Global Strategy and Its Reason for Implementation in Business - Essay Example

?How Do Companies Use Global Strategy To Gain Competitive Advantage? Table of Contents Introduction 3 Global Strategy and Its Reason for Implementation in Business 4 Model of Global Strategy 6 Gaining Competitive Advantage through Global Strategy 7 Conclusion 13 References 14 Bibliography 16 Introduction The concept of globalisation has become quite important all over the world. It has been observed that every company or business desires to expand worldwide and operate globally. It is also known as the process of interchanging the views, products as well as cultures in the global periphery. The barriers for international business have been witnessed to have reduced significantly in the recent years. It has been observed that conducting business in dissimilar regions of the world needs different strategies to be implemented which are to be followed for the better performance of the business. The competition between companies in the global market is quite severe and impacts the performance of the business. In this regard, it has been noted that it is significant for the companies to have a competitive edge over their rivals in order to perform effectively. In the present aggressive business world, every company aims to surpass the performance of other companies in order to build an impressive reputation amid the common people. It has been observed that gaining competitive advantage requires effective planning of strategies and extensive research about the market. In order to have competitive edge, firstly, it is important to understand the potential competition or competitors and their strength. In this competitive business world, it is important to properly manage the business in order to earn maximum success (Scholte, 2005). The essay would intend to present an elaborative explanation on the implementation and the importance of global strategy for operating in the international market. Subsequently, the essay would discuss about how companies can use the global strategy in order to gain competitive advantage in the international market. Global Strategy and Its Reason for Implementation in Business Global strategy can be defined or portrayed as a particular theory that shows about how to compete in the global market through standardisation of product and service on a worldwide basis. It has also been termed as the action plan for the companies to operate in different regions of the world. These are the strategies that are mostly used by big companies in their operations in many countries. It is useful with regard to gaining competitive advantage for the firms over their competitors in the global arena. These strategies are also defined as strategies that are developed for outside of own country. It has been observed that the success and failure of firms in their global operations depend on various aspects and global strategies are among them. There are certain key aspects that have to be considered while shaping strategies for global business. The tastes and the preferences of consumers will be differing between countries. The policy and business rules of countries might be at variance and the level of competition will also be different in various international markets. These factors will be crucial in the formation of effective strategies for global business. Furthermore, cost leadership is also among the vital aspect of global strategy. The objective of this strategy is to enable companies to become producer of lowest priced products. In this regard, the crucial technique to attain the aforementioned objective is to produce a large scale of product which facilitates the company to develop economies of scale. This aspect would be a critical part of the global strategy of companies in terms of operating internationally. It has been noted that global strategies are effective in gaining competitive edge over competitors in the international market (Peng, 2008). Competitive advantages are termed as benefits a company gains over competitors by presenting greater value to the customers, either through the deliverance of product of lower prices or by providing products of superior benefits and services that complement high price of the product. However, it has been observed that gaining competitive advantage in the global market needs much more than the deliverance of superior quality products or services. There is a need to ensure proper global strategy in order to succeed as well as gain competitive advantage over competitors in the international market (Porter, 2008). In relation to the aforementioned aspects, it has been understood that the importance of global strategies in international business cannot be ignored. Companies that do business in various regions of the world need to implement or possess separate strategies for distinct regions for business. They need integrated strategies that maximise commonality as well as standardisation all across the world with less cost of adaptation. It has been observed that different companies have different strategies in their global operations. Global strategies of a company are entirely based upon the needs and the competitive position of the company in the global market. The main aim of the companies with regard to the structuring of the global strategies is to compete with the international competitors in the global arena. In order to develop effective global strategies, it is important for the management of companies to take certain decisions regarding a few important aspects of the company. The first aspect to be discussed in this context would be the type of products or services that the company would deal with in the international market. It is known that the tastes and the preference of the international customers are not specified and every region of the world would have its own inclination towards a particular genre of products or services. Thus, it is important for the companies to decide on whether to operate with same products and services or to come up with a different range of products depending on the penchant of the targeted international market. This stage of the formation of strategy is quite crucial as the entire future of the company’s performance in the global market is directly dependent on it. The subsequent stage of the strategy development process would include locating the regions where the activities of the company would take place. Furthermore, global strategies would also entail the steps of taking decisions regarding the marketing strategies of the company in its operations in the global arena (Segal-Horn & Faulkner, 2010). Model of Global Strategy It has been noted that there are various models of global strategies. Among them, Porter’s model is quite vital. Porter proposed a model for international strategy in the year 1986. According to him, generic cost leadership or differentiation can be regarded as global cost leadership or global differentiation in the process of targeting the entire or partial global market. Porter further stated that the scope of strategies would be dependent on the nature of the targeted market. Global strategies should be