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Global strategic management
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- 2. INTRODUCTION Ask yourself?? What isGlobalization?? Why global trade?? What is Strategy?? What is an MNE/MNC??
- 3. Useful Quotations “Educationis the key that unlocks the golden door of freedom” George Washington Carver. “Education is a liberating force, and in our age it is also a democratizing force, cutting across barriers of caste and class, smoothing out inequalities imposed by birth and other circumstances”. Indira Gandhi. “Knowledge is like a garden; if it is not cultivated, it cannot be harvested.” Guinea Proverb. “The most successful person is the one with best information” Benjamin Disraeli. “You cannot teach a man anything, you only lead him to find within himself”. Galileo. “No one individual can have a monopoly of knowledge, experience or talent”
- 4. Overview of GlobalStrategic Management • Unlike the basic strategic management course, global strategic management is less process oriented. • While SM is concerned with managing a firm’s relationship with the environment in general, GSM is specifically concerned with managing a firm’s relationship with the global business environment. • The business environment, whether national or global in nature must be managed for survival and success. • GSM is necessary for survival. More importantly it is necessary for success in the global business environment. • Thus the global business challenge is a pervasive one, whether the business environment is local or foreign.
- 5. • In thedomestic market, for example, it is present in several forms e.g.: – Imported products, Contract manufacturing for foreign firms, Licensees for foreign firms, Franchisees of foreign firms, Subsidiaries of foreign firms etc, all of which represent direct and indirect competition at home with foreign firms. • In foreign markets, competition is basically represented in all above forms except that the direct competition with foreign firms is much higher and more intense. • In addition, the competitive climate in foreign markets is much more challenging due to unfamiliar and more diverse environmental forces.
- 6. • This thereforedepicts that most, if not all industries are global industries- those in which competition crosses national borders i.e. occurs on a worldwide basis. • In a global industry, a firm’s strategic moves in one country can be significantly affected by its competitive position in another country. • As a result, strategic management planning must be global for reasons such as: – Increased scope of global management task; – Increased globalization of firms; – Information explosion – Increase in global competition; – Rapid development of technology; – Need to breed managerial confidence; etc.
- 7. • Therefore, afirm’s global industry must maximize its capabilities through a worldwide strategy. • Hence, “GSM is the entire process of crafting a coherent, coordinated, integrated, and unified strategy that sets the degree to which a firm globalizes its strategic behaviors in different countries through standardization of offerings, configuration and coordination of activities in different countries, and integration of competitive moves across countries” (Mellahi et al 2005).
- 8. Framework of GlobalStrategic Management • The global business environment is increasingly getting more competitive and changing for business firms. • An effective global strategy will help a firm not only to survive but also to excel in its global business environment. • For a firm to develop an effective global strategy, i.e a competitive global strategy, the following are important: – An understanding of the global business phenomenon, such as the forces and process of internationalization and globalization of business. – An understanding of the assumptions upon which global business is founded, such as, theories of international trade and investment.
- 9. – An understandingof the global business environment and its strategic implications. – Strategic selection of markets to enhance competitiveness. – Strategic entry and operation in foreign markets to enhance competitiveness e.g. through affiliation or strategic partnership. – Competitive strategies for global business operations, such as positioning strategies. – Strategic management of global business operations, such as production strategies, marketing strategies, human resource strategies and financing strategies. – Strategic management of risk in global operations. – Strategic organization and control of global business interests and operations. • Therefore, besides the competitive strategies, international business strategies are part and parcel of global business strategies and constitute the framework
- 10. International Business, InternationalTrade and Domestic Business • International business (IB) is the study of transactions (trade and investment) taking place across national borders. • IB, therefore, comprises of international trade and international investment. • International trade is the part concerned with the export of goods and services or the sale of goods and services across national borders, while international investment (also called Foreign Direct Investment-FDI) is the part concerned with investments across national borders. • International trade is usually an initial step in international business
- 11. • Domestic business(DB) is business in the home country, while IB is business in other countries. • A firm that is engaged purely in domestic business deals with one country only i.e. the home country, while IB involves a firm in two or more i.e. the home country and other countries. • DB involves a familiar business environment, while IB environment is often unfamiliar. • The manner in which doing business is approached and managed in a foreign market is different from that of the domestic market. • The differences are mainly due to:
- 12. – Business environment •The environmental variables tend to differ from one country to another. • Therefore, the environmental demands on a firm’s business practice and strategy in a foreign market is likely to be different from the demands of the domestic market. – Number of markets • IB usually involves business activities in more than one country and therefore must be managed in quite a different manner from that of the domestic business. • The implications of these factors is that international or global business is quite challenging, if not more delicate, and must be done with much care and tact.
