This article introduced three strategies of globalization business and analyzed the relations among them;then offers some essential decisive-related questions for strategy scheme and decision making; and at last summarizes some issues for executives to think about.
The globalization directly affects the competitive situation of the world, it is necessary to make good use of strategies and reduce risks in order to establish and lift the power of business competition.
Because competition is emerging in very different markets, today’s businesses are forced to be globalized in non-traditional ways. Before enterprises make a presence in markets just so that they know what competitors in that market are doing and use it as a window to look into new trends and new competitive strategies. These are just some of the reasons that require businesses today to have a global mindset—it is an essential factor for survival.
Followed are three strategies for globalization business.
The first is to adjust measures according to local conditions of target area, and it’s the essence of all global business strategiesThere are differences in terms of costs for different raw materials, labor power, working skills, and institutional infrastructures. The decision makers with a global perspective have to recognize the differences acrosscountries and account for them in the strategic decisions. Those decisions may have to do with customers, raw materials, manufacturing, capital funds, market capacity or any of the dimensions on which strategic plans are made. Thus, a company in a labor-intensive business that fails to account for labor cost differentials acrosscountries.
On the contrast, the second strategy is to fully use the similarities across countries. Because there are significant similarities, it means that products, skills and investments that are made or developed for one market have the potential to be leveraged in multiple geographic markets. The similarities imply that a product created or developed in some market can be sold in another market without having to be reinvented. What that enables a business to do, for example, is to use its research and development dollars by selling a proven product from one market, usually the company’s home market, to different countries. This advantage is particularly significant in businesses like pharmaceuticals that are research and development intensive.
The above two strategies of similarities and differences across markets are not opposite ends of one scale. Rather, they are complementary dimensions and should both be leveraged. An executive needs to ask what the similarities and differences are across markets. It then becomes a matter of strategic choice whether to exploit similarities first or differences first or both simultaneously, in order to take advantages of the global potential that lies inherent in each business.
The third of globalization business strategy is about the fundamental choices. Typically, these decisions involve four considerations: operations and costs; customers and markets; competition; government policies. Does the product have a committed champion? Can a product sold in multiple markets increase competitive advantage in home market? Are the competitors in that particular market already global and therefore, does the company needs to have a presence in multiple markets to be able to defend against the competitors? Sometimes, answering these questions in the context of a company’s organization is as much an administrative as an economic and strategic process.
Ultimately, an executive must make sure that the company has a presence in multiple markets and view it like a global game of chess. He must coordinate competitive moves across countries; consciously decide in which country to launch a product, where the global competitors are strongest, where the cost structure is lowest, and where the business is likely to get the quickest market feedback. Then he must decide how to launch the product in other markets and how to manage pricing in multiple markets. It is the global chess game rather than individual market share games being played in local area. Unless all elements fit together, it is difficult to develop the competitive global business.
Originally derived from the military context of a general deploying troops in battle, the concept of strategy has been applied to the centralized planning adopted by a CEO in formulating and achieving business goals of a firm. This is well illustrated by the writings of Alfred Sloan, the charismatic boss of the American car giant General Motors in its heyday. During the pioneering period of Anglo-American capitalism of the early twentieth century, such a classical view of strategy, rationally planned from the top of a pyramid-like structure with full command over the resources of an organization, made perfect sense. However, over the years, scholars began to unearth limitations of a totally planned strategy in an increasingly turbulent and competitive marketplace. They also observed that the distinction between strategy formulation and implementation could only occur within a planned strategy of the classical type and not within the more prevalent and credible process strategies of today. Increasingly, strategy formulation is undertaken more by teams rather than one charismatic and powerful individual.
There is a necessary connection between strategy and resources available to achieve a firm’s business goals. For example, in Chandler’s (1962) definition, strategy is ‘the determination of the basic long-term goals and objectives of an enterprise and the adoption of courses of action and the allocation of resources necessary for carrying out the goals’. A much broader definition specific to business enterprises is provided below although here resource allocation is only implied.
Corporate strategy is the pattern of decisions in a company that determines and reveals its objectives, purposes, goals; produces the principal policies and plans for achieving these goals, and defines the range of business the company is to pursue, the kind of economic and human organization it is or intends to be, and the nature of the economic and non-economic contributions it intends to make to its shareholders, employees, customers, and communities (Andrews 1980).
