Research Articles Base: Global Strategic Initiative

Able’s Global Strategic Initiative Case Study

As members of the senior management team of Able Corporation, your group has been asked to prepare a presentation for the Strategic Officers Steering Committee (SOS-C) of Walden International, the parent company of Able Corporation. The purpose of this presentation is to obtain permission from them to go forward with the next step (developing a full blown business plan) for Able’s strategic initiative to break into the global marketplace. Paper should include the following. ·                           An external analysis (opportunities and threats) of the environment that Able is proposing to enter ·                           A preliminary outline of the business plan to be developed for Able’s strategic initiative ·                           A rudimentary mission statement ·                           Key operating principles ·                           A preliminary market analysis ·                           The one-year, five-year, and ten-year strategic objectives of the strategic initatives Any additional material that you considers necessary to support the case for going forward with Able’s global strategic initiative.   BACKGROUND INFORMATION   INTRODUCTION             Able Corporation is a company based in the United States and locally manufactures various tools and gadgets such as lawn mowers, microwaves and ranges. While the company is already operating successfully within the American and Canadian market, the company intends to expand its business more to other foreign markets. This discussion will then be centered on the identification of essential factors the company must take into account in order to expand globally.   Identity Development             In order to develop the appropriate strategies for its global plans, Able Corporation must first define its identity as well as develop its mission statement. In order to develop the company’s identity, a situational analysis must first be conducted. The aim of this step is to define the key successful factors of the company as well as its problem areas that would support or hinder its global business plans. Through situational analysis, the company will also be able to recognize its available sources that can be used for its planned strategies. For this purpose, the company can make use of different analytical tools. The most common of which is the SWOT analysis, where the company’s strengths, weaknesses, opportunities and threats are considered. The company can also make use of PEST analysis in strategic planning and implementation. This tool evaluates the political, economic, socio-cultural and technological factors that affect the company. This is mainly used in order to analyze the businesses’ macro environment. The use of these tools will then help the company to develop its direction or mission statement. The information for the analysis can be obtained from a number of resources including company records, financial reports, sales reports and employee performance records. Gathering information about the company can also be done through researchers and analysts. This step stresses the necessity of developing well-defined strategic goals based on the company’s identity before pursuing set business plans; in this way, failure and losses due to ineffective strategies can be avoided.   Resource Considerations             Based from the developed identity of the company, information on the different resources of Able Corporation will be identified. These resources should be considered in order for the company to make the most of its strengths and avoid costly strategic developments. For instance, the production of the company’s products is done locally; should the company pursue its goals of operating internationally, it should then consider how it plans to produce products for a greater number of consumers. One of the important resources of the company is its contacts with large retailers for its product distribution; the strategic plan of the company should then identify how it will distribute its products abroad. Will the company contact foreign retailers or will it use the online marketing and product distribution features offered by American retailers? In order to make an effective global strategic plan, Able Corporation should not only identify what resources are available but also how these resources will be utilized or modified.   Strategic Implementation             In terms of strategic implementation, Able Corporation should consider using the principle of balanced standardization and adaptation strategy. This strategy has been debated over in relation to foreign market entry and strategic implementation. One side of the argument claims that keeping with the standard operations of the global company is the most efficient for entering other foreign markets; this means that the conventional practices of the company will be applied to all its foreign branches. However, it has been noted that the differences in political, cultural and economic features of countries abroad limits the efficacy of the standardization theory; thus, adapting to the traditions of the targeted foreign market was stressed to be the most effective solution (Subramaniam & Hewett, 2004). The debate was resolved by emphasizing that a balance between standardization and adaptation strategies should be observed among multinational companies. Through this implementation principle, the company will be able to combine the most effective strategies that would suit differing foreign business environment.   