International aspects of strategy implementation follow the same principles as the implementation of strategies in the domestic market?
In a rapidly changing global economic scenario companies are often faced with a dilemma of pursuing a global strategy or adopt a more local and domestic approach to the market. To understand the differences between the global and domestic strategy we need to first define strategy.
Definitions of strategy:
Scheme: an elaborate and systematic plan of action
A strategy is a long term plan of action designed to achieve a particular goal. Strategy applies to many disparate fields, such as:
- Military strategy
- Marketing strategies
- Strategic management
- Football strategy
- Game theoretical strategy
- Economic strategy
- Neuro-linguistic programming strategy
(Source: en.wikipedia.org/wiki/Strategy)
We can understand that strategy is a systematic plan to achieve certain goals and objectives set out by a company.
Definitions of Global strategy:
Worldwide consistency, standardization and relatively low cost are stressed. www.engmanage.co.za/terms_strategy.htm
Firms that pursue a Global Strategy are faced with great pressures from cost reductions but with weak pressure for local responsiveness. Therefore it allows these firms to sell a standardized product worldwide. However, fixed costs (capital equipment) are substantial. Nevertheless, these firms are able to take advantage of scale economies & experience curve effects, because it’s able to mass produce a standard product and it can be exported (providing demand for it is greater than the costs involved)
http://www.en.wikipedia.org/wiki/Global_strategy
As economies grow, more and more companies are following a global strategy to produce and manufacture in low cost countries and sell and market the products throughout the world. These companies are called Multi National Corporations (MNC’s).
Interestingly it has been found in many studies that large companies tend to follow their global plans in new markets and fail miserably as they fail to take into account the local / domestic scenario. For example, for many years Coco-Cola took its advertisement decisions for all global markets from its head quarters in Atlanta, USA. As the demands for the American and Asian markets were different, this strategy failed badly in India and other Far East Asian countries. This prompted the company to de-centralize its advertisement function to the respective local countries that understood the market much better. As a result the company has been able to show good strength and brand value in these new markets.
The implementation strategy for any company should be to ‘Think Global and Act Local. Regional needs of markets differ and customers demand that products be suited to their wants. Unlike the past where customers would have to make do with available products sold in their market without much concern to the local needs. This is due to growing competition and opening up of world economies.
As part of the strategy of any company it must address the following basic questions:
Identify its market (countries to sell their products in)
Companies must analyze and identify countries they want to do business in. This would involve a detailed market research to assess the potential of the markets, the strength, weakness, opportunities and threats. This is extremely important as a first phase to clearly embark on a future strategy with a mix of domestic and international strategy.
Identify products
After market identification, companies must address which products to sell in which markets – based on geographical needs, culture, climate, potential to spend and other factors companies have to decide on products to sell in these markets. Growing globalization means that a wider range of products have universal acceptance as people have started to accept newer products simultaneously in many countries.
Location of businesses
As competition grows Asia is fast becoming the low cost mass produced factory of the world. Large manufacturing corporations have set up factories in China, India and other countries to take advantage of low labor costs, large domestic markets and favorable government policies to substantially reduce manufacturing costs. It also provides them global delivery infrastructure and access to the national market due to local presence.
Effective management to co-ordinate worldwide activities
As the trend of globalization continues, effective and efficient global management of multiple offices, factories and stores in various countries will become the key to successful organizations and the failures. This is where true strategy implementation is involved as companies have to evolve methods to implement global goals with local management.
Global strategy can be further classified by understanding the business needs of the organization. It can be understood by general global strategies that focus on worldwide exports, global value-chain, multi-domestic markets or transnational business. These are a few general global strategies that companies follow to achieve their goals and objectives.
As explained above we can clearly see the advantage in having a comprehensive global strategy that takes advantage of low cost production and worldwide distribution and selling. But we must understand that in many countries and markets local knowledge and a strong domestic strategy have helped garner large market share and is more effective than a global approach. There are several reasons for domestic companies to be more successful viz. local knowledge, political environment, regional brand value, established distribution network, etc. Many companies also enjoy first mover advantage or traditional business goodwill that has been carried over many generations. For global multi national corporations entering new markets or markets that are dominated by traditional or domestic companies these issues become necessary to address. Once the issues are addresses, the advantage of global manufacturing and marketing comes into play.
For many companies joint venture solutions provide a perfect match to both sides. The domestic company provides local knowledge, political environment setting and the global company brings with it the global expertise in product or service with an International Brand. This is especially true for service sector businesses like Insurance, where many countries mandate by law that the local company must be the majority shareholder. Although that is possible but the local company lacks the knowledge and expertise in sophisticated insurance products and the re-insurance tie-ups with large re-insurance companies. So in this case, a local domestic company joins hands with an international reputed insurance company and they provide an excellent synergy in a mix of domestic and global strategy.
As part of any companies growth strategy the advent in most cases is from a small company building itself gradually to become a global major. The process involved in building a small company into a multi national corporation clearly shows how in different stages of a company’s life cycle domestic and global international strategies are adopted to suit the time, place and circumstances. It works like an evolution process where by local and regional strategies are adopted first and then as the company grows global strategies are used to ensure sustainable growth.
The process involves domestic companies initially working towards the first steps of internationalization, this would include marketing to overseas countries, use of new technology, innovation and research and development, ISO certifications and adhering to globally accepted best practices. These would form the building blocks or the foundation. As the company is doing the above it simultaneously works to build a regional brand. This phase is extremely important as it signifies the domestic strategy the company is using to eventually grow into a larger international brand.
As business grows, the smaller players in the industry are also working towards the same goal. But due to varying strategies adopted by different players many of these companies are acquired by larger organizations. Another successful domestic strategy is mergers with perfect synergies that directly help the company grow in-organically. Such processes have become quiet common and easy route to grow. Once the company establishes itself within its region and nationally by way of organic and in-organic growth it has to start adopting international strategies. This would involve cross country alliances and global acquisitions and mergers. As mentioned earlier, many companies grow by setting up factories in low cost nations and focus their marketing efforts in large lucrative markets. During this phase to gain advantage from local or domestic conditions strategies on a second level are used with the main or larger strategy being guided by the company’s goals and objectives to become a global competitive company working across geographical regions.
From the above we have described and understood what is meant by domestic and international strategies. We further discussed the various questions a company must resolve in order to understand markets and grow. Various methods of growth for companies are explained. From all the above we can see that domestic strategies work as a subset to a larger global strategy which guides the company to growth on an international level. This strategy is best suited to be implemented as it provides the benefits discussed for domestic strategy and the economies of scale benefit provided by global networks. As many political, labor and cultural issues are local to regions and large format management efficiencies and brand recognition are brought by the international strategy it is a win-win situation for company’s to grow.
REFERENCES
Ford, D. (ed) (2002) Understanding Business Marketing and Purchasing, Third Edition, Thomas learning
Buckley, P.J. and Ghauri, P.N. (1999) The Internationalization of a Firm, Thomson Business Press
Hill, (ed) (2002) International Business, Competing in the Global Marketplace, McGraw Hill
Daniels and Redebaugh (ed) (2003) International Business for twenty first century, Pearson Education
Lee, kiefer and Steve Carter (2005) Global marketing Management, OUP
www.unisdr.org/
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www.engmanage.co.za/terms_strategy.htm
en.wikipedia.org/wiki/Global_strategy
en.wikipedia.org/wiki/Strategy
www.business.mun.ca/cibs/ research/reports/images/stewart1.pdf