made in accordance with the local needs of the targeted international market. The central point of international strategy of Porter is the value chain system which further includes nine generic activities that would change in keeping with the requirements from to place to place. Porter’s model depicts that in course of internationalisation of the strategies, these nine activities will change accordingly. Based on the value chain, Porter developed a two dimensional framework for building global strategies. The first dimension is termed as configuration which would include inbound logistics, outbound logistics and marketing and sales, while the second is called coordination. Configuration is related to the activities that are being performed in the value chain system while coordination is concerned with the issues related to performing the tasks of the value chain in more than one place at a time (Peng, 2008). Again Porter’s diamond model of competitive advantage is quite influential with regard to global strategy. Porter described that the competitive advantage of companies in different countries is based on four important aspects. The first aspect is firm’s strategy, structure as well as rivalry. Second is the domestic demand condition of the company. The third aspect is the related and the supporting industries and last aspect is called the country factor. All these aspects are unified to one another and make a diamond model. The diagram below will provide a clear understanding of Porter’s diamond model (Stonehouse & et. al., 2007). Fig: Porter’s Diamond Model (Peng, 2008) Gaining Competitive Advantage through Global Strategy Now-a-days, it is quite significant for companies to operate their business all over the world. This is also called globalisation of the business. However, every company would not have the potential to establish its business internationally. There are four aspects or key drivers that are vital for globalisation of companies. They are market drivers, cost globalisation drivers, competitive drivers and government drivers. These four drivers or aspects are quite vital in a set of well organised global strategies and that would further be quite effective in gaining competitive advantage in the international market (Slaughter & Swagel, n.d.). The most significant in this regard is to understand the national difference. It has been noted that the aspect in relation to national difference comprises price of labour, availability of raw materials and overall climate of the business among others. Global strategy is also dependant on the culture and the society of the targeted international market. In relation to the success of companies in global business, it is vital for them to operate in a particular place based upon their culture as every country has its own culture and the behaviour of people goes in accordance with it. Contextually, it is important for companies to understand the significance of the aforementioned aspects and include those while forming the global strategies (Peng, 2008). In this regard, the example of McDonald’s would provide certain resemblances. It has been observed that the company operates its business based upon the cultural values of the place and serves food accordingly. However, the company has standardised its quality of products by complying with the tastes and the preferences of the particular market. Hence, the company is successfully established and has competitive edge over its rival companies that provide the same kind of products (Kluyver, 2010). It can be understood from the example that real opportunity for companies as part of the global strategy to increase competitive advantage is to analyse the elements of the products or services that can be standardised with compromising the responsiveness to local penchant (Peng, 2008). Furthermore, managing the customer services in accord with the nature of customers of the chosen market would also be considered imperative in gaining competitive advantage. It has been observed that many of the United States based companies which include top brands like Dell and Microsoft operate customer service centres as well as product creation centres in India as there is an availability of low priced labour with comparatively high skills. These aspects provide competitive edge to these companies in the Indian market. They follow similar kinds of activities in other countries too. This depicts the extent of the importance of understanding of the overall climate of the chosen market before developing the global strategies. Apart from this, there are certain other US companies that have set up their production units in some parts of Mexico where labour is quite cheaper as compared to that of the United States. This aspect of global strategy is quite vital in providing companies with competitive advantage from that of their rivals, as the product will be manufactured as a cheaper cost and can also be sold in a lesser price than that of similar kinds of products of the competitors. The subsequent aspect that is also crucial part of global strategy in gaining competitive advantage in international business is the economics of scale. It has been observed that economics of scale enables companies to get cost saving benefits as well as improved quality of products through the production of large volume of products which further results in efficient use of the available raw materials. This aspect also enhances the competitive edge of the companies over their rivals in the international market (Newlands & Hooper, 2009). Another significant part of global strategy is strategic outsourcing. It is an important tool to be implemented in order gain competitive advantage. It is an important option to obtain benefits from the global opportunities. By proper outsourcing, companies can reduce their cost of logistics and certify uninterrupted supply of materials. Furthermore, it also reduces the inventory cost of the company by minimising the amount of inventory required. All these positive aspects of outsourcing will be beneficial for companies to gain competitive advantage. Firms mostly prefer outsourcing when there is a necessity of strategic flexibility in its operations or to lower the cost of the supplier. It has been observed that most of the well known automobile companies adopt outsourcing as a major part of the global strategy (Peng, 2008). Car manufacturers such as Mercedes and BMW contact other manufacturers to produce their products in the global markets. This aspect has consequently led to downsizing of employees and other activities as most of the production of companies have done through outsourcing (Tagliapietra & et. al., 1999). In addition, the companies implementing global strategies also need to understand the product division structure. In the context of global strategies, products should be manufactured in a few of the locations where the cost of manufacturing is quite low and then these should be delivered to the international market. This aspect would allow the companies to get huge global economics of scale and ultimately gain competitive advantage over the rivals as high quality product would be obtained with