased learning opportunity as the firm is permitted to operate in diverse environments which enhance the company’s knowledge base relative to the different facets of business operations. Finally, global strategy makes reputation possible as the firm is guaranteed wider customer base and brand identification among these customers (2006).  

             (2005) argues that global strategy primarily poses risks in the security of the business. Foreign exchange and intellectual property issues need to be taken into consideration in global strategy ().  (1992) explain that global synergy promised by global strategy can be best achieved through operational control. Foreign operation entails spanning various national territories which makes control a vital factor. To achieve global synergies, core inputs between transacting nations must be shared or utilized collaboratively. However, the collaborative use and sharing of core inputs makes it difficult to figure out the distinct contribution and performance of each transacting nation.  This difficulty requires security and monitoring measures from managers and higher officials. The very fact that global strategy means operating in various locations makes the requirement for control a primary disadvantage of global strategy. There may also arise opportunistic behavior among managers who are tasked to exercise managerial discretion over the collaboration and monitoring of activities between independent transacting nations in the foreign operation. Hence, the power of global strategy to create global synergies between the central multi-national company and other subordinate business units demands a high level of control in the foreign operation (1992). According to  (2006) global strategy necessitates a centralized control with limited decision making power at the local level of operation. This characteristic renders disadvantages in coordination. The extensive business operation may pave the way for inefficiencies in the various processes of the business which makes coordination very important. A firm adopting a global strategy often encounters difficulty in obtaining complex performance requirements since this requires consistent collaboration between the various sub-units. Also, even if global strategy enables firms to access a wider range of skills and expertise, it also leads to loss of core competencies of the business as the operational capacities become dispersed to multiple locations due to outsourcing. Another disadvantage of global strategy dwells on intellectual property theft wherein partner-countries may be possible spies of competitors (2006). Finally, standardization may result to production of goods that do not necessarily suffice any customer need ( 2007).

 

SPECIFIC/PECULIAR NATURE OF NATIONAL MARKETS

 

           

            According to  (2004) international business strategy gives great emphasis on location specificity and underscores the importance of deliberating and answering the basic question of “Why do countries differ?” for firms taking interest in global operation. Difference among countries in the world lie in numerous aspects: cultural which include race, social norms, religion, and language; administrative comprising the political and economic processes; and geographic and economic which include wealth and income patterns ().  (1997) claims that although fundamental human needs do not vary across the world; cultural, political and social idiosyncrasies of a nation have essential influences on the buying behavior and decisions of the population. These realities put forward a significant argument that global strategy which follows a standardization of universal products may not be appropriate in certain conditions (). To address the complexities and differences among nations, cultural, political and social differences must be analyzed (2004) and firms pursuing international business strategy must be able to tailor their products accordingly using the adaptation strategy in global business ( 1997).  (1991) cite that within an international context, companies also opt to compete on a country-by-country basis. These companies make use of the multi-domestic strategy wherein market positions are protected from forces of the global market  and the firms compete in industry segments that are most affected by local differences. Some characteristics of the multi domestic strategy are: products are patterned after the preferences and norms of the individual countries; product and operational innovation emanate from the research and development efforts at the local level; decentralized decision making; and local sourcing ().