Progress Assessment             The process of strategic management does not stop from the implementation process; thus, it is also necessary that Able Corporation develops a system that would evaluate its strategic progress. Assessing the outcome of the implemented strategy is essential as this would determine whether the objective of the company to operate globally has been achieved successfully. This step is also important in enhancing the existing strategy and addressing identified problem areas (Kaplan & Norton, 1996). In order to carry out this procedure, Able Corporation should consider using both financial and non-financial indicators. While the sales, product volume and market growth are important indicators of progress, the company should also take note of non-financial indicators of good business performance such as customer satisfaction and employee performance.   Conclusion             In order to strategically succeed in the global business environment, a company must consider multiple factors. For one thing, a company planning to enter foreign markets must have a clear business objective and sufficient resources to support its achievement. It is also essential that the company is aware how these resources will be utilized. Appropriate approaches in strategic implementation should also be used. Finally, an implemented strategy should be assessed to ensure that intended business outcomes and continuous progress are achieved.       References: Kaplan, R. S. & Norton, D. P. (1996). The Balanced Scorecard. Boston, MA: Harvard Business School Press.   Subramaniam, M. & Hewett, K. (2004). Balancing standardization and adaptation for product success in international markets: Testing the influence of headquarters-subsidiary contact and cooperation. Management International Review, 44(2), 171-194.       Credit:ivythesis.typepad.com

Able’s Global Strategic Initiative Case Study

As members of the senior management team of Able Corporation, your group has been asked to prepare a presentation for the Strategic Office...

Global Stage

“NESTLE MAKES THE BEST FOR YOU”: A GLOBAL PERSPECTIVE   Nestle Background             In history, the company seemingly saw every challenging environment to develop and strive harder in its operations.  Way back in 1860s, the founder Henri Nestle developed an alternative for breast feeding babies to save a child phasing death.  Since then, the resistance to quit and strategy formulation followed as the demand of several governments to its daily products rose during World War I.  When the war had ended and demand ceased, it institutionalized efficiency and developed new chocolate products.  On to World War II, sales persisted to drop abruptly from to million year-on-year but it again gave Nestle the motivation to excel by introducing Nescafe as US military’s staple drink.  Ever since, it expanded operations through acquisition and joint ventures as it served globally.  (). Today, the firm is characterized by 500 companies, workforce of 247,000 employees, Switzerland’s largest industrial company and world’s leading food company.  It has a range of product like beverages (coffee and water), milk products, ice cream, nutrition, culinary products (soups, seasoning, pastas), chocolate, biscuits, food services, professional products, pet products, pharmaceutical and cosmetics company, joint ventures and associate company.  In 2004, it gained highest sales in Europe at 28,000 (in million CHF) and highest profit in America at 4,000 (in million CHF).  Milk products topped its sales at 23,000 (in million CHF) while beverages got the highest profit by product category at 3,000 (in million CHF).  Being global, Nestle adapted business principles such as equal creation of value to stakeholders, emphasizing long-term success, adaptation to culture and legislation of the host countries and employee excellence ( 2004).    Outsourcing             Through the primary and secondary activities in the value chain, Nestle necessitates the existence of business partners to promote cost-efficiencies as it operates in 86 countries (2001). It is rather inconvincible to say that it does not have the capability to do so but three reasons surfaced for this global company to remain fragmented in the value chain; namely: to have greater leverage, to adapt quickly in the local environment and to embody its social responsibility more effectively.  Due to this, it outsources logistics, raw materials and machines to suppliers not to imply its financial incompetence but to realize several outsourcing opportunities and prevent overextension of activities. For example, it outsources the service of small and big logistics companies in its USA plants to distribute its outputs to distribution centers and vendors ( 2002).  It seemed an ordinary outsourcing strategy but the firm restructured logistics system and established a single Load Control Center (LCC).  As a result, there was improvement in on-time delivery, stable costs are maintained and reduction of needed carriers to a small fraction of the original number.  Before LCC, the firm lost management control over deliveries of logistics companies and the measurement of their performance cannot be calculated causing inefficiencies.  However, with the technological development and installation of RedPrairie software (later upgraded by SAP German technology giving LCC robust and scale compatibility of activities with the size of Nestle), delivery management could now be done at real time and in a centralized manner.             