In Andrews’ definition, there appears to be a clear division between strategy formulation and its implementation. It is at the implementation stage that resource allocation becomes crucial. This is in keeping with the classical or planned model of thinking about strategy. In the more recent, process, or resource-based view (RBV) of strategy, when speaking of the competitive advantage of a firm, scholars stress the importance of ‘resources’ and ‘capabilities’ available to it. It is commonsensical to argue that the strategy implementation of an enterprise is predicated on the availability (’command’) of resources and capabilities of the firm. Resources are held to be available business-wide, while capabilities are the skills and abilities developed within and specific to the firm. Resources alone therefore, are not in themselves sufficient to gain a ’sustainable competitive advantage’ for a firm. Capabilities, often in the form of patents, and expertise developed in-house, and not easily replicated by outsiders, are equally, if not more important.
It is too simplistic to separate strategy implementation from strategy formulation, since a strategy has to be adaptive and evolving, while keeping at the forefront the ends and goals that need to be met for the business to remain viable. Barney (1991), supported by a number of other researchers, claimed that a firm’s key resources needed optimally to conform to the following criteria. The resources must be 1) valuable, 2) rare, 3) does not allow being imitated easily, and 4) not lend themselves to be substituted. However, simply having a supply of resources is not enough. The example given is that having a great deal of money (financial resources) without a clear rationale for its use to generate rent or profit is ineffective. Other ways of referring to resources in a business context are for example: capital, equipment, (tangible assets), and the skills of managers and employees (intangible). Again, just a collection of resources without a clear framework in which to integrate and utilize them would not work. An organization’s activities must be totally in keeping with its resources, circumstances and objectives. It cannot be all things to all (would-be) customers.
Information Technology as a resource these days transforms strategy formulation into a continuous process with performance feedback available to decision makers on a daily, if not an hourly, basis. It is therefore spurious to isolate strategy formulation as a one-off activity, although strategy by its very nature has to be the result of a long-term orientation.
An example in strategic choice is America’s 20th largest manufacturer, and the world’s 55th largest publicly held manufacturer, United Technologies Corporation. It is the 43rd largest US corporation according to the Fortune 500 (2006) list, with 215, 000 employees. UTC makes Otis lifts, Carrier heating and air-conditioning, Hamilton Sundstrand aerospace and industrial systems, Sikorsky helicopters, Pratt and Whitney jet engines, and Chubb security systems. Chubb and Kidde were British companies bought by UTC within the last four years. UTC has thousands of branch offices all over the world. Internet and IT is the key to UTC’s success. ‘Otis’s new system opens a worldwide file for each job, and prevents mistakes in configuration or logistics. Otis is … pretty slick at making lifts - it has … a 19% operating margin, compared with its rivals’ 9%’ (The Sunday Times, Business: June 17, 2007). It is obvious that the UTC chief executive’s command over the organization’s resources around the world accounts for its superior productivity and competitive advantage. But it is equally clear that his control over resources is the result of well-thought out strategic decision-making of someone in close touch with the realities of business in the 21st century.
Michael Porter makes an important distinction between operational effectiveness and strategy. He contends that operational effectiveness of businesses is necessary for their success but not sufficient in itself without a well-thought out strategy behind it. In the recent past companies in their search for market advantage through higher productivity, have resorted to a number of management tools. These include, ‘Total Quality Management, benchmarking, time-based competition, outsourcing, partnering, reengineering and change management’. These tools are useful and may enable firms to perform similar activities better than their competitors. But to be effective, strategic thinking requires performing different activities from your rivals, or perform the same activities differently.
Due to the rapid diffusion of best practice, a productivity barrier is soon reached. Porter gives the example of Japanese car firms which dominated in the 1970s and 1980s. Lack of a strategic perspective has since held them back, while other Japanese businesses like Sony and Cannon flourish due to their strategic positioning. Unlike the car firms, the latter did not sit back with a ready formulated strategy that worked in the past, but revised their strategic thinking taking account of the changing realities of world trade. Obviously, their resource base and mix would have had to alter, and continue to change in the light of changing circumstances.
Southwest Airlines is cited as an example of a business that did not rely only on operational effectiveness but actively developed a strategy to take advantage of a gap in the market. Its success reminds one of similar successes achieved by ‘no frills’ airlines in the UK (e.g. Ryanair and Easyjet). They are all short-haul, low cost, point-to-point, carriers serving mid-sized cities using secondary airports. They do not fly long distances and limit the facilities available to passengers such as not providing meals on board. Southwest Airlines introduced automated ticketing systems and avoided using travel agents. The turnaround time was on average less than 15 minutes. This was achieved, as part of the strategy by employing better-paid, efficient ground and gate crew. Another airline (Continental Airlines) with an established long-haul capability tried to emulate Southwest Airlines and failed miseraby. Theoretically, although Continental Lite (as the short-haul arm was called) could command the same or even better physical resources than Southwest Airlines, its failure was ascribed to lack of strategic direction. With their fleet limited to Boeing 737s, Southwest Airlines managed a higher level of aircraft utilization than Continental. This and other synergies that it’s fully thought out strategy entailed, made it unbeatable.