            Multi-domestic strategy provides the following advantages: lesser political risk, minimal exchange rate risk, local responsiveness, products tailored on a specific market, and autonomy of the business unit in each country which results to faster decision making and response (2006). Firms adopting the multi-domestic strategy do not encounter much political risks. In this strategy, the local management attempts to operate effectively and formulate decisions regarding research and development, production, marketing and distribution based on business customs and practices in the local setting. The managers implement studies on what the local customers need and prefer in goods and services. They also consult with the local administrative bodies on local regulations governing the conduct of business. Moreover, a multi-domestic strategy ensures that a specific person from the company can be designated in required local representations. Thus, all business decisions and operations are based on what the local setting and local laws dictate. This characteristic of the multi-domestic strategy minimizes the possibility of non-compliance and threats of local authority intervention in the business operation ( 2007). Secondly, the multi-domestic strategy is not primarily governed by exchange rates. The value of the products is based on the prevailing rates at the local setting and the rates in the international market are not given much importance. Thus, when exchange rates in the global market change, firms using the multi-domestic strategy are not entirely affected ( 2007). Thirdly, multi-domestic strategy allows local responsiveness. The existence of local laws and regulations sometimes calls for a single domestic manufacturer that can provide the needs of the population. Firms adopting the multi-domestic strategy comply with local regulations and thus, become a potential sole domestic producer. This domination stimulates attention, participation and support from local consumers and leaders ( 2001).  Fourthly, since the multi-domestic strategy enables companies to research, design, produce, and market its products according to the distinct demand of each country in which they operate, these firms are able to come up with products that are uniquely available in each country and that the people enjoy. For instance, Coca Cola adopts the multi-domestic strategy which makes consumers find Coca Cola products in even the most remote location in the world with a distinct taste. Accordingly, each country where Coca Cola operates has its own unique Coca Cola product that is not sold outside the national boundaries. The United States has MellowYellow while Germany has MezzoMix. Even if these products are different in taste and are not sold in the same country, they are both manufactured by Coca Cola (2007).  Finally, to compete using the multi-domestic strategy, a business firm is required to maintain the activities of the business mainly independent in every country location since the ability to determine and foster local adaptation and responsiveness will depend predominantly within each country’s territory. Thus, the business unit in every location is provided with the authority to implement its strategies and render decision on operational matters. The ultimate aim is to suffice the tastes and preferences of the local area of operation. Considering the focus on local responsiveness in a multi-domestic strategy, the company is guaranteed accessible market intelligence in real time because of the autonomy of the business unit. There is no need for time-consuming deliberation with the authorities of the head office which means lesser effort, lesser cost of communication and time. These situations entail increased response time in countering competitors’ moves and any market changes (1991).

            Essentially, recognizing and addressing the needs of every market is the main goal of any business endeavor. In international business, this is more desirable because of the risks associated with having to penetrate national boundaries that have their own culture, laws and needs for products and services. However, the pursuit for local responsiveness has its risks. Firms adopting the multi-domestic strategy basically incur higher costs due to tailored products and duplication across countries. Since business units of the business firm are independent of each other and are operating in specific locations, production and marketing strategies are also unique. This means that in any case, two or more business units in separate locations may have the same products and marketing approach which make the firm spend a considerable amount for the same thing ( 2007). Also, a firm using the multi-domestic strategy has no control over and is unable to transfer core competencies within the organization to other locations. This is mainly due to the autonomy given to every local business unit. The separation of the central office and the sub-office, and the sub-unit from one another connotes specialized competencies in every unit that cannot be consulted or harnessed by another unit. Thus, many firms using the multi-domestic strategy are self-contained and cannot reap the benefits of pooling their resources and marketing intelligence with other business units from other locations in the world (2007). Furthermore, the authority given to a business unit in every location to discover and implement their own innovative strategies sometimes leads to production of goods that are research-driven and not market driven. Finally, decentralization in the multi-domestic strategy delays marketing of the product as the firm may be required to comply with various local regulations before the product is allowed to be introduced in the market (2006).

 

EXAMPLES OF MULTI-NATIONAL CORPORATIONS

 

           

            Philips is an example of a company that adopts a multi-domestic strategy. The firm has established extensive mechanisms according to the company’s current structure as well as the competitive realities of each region that the company has an operation. For instance, in North America, Philips’s ultimate goal is to reinforce its market position and gain satisfactory levels of performance in the American market. The activities of the company in the United States are specifically arranged for every global product division. In Europe, Philips has a better market position and its primary objective is to reorganize the status and role of the large operations in the Netherlands, the home country, within the broader structure of the European market (2005). Multi-domestic strategy has provided Phillips with benefits such as innovative capacities shown by every regional operation, entrepreneurial spirit, specific products patterned after the preferences of every country of operation and high quality operation caused by backward integration (2006). However, the multi-domestic strategy has also rendered some problems for Phillips. Among these are high cost structure and adverse effects of the immense power of subsidiary units. On example of the negative effect of autonomy in the sub-units is the failure of the company to set the V2000 format as the standard in the VCR market in the later part of the 1970s because the American subsidiary did not adopt the V2000 format (2007).

            On the other hand, an example of a company operating with a global strategy is Matsushita. The strategy enabled Matsushita to develop a solid global distribution network, a common vision statement that is followed by the entire company, financial control over all aspects of operation, extensive research and development, and easier marketing of products because individual country buy-in is not applicable. Challenges faced by the company with the strategy include issues with the Japanese currency, dependency on a sole product which is the VCR and loss of non-Asian personnel due to glass ceilings (2006).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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