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- 14. The Concept ofGlobalization • It has been argued that mere internationalization of business does not amount to globalization. • Two perspectives regarding what globalization means have been proposed. • While one is perceptual in nature, the other refers to the way in which a firm has internationalized its business. • A global firm which does not behave as one is of no consequence in globalization. • Perceptually, what really matters in globalization are the activities of the firm (makes a lot of sense).
- 15. • A firmmay not be globalized in the way it has internationalized its business, but if its activities are characteristic of those of global businesses, then the firm could be regarded as global. • Globalization as the way in which a firm has internationalized its business refers to spreading out internationally (most widely accepted meaning). • According to this perspective, the width of a firm’s international involvement is important in determining whether a firm is globalized or not. • The depth of such involvement is also important, because globalized firms usually operate in foreign markets through FDI, which represents the greatest of deepest involvement in foreign markets.
- 16. • Internationalization should,however, be seen as only the initial stage of globalization. • From the foregoing, globalization is not neither a consultant’s fad nor a management buzzword; it is a competitive imperative in an increasing number of industries. • The concept has led to point out what global industries are, what global companies are, and what it means by global integration and coordination.
- 17. Globalization: A HistoricalStance • The concept has only recently (i.e. in the 20th century) been popularized through the spread of multinational enterprises (MNEs). • Its roots, however, date back to the 16th century when European nations struggled to establish empires worldwide. • The Dutch and the British East India companies were perhaps among the earliest MNEs. • In late 18th century, many European firms globalized by setting up manufacturing facilities in their colonies to extract raw materials.
- 18. • In mid19th century, many US firms began to globalize by setting up business plants in various parts of the world. • In late 20th century, most Japanese firms joined the globalization race, although they had been major exporters prior to WW II. • By the 1970s, the process of globalization propelled by the MNEs was quite entrenched, marked by tremendous movement of people, knowledge, goods, services, and technology across borders.
- 19. Forces of Globalization •Globalization became a necessity at the beginning of the 1970s because of the convergence of several political, technological, social and competitive forces/factors. Political Forces • These are due to liberalization of trade and investments. • Main political factor has been the development of free trade among nations. • Two main organizations have been the source of trade liberalization: GATT now WTO and the EEC, to which the progressive opening of emerging nations to foreign investment could be added.
- 20. • GATT (whichbecame WTO in 1995 and founded in 1946 by 23 nations) initiated a series of negotiations aimed at reducing tariff concessions to create liberalization of trade, hence fostering international trade. • EEC (now EU and founded in 1957) was established with the aim of creating a common market and economic and political integration among member states, resulting in free movement of trade and investment across countries. • Parallel with what was happening in the industrialized countries, third-world nations progressively adopted more positive attitudes towards foreign direct investments (FDI). • Other like organizations have since been established.
- 21. Technological Forces • Technologicaldevelopments that mainly led to lowered costs of transport and communication due to economies of scale. • Occurred in air, rail, road, and use of containers in maritime transport; and in telecommunications. • Tremendous progress witnessed in manufacturing technology. • Developments in R&D, leading to reduced product life cycles. • All these have led to, in one way or another, the increased rate of global business activity.
- 22. Social Forces • Largelyconcern the convergence of consumer needs. • This has been brought about by international air transport and the diffusion of lifestyles by movies and TV series which have increased brand awareness of consumers worldwide e.g Sony, Coca Cola etc. • Also facilitated by urbanization and industrialization of societies. • The less cultural and the more technical is the product, he more likely it can be standardized and appeal to masses of consumers in all countries. • E.g VCRs, PCs, M. phones, etc are products for which national differences do not matter much.
- 23. Competitive Forces • Largelyseen due to entry of new competitors in the global market. • 1960s saw the emergence of mainly Japanese and, later, Korean competitors in markets that traditionally had been dominated by American or European competitors. • Their international expansion was occurring at the time of the opening of trade barriers and right at the beginning designed products (Sony, Panasonic etc) for the world market while adopting efficient production systems which gave them cost advantage. • Another competitive force is the globalization of customers.