Further, due to perishable nature of Nestle inputs and emphasis in freshness, local outsourcing of raw materials is necessary for time efficiency of harvest-to-manufacture transfer ().  In effect, purchasing activities are designed both at strategic and operational level.  Strategic refers to selection and evaluation of suppliers, managing and negotiating contracts and other strategic planning activities in purchasing while operational activities provide inputs for supplier performance, actual ordering, receive goods and services and manage supply signals.  In view of this, the firm acknowledges close cross-functional communication within the organization and with the suppliers themselves including external authorities which is supported by intranet and e-procurement to establish an environment wherein information will be transferred in real-time and with efficiency.  This communication system allows the firm units and divisions to share purchasing networks to maximize category leverage, plan long-term competitive supply and result to fewer and standardized contract specification of suppliers.                     Lastly, although the firm’s manufacturing machines are produced by others, it has the necessary leveraging to customize its design and functionality according to its specific needs (2004).  This outsourcing advantage makes Nestle a “dictator” to suppliers partly because of its huge operations and financial scale.  A high buyer purchasing power, however, did not hold the firm to transfer the research and development activities to machine suppliers.  It has created “application groups” that can address immediate market needs particularly in packaging.  For example, packaging preferences in different regions are motivated by convenience, environmental concerns and economic conditions.  In Germany, glass packaging is preferred because it is deemed more environmental friendly while countries UK and France prefer plastic.  Americans prefer bigger packaging while Europeans see this size inconvenient while both of these regions favor for bulk packaging of maggy bullions unlike Africa which goes for individual ones due to lower purchasing capability.  These country differences, if not addressed efficiently, could lead to looses and can result to outsourcing problems.  Nestle prevents them occurring through internalization of monitoring activities outside the outsourcing contracts.              In this respect, outsourced activities can be evaluated through four skills essential for managers; namely, strategic thinking, deal making, partnership governance and managing change ( 2003).  The first, second and third can be best exemplified by Nestlé’s commitment to control the source and prices of suppliers () particularly in agricultural products.  The firm required their partners to produce quality, safe and cost-efficient raw materials including its adherence to minimize ecological hazards.  When the contract has been signed, continuous audits will be performed in the supplier’s site to assure maintenance and improvement of activities with legal and ethical practices in mind (like absence of abuse on child labor).  Finally, traceability is also an on-going commitment of the firm that necessitates suppliers to uncover their processes in order for the firm to assure contract standards and control any deviations that may arise therein.             In managing change brought about by new business partners or old partners that changed their processes, the LCC logistics strategy showed how the firm handled external resistance to introduce new technology.  The firm firstly studied the whole organization and external partners in order to benchmark and initiate possible conflict areas.  This preparation stage became crucial to the actual application of the technology and helped stakeholders to accept the change with mutual interest in it.  The management acknowledges that time is needed to realize the fruits of the change that made them allow some futile moments in its implementation.  This futility, however, did not result for managers to sit down rather encourage suppliers to participate in load planning, thus, ensuring that partnership governance is withheld even though the technology came from Nestle.              In conclusion, outsourcing initiatives of Nestle management is seen in the lens of purchasing power due to local adaptation.  The company could demand specific agreements in its advantage to suppliers because it has the financial back-up and principle of safety and quality across its century-old brand name.  The requirements became more aggressive when efficiency issues and local legislation becomes stiff.  Since cost-effectiveness can be negatively affected by additional pressure to comply with local legal requirements, these rigidities are transferred to suppliers that in turn provide the firm the necessary leverage the latter cannot solely attain because of the demanding environment it is operating.  Thus, without outsourcing, it could only choose between cost and quality (according to local responsiveness) and not be able to exploit the streamlining of both into its operations.            On Outsourcing and Business-Level Strategies             Looking in its outsourcing scheme, the firm’s great demand from its suppliers in terms of control, efficiency and quality sinks well to operate under integrated cost leadership/ differentiation strategy (2003).  