Tthe advantages of not being global and having a local approach - Essay Example

? Identify and critically evaluate the advantages of not being global and having a local approach. Table of contents Introduction 3 2. Businesses and global strategy 3 2.1 Description of global strategy as part of business environment 3 2.2 Advantages of global strategy 6 2.3 Presentation and evaluation of the advantages of not being global and having a local approach 7 3. Conclusion 8 References 10 1. Introduction In the context of the global market, the decisions of organizations can highly affect their operations. Failures in meeting the demands of the target market, can lead to severe financial losses, either in the short or the long term. For limiting such risks, firms tend to use local approaches for developing their activities globally. Such approach guarantees that the preferences of consumers in a specific market, where a firm operates, are taken into consideration when deciding the promotion of the firm’s products/ services within the particular market (Peng 2008, p.296). The specific approach is considered as fully justified, due to its advantages, especially of its ability to keep risks in entering a particular market at a low level. The advantages of local approach for firms operating globally are analyzed and evaluated in this paper. Reference is made to the characteristics and the advantages of global strategy, as opposed to the local approach, aiming to understand the reasons for which a local approach would be preferred by firms operating globally, even if the cost involved may be higher, compared to the global strategy. 2. Businesses and global strategy 2.1 Description of global strategy as part of business environment In order to understand the potential disadvantages of global strategy, compared to local strategies, it would be necessary to refer to the characteristics of global strategy, as identified in the key strategic decisions of firms operating in the global market. It seems that global strategy is highly differentiated from local strategies, not only in regard to its role but also in regard to its requirements and effects (Lasserre 2007). In accordance with Tallman (2010) the global strategy can be characterized as the strategy, which needs to be established in case that a firm is interested in operating in the global market. It is explained that such strategy helps the organization to align its operational rules and culture with those of the targeted market (Tallman 2010). Reference is made for example to the case of Haier, a major competitor in the Chinese manufacturing industry (Tallman 2010). The firm has tried to be established in the USA market using a low-price policy (Tallman 2010). However, it was soon revealed that this policy, alone, would not help the organization to develop its presence in the particular market; instead, a brand should be used for attracting the interest of local consumers (Tallman 2010). In accordance with the above, an effective global strategy offers the basis for the successful development of a firm’s presence in the global market. Thus, a global strategy should be related to specific policies, which are likely to be different compared to those included in local strategies (Lasserre 2007). This fact is made clear if the strategies used by two different firms for entering the global market are reviewed: reference is made in particular to ‘Philips Group of Holland and Japan’s Panasonic’ (Segal-Horn and Faulkner 2010, p.133). Before 1980s, Philips Group tried to develop its presence in the global market by focusing on the needs and the trends of each country; however, up to then, global strategy was characterized by the production of similar products for all countries which were promoted in markets globally using similar marketing strategies (Segal-Horn and Faulkner 2010) and only minor changes were made for aligning these strategies with local trends. As a result, Philips Group had to face significant difficulties and delays when trying to expand its operations globally. Panasonic, which aligned its policies with the requirements of global strategy, faced no difficulties in developing its presence globally. However, after 1980s the characteristics of the global strategy changed; the trends and the needs of national markets had to be taken into consideration when developing marketing strategies in the context of the global market (Segal-Horn and Faulkner 2010). Products promoted internationally were alternated so that they are aligned with the preferences of consumers in each country. The growth of Philips group, which was better prepared for facing such challenge, in the global market has been rapid, compared to Panasonic (Segal-Horn and Faulkner 2010). In practice, global strategy can be quite complex. In fact, a series of different theoretical approaches have been used for explaining the potential forms and the role of global strategy. These approaches can be categorized as follows: a) at a first level, a firm can develop an effective global strategy by identifying a generic strategy that can be supported by the firm’s existing resources (Saee 2007, p.10), b) a successful global strategy can be achieved by focusing on resources and capabilities that result to a firm’s superior performance, meaning the development of competitive advantages that strengthen the position of the organization towards its competitors (Saee 2007), c) global strategy can be successfully developed if emphasis is given on the ‘co-ordination and configuration of the firm’s international activities’ (Saee 2007, p.11), meaning that the strategies of the firm in regard to each country are aligned with the trends of the local market; in the context of this approach, emphasis is given on the flexibility of global strategy (Saee 2007). From a similar point of view, Ungson and Wong (2008) note that global strategy, as a strategic framework, can be related to different areas of the organization, such as ‘marketing, innovation, supply chain and strategic partnership’ (Ungson and Wong 2008, p.14). Firms that operate globally need to decide whether they can respond to the requirements of global strategy, as indicatively described above; if not, they would rather choose a local approach. The disadvantages of global strategy, which are more compared to its advantages, should be another criterion for firms to prefer a local approach for developing their activities globally, in the context described in the two sections that follow. 