Importance of Global Strategies in International Business - Coursework Example

Key arguments for and against the existence, role and importance of a ‘total global strategy’ for SMEs and MNEs: A review of literature Table of contents Abstract 3 Introduction 4 Existence, role and significance of a ‘total global strategy’ for international firms 9 References 16 Khosrow-Pour, M 2004, Advanced topics in information resources management, Idea Publishing Group. 16 Abstract This essay is a review of literature about the key issues that have been written about the existence, role and importance of total global strategies in international business operations. The issues discussed include globalisation and the debate around the phenomenon. By discussing concepts such as standardisation and adaptation with respect to the operations of international businesses in a globalised world, the essay provides an overview of the different strategies that such business can use. The ‘total global strategy’ is also discussed along with its role and significance to different types of businesses. It is noted that larger international businesses such as Coca-Cola and McDonalds are better placed to adopt the ‘total global strategy’ as compared to small businesses. Keywords: globalisation, total global strategy, standardisation, adaptation, international business. Introduction Globalisation is a widely discussed subject. In particular, part of the discussion is in relation to how the phenomenon of globalisation relates to the operations of both small and large international businesses. From the point of view what globalisation entails, there is no doubt that businesses that operate internationally need to consider the effects of globalisation on their operations. To position themselves appropriately, international firms have to evaluate themselves in terms of whether their products or service need to be standardized meet needs that are perceived to be uniform across the world, or to adapt their operations so as to suit the different needs on different parts of the world. As well, organizations can choose to adopt a mix of having uniform products in some cases and adapting some operations in certain cases to meet people’s different needs in different locations. Ultimately, the decision on the approach to be pursued by an organization depends on the industry in which the organization is operating. Having a ‘total global strategy’ has been regarded as means through which firms can mix standardisation and adaptation of their operations based on the conditions set by the market and industry. However, there are different views from different authors and scholars in regard to the existence, role as well as importance of having a ‘total global strategy’. Based on the background information above, the purpose of this essay is to review the key issues that have been written about the existence, role and importance of total global strategies in international business operations. The essay will review the debate on the topic of globalisation and how globalisation affects the operations of international businesses. Different views that have been given in support of or against the existence, role and significance of a ‘total global strategy’ for firms will be discussed. The globalisation debate and international business operations Globalisation is a concept whose definition is complex because of the range of issues that it entails. According to Johnson and Turner (2003, p. 4), economists, sociologists, political scientists, lawyers, anthropologists and other groups of people have all debated the meaning of globalisation based on their contexts of their disciplines. For instance, in terms of economics, the International Monetary Fund (IMF) has coined the phrase “Economic globalisation”, which it defines as “the increasing integration of economies around the world, particularly through the movement of goods, services, and capital across borders” (paragraph 9). The IMF also notes that globalisation may as well refer to the movement of knowledge (technology) and people (labour). Closely related to these definitions is that definition given by Sorge, Noorderhaven and Koen (2015, p. 13) that globalisation involves the production as well as distribution of services and products of a homogenous form and quality across the world. The definition of globalisation as given by Sorge, Noorderhaven and Koen (2015) can be related to the prediction that made by Theodore Levitt in his May 1983 article. In the article cited by among others Sutherland and Canwell (2004, p. 103), Levitt suggested that as new technology increased the reach of global media and lowered the cost of communicating between different regions, consumer tastes would become harmonized, thus creating global markets that would be served by standardized products. There is fundamental question as to whether globalisation does in deed lead to the harmonization of consumer tastes