Examples of the interplay between strategic thinking and resource allocation are given below. IKEA, the Swedish furniture and household goods retailer is a case in point. An ‘activity system map’ reveals IKEAs strategy of segmenting the urban working customer and meeting his/her needs. Its positioning in suburban sites with ample parking space helps customers in self-transport of purchases. Its items are supplied from an ample inventory and it relies on long-term supplier sources. It does not have a large sales force as items displayed are self-selected by customers. The design of its floor space is such that customers are led from one display to another in a logical sequence. This often leads to impulse buying. It does not always follow that the availability and command of resources alone can help in the operationalizing of a formulated strategy. The IKEA ‘activity system map’ discussed above show that organizational structures, systems and processes have to be in line with a clearly defined and ‘owned’ strategy in order for the organization to thrive. In all the examples given here, we can see how all activities of a firm support and reinforce each other to achieve business goals.
‘The success of a strategy depends on doing many things well - not just a few - and integrating among them. Strategy requires constant discipline and clear communication’. Another example is Carmike Cinemas which concentrates in serving cities and towns with less than 200, 000 people. It employs just one member of staff, the manager in each of its theatres, spends less on films (’lean cost structure’) and passes on the savings to customers. The strategy has worked well with Carmike Cinemas with overheads as low as 2% compared with the industry average of 5%.
The above examples bring us to the consideration of another important variable in the optimal utilization of a firm’s resources. This is the concept of trade-offs. IKEA has to trade-off serving wealthy customers with one-off articles of high value furniture in order to satisfy its chosen, average income clientele. Southwest Airlines had to forego the luxury end of the long-haul flier market (e.g. first class and business class) in order to concentrate and win over the frequent traveler between short distances, who may have habitually undertaken that journey earlier by bus or car. Carmike Cinemas avoids locating in large cities with variable pricing. The example of Continental Airlines underlines the danger of not understanding the nature and importance of trade-offs. It tried to operate equally in both the long-haul market with its travel agents, high cost and high customer expectations end of the continuum, and also cater for the low end of the market. This resulted in confusion and dissatisfaction among its staff, travel agents and its customers. Arguably, resources (passenger planes, airport access) were equally available to both Airlines, but lack of insight by top management on the strategic fit of their activities and trade-offs resulted in a celebrated failure of massive proportions.
Business literature is replete with discussions on what strategy is, but does not give a conclusive answer. This paper relies on a broad distinction between pre-planned strategies and an ongoing, processual, and resource-based approach.
From the evidence discussed above, we can safely conclude that strategy implementation is not just a matter of finding and utilizing resources to activate a previously formulated strategy in the abstract, but a continuous, creative and synergistic application of selected resources and capabilities to optimize a sustained organizational viability that is eminently practical and profitable.
A business strategy is formulated by selecting the target audience of the product and assembling the marketing mix. A firm can assemble marketing mix elements in many different ways so that the relative weightage of the different elements will be different in the different combinations. Because of this reality, business firms are employing an abundance of strategies and strategy stances. It is a relentless race to stay ahead of competition.
Basically, however, there are only two broad routes available for forging business strategies. They are the price route and the differentiation route. In other words, any strategy has to be ultimately either a price-based strategy or a differentiation-based strategy.
Companies taking the price route compete on the strength of their pricing and the price cushions they enjoy. Normally, those who resort to the price route and compete on price will enjoy substantial cost advantages, giving them flexibility in pricing and marketing. The differentiation route, on the other hand, revolves around elements other than price. The product with its innumerable features is one major source of differentiation. In fact, any of the ever-so-many activities performed by the business unit can constitute the nucleus for differentiation.
In other words, differentiation allows the company the freedom and flexibility to fight on the non-price front. Differentiation, therefore, is a crucial option for a firm in its search for a rewarding strategy. A good majority of business battles are in fact fought with a differentiation-based strategy rather than a price-based strategy.
As already mentioned, a business unit that opts for the price route in its competitive battle will enjoy certain flexibilities in the matter of pricing of its products, and use price as the main competitive lever. It will price its products to suit varying competitive demands. It will enjoy certain inherent cost advantages, which permit it to resort to a price-based fight.
