THE GLOBAL FIRM AND THE GLOBE
Introduction
Xerox and BMW are one of the biggest names in the international market. The first developed many people to understand their product synonymous to copying. The second floated in the international market with focused on the high- end market. Sometimes, a layman could think that such companies are formidable and existing without problems and difficulty. They have the reputation, financial capabilities and technology. Who would think that their international scope can affect their operations?
As the book acknowledged, “there are no guarantees of success” (2003). Every now and then, decisions are made to counter the effects of hyper-competitive marketplace. Eminent in the global business environment, companies who dare to get involved should expect higher risks, more problems and complex analysis as an offset to boundless possibilities to create competitive advantages and above average returns.
For example, Xerox was confronted with several lapses. Its 1970s research facilities that developed first models of personal computers and other important technologies of today were invaded by other companies. As a result, it did not benefited form its first-mover advantage from this line of products. Another was its failure to succeed in entering the financial services due to lack of synergy into its technology-based products. On the other hand, at the opening of the new millennium, BMW automobiles faced challenges to export more of its luxurious cars to the awaken economy of China and created concern to develop manufacturing plants in view of competitive automobile industry. Behind this pursuit of the large market of China are world top brands like Toyota, DaimlerChrysler, Ford and GM.
In consideration of these facts, this paper will identify challenges firms meet in the hyper competitive conditions being international corporations, discuss different cooperative strategies that can minimize difficulties and maximize potentials, and finally, explain the role of strategic management leadership in the implementation of these strategies.
The Challenges in the Global Market and International Competition
In the desire of companies to obtain advantages by operating to other countries, it enters a different environment that puts its resources and core competencies at high risks. There are many challenges a firm will encounter in the highly competitive market from the pre-operation until it is already magnetized by the market.
Price and Quality Positioning
In the global market, domestic and foreign companies will be the fierce competitors of a firm. They can usually fight and gain the market in terms of price or quality. They can use price strategy that is a result of improved primary and secondary activities that ultimately minimize cost, and therefore, provides more price control. On the other hand, differentiation strategy relates to the ability of the company to transform their product with added value that customers can see a premium in it, and therefore, the latter are willing to pay also at a premium price. Basically, the target market of price strategy is low-to medium- end customers that are price sensitive while differentiation is high end and customers who are after luxury goods or services.
The challenge of a firm is to develop a strategy that can fit into its culture and system. The difficulty arises as there are also available focused strategies for products which target a specific market segment. In addition, price and quality positioning can also be combined to exploit both the underlying advantages. In the case of Southwest Airlines, it integrates four important areas for a business: price, customers, service and employees. It offered point-to-point and less traffic service flights, kept price of almost 20% less than other competitors, provided free-overnight stay in the firm’s agents homes and maintained employee motivation.
The inability of the firm to pinpoint the best strategy that can stimulate competitive advantage for its resources, capabilities and core competencies can undermine its value, reduce efficiency and loose profitability. The decision to select certain strategy is not an easy task. The initial phase is to scan the specific foreign market’s background in its important aspects through PEST and SWOT analysis, competitors and available support intermediaries. Then, such factors will be subjected to a firm’s internal features. One wrong consideration may take away potential or aggravate problems and difficulties. At the time of operation, contingency plans and its implementation is necessary that can even call for a change in the strategy already identified.
The difficulty converges on the question of flexibility of the strategy. Since global companies are situated in a complex environment, to be able to be successful and maintain it, a firm should be flexible enough to counter the effects of competitor sudden moves, legal restrictions and economic recessions. Not to mention that it should also its own undetermined internal problems that could originate instantaneously.
Establish First Mover Advantage and Create New Know How
Aspects of price and quality are only one-half of the strategy available to the firm. For the biggest technological breakthrough of the inception of information technology and computer age, innovation and speed-to-market are the two most crucial strategies for a firm. They can create core competencies from the capability of a firm to create and develop innovative products to satisfy the fast and ever-changing customer needs and tastes. eBay’s delayed response to Yahoo! Japan’s enter to online auction market service in the country resulted for only a tiny 3% market share against Yahoo’s 95%.
Although can serve a dramatic positive turn-over for a firm, first mover advantage and ability to create new know how set drawbacks and constraints that a firm cannot sustain, if not, survive of its implementation. It requires huge financial budget to build facilities for research and development and customer awareness through advertising. A successful technology does not dictate success in this strategy. It will be less appreciated by the market if other companies have substitute products at competitive price. Almost as expensive as the individual firm’s net worth, strategies dedicated for hi-tech product innovation are high risk. This is the reason why multi-national companies are not encouraged to deal with the complexity and cost of producing hi-tech products.
