Global Strategy: An Organising Framework by Ghoshal - Article Example

Name Class Unit Introduction Global strategy: An organising framework by Ghoshal (1987), proposes a conceptual framework that comprises different issues relevant to global strategies. The article targets the managers of multinational corporations (MNCs). The main aim of the article was to give managers in MNC perspectives and prescriptions that are available in a global strategic management. This helps the managers in MNC to analyse strategies for their organisations. The proposed framework acts as a road to review their strategies (Ghoshal, 1987). The paper gives a scheme for review that serves as a tool for carrying out strategic control. This review critically assesses ideas and arguments presented by the author and give a summary of the principal arguments. Analysis The paper was written in 1987 with the onset of globalisation, and the concept of global strategy was emerging. Despite this, the idea was popular among the managers in MNCs. The primary aim of an organisation is to achieve a competitive advantage in a business environment. To gain competitive advantage, going global was one of the ways. There was hype on global management. The author asserts that globalisation was the new bandwagon with a lot of publication (Ghoshal, 1987). Looking critically, a global strategy should cover three areas; global, multinational and international strategies. This helps an organisation to attain its objective of international growth. Through global strategy, a firm is supposed to determine the required variation for their products to fit a given market. As the company expands into different markets, each market may require a different strategy. All strategies in different markets form a multinational strategy. When the activities of MNCs develop such that they consider the world as a single market, they come up with a global strategy. An example of a company with a global strategy is Coca-Cola (Gammeltoft, Pradhan & Goldstein, 2010). The paper claims that the term global strategy had a lot of conceptual ambiguities. The literature did not have a precise distinction between, global industry, global firm and a global strategy. To prove this, the paper cites work from different authors to elaborate on the different perspectives on global strategy. According to the article, the global strategy is not new as claimed by some of the authors. It’s asserted that the term had been stated through approaches to multinational management as asserted by Perlmutter (Ghoshal, 1987). This is a worldwide view of an organisation that is the drive in management processes and structuring of their global activities. From the explanations given on the paper, there are major differences in literature on global strategy. The differences are not only based on the concept and perspectives. There are also differences in prescriptions on global management. Looking at the prescriptions analysed by the author, few are capable of helping the managers in coming up with a global strategy. This is due to the fact that it’s hard to reconcile their managerial implications. Why there is need for organising framework Analysing the author’s arguments, one can see the need for an organising framework. Practioner and researchers face difficulty when examining the literature on global strategies due to lack of an organising framework. An organising framework can make it easy to assimilate different perspectives and prescriptions. This is supported by the fact that corporate objectives are in most cases contradictory making it hard to prioritise them. The prescriptions given are directed at achieving specific objectives that may lead to an equally important objective being ignored. The paper argues that having an overall objective is vital in identifying tradeoffs among the objectives (Ghoshal, 1987). An organising framework helps the managers and researchers in formulating issues based on strategic management globally. This is a framework that helps in determining key strategic objectives for MNCs and the tools required to achieve them. Framework The framework proposed is based on three main categories. The categories are; an organisation must be capable of attaining efficiency based on their level of activities, the organisation must be capable of managing their risks assumed in carrying out these activities and lastly, there must be development of internal learning that enables it to adapt and innovate. Multinational organisations can only succeed through the use of strategic actions that enhance achievements of their goals. To manage globally, an organisation is supposed to utilise all the three sources of competitive advantage. This is supposed to be done with an aim of enhancing efficiency, risk and global business. For an organisation to have a successful global strategy, they have to manage the interactions between various goals and means. It’s thus advisable to map company and competitors strategies in order to know the MNCs position. This can be carried out using a checklist. Comprehensive strategic audits are required. In some cases, an organisation is faced with a strategic dilemma. In these situations, organisations are forced to use omission to resolve them (Ghoshal, 1987). Through the use of a framework suggested by the author, it becomes possible to identify and make salient these dilemmas. Goals, strategic objectives Firm efficiency can be broadly defined as the ratio of the output value to the cost of inputs. This is the ratio that is supposed to be maximised for the firm to achieve surplus resources. This makes the firm come out with differentiation techniques to increase the value of the outputs. Organisations look for means to reduce costs of the inputs. MNCs have been working to attain means that they can get higher economies of scale by making their production more efficient. This has led to modern MNCs using technologies to achieve economies of scale. An example is Toyota, who utilises high technology in their production lines. Efficiency perspective is the area which is the main focus of strategic management. The framework provides MNCs with optimum means of configuring the supply chain to achieve highest efficiency in utilising their resources. With a globalisation of markets and advancement of modern technology, multinationals have been able to achieve worldwide efficiency and coordination (Peng, 2013). Organisations have been able to reduce redundancy through sourcing and value added activities. Through the use of internet and information technology, it has become easier for the MNCs to come up