- 24. Reasons for GoingGlobal • Some of them are implicit in the forces of globalization • Reasons for which firms globalize or expand internationally can be both reactive or proactive. • Reactive if managers are responding to something outside their control in the firm’s external environment. • Proactive if managers are expanding the firm in order to give the firm a competitive edge or advantage over its competitors. • Many times globalization is done for both reasons at the same time.
- 25. Reactive Reasons • Majorones include: – Trade barriers: may be avoided by operating within countries that have imposed import barriers. – International customers: to continue serving major customers in the countries that they may go. – International competition: to be at par with competitors who enter other countries. – Regulations: may increase the cost of doing business at home, and hence the need for foreign markets. – Chance: unexpected events can prompt a firm to enter foreign markets.
- 26. Proactive Reasons • Majorones include: – To access additional resources. – To take advantage of lower costs that may exist in other countries i.e. cost advantage in other countries. – Incentives offered by home or host country government. – To make use of excess resources or capacity. – To exploit firm specific strengths or advantages e.g. exploiting other markets by selling a popular brand in those markets. – To take advantage of lower tax rates in other countries. – Economies f scale i.e. selling to more than one country may allow for large-scale production. – Synergy – Power and prestige – Protect home market through offense in competitor’s home.
- 27. Drivers for aGlobal Strategic Perspective • The extent to which a multinational firm adopts a global strategy is determined by three broad factors: – Macro globalizing drivers: globalization and information and communication technology; – Industry globalizing drivers: market, cost, government, and competitive drivers. – Internal globalizing drivers: global orientation and international experience. • Macro drivers have an overall impact and are not specific to certain industries or organizations. • Industry drivers determine the globality of a sector, industry, or market. • Internal drivers determine how a firm responds to its globalizing business environment.
- 28. Macro Globalizing Drivers Globalization –Multifaceted process that is a composite of three interrelate elements: the creation of a global economy, political globalization, and a globalization of ideas and values – Global economic integration: dramatic increase in the density and depth of economic interdependence by way of regional agreements, trading blocs etc (very few in late 1950s to over 180 in 2002 and more by now); and increase in regulation favoring FDI and other types of foreign investment. – Political globalization: unprecedented and growing consciousness of so-called problems which require global political systems resulting into significant reduction of national governments’ ability to control their social, economic, and even political policy, hence weakening their role in economic development.
- 29. – Globalization ofideas and values: generation of new sets of managerial values, especially among young managers, due to increased rate of globalization transactions and global electronic mass media. – Therefore, globalization is a diverse process embracing economic, political, and cultural change which is deepening the integration of the world economy, strengthening political interdependence between countries, and causing values to converge across countries. – It is intensifying cross-border business activities by making governments and economic policies more integrated, interdependent on each other, and to some degree social and cultural policies are interpenetrating each other. – These intensifying tendencies have a geographical spread dimension of globalization.
- 30. Information and communicationtechnology (ICT) – ICT revolution has changed the conduct of global business in fundamental ways. – It is shrinking distances, eliminating intermediaries, and bringing about closer integration of the world economy. Industry Globalizing Drivers Market globalizing drivers – Convergence of several markets around the world due to: • Convergence of GNP, industries, customers’ tastes, perceptions, and buying behaviors, and • Building of global brands and company images by multinational firms via increased standardization of marketing and advertising campaigns.
- 31. Cost globalizing drivers –Several key cost drivers determine an industry globalization level: • Scale economies or dis-economies: largely a drive to standardization. • Sourcing efficiencies: price of key inputs and bargaining power of the firm. • Country specific cost advantages: low cost of raw materials, labor, or transport. • Product development costs Government globalizing drivers – Trade barriers and regulations – Requirement for technical standards that are becoming similar around the world.
- 32. Competitive drivers – Theseare in the form of: • Tight interlinks between key world markets; • Intense competition across countries; and • The continuous increase in the number of global competitors Internal Globalizing Drivers Global orientation – It is part of a multinational firm’s culture- a belief that success comes from a worldwide globally integrated strategy rather than from one operated on a country-by- country-basis.
- 33. – Firms lookfor similarity between markets and synergies across countries and make globally integrated move. – Managers have a global mindset and tend not to tolerate differences across countries. International experience – Most experienced multinationals tend to adopt a global strategy. – Several years’ experience enables the firm to: • Take advantage of the comparative advantage of various countries, • Spot and capitalize on synergies between subsidiaries in different countries, and • Establish common needs among the customer segments worldwide for core product features to be kept intact.