low cost of production. It has been observed that a few of the biggest companies of the world comprising The Coca-Cola Company implement this strategy in their international operations (Peng, 2008). Transitional strategy is another form of global strategy that is helpful for companies to gain competitive benefit in the international market. This is a kind of strategy where companies use matrix structure where both product divisions as well as areas have noteworthy influence. It has been recognised that these strategies are mainly used in international business structure in order to conduct business operations in several countries with changing degree of coordination as well as integration of distinct strategies and operations. It has been noted that this kind of strategy allows companies to have global reach and leverage their exceptional advantages to increase their sales and profit growth. Transitional strategy includes tasks such as understanding the business environment of the chosen market for conducting business, creating specialised branding of the product and developing alternative planning for business among others (Lynch, 2007). In this regard Proctor & Gamble (P&G) is a company that has implemented the transitional strategy and also gained substantial competitive advantage. The company co-ordinates its skills as well as resources in order to reduce cost of its products and gain a differentiation advantage from its competitors. This strategy enables P&G to gain competitive advantage over its crucial rivals which primarily include Uniliver (Aswathappa, 2010). It has been analysed that multi-domestic strategy is also crucial form of global strategy. In these types of strategies, companies mainly intend to comply with local responsiveness. Firms pursuing or implementing this strategy will present their products in accordance with the needs of the customers of that particular market where the company functions. In relation to this strategy, the product range, quality and its price would vary from country to country. The value chain activities of companies will also vary for each and every market i.e. according to the business climate of the place. It has been noted that this strategy is crucial for gaining competitive advantage for companies as the chances of success will enhance every time it operates with different range of products for each and every place (Segal-Horn & Faulkner, 2010). Philips is a good example of a company that has implemented the multi-domestic strategy and received immense success worldwide. It produces products in accordance with the needs of a particular market. This helps the company to increase its sales in most of the countries it operates (Aswathappa, 2010). Furthermore, the illustration of the multi-domestic strategy of Toyota will be imperative in understanding the importance of global strategy in gaining competitive edge. It has been observed that Toyota offers different ranges of products for diverse countries. These aspects can also be seen as the strategy of the company where it understands the needs of customers depending on specific regions. This is called a region-centric approach where the company delivers products according to the nature of the region. This allows the company to differentiate its operations from that of its competitors, thus eventually gaining a competitive edge (Toyota, 2012). Moreover, better management of the risk is also among the key aspects of global strategy in gaining competitive advantage. Balancing the risk of one country or market will be beneficial for companies in terms of both economically as well as politically. Managing risk will be beneficial with regard to the fact that it will enable companies to efficiently operate as compared to its competitors and eventually gain competitive advantage. For instance, as part of the global strategy, it is important for companies to import raw materials from more than one country as it would enable them to get materials despite any problem arising in one country. These would allow companies to receive uninterrupted supply of materials and have upper hand over the operation of their competitors in the global market (Peng, 2008). Overall, it can be observed that there are different global strategies that are critical for the companies to increase competitive advantage in the global arena. Conclusion From the overall analysis of the essay, it can be summarised that global strategy is one of the key aspects of the modern day business especially with regard to the international operations. Companies now-a-days are more intended to expand their business all over the world. However, it has also been noted that proper global strategies are prime requirement for companies to get success in the international business. It is important for companies to gain competitive advantage over rival companies in business operations especially regarding the international business environment. It has been observed that competitive advantage can be essentially obtained from the deliverance of quality products with lesser price. There are certain other crucial aspects or strategies that are quite vital in gaining competitive advantage. Conclusively, it can be stated that global strategies are highly important in gaining competitive advantage in the international business to ensure long-term success. The global strategies can facilitate the companies to leverage benefits from the success deriving factors present in the international context such as labour, cost efficiency and technological competence among others. Moreover, it is evidently observed that these facets can render positive outcomes for companies with regard to the reduction in operational expenses, which these companies utilise to gain competitive advantage by providing better quality products or services. Thus, the global strategies have long-term and multifaceted benefits for companies. References Aswathappa, K., 2010. International Business 4E. Tata McGraw-Hill Education. Kluyver, C. D., 2010. Fundamentals of Global Strategy: A Business Model Approach. Business Expert Press. Lynch, 2007. Corporate Strategy, 4/E (With Cd). Pearson Education India. Newlands, D. J. & Hooper, M. J., 2009. The global business handbook: the eight dimensions of international management. Gower Publishing, Ltd. Peng, M. W., 2008. Global Strategy. Cengage Learning. Porter, M. E., 2008. Competitive Advantage: Creating and Sustaining Superior Performance. Simon and Schuster. Segal-Horn, S. & Faulkner, D., 2010. Understanding global strategy. Cengage Learning EMEA. Slaughter, M. J. & Swagel, P., No Date. Does Globalization Lower Wages and Export Jobs? International Monetary Fund. Scholte, J. A., 2005. Globalization: A Critical Introduction. Palgrave Macmillan. Stonehouse, G. & et. al., 2007. Global and Transnational Business: Strategy and Management. John Wiley & Sons. Tagliapietra, S. & et. al., 1999. Gaining Competitive Advantage through Outsourcing. Files. [Online] Available at: http://www.peterplatan.com/other/files/outsourcing.pdf [Assessed April 27, 2013]. Toyota, 2012. Toyota European Sustainability Report. Home. 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