May 25, 2013

Globallization Strategy - Review Notes

Most issues in competitive strategy that apply to domestic companies apply also to companies that compete internationally. But there are four strategic issues unique to competing across national boundaries:

Whether to customize the company's offerings in each different country market to match the tastes and preferences of local buyers or offer a mostly standardized product worldwide.

Whether to employ essentially the same basic competitive strategy in all countries or modify the strategy country by country to fit the specific market conditions and competitive circumstances it encounters.

Where to locate the company's production facilities, distribution centers, and customer service operations so as to realize the greatest locational advantages.

How to efficiently transfer the company's resource strengths and capabilities from one country to another in an effort to secure competitive advantage.

Why Companies Expand into Foreign Markets?
1. To gain access to new customers.
2. To achieve lower costs and enhance the firm's competitiveness
3. To capitalize on its core competencies
4. To spread its business risk across a wider market base.

Strategy options for competing in world markets include maintaining a national (one-country) production base and exporting goods to foreign markets, licensing foreign firms to use the company's technology or produce and distribute the company's products, employing a franchising strategy, using strategic alliances or other collaborative partnerships to enter a foreign market or strengthen a firm's competitiveness in world markets, following a multicountry strategy, or follow a global strategy.

Strategic alliances with foreign partners have appeal from several angles: gaining wider access to attractive country markets, allowing capture of economies of scale in production and/or marketing, filling gaps in technical expertise and/or knowledge of local markets, saving on costs by sharing distribution facilities and dealer networks, helping gain agreement on important technical standards, and helping combat the impact of alliances that rivals have formed.

Multicountry competition refers to situations where competition in one national market is largely independent of competition in another national market—there is no "international market," just a collection of self-contained country (or maybe regional) markets. Global competition exists when competitive conditions across national markets are linked strongly enough to form a true world market and when leading competitors compete head-to-head in many different countries.

Once a company has chosen to establish international operations, it has three basic options: (1) a think-local, act-local approach to crafting a strategy; (2) a think-global, act-global approach to crafting a strategy; and (3) a combination think-global, act-local approach. A think-local, act-local strategy is appropriate for industries where multicountry competition dominates; a localized approach to strategy making calls for a company to vary its product offering and competitive approach from country to country in order to accommodate differing buyer preferences and market conditions. A think-global, act-global approach works best in markets that are globally competitive or beginning to globalize; global strategies involve employing the same basic competitive approach (low-cost, differentiation, best-cost, focused) in all country markets and marketing essentially the same products under the same brand names in all countries where the company operates. A think-global, act-local approach can be used when it is feasible for a company to employ essentially the same basic competitive strategy in all markets but still customize its product offering and some aspect of its operations to fit local market circumstances.

There are three ways in which a firm can gain competitive advantage (or offset domestic disadvantages) in global markets. One way involves locating various value chain activities among nations in a manner that lowers costs or achieves greater product differentiation. A second way involves efficient and effective transfer of competitively valuable competencies and capabilities from its domestic markets to foreign markets. A third way draws on a multinational or global competitor's ability to deepen or broaden its resource strengths and capabilities and to coordinate its dispersed activities in ways that a domestic-only competitor cannot.

Companies racing for global leadership have to consider competing in emerging markets like China, India, Brazil, Indonesia, and Mexico—countries where the business risks are considerable but the opportunities for growth are huge. To succeed in these markets, companies often have to (1) compete on the basis of low price, (2) be prepared to modify aspects of the company's business model or strategy to accommodate local circumstances (but not so much that the company loses the advantage of global scale and global branding), and/or (3) try to change the local market to better match the way the company does business elsewhere. Profitability is unlikely to come quickly or easily in emerging markets, typically because of the investments needed to alter buying habits and tastes and/or the need for infrastructure upgrades. And there may be times when a company should simply stay away from certain emerging markets until conditions for entry are better suited to its business model and strategy.

Local companies in emerging country markets can seek to compete against multinational companies by (1) developing business models that exploit shortcomings in local distribution networks or infrastructure, (2) utilizing understanding of local customer needs and preferences to create customized products or services, (3) taking advantage of low-cost labor and other competitively important qualities of the local workforce, (4) using economies of scope and scale to better defend against expansion-minded multinationals, or (5) transferring company expertise to cross-border markets and taking initiatives to compete on a global level themselves.
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