- 34. Globalization Vs Localization •As earlier observed, globalization is associated with some degree of standardization of products and practices plus a high level of coordination and integration of activities in the firm’s value chain. • Factors that defeat all these work against globalization, hence pushing for localization. • These factors include: – Cultural factors: attitudes, tastes, behavior and social codes; – Commercial factors: distribution, customization and responsiveness; – Technical factors: standards, spatial presence, transportation and languages; – Legal factors: regulation and national security issues
- 35. • Cultural factorsreduce the benefits of standardization. • Commercial factors require differentiated approaches to sales and marketing. • Technical factors reduce the benefits of economies of scale, centralization and standardization. • Legal factors limit free flow of people, goods, data, cash and impose localization constraints. • Because of these opposing forces, no multinational firm will adopt a purely global or local orientation. • The result is the “glocalization” orientation= a mix of the globalization and localization approaches. • Adopting part of each enables a firm enjoy their respective advantages.
- 36. • Advantages ofglobalization include: – Cost: economies of scale and increased bargaining powers – Timing: reaches the optimal production volume and increases the reach of a product with short product life cycle. – Learning: facilitates best practices to be adopted across subsidiaries through the experience effect and the transfer of knowledge. – Arbitrage: derived when a global company uses resources in one country for the benefit of a subsidiary in another country. • Those of localization include: – Flexibility which leads to customization, – Proximity: close to the market, – Quick response time to specific customer demands.
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- 38. Complexity of theGlobal Environment • Carrying out business in the global environmental is more challenging than is the case in a purely domestic environment. • This is because the global environment presents highly complex interactions among the various contextual variables (economic, political-legal, socio- cultural, and technological). • The highly complex interactions result into a vast number of potentially relevant external influences on the firm’s business operations. • Further, the interactions occur in very dynamic ways that present a firm with either opportunities or threats.
- 39. • Consequently, globalstrategic planning become equally more complex than purely domestic planning. • At least five factors contribute to the increase in this complexity: 1. MNEs face multiple political, legal, social, and cultural environments as well as various rates of changes within each of them; 2. Complex interactions between the national and foreign environments because of national sovereignty issues and widely differing economic and social conditions; 3. Geographic separation, cultural and national differences, and variations in business practices which make communication and control efforts between HQs and the overseas affiliates difficult; 4. Extreme competition faced by MNEs because of differences in industry structures within countries; 5. MNEs are restricted in their selection of competitive strategies by various regional blocs and economic integrations.
- 40. Global Environmental Variables •The global environmental variable is very important and needs to be understood first and foremost before any considerations are made in global management. • The environmental variable is the main determinant of the difference between domestic business and international business. • It refers to factors or forces that a business is likely to encounter in foreign markets. • Different frameworks have been used to classify business environments e.g – The macro and micro environments. – Remote, industry, and operating environments. – Economic, political-legal, socio-cultural etc environments.
- 41. • For purposesof this discussion the third approach will be adopted with some reconfiguration. • Accordingly, the forces are therefore classified depending on whether they are: –Economic –Political-legal –Social-cultural • Factors involved in each of these variables can facilitate or hinder international business depending on their precise nature, which is either favorable or unfavorable to foreign business in a country.
- 42. THE ECONOMIC FRAMEWORK •Its major components include: 1. International trade factors such as: – The balance of payments – Exchange rate – Regional or international groupings • Each facilitates or hinders business in a foreign market. 2. International financial factors such as: – The IMF – The WB – The UNDP • The role each plays facilitates or hinders business
- 43. • The policiesthese institutions adopt towards certain countries can limit business opportunities in the affected countries. 3. Population factors such as: – Size of population – Population growth rate – Population distribution – Population demographics • Each of these is a relevant factor for consideration. 4. Income factors such as – Per capita income – Income distribution – Gross National Product (GDP) • How is each relevant for consideration?
- 44. 5. Natural resourcessuch as – Minerals and agricultural products – Topography – Climate – Wildlife – Others e.g rivers, lakes and forests 6. Economic development such as: – Level of economic development – Infrastructure e.g roads, communications, security, financial insurance etc. – Urbanization 7. Foreign investment such as: – The type and number of foreign firms operating in a market – The methods and strategies foreign firms are using to operate in a market. – Why is it important to know these?