as hypothesized by Levitt. This has been a subject of many discussions by different authors and scholars on the topic of globalisation (e.g. de Mooij 2000, 2003; de Mooij & Hofstede 2002; Saee 2007). Saee (2007, p. 1) seems to agree with the notion that globalisation leads to the convergence of different people’s tastes. This is reflected in the statement that “when we think about globalisation, we think of the remarkable convergence of tastes in consumer goods and the pervasive culture of consumption sweeping the world” (Saee 2007, p. 1). The same notion can be linked to the thoughts of what have come to be known as hyper-globalists. These are people who opine that human beings live in a world that is borderless and in which the idea of nationality is no longer relevant (Dicken 2011, p. 4). From such a perspective, globalisation is perceived as the new economic, cultural and political order. It is a phenomenon in which nation states are no longer important as economic units and consumer cultures and tastes are uniform and met through the provision of standardised global items that made by global companies that have no allegiance to any community of place (Dicken 2011, p. 4). However the other authors that have been cited above seem to question the notion that globalisation makes consumer’s tastes converge. For instance, de Mooij’s (2003) article gives an account of how since the start of the 1960s participants in the debate about the impacts of globalisation have made the assumption that economic development would result in converging tastes as well as needs of consumers – this is what Marshall McLuhan referred to in 1962 as the world becoming a “global village” (Vrontis 2003, p. 284). Globalisation, it was argued, would consequently enable standardisation of advertising and marketing (Mooij’s 2003, p.), as opposed to adaptation of these business activities. Standardisation denotes a unified approach to doing business across the world, while adaptation refers to a situation in which an international firm adopts a different approach in every market in which it operates (Ang & Massingham 2007, p. 6). There is another assumption regarding globalisation, and which tends to lend support to what is referred to as the standardisation school of thought. This has been that economies of scale in the manufacturing of goods and services would lead to low prices and high quality of the services/goods, which consumer are supposed to prefer over the brands or that they were initially used to (de Mooij’s 2000, p. 103). Thus, numerous statements have been made in regard to globalisation’s effects, for instance: “in western Europe, as in most other parts of the world, the geographic, cultural, and other “distances” are on the decline”, the possession as well as accessibility “of certain goods is changing people’s lives into a more uniform pattern” (de Mooij’s 2000, p. 103). All these assertions tend to assume that as a result of globalisation, people across the world would have similar cultures and mannerisms and therefore prefer standardised goods or marketing services. It is however argue that even though there is evidence of the coming together of the world’s economic systems as a result of globalisation, there is no evidence of people’s value systems converging (de Mooij 2000, p. 105; de Mooij 2003, p. 110). This implies that despite the increased globalisation, different people will always have different tastes and needs. As noted by (de Mooij’s 2000, p. 105), evidence suggests that as people’s incomes converge, their habits diverge, meaning that more people will have the freedom to express themselves and do what they prefer. As well, de Mooij and Hofstede (2002, p. 61) have pointed out that converging technology combined with the diminishing differences in incomes across nations will not lead to homogenisation of consumers’ behaviour. Instead. According to the same authors, consumer behavior will become more different because of cultural dissimilarities. de Mooij and Hofstede (2002, pp. 61-62) give an example of Coca-Cola, which after having initially standardised its marketing practices, made a decision in 2000 to get closer to local consumers by having different practices in different regions. As a result, bottlers and local managers were given the leeway to determine pricing, craft advertising campaigns, and even introduce new Coca-Cola products. In a related case, according to Onkvisit and Shaw (2004, p. 457) Shiseido, a Japanese giant cosmetics company, performed poorly in its first attempt to enter the United States market since its advertisements included only Japanese models. A better approach would have been for the company to include US models, thus putting into consideration the needs of the local United States population. The challenges witnessed by two companies that have been mentioned above Coca-Cola and Shiseido seem to be in tandem with the arguments made by supporters of