2.2 Advantages of global strategy Global strategy offers a series of advantages to organizations that are interested in entering the global market. In terms of products’ characteristics, the global strategy requires that products are standardized for all countries worldwide, a fact that can keep the production costs low (Moon 2009, p.262). Moreover, global strategy is based on the integration of organizational activities, a fact that minimizes operational costs worldwide (Lasserre 2007). As for marketing also, a common scheme of marketing is likely to be used by firms that have preferred a global strategy approach; this marketing scheme is promoted in all countries internationally, allowing the firm to control marketing costs throughout the marketing process (Moon 2009, p.262). Because of the above advantages, global strategy has been preferred by key competitors in the global market, such as, for example, the firms operating in ‘the Japanese automobile and consumer electronics industry’ (Chung, Yi and Jung 1997, p.104). These firms tend to keep their manufacturing units in Japan and disperse only their marketing activities across countries (Chung, Yi and Jung 1997, p.104). US multinationals have used a different approach, preferring ‘to disperse both their manufacturing and marketing activities globally’ (Chung, Yi and Jung 1997, p.104). In accordance with Hoskisson, Hitt and Ireland, the global strategy offers the chance to use ‘innovative policies developed in one country in other countries worldwide’ (Hoskisson, Hitt and Ireland 2008, p.276). In other words, in the context of global strategy innovation can play a greater role in supporting the expansion of a firm in the international market. Of course, in order for global strategy to benefit organization, two key requirements need to be met: a) the organization involved need to be able to respond to the demands of global strategy and b) the disadvantages of global strategy, which can be many, cannot heavily affect the progress of the organization in the global market. Otherwise, a local approach should be rather prefer, in the context of which a firm has not to face the significant disadvantages of global strategy, as described below. 2.3 Presentation and evaluation of the advantages of not being global and having a local approach If compared, the advantages of global strategy seem to be less than its disadvantages. As explained in the previous section, the global strategy can help organizations to achieve a series of benefits, under the terms that the requirements of the local strategy are met. However, the disadvantages of global strategy cannot be ignored. The evaluation of these disadvantages leads to the assumption that the development of global strategy should be often avoided; firms would rather prefer to use a local approach, which could also help their efforts to be established in the global market. Global strategy cannot be effectively developed in all firms. For example, organizations, which are highly de-centralized, in terms of their management style, cannot respond to the needs of global strategy, which has to be supported by a highly centralized management style (De Kluyer 2010, p.66). Moreover, organizations with limited resources, not only in terms of quantity but also of quality, should not take the risk to develop a global strategy, since these firms would not have chance to survive in the global market (De Kluyer 2010). From another point of view, global strategy requires an important network of strategic alliances, meaning especially firms well established in the global market (Segal-Horn and Faulkner 2010). Reference is made to firms operating in different industries, which can provide valuable support in the expansion of a firm globally. At the next level, global strategy can be effective only when a product is already well known in the product market; for this reason, firms with products like Toyota and Coke should keep their global strategy (Mathur 2011). However, popular products are limited, in terms of number. Most products are known within the context of particular market; so, global marketing in regard to these products should be avoided. Most important, the preferences of consumers in regard to specific products are likely to be different in each market; firms that wish to succeed in this market should prefer a local approach, focusing on the local market trends and consumer preferences (Mathur 2011). It is in this context that ‘Unilever and Procter & Gamble’ (Mathur 2011, p.38) have preferred a local approach. In accordance with the above, a global strategy should be rather avoided by firms operating globally; such strategy would be possibly used only when there are significant pressures for limitation of the organization’s costs (Wall and Minocha 2009, p.256). 3. Conclusion The effectiveness of organizational strategies is depended on a series of factors. Usually, the targets of the organization, either in the short and the long term, are set as criteria for deciding the methods used for supporting organizational activities. When critical organizational decisions need to be taken, such as the development of the firm globally, then various challenges are likely to appear. Traditionally, firms that are interested in operating globally have tried to avoid major risks by keeping their activities highly centralized, a strategy widely used by Japanese firms in the past. The increase of markets differences globally, in terms of culture, economic development and political frameworks, has led to the need for changes in the firm’s strategic approaches in regard to their global operations. The significant disadvantages of global strategy, compared to the local approach, have led to the increase of the popularity of the latter as a key strategy for promoting organizational activities in the global market; this trend which can be characterized as fully justified, based on the findings of the literature published in this field, even if firms often face difficulties in understand the requirements of the local approach. Words: 1903 References Chung, K., Yi, H., Jung, K. (1997) Korean management: global strategy and cultural transformation. Berlin: Walter de Gruyter. De Kluyver, C. (2010) Fundamentals of Global Strategy. New York: Business Expert Press. Hoskisson, R., Hitt, M., Ireland, D. (2008) Competing for advantage. Belmont: Cengage Learning, 2008 Lasserre, P. (2007) Global Strategic Management. London: Palgrave Mathur, U. (2011) Global Business Strategies: Text and Cases. New Delhi: I. K. International Publishing House Pvt. Moon, H. (2009) Global Business Strategy: Asian Perspective. Singapore: World Scientific. Peng, M. (2008) Global Strategy. Belmont: Cengage Learning. Saee, J. (2007) Contemporary Corporate Strategy: Global Perspectives. London: Routledge. Segal-Horn, S., Faulkner, D. (2010) Understanding global strategy. Belmont: Cengage Learning. Tallman, S. (2010) Global Strategy. Hoboken: John Wiley and Sons. Wall, S., Minocha, S. (2009) International Business. Essex: Pearson Education. Read More