- 45. THE POLITICAL-LEGAL FRAMEWORK •This is a product of national and international political climate e.g foreign firms in Kenya encounter factors that are a product of both Kenya's and international political climate. • Included here are any national or international Political and Legal factors that can affect business operations in foreign markets. Political Factors • Major ones include the following: 1. Government investment: Sole or Part ownership – Government may sometimes be a monopoly in an industry
- 46. • Implications ofgovernment investment: • Govt monopoly may preclude any other firm from operating in the industry. • Government may be the only partner for international firm • International firm may have the government as its only customer or supplier in an industry • Government could be a major competitor for the international firm in an industry. 2. Government purchasing or consumption • Government may the largest single buyer of certain goods and services. • Government purchasing and payment procedures tend to be quite elaborate and protracted. • It is important to consider the procedures and regulations that govern government purchasing and payments in a country.
- 47. 3. Economic andPolitical Ideology – The following countries deserve careful attention: – Non-democratic – Socialistic – Capitalistic – Nationalistic i.e strong spirit of nationalism – Business operations in a country are greatly influenced by the country’s politico-economic ideology. – The spirit of nationalism can be counteracted if the international firm develops a localized image- to avoid falling victim.
- 48. 4. Political stability •A country may not be without change but the change should be gradual and non-violent. • Abrupt changes in the political-legal parameters can be quite disruptive to business. • Political changes can also lead to adverse changes in government actions toward business. 5. International relations • The host country’s relations with other countries may have these implications: – Hostile relations with other countries may lead the host or other countries to extend the hostility to the firm and its subsidiaries. – A firm operating in a country that has had bad international relations may find it difficult to export or import while in such a country.
- 49. LEGAL FACTORS • Includedhere are the laws and regulations that affect business activities categorized as follows. 1. Laws of the firm’s home country • Certain home country laws may impose constraints on the extent to which a firm can participate in business activities in foreign markets. Examples include: – Export controls – Antitrust laws i.e laws intended to maintain free competition by limiting the concentration of economic power in one or few firms.
- 50. – Antitrust lawsat home curtail the power of firms to take advantage of or exploit foreign market opportunities – Other laws and regulations that may impose constraints or limitations on the firm making it difficult for the firm to freely exploit foreign market opportunities. 2. Laws of the firm’s host country such as: – Product content – Labeling and packaging – Promotions – Exchange Control – Distribution – Pollution – Pricing – Ownership e.g in some sectors, proportion of equity to be owned by locals.
- 51. » Value addedi.e some proportion of value to be added locally » Labor laws and regulations » Corporations laws and regulations 3. International and regional laws such as: – Regulations of the IMF (lends on long term basis), WB (lends on short term basis) and WTO. – The international Standards Organization (ISO) – Trade Law Commission (UNCITRAL)-established by the United Nations (UN) to promote a uniform commercial code for the entire world. – The Patent Cooperation Treaty – which aims at simplifying the trade application system among member nations. – The international trademark convention – which aim at simplifying the trademark registration process.
- 52. • International andregional groups or conventions, such as: ECOWAS, SADC, EU, COMESA, IAS (International Accounting Standards), NAFTA (North America Free Trade Area), LOME Convention etc. • International and regional convention facilitate internal business in the following ways: • They extend the market for international business. • Other countries may be used as a base to export elsewhere. • International business may be done more conveniently and cheaply due in part to simplification of procedures and reduction of tariffs. • Such conventions could also impose constraints due to: • Intensified competition. • A foreign firm may not fully enjoy privileges accorded to firms of member countries. • Powerful firms from other member countries could easily dominate trade.
- 53. THE SOCIO-CULTURAL FRAMEWORK •Included here are cultural factors and social factors that affect international business operations. CULTURAL FACTORS • Culture is the man-made part of a people’s environment and may be defined as the distinctive way of life of a people e.g how the people of a society eat, kinds of food they eat, how they prepare and store such foods. • Culture is manifested in all aspects of life such as: • The people’s faming life • Their ways of transport • How they spend their leisure time • Various things that human beings do in the process of living etc.
- 54. • Culture, therefore,is developed by people and is not a product of nature that man has had no influence over. • Culture is quite dynamic and continues to evolve. • Major cultural parameters that affect international business include: 1. Material Culture – Refers to the tools and technology of a society. – Involves techniques and physical things but only those made or developed by man as opposed to those found in nature. – Material culture affects the nature of: Product, Packaging, Promotional strategy, Personnel policies, and Production policies among others.