The challenge is not only stemmed on cost factors, it also asks the question of corporate willingness to continuously operate in a dynamic way and invest in ventures that success are not eminent. Creating and upgrading a certain product through extensive research every now and then establishes continued learning of the human capital, systems improvement and technological change. The company culture may not hold such characteristics that hinder its participation in the industry even if it has financial capability to do so.
Protection/ Invasion of Established Products and Geographical Markets
Creating a product and successfully situating it in a specific market completes the duty of manufacturing and sales departments. However, protecting the added value found on the product and interested market segment is a corporate consideration. Being a first-mover and earning profits from it in a sustainable manner is a result of a firm’s conviction to patent its product design and continuously improving its usability for the appreciation of the customers. It also needs some advertising to remain active in the competitive landscape.
In the contrary, a firm can exploit the competitor’s advantages that can be seen in its products and market through invasion of some aspects of them. It can range from simple counter-advertising to a more aggressive product imitation. The latter is defined as adoption of a competitor’s innovation that oftentimes can be priced relatively cheaper but limited in product features and durability. It is effective to offer in a low-end, non-critical market. Sometimes, product and market invasion can be achieved by attracting and importing employees from competitor’s workforce. The process is generally prohibited when caught, but if successful, it not only entails imitation but the true formula, process and technique of creating the competitor’s product.
Thus, the challenge is a two-way process: offensive and defensive, that oftentimes overlaps each other. A firm may admit it invade product features to protect its market share. In one way or the other, the processes involve financing for official patent or trademark, advertisement and promotions, research and development, and possibly employee importation. More importantly, a firm should also possess loyal and dedicated employees to ensure zero knowledge-spill which is not easy to generate because of individual goals and monetary drives.
International Strategies Needed to Face the Challenge
To aid a firm in its pursuit to internationalize, there are theoretical strategies that can manage these challenges and mitigate its adverse effects when a firm was hit unprepared.
Strategic Alliances
One business analyst said, “If an aerospace company is not good at alliances, it’s not in business.” This is what United Technologies had epitomized as it created cross-border alliances with aerospace firms in Japan, China, Spain, Taiwan and Brazil to manufacture and produce the S-92 helicopter. In 2000, the S-92 alliance also formed a strategic relationship with Canada’s Cougar Helicopters to aid it in its testing, offshore operations and product launching. Because of this, as one official of United Technologies argued, the S-92 would top in its class in terms of cost and performance.
Strategic alliance is a form of cooperative strategy in which firms combine some of their resources and capabilities to create competitive advantage. It helps companies to develop a product and launch it into the international market efficiently. It is a timely response to counter the effects of the complex and rapid changes in the global market. To be able to build T-92, different firms from different countries devoted their resources and competencies in building the main cabin section, engine, hydraulic lines, cockpit, fuel system and other necessary parts. By doing so, they minimize the time of the manufacturing process and prevent overhead costs of machines used to manufacture engine, electrical and body parts separately. Such is very costly, if not impossible, when done individually.
However, these advantages of shared success are not hazard-free. Partner firms may fail to make available their perceived competencies when needed, alliance contracts could suggest provisions that might be unbearable to a specific partner or a one may take advantage to exploit the resources of the other as an investment fuel. All of these can create distrust and ultimately leads to disbandment and failure of the strategic alliance. To avoid this, partners should exemplify value for one another. There should be equality observable in formal contracts and determinable through monitoring.
International Diversification
The move of Hewlett-Packard to merge with Compaq Computer Corporation developed a multipoint competition to defeat the IBM dominance in the industry. They have been able not only to coordinate their strategies and efforts in PCs, servers and other services but also to join the process of taking away some of IBM’s market share. This kind of international strategy is called related diversification. This entails sharing of knowledge, resources and competencies to create economies of scope and market power. As the merger caused two firms to share activities and exploit the best within them, it doubled their efficiency and market influence.
On the other hand, unrelated diversification was the strategy Cedant Corporation used to succeed as a diversified service conglomerate. In 2001, the corporation increased its revenues by 90% year-on-year and gained 100% rise in its share price because of the implementation of its strategic growth plan. Its focus is rapid growth by buying strong and effective brands which made it enjoy a relatively low capital requirement for having a certain brand that can equate to growing returns and strong financial flows. Its portfolio includes hotel, real estate, tax preparation, mortgage origination, rental cars and other rental services.
