Post date: Apr 25, 2013 8:04:25 PM
What is global strategy?
In the age of globalization companies found their customers and markets around the world. Global economy provided ways to optimize cost of production and scale of economy. Companies could reach to customers across the globe but companies could not have succeeded without giving a thought to how will they reach to their global customers, how will they produce cost effectively and how can they maximize their advantage over other companies. Strategy to analyze global market, global customers, global competition and production at global destinations, is part of global strategy formulation.
Why global strategy?
Global markets, customers and global economy presents different challenges and opportunities in contrast to domestic business. To deal with different kinds of opportunities and challenges, organizations need to formulate strategies suitable for global presence and that is why global strategy is required to maximize benefits from opportunities in a global business and minimize challenges or their impacts through strategic decisions and planning
Economy of scale
Due to multiple new markets and big customer base same product can be sold at less price which can maximize revenue. Large scale production, common marketing and return of expenditure in research (expenditure recovery through large customer base) are advantages of big scale. To achieve these advantages, company should consider these factors in its strategy.
New location. geographies presents opportunity to sale products and services to new customers. How new customers can be handled, requires strategy planning to handle globally spread new customers.
Low cost of production (due to low cost labor)
There are some locations which may have cost advantage over other locations. Organization should identify and prioritize which location it will consider as low cost production location. It is not only low cost of production but many other factors to consider before making any such decision. Consideration of low cost advantage and how to get it, should be part of companies global strategy.
Government subsidies in a location as compared to other locations
There may be subsidies offered by a local government or number of governments to setup business in their location. Choice of location to best utilize this benefit considering other factors like distance of production location to other location, political stability and factors can influence decision of going for such subsidies and investing in that location. Decision of it should be part of global strategy.
Tax benefits in a location (country)
Tax benefits may be another attraction in a new location, this opportunity requires formulating strategy keeping this in mind to decide which location to select to the operation to maximize the benefits keeping in mind other factors.
New destination in the globe may provide better talent, better possibilities of research and quality skilled workers. Strategy formulation should consider this advantage of a new location for long term benefits or the organization.
Same product may be hit in one location but not in other because customers in new location may have different taste and liking due to cultural differences. To deal with cultural differences organization may have to create strategy to deal with it, may be different way of marketing, branding, packaging or some other way.
Competition with local brands
The brand in an new location ma not be well known so company will have to struggle to make brand image in the customer as it may already have in domestic market or other location.
Local branding and marketing requirements
The way a product is marketed and branded in a location may not be the best way for a new location. Country specific culture and taste of customers may require change in branding and marketing policy. New brand ambassadors are required but this is very small part of the story. New locations and markets may require to put same product differently in that environment. Customers may buy a cola drink for different reasons and at different occasion in US as compared to India.
Advantages of global strategy
Advantages of global strategy comes from opportunities mentioned above. Opportunities in global market can benefit a business with global strategy:
Synergy across organization due to shared business activities and services
Volume production reduces unit cost.
Recognition as a global brand provides more effective marketing opportunities.
Low production cost due to lower cost resources can be chosen from different locations
Risks are reduced or diversified due to global business.
Opportunity to have best talent from various locations
Things to consider
Choice of location
All locations may not be suitable for the type of business an organization is doing. Every location may not have same cost advantage.
Model of operation in a location
There can be different mode of operation in various countries.
A company may operate in a country in on of the different ways:
Companies independent presence
Partnership with local companies
Direct investment in to local company/project (FDI)
Choice of mode of operation can be based on type of business, type of customers, product and local social, economic and political environment and conditions.
Marketing and branding
Organization and product it wants to launch in a global market may have to make customization in the the way product is presented to the local market. Brand image and marketing strategy may be different in different locations. Product may be same.
Choice of product & customization
Every product can not be sold in all locations. All products of a company may not be equal hit in all the countries. some of the products may require customization of the product or its delivery itself as per market and users.
Consideration of cost versus other factors
In one of the location cost of labor may be less but other expenditure like raw material and other things may be costly. Demand of the product or service in a market, expectations of quality and services as compared to buying power of customers can influence decision of operation in a location only based on labor cost savings. Political stability, quality of skill and other resources etc ate many factors which should be considered.
Market demand and potential
Demand of a product in a market and business potential should be considered. Sometimes perceived potential may not be true in reality, some of the markets may have potential but they can take time to provide opportunities from that potential. A potential may be a potential of future and that future may be too far
Consideration of competition is important before deciding on launching a product or service in a global market. In some cases cost of local brand may be unbeatable because of customer choice and taste along with buying capacity. In one market cheap products may be the first criteria for customers putting quality or branded product at second priority. In such situation a company may not be able to compete.