with a holistic organisation (Gammeltoft et al., 2010). Efficiency is not the only strategic objective. There is a second strategic objective that is managing risks. MNC faces a lot of risks where some are common to all organisations while others are specific. The author has divided the risks into four categories. There are macroeconomic risks, political risks, competitive risks and resource risks. These risks are not static but change over time. The major task is to look at all risks jointly and in the context of a given strategic direction. The risks that cannot be diversified globally are the major source of concern. The author assertion is proved by modern MNCs. For example, firms have been setting their production in emerging economies to supply other markets to cater for contractual risks (Ghoshal, 1987). The main aim has been to benefit from low labour costs that give them a competitive advantage. Learning innovation and adaptation The key asset for the MNCs is the diversity in operating environments. This leads to diverse capabilities and great learning opportunity. Diversity leads to greater potential for learning. MNCs thus must come with systems and mechanisms that will lead to learning. Without these, there is no learning for the MNC. Both centralisation and decentralisation have capabilities to deter learning in an organisation (Ghoshal, 1987). Means: source of competitive advantage In the global business environment, competitive advantage can be obtained from three main sources. The sources are; utilising national difference, taking advantage of economies of scale and using synergies derived from economies of scope. This is well explained by the author. To manage MNCs strategically, these sources have to be utilised with an aim of attaining three main objectives. The three objectives are the ends. These are; enhancing efficiency in current operations, managing risks and finally learning and adaptation. The manager has a role to combine different insights and come up with a multidimensional strategy that allows flexibility. The strategy is supposed to withstand differing assumptions and explanations (Ghoshal, 1987). Each nation has its endowment that can give a firm a competitive advantage. MNCs are thus supposed to ensure that their value chain activities are located in countries that offer the lowest cost. This assertion by the author is very applicable in modern MNCs. At the moment, most MNCs have outsourced their production to China due to the low cost of labour (Gammeltoft et al., 2010). Firms also locate their output to countries that have taste and preferences for their products and services. The scale of output is based on the firms being able to produce in high quantities to achieve scale benefits. This leads to cost advantage. Scope of economies is based on the diversified firm that is capable of sharing investments and costs on similar or differing value chains as opposed to the competitors. A company can market a different range of products under the same channel of distribution. Knowledge can also be shared (Ghoshal, 1987). Strategic tradeoffs Strategic objectives as well as means used to achieve competitive advantage contradict in most cases. Centralised management may not benefit from the subsidiaries as seen in the Caterpillar case. Optimising risks may lead to a compromise of efficiency. There are tradeoffs in competitive advantages. Issues presented by the author and also looking at the impacts of different strategic alternatives are vital when implementing the global strategy. It’s vital to have an understanding of the situational contingencies when implementing the global strategy. The existing prescriptions have a major role in making MNC s managers more sensitive to the factors that they are supposed to look at. Despite this, these prescriptions cannot offer the managers readymade or standardised solutions that they can adopt (Ghoshal, 1987). Despite this, the article claim that learning can be traded off for efficiency is incomplete. This is due to the fact that learning is a source of competitive advantage. Firms have in most cases invested in learning and exploited it together with the associated efficiency and risks. This can be explained by the reason aircraft manufacturers such as Airbus only centralise airframe assembly while other parts are contracted internationally (Peng, 2013). This is due to the fact that this model leads to efficient merits based on localised learning. The cost incurred, in this case, is a risk of suffering from labour interruptions. This investment cannot be looked as a trade-off between efficiency (Gammeltoft et al., 2010). The framework proposed in this paper is crucial for MNCs as they review their strategies. The managers are supposed to review and determine what their strategies are. The author has given a scheme that can be used. This is a very important instrument for carrying out strategic control. It helps one to understand that despite the fact that structures of MNCs have an influence on corporate strategy, they are not the only influence. The corporate strategy also has the capability to influence the industry structure. Having a map that helps in a detailed comparison of strategies is very vital for managers to understand and improve their organisation competitive advantage. The paper has given the issue of risk its relevance in strategy. It’s important to know that the framework given by the author cannot replace ideas and techniques that are already in place. The framework helps a lot in the synthesis of ideas and techniques existing. Conclusion The article through written more than 20 years ago is very applicable in today’s MNCs. The paper has great inspiration for modern research on global strategy. The author was able to synthesise the ideas that are existing during this time of globalisation. Through this, the proposed framework accurately describes and gives insight on strategy formulation and implementation in a global business. From the time this paper was written, it’s evident that globalisation have taken a lot of steps forward. Despite this, it’s clear that the proposed framework will stand the test of time. The framework is still relevant and highly applicable to modern MNCs. References Gammeltoft, P., Pradhan, J. P., & Goldstein, A. 2010, “Emerging multinationals: home and host country determinants and outcomes,” International Journal of Emerging Markets, Vol.5, no.3, p. 254-265. Ghoshal, S. 1987, “Global strategy: An organizing framework,” Strategic management journal, Vol.8, no.5, p. 425-440. Peng, M. 2013, Global strategy, Cengage learning. Read More