Diversification can also impede success with partly same reasons as strategic alliances that it involves trust with partners. Sharing activities with other company can create corporate knowledge disclosure. Because of this, it places the core competencies of a partner in high risk maybe not that useful when already known by the other. Also, a firm possessing unrelated businesses requires efficient internal capital allocation and restructuring of such businesses to fit into its system. It is important that a firm with diversification strategy must realize opportunities and accept some failures because of increase in corporate size.
Acquisition
Acquisition is an instrument the diversified firms used to implement this strategy. It involves the buying firm to control or own 100% of the interest from another with the intent to make the acquired firm a subsidiary. In 2001, Boston Market had sales of over 0 million and showed continues profitability since it was acquired by McDonald. The acquisition resulted to the conversion of Boston Market restaurants to other types of bistro and exploits the strategic location in which the former company was situated.
The advantages can be derived are synonymous to diversification because it is an element of the latter. The important issue to note is the adversity it carries. Acquisition does not always involve bidding wherein every interested firm can participate and have equal success to own the auctioned business. TMP Worldwide though if had agreements with HotJobs.com but experienced takeover by Yahoo! because of million difference in offered price. Also, the failure to maximize the competencies of the acquired firm might lead to the case of Amgen. The pharmaceutical firm acquired Immunex that resulted to very similar activities that were shared which basically increased the economies of scale on one hand but defeating the more important synergy on the other. Because of this, Amgen had a hard time recapturing its substantial acquisition costs on the event that it had minimized costs but also minimized its potential.
The Role of Strong Strategic Leadership in Global Strategy Implementation
Many corporations believed that sound management and leadership produced a well-communicated strategic mission to employees that encourage acceptance and will in the pursuit of strategic intent. General Electric’s Jack Welch and Apple Computer’s Steven Jobs have helped their firms to establish reputation and be known in its industry. In line with this, strong management and leadership have its drivers and barriers that dictate its adoption by the firm.
Drivers to Strong Strategic Leadership
In United States and United Kingdom, there is a need to ensure the interests of top-level managers and shareholders are similar. To be able to achieve this, there is a need to prioritize above all things, manager’s pay, election of board of directors and monitoring measures for comparison. Since leadership needs to follow the organizational objectives and set-aside self-vested interests, the scenario tends to organize and focus actions that make it easy for directors and managers to formulate and implement strategies.
In addition, evidence suggests that well-functioning organization because of leaders being a model can create competitive advantage for the individual firm. Marketing and sales department are not against the efficiency coursed by the production team. Managers are there to explain new policies and settle disputes if any. They serve as guides and examples that believe in the positive benefits to the firm of full participation with less departmental conflicts.
Lastly, effective governance is also the interest of nations because successful and visionary firms can expand and create jobs and ultimately give out several social contributions. Most countries like Brunei provide free-education to the youth, which in the future can possess the capacity to lead and direct a firm, is the result of the countries’ indirect but vital concern to the business management and leadership.
Barrier
On the contrary, there are wise but selfish managers who hold back strategies that oftentimes lead to failure. Managerial pursuit to propose and implement diversification and acquisition strategies may underestimate their real corporate purpose because of underlying intention to save their position or elevate into higher ones and increase compensation because of broader responsibility. One of the biggest business failure in US, Enron’s fall in 2001 was molded by the poor ethics of its top executives and board of directors particularly the lack of credibility and transparency of financial records.
Conclusion
Strategy is defined as ‘an integrated and coordinated set of commitments and actions designed to exploit core competencies and gain competitive advantage.” In the global participation of a firm, strategies become more complex, perhaps indefinable; because of several circumstances it should consider in a fast but prepared manner. I believe that a firm going outside its nation’s borders should not only shoulder risks but must also learn to calculate and analyze it.
The discussions of about international business environment enumerating some challenges, some solutions to them and the role of strong strategic leadership in the implementation of such solutions proposed a system of thinking that could be applied by an interested and already international firm. The organization needs to identify and scan the industry and competitors to cite possible difficulties. The process can segregate relevant international cooperative strategies for study until such time that one or hybrid strategy is formulated. From the period of implementation, monitoring and evaluation, managers’ active participation at all levels will serve as the blood that will circulate and maintain the mind-set needed to gain success in such strategies at the lowest staff-level positions.
Yes, I agree with the statement that all management teams should understand and implement the formulated strategies. Managerial debates that consume time and money and employee confusion because of unresolved and hanging issues are avoided. It is a fact that managers are responsible to uphold organizational objectives and guide employees to appreciate such. By unanimous approval of managers, strategic management is an easy endeavor to deal with and every strategic plan can be quickly accepted for fast results.
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