Because of the outsourcing structure, Nestle could adapt quickly to environmental changes as the local supplier has ample knowledge and wide experience base that can provide optimal inputs and enhance legal adherence of the firm in ht locality.  Second, this could prevent the firm to learn new skills and develop new technologies just to meet the local demand because the supplier already developed facilities to blend with local preference and issues.  Lastly, outsourcing can effectively leverage core competencies for the firm while competing against rivals.  This last rationale in outsourcing made the firm focus its capabilities to other activities in order to excel in quality, cost or product line which can be difficult to develop when it has several tasks to perform.             Flexibility is necessary for firms to effectively use this hybrid strategy (2003).  The introduction of several software devices to Nestle enhances the flexibility of its manufacturing system because of the minimum manual intervention, thus, reducing human error and group decision bias.  With cost leadership/ differentiation strategy, the company could be caught with the low-cost versus product variety trade-off.  But due to its automation in its operations, the firm retained not only cost effectiveness and product variety but also quality.  The development of Gene technology () had benefited the firm to increase food production, quality, nutritive value and support sound agricultural practices.  Also, looking at technology in general, Nestle has 17 research and development sites including nine product technology centers (responsible to transform R and D findings into manufacturable products) that increases its ability to excel both at cost and differentiation strategies.              In addition, communication network (2003) with suppliers is maintained and improved.  This can address both operational and relational partnerships of the firm and create communication technology, establish mutually-beneficial contract and sustain long-term business with them.  This strengthening of partnership is done to link the organization not only to suppliers but also to distributors and customers for another source of strategic flexibility.  When the firm and distributors are closely operating, delivery and order requisition is done harmoniously, thus, preventing distribution and collection delays that can disrupt cost effectiveness, worse, results to disbandment of contract.  Nestle provides win-win solution to partners which is a characteristic of an internationally known brand competent to grant such environment.                      Acquisitions, Vertical Integration and Diversification The Nestle Waters of North America claimed that in order to be competitive, the company should be vertically integrated and be a low-cost manufacturer ( 2004).  This could be the particular reason why some activities in the value chain of Nestle would not just be apportioned to outsourcing.  Vertical integration exists when the firm not only produces its own inputs and but also handle the distribution channel ( 2003).  It creates market power for Nestle over rivals by saving cost of operations (through sharing of resources and technologies) and protecting valuable company information against imitation.  Because suppliers have several contracts that could be serving one of Nestle competitors, strategies of the firm can be easily translated and adapted by these rivals.  Internalization of activities kept them secret, thus, making the imitation costly and characterized. Nestle started as a mere producer of milk products, however, with several mergers, joint ventures and acquisitions, it diversified its business to include chocolate (merger with Chocolat Suisses SA), cosmetics (L’Oreal equity interest) and pet products (Ralston Purina acquisition).  Among diversification strategies, acquisition seemed the widely used by the company.  To illustrate, in addition to Purina, acquisition, which progressed in 1970s, includes Alcon (pharmaceutical), Buitoni-Perugina (culinary) and Valio (ice cream).  Partly, outsourcing was disregarded because activities are under it largely connotes vertical integration.  Rather, most of these acquisitions are linked to related and horizontal integration because they are within healthcare and nutrition industry.                 With this, it can be said that Nestle used outsourcing in its vertical set-up while acquisitions are prominent when it intends to diversify to different markets and products.  By making these acquired companies into subsidiaries, Nestle could make use of leveraging between outsourcing and internalizing activities.  Processes need not be adapted or restructured to be compatible with the new acquisition because suppliers and partners shoulder such responsibilities.  For its part, Nestle internalize its activities deemed crucial to maintain its reputation in nutrition like research and development wherein they are installed in the world headquarters of the firm in Vevey, Switzerland for close coordination with the corporate managers.  On the other hand, outsourcing is best used to overcome entry barriers ( 2003) in the host market where the firm wish to operate.  One entry barrier is government regulation that requires foreign firms to make use of local resources.  By outsourcing the human capital of the host country, Nestle is both satisfying corporate operations and government regulation at the same time.              With acquisitions of differentiated companies, the firm also avoids the cost of new-product development and adheres to the importance of speed to market ( 2003).  