- 55. 2. Language – Refersto symbols, whether verbal or non-verbal that people use for communication. – Meaning conveyed via language may be: • Denotative meaning • Connotative meaning – IB is affected both by the language symbols used and by the denotative and connotative meanings of such symbols. – Most business operations affected by language are: • Promotional techniques • Personnel relations (PR activities) • Corporate image
- 56. 3. Aesthetics – Refersto a culture’s ideas concerning beauty and good taste, as expressed in the fine arts, such as music, art, drama and dancing. – Also involves appreciation of color and form. – Different societies have different aesthetical preferences. – Aesthetics has significance influence in: • Designs e.g products and premises • Colors • Music • Brand names
- 57. 4. Education – Refersto the learning or acquisition of knowledge, skills, attitudes and values that are important for life in the society. – It may occur through: • Formal e.g training in schools and colleges • Informal or non-formal processes e.g participation in traditional social activities. – A person may be highly learned but most uneducated. – Likewise, a person may not have been to school but yet be the most educated.
- 58. • Although theeducational information available regarding foreign markets is usually that of formal education only, such partial information may still be useful in: – Indicating the extent of literacy in a country to guide advertising, labeling, research work, product design and development, and instruction manuals. – Determining degree of cooperation and relations to expect from distribution channel members. – Indicating the nature and quality of marketing support services available. – Providing guidance with regard to appropriate personnel policies and management techniques and styles. – Man power planning and development.
- 59. 5. Attitudes andValues – Attitudes are reflected in people’s likes and dislikes and in their beliefs and ideas about things. – Values are reflected in what people think is right or appropriate and what they consider as important or desirable. – Attitudes and values are important in explaining a people’s behavior and should be taken into account in business decisions, actions and plans.
- 60. 6. Religion – Generallydefines as belief in the supernatural. – Religious beliefs and motives can explain many things that people do. – Some of the direct effects that religion can have on an economy include: • Religious holidays- can affect work schedules and business programs. • Consumption patterns- may be a result of religious requirements and taboos. • The economic role of women in a society e.g in Islamic and Buddhist societies. • The restriction of participation of certain groups in the economy e.g caste system in India. • Joint decision making e.g among Hindu joint family- affecting consumption, employment, and acceptance of responsibility.
- 61. • Religious divisionsand conflicts which can affect distribution, promotion, and other aspects of business management in a country. SOCIAL FACTORS • Social organizations are the most important social factors that affect business operations. • Social organizations reflect the way people relate in society e.g. how a person relates to other people in society i.e. the ties individuals have with others. • The ties greatly influence how people behave as individuals and as groups. • It is important to know the types of social organizations that dominate a society and to understand their precise nature.
- 62. • The kindsof social organizations that characterize a society can offer or limit opportunities for business in the society as well as dictate how business operations can be effectively carried out. • The major types of social organizations found in most societies include: 1. Kinship – This means family. It is the primary kind of social organization. – In some countries, e.g developed nations, kinship is quite small, restricted primarily to the immediate family, which includes only the father, mother and the unmarried children in the household. – In other countries, e.g developing nations, the perception or concept of kinship is extended to include even distant relatives.
- 63. • Some ofthe implications of kinship on business include: – Affects marketing decisions and policies relating to product sizes. – Affects personnel decisions and policies relating to housing, fringe benefits and compassionate leaves, among others. 2. Common Territory – Refers to what the people of a society perceive as a common territory i.e how the people of a given area perceive themselves as essentially belonging to one group. – In developed or urbanized societies, the common territory is usually the neighborhood, the suburb, or the city. – In developing nations e.g Africa and Asia, it is usually the “tribe” or some geographic region.
- 64. – Groupings basedon common territory have the following implications for business: • Can be a basis of market segmentation • Can affect group dynamics in the organization. 3. Special Interest Groups – These may be based on any of the following: Religion, Occupation, Politics i.e political affiliations, Socio-economic class, Ideology, Ethnicity, Age, and Gender among others. – Special interest groups should be taken into account in the following aspects of business operations: • Market segmentation • Business decisions and strategies, especially strategy implementation, since they may act significant pressure groups. • Understanding and managing group dynamics in the organization.