the adaptation school of thought. The adaptation school of thought proponents opine that existing differences between nations with respect to characteristics such as language, culture, customer behaviour, legal and political systems, level of economic development, marketing infrastructure, competitive conditions and usage patterns, require the modification of firms’ marketing approaches to suit local market conditions (Codita 2011, p. 26; Onkvisit & Shaw 2004, p. 457). Supporters of the adaptation school of thought further argue that globalisation appears to “much of an overstatement as it is an an ideology and an analytical concept (Vrontis 2003, p. 284). This implies that based on the adaptation school of thought, it is not possible to have a world where people have uniform needs and preferences merely because they have been brought together through things such as technology. Is undoubtedly because of this that companies like Nestle and Unilever, just as Coca-Cola in recent times, have been using the strategy of adaptation in different parts of the world (Sahaf 2008, p. 213). Existence, role and significance of a ‘total global strategy’ for international firms In relation to the arguments, there is a big question as to whether a there can be a ‘total global strategy’ for international firms and what role it plays. A firm’s ‘total global strategy’ can be looked at as mix of standardisation and local adaptation based on the conditions that are dictated by the market and industry in which the firm is operating (Cambell, Stonehouse & Houston 2002, p. 270). Whether to adopt a ‘total global strategy’ can be linked to whether firms what to respond to the effects of globalisation by globalising their products. According to Yip (1989, p. 29), whether to globalise, and how to do it, are two of the most significant strategy issues that managers have to deal with. Morschett, Schramm-Klein and Zentes (2015, p. 31) note that there are many forces that are driving companies across the world to globalise by increasing their participation in international markets. These include factors such as increasing competition in industry sectors such as computers, mobile phones and fast food among others. As well, trade barriers across different countries have fallen drastically, leading to an increase in cross-border trade. Firms are also looking to globalise by integrating their strategy of having a worldwide presence. Additionally, many government-related drivers are having an influence on the need to globalise. For instance, uniform technical standards for different kinds of products are necessary for some goods In order to have a total global strategy, Yip (1989, p. 29) suggested that companies need to follow three steps. These steps are as follows. To start with, they need to develop a core strategy. According to Yip, the core strategy becomes the basis a competitive advantage that can be sustained, and it is usually created in the home nation of the company in question first. Secondly, company that seeks to have a total global strategy needs to internationalise the core strategy that it has created. At this stage, the core competences as well as the generic strategy of the company are introduced to the international market and when the company starts to locate its value-addition activities in areas that have competitive advantages like access to skills or materials and low cost of operation (Cambell, Stonehouse & Houston 2002, p. 270). According to Yip (1989, p. 29), this can be achieved through international widening of activities as well as adaptation of the activities that are undertaken in different regions and countries. The third step is globalisation of the international strategy by incorporating the strategy across different countries. This can also including making decisions on which aspects of the strategy are to be standardised and which ones are to be adapted at the local level based on the strength of the drivers of globalisation in the market and industry (Cambell, Stonehouse & Houston 2002, p. 270; Gong 2013, p. 45). There are several reasons why a ‘total global strategy’ would be appropriate of inappropriate for international firms. One of the key reasons that would make an organisation implement a total global strategy include the fact that the core strategy that the organisation adopts in its home market acts as basis for the standardisation or adaptation of the strategies that will be implemented in other markets. As noted by Peng (2014, p. 299), the hallmark of a global strategy is the production and distribution of standardized products across the world so as to derive the maximum advantages that are associated with having low-cost operating environment. The same author also notes that whereas the replication of the core strategy that is adopted at home and standardization reduce responsiveness at the local level, a critical difference that doing so that the multinational enterprise (MNE) that is pursuing such a strategy is not restricted to its home operations. In many of the countries in which it operates, the MNE may come up with centres of excellence, which can be defined as subsidiaries that are explicitly renowned as sources of important critical capabilities, with the aim that the said capabilities can be leveraged by and/or spread to other subsidiaries. The centres of excellence are given a worldwide mandate or charter to be in charge of one MNE function across the world. For instance, the subsidiary of the HP company is Singapore has a global responsibility of developing, producing and marketing all HP’s handheld products (Peng 2014, p. 299) even though the company is headquartered in the United States. A total global strategy also provides the benefits that are associated with adaptation of products to meet the needs of people in different localities or regions. This is because in line with step two of Yip’s total global strategy, firms can internationalise their core strategy by expanding the reach of theta activities as well as adapting their activities that are carried out in different countries or regions. For instance, McDonald’s and Coca-Cola products are regarded to be products of a worldwide market, which overall utilise the consistent and shared socio-cultural symbols of the societies in many countries across the world (McDonnell 2010, p. 289). However, on a closer look, it can be said that not all Coca-Cola McDonald’s products are truly global products. To start with, it has already been mentioned in this essay that Coca-Cola started an adaptation strategy in 2000 after having initially standardised its products. Through this strategy, the company’s affiliate bottlers and managers of local units in different countries were given the leeway to make their own determinations with respect to issues such as pricing, coming up with advertising campaigns, and even introducing new Coca-Cola products (de Mooij and Hofstede 2002, pp. 61-62). Vrontis and Sharp (2003, p. 291) also indicates that Sergio Zyman, the former CMO (chief marketing officer) of the Coca-Cola Company attributed the success of the company largely on its ability to think globally and act locally. The same author indicates that “the Coca-Cola company is recognised all over the world. Their core brand, Coca-Cola, leads this recognition, but when needed, they are also very much a local operation” (p. 291). This implies that although Coca-Cola pursues a global strategy through is main product, the Coca-Cola beverage and bottle symbol, it has also adapts its operations to suit the needs of consumers in the approximately 200 countries in which it operates. This is seen in the fact that Coca-Cola even allows independent business people located in various countries of operation to locally own bottling and logistics operations. The advantage of this approach is that since consumers are likely to have different preferences and needs, the company is able to tap into these difference and provide what the different markets want (Vrontis & Sharp 2003, p. 291). Turning to McDonald’s, there is evidence that the company is involved in some form of differentiation by offering different products in some countries and not offering some products in some countries. This is because of a variety of factors, including cultural considerations (Loukakou & Membe 2012, p. 28). The result is that the two companies benefit from the low costs associated with standardisation of some products while also benefiting from the wide product offering to suit different needs in different areas that is associated with adaptation of products and marketing activities. It can also be argued that a total global strategy may not be relevant in some instances. One reason for this is the high cost associated with such an approach. One notable aspect is that implementing a total global strategy is a costly affair, especially for small and medium-sized enterprises (SMEs). It has been noted that many small businesses face challenges such as the costs of establishing and promoting reliable websites, allocating limited resources, finding the appropriate product mix for different markets, and transacting globally (Khosrow-Pour 2004, p. 142). Thus, without adequate resources, there is limited room for SMEs to be involved in total global strategies. Conclusion In conclusion, the globalisation debate is a complex topic, especially in relation to the activities of businesses that operate globally. Whether such businesses should standardise their operations or adapt them to suit the different needs of people in different regions depends on the nature of the firms’ operations. Firms can adopt a ‘total global strategy’ based on a mix of standardisation and local adaptation with reference to the conditions that are dictated by the market and industry in which the firms operate. The existence, role and significance of a ‘total global strategy’ how the firms perceive such strategy. For instance, large firms such as Coca-Cola and McDonald’s have a global presence can cab benefit from both standardisation and adaptation of their products to meet local needs. On the other hand, small business may find it difficult to employ the ‘total global strategy’ because of their small sizes and limited resources. References Ang, Z & Massingham, P 2007, ‘National culture and the standardization versus adaptation of knowledge management’, Journal of Knowledge Management, vol. 11, no. 2, pp. 5-21. Cambell, D, Stonehouse, G & Houston, B 2002, Business strategy: an introduction, 2nd edn, Butterworth-Heinemann, Woburn, MA. Codita, R 2011, Contingency factors of marketing-mix standardization: German consumer goods companies in Central and Eastern Europe, Springer, Heidelberg. de Mooij, M & Hofstede, G 2002, Convergence and divergence in consumer behavior: implications for international retailing, Journal of Retailing, vol. 78, pp. 61- 69. de Mooij, M 2000, ‘The future is predictable for international marketers: converging incomes lead to diverging consumer behaviour’, International Marketing Review, vol. 17, no. 2, pp. 103-113. de Mooij, M 2003, ‘Internet and culture’, in CE Barfield, G Heiduk & PJJ Welfens (eds), Internet, economic growth and globalization: perspectives on the new economy in Europe, Japan and the US, Springer-Verlag, Berlin, pp. 109-130. Dicken, P 2011, Global shift: mapping the changing contours of the world economy, 6th edn, The Guilford Press, New York. Gong, Y 2013, Global operations strategy: fundamentals and practice, Springer-Verlag, Berlin. IMF 2008, Globalization: a brief overview, viewed 3 January 2016, . Johnson, D & Turner, C 2003, International business: themes and issues in the modern global economy, Routledge, London. Khosrow-Pour, M 2004, Advanced topics in information resources management, Idea Publishing Group. Loukakou, MD & Membe, NB 2012, Product standardization and adaptation in international marketing: a case of McDonalds, Master’s Thesis, University West, Trollhättan, viewed 4 January 2016, . McDonnell, I 2010, ‘Global strategies’, in A Pizam (ed), International encyclopedia of hospitality management, 2nd ed, Butterworth Heinemann, Burlington, MA, pp. 288-289. Morschett, D, Schramm-Klein, H & Zentes, J 2015, Strategic international management: text and cases, 3rd edn, Springer Fachmedien, Wiesbaden. Onkvisit, S & Shaw, JJ 2004, International marketing: analysis and strategy, 4th edn, Routledge, New York. Peng, MW 2014, Global strategy, 3rd edn, South-Western, Mason, OH. Saee, J 2007, ‘Globalisation and the multinational enterprises’ corporate strategy in the third millenium’, in J Saee (ed), Contemporary corporate strategy: global perspectives, Routledge, Abingdon, Oxon. pp. 1-23. Sahaf, MA 2008, Strategic marketing: making decisions for strategic advantage, Prentice-Hall of India Private Ltd, New Delhi. Sorge, A, Noorderhaven, N & Koen, C 2015, Comparative international management, Routledge, Abingdon, Oxon. Sutherland, J & Canwell, D 2004, Key concepts in strategic management, Palgrave Macmillan, Hampshire, New York. Vrontis, D & Sharp, I 2003, ‘The strategic positioning of Coca-Cola in their global marketing operation’, The Marketing Review, vol. pp. 289-309. Vrtontis, D 2003, ‘Integrating adaptation and standardisation in international marketing: the AdaptStand modelling process’, Journal of Marketing Management, 19, pp. 283-305. Yip, GS 1989, ‘Global strategy… in a world of nations?’, Sloan Management Review, vol. 31, no.1, pp. 29-41. This chapter Yip, Peng, Johnson, Scholes and Whittingham, Ghemet and Peng There are many globalisation commentators, e.g. Levit, (1983); Frear, Metcalf, and Alguire, (1992): Yip (1989, 1992 & 2003); Rugman and Verbeke, (2004); Ghemawat, (2007); Peng and Pleggenkuhle-Miles, (2009), Dicken, (2011) who have all provoked a diverse range of arguments concerning the existence and relevance of globalisation and total global strategies, which can impact upon all types of organisations and sectors. Some of these commentators (e.g. Dickens, 2011) even went as far to suggest that most recently, the global landscape has drastically changed and he (i.e. Dicken) provoked the idea that “....the economic turmoil that began in 2008 has heralded the end of globalisation..........?” Consequently, understanding the current discourse of globalisation as a phenomenon and its perceived benefits, drawbacks and myths is now strategically very important for SMEs, MNEs and other key stakeholder groups to know how to position themselves appropriately in their market places? C/W 1 – Task (3,000 words + / - 10%) Based upon the above mentioned rationale and using relevant course material and wider reading, present a literature review that critically evaluates the key arguments for and against the existence, role and importance of a ‘total global strategy’ for SMEs and MNEs in 2015/16. Read More