Global Strategic Management and its importance
Clarke Ricks
School of Business, Liberty University
BUSI 690: Policy and Strategy in Global Competition
Dr. Hicks
April 6, 2021
Global Strategic Management and its importance
Globalization
Global Strategy is a shortened term that covers three areas: global, multinational and
international strategies. Essentially, these three areas refer to those strategies designed to
enable an organization to achieve its objective of international expansion.
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 benefits more from globalization than do others, and some
nations have a comparative advantage over the nations in certain industries.
To create a successful global strategy, managers first must understand the nature of the
global industries and the dynamics of global competitions.
In developing global strategy, it is useful to distinguish between three forms of
international expansion that arise from a company’s resources, capabilities and current
international position. If the company is still mainly focused on its home markets, then its
strategies outside its home markets can be seen as international. For example, a dairy
company might sell some of its excess milk and cheese supplies outside its home country.
But its main strategic focus is still directed to the home market
However, the Apple iPod was essentially following the same strategy everywhere in the
world: in this case, the advertising billboard was in North America but it could have been
anywhere. One of the basic decisions in global strategy begins by considering just how much
local variation, if any, there might be for a brand.
Another more basic decision might be whether to undertake any branding at all.
Branding is expensive. It might be better to manufacture products for other companies that
then undertake the expensive branding. Apple iPods are made in China with the Chinese
company manufacturing to the Apple specification. The Chinese company then avoids the
expense of building a brand. But faces the strategic problem that Apple could fail to renew
its contract with the Chinese company, which might then be in serious financial difficulty.
As international activities have expanded at a company, it may have entered a number
of different markets, each of which needs a strategy adapted to each market. Together,
these strategies form a multinational strategy. For example, a car company might have one
strategy for the USA – specialist cars, higher prices – with another for European markets –
smaller cars, fuel efficient – and yet another for developing countries – simple, low priced
cars.
For some companies, their international activities have developed to such an extent
that they essentially treat the world as one market with very limited variations for each
country or world region. This is called a global strategy. For example, the luxury goods
company Gucchi sells essentially the same products in every country.
Implications of the three definitions within global strategy:
International strategy: the organisation’s objectives relate primarily to the home
market. However, we have some objectives with regard to overseas activity and therefore
need an international strategy. Importantly, the competitive advantage – important in
strategy development – is developed mainly for the homemarket.
Multinational strategy: the organisation is involved in a number of markets beyond
its home country. But it needs distinctive strategies for each of these markets because
customer demand and, perhaps competition, are different in each country. Importantly,
competitive advantage is determined separatelyforeachcountry.
Global strategy: the organisation treats the world as largely one market and one
source of supply with little local variation. Importantly, competitive advantage is developed
largely on a global basis.
The business resources needed to sell internationally might typically include a sales
team, brochures of products in various languages and an office team to handle sales orders
back in the home country.
The business resources in going global are much greater. Typically, companies need
manufacturing plant in various low labour cost countries, global branding and advertising,
sales teams in every major country, expensive patent and intellectual property registration
in many countries, etc.
So, why ‘go global’ if the required resources are much greater and, incidentally, more
complex to manage? Because the business rewards are supposed to be much greater for a
global strategy. And so are the risks!
Hence, many companies do not have a ‘global strategy’ in the way that it is defined in
international business literature. Even some major multinationals do not have a true global
strategy in the sense of completely integrated production, no localized brands, etc.
For example, the highly successful multinational company PepsiCo dominates savoury
snack products around the world. However, it still has local brands like Walkers Crisps in the
UK. It does not use its Lays brand name in the UK, but employs Lays in much of the rest of
the world. Why? Historical reasons that began with the PepsiCo acquisition of Walkers,
which was already UK market leader.
Even if companies have a global strategy, this takes years to develop and requires
substantial resources. It needs many millions of US$ and substantial management time and
expertise. For example, Coca Cola took many years to develop its current position in the
world soft drinks market.
Formostcompanies,includingmanysmallercompanies,itismorerealistictodevelop
aninternationalormultinationalstrategy.
Benefits of Global Strategy
1. Economiesofscope: the cost savings developed by a group when it shares activities
or transfers capabilities and competencies from one part of the group to another
2. Economiesofscale:the extra cost savings that occur when higher volume production
allows unit costs to be reduced
3. Globalbrandrecognition: the benefit that derives from having a brand that is
recognized throughout the world
4. Globalcustomersatisfaction: mulitnational customers who demand the same
product, service and quality at various locations around the world
5. Lowestlabourandotherinputcosts: these arise by choosing and switching
manufacturers with low(er) labour costs – for example, computer assembly from imported
parts in Thailand and Malaysia where labour wages are lower than in countries making
some sophisticated computer parts (such as high-end computer chips) in countries like the
USA
6. Recoveryofresearchanddevelopment(R&D)costsandotherdevelopmentcosts
acrossthemaxiumnumberofcountries – new models, new drugs and other forms of
research often amounting to billions of US dollars. The more countries of the world where
the goods can be sold means the greater number of countries that can contribute to such
costs.
7. Emergence of new markets: means greater sales from essentially the same products.
Cost of a Global Strategy
1. Lackofsensitivitytolocaldemand: Leavitt argued that people would be prepared to
compromise on their individual tastes if the product was cheap enough deriving from
economies of scale and scope. Is this really correct? Other writers argued that there could
be costs in adapting products to match local tastes, local conditions like the climate and
other local factors like special laws on environmental issues.
2. Transportandlogisticscosts: if manufacturing takes place in one country, then it will
be necessary to transport the finished products to other countries. The costs for some heavy
products, like steel bars, may be greater than the economies of scale from centralised
production in one country.
3. Economiesofscalebenefitsmaybedifficulttoobtaininpractice: plant takes time to
commission, local competitors still using old plant and cheap labour may still be
competitive.
4. Communicationscostswillbehigher: standardisation of products and services needs
to be communicated to every country. In virtually every case, it will also be necessary to
monitor and control the result. All this is time consuming, expensive and at the mercy of
local managers who may have their own agendas and interests.
5. Managementcoordinationcosts: in practice, managers and workers in different
countries often need to be consulted, issues need to be explored and discussed, local
variations in tax and legal issues need to be addressed. This means that senior managers
operating a global strategy need to spend time visiting countries. It cannot all be done on
the telephone and worldwide web. This takes a tremendous toll of people personally.
6. Barrierstotrade: taxes and other restrictions on goods and services set by national
governments as the goods cross their national borders.
7. Othercostsimposedbynationalgovernmentstoprotecttheirhomeindustries- like
special taxes or restrictions on share holdings.