- 65. CRAFTING A GLOBALSTRATEGY
- 66. Introduction• A globalstrategy is aimed at meeting a global challenge because without it, survival or success in the global business environment may be difficult. • Effective response to environmental challenges depends on the firm’s capability i.e. its strengths and weaknesses. • It is important to match the firm’s capability with the global business environment. • The matching occurs when the firm capitalizes on its strengths while ignoring its weaknesses in order to exploit opportunities and deal with threats in its global business environment. • The matching is done through strategy i.e the firm should develop a global strategy which takes into account its strengths and weaknesses to exploit opportunities and deal with threats in its global business environment.
- 67. • A globalstrategy involves the carefully crafted single strategy for the entire network of subsidiaries and partners, encompassing many countries simultaneously and leveraging synergies across many countries. • This is in contrast to international strategy, which involves a wide variety of business strategies across countries, and a high level of adaptation to the local business environment. • Moving from a domestic or international strategy is not an easy process; it has various strategic challenges. • The challenge is to develop one single strategy that can be applied throughout the world while at the same time maintaining the flexibility to adapt that strategy to the local business environment when necessary.
- 68. What is thereal difference between international strategy and global strategy? • There are three main differences and these relate to the degree of involvement and coordination, the degree of product standardization and responsiveness to local business environment, and the nature of strategy and competitive moves. – International strategy does not require strong coordination from the centre; global strategy requires significant coordination between the activities of the centre and those of subsidiaries. – International strategy assumes that the subsidiary should respond to the local business needs unless there is a good reason for not doing so; global strategy assumes that the centre should standardize its operations and products in all the different countries, unless there is a compelling reason for not doing so. – International strategy gives the subsidiaries the independence to plan and execute competitive moves independently; global strategy plans and executes competitive battles on a global scale.
- 69. • Implicit inthe three differences above are the three major dimensions of a global strategy. Standardization dimension (How much does a firm standardize its offerings across countries?) – Global strategy is the process of exploiting the synergies that exist across different countries, as well as the comparative advantages offered by different countries. • Configuration and coordination dimension (How much are a firm’s activities concentrated in a few locations and coordinated across countries?) – Multinational firms must configure their operations to exploit the benefits offered by different country locations, and coordinate their activities across countries to capture synergies derived from economies of scale and scope.
- 70. • Integration dimension(How much does a firm integrate its competitive moves across countries?) – Global strategy is concerned with the integration of competitive moves across country markets. – A firm makes competitive moves not because they are the best for the particular country r region involved but because the are best for a firm as a whole. • Each of the above dimensions offers a partial explanation of global strategy. • A global strategy is the process towards one, two, or all the three dimensions as opposed to the extreme points of the dimension i.e a global strategy does not require an absolute form of each of the dimensions but rather an appropriate level of each.
- 71. GLOBAL STRATEGY GLOBAL AMBITION GLOBAL POSITIONINNG GLOBAL BUSINESS SYSTEM GLOBAL ORGANIZATION Relativeimportance of region and countries in terms of sales, assets Choice of: •Countries •Value proposition •Investment in resources, assets and competencies to create a global value chain, •Development of global capabilities through alliances and acquisitions •Global structure •Global processes •Global co-ordination • Global HRM
- 72. Global Strategy Frameworks •A global is made up of four major components: – A global strategic Ambition, – A global strategic Positioning, – A global Business System, and – A global Organization. Global Strategic Ambition – Expresses the role a company wants to play in the world marketplace and how it views the future distribution of its sales and assets in the key regional clusters of the world. – The company could be a global player, regional player, regional dominant global player, global exporter, or a global operator.
- 73. – Global player:aspires to establish a sustainable competitive position in the key markets of the world and to build an integrated business system of designs spread over those key markets. – Regional player: capture a strong competitive advantage in one of the key regions of the world. – Regional dominant player: more than a regional player but not yet selling across the key markets of the world. – Global exporter: sell across the key markets of the world from its home country. – Global operator: procure a large fraction of product components in factories located outside base market and concentrate sales in domestic market.
- 74. • A pureglobal company would exhibit three major characteristics. It would : – Have a distribution of its sales proportional to the distribution of markets in its industry. – Have a distribution of its assets and workforce proportional to the distribution of markets in its industry. – Manage its activities on an integrated and co-ordinated way across the globe. Global positioning • Consists of two choices – Choice of countries in which the company wants to compete and the role that those countries have to play in the global country portfolio. – Definition of various value propositions for product or services of the company, corresponding to the type of segments and countries in which the company wants to compete.