For example, developing the chocolate product can include significant investments, time and periods of sacrificing profitable returns.  Its success can also be unpredictable and vague especially when the firm is new to developing product, thus, creating huge risks.  However, Nestle acquired Cailler brand (2001) which gave the former the speed to market and brand history competitive advantage.  The 200 year-old history of this chocolate brand, wherein one half of which belongs with Nestle, caused chocolate tradition to be pegged to Switzerland and known worldwide.  The chocolate subsidiary also gave Nestle an effortless distinction of its chocolate products against rivals in which it was known to be a passionate brand compared to others like Lindt as intellectual brand.  Procedures in introducing confectionary products like market testing is also adapted by Nestle from the partnership which made it to conduct blindfold taste tests.  As a result, Nestle gained such recognition and profitability without huge marketing campaign and even elevated its corporate brand name and attached it to Switzerland’s history particularly in chocolate business.              In conclusion, advantages of diversification for Nestle can be achieved and protected through acquisition while vertical integration can be leveraged through outsourcing.  As it expands into different product lines, Nestle needs to be flexible in its manufacturing and other value chain activities.  As a result, market power should not be exclusively attributed through internalization of activities especially when diversification connotes adjustment of operations based on the requirements of the subsidiary.  Rather, market power should be a balance between outsourcing and internalization to uphold strategic flexibility of operations.  It means that the firm, even though could not secure all possible leakages of company information that could lead to imitation, has the sole knowledge on how to operate the balance and make competitive advantage over it.  This is concretized by its half century old contracting and in memoriam internal efficiency enhancement operating through its unique company goals and human resources attitudes towards innovation and excellence.  Nestle and International Strategies: Wrapping the Whole Activities             Using the determinants of national advantage (2003), agricultural products is outsourced to local producers because of the presence of the necessary factors of production particularly in the developing countries wherein agriculture remains a common industry.  This is also true why research facilities are enclosed within the borders of the mother company in Switzerland stimulated by the presence of supporting industries and the demand for extensive product researches.  However, with its environmental concern in the forefront, Nestle could bridge the gap of research exclusivity and raw material decentralization.  Ecological themes such as 80% of the waste materials in the manufacturing are converted as useful by-products while the 20% are disposed in environmental sound way () and discourage the use of ozone depleting substances in its refrigerants, echoes research activities to the different parts of the world from the square miles of its Swiss facilities.             The idea of the company to use global strategy (2003), that is standardized research products across country markets, is to integrate the health issues of country divisions and promote lower risks of lost of accountability and prevent high investment costs.  It can be argued that the strategy reduces the capability of the firm to exploit growth opportunities, say, the human capital of Japan and other scientific prowess of other nationality including their state-of-the-art facilities.  But Nestle is protecting a century-old brand name and could not seem to delegate the authority to create safe and nutritious products in other’s hands.  So even though findings are limited, it is within quality standards.  It is to be noted that a commercial drug takes 15 years and approximately 0 million to successfully launch in the market (2003).  As to Nestle, wherein its products have nutritive values, it could be argued that developing diverse country research centers could mean increased costs and even increased exposure to imitation.              On the other hand, outsourcing agricultural products is largely done through multi-domestic strategy (2003).  Even though there is a centralized purchasing principle, final decisions to acquire certain perishable raw materials is in the discretion of local management.  Being perishable and vulnerable to human and natural factors like weather, too specific and rigid standard operating procedures could serve as bottleneck in smooth operations of local plants and offices that centralization could alter effectiveness of contingency approach to problems.  Also, consumer needs and desires are aligned to the local distribution schemes of the firm.  Cereal and pasta may not appeal to the Asian markets whereas nutritive values could be undermined by poorer countries in favor of the basic need to eat and quench the thirst.  These regional differences are important to a global firm especially if it wanted to maximize the value of catering to local demand and improve profitability.             In conclusion, the decision to outsource, vertically integrate, business-level strategy and international strategy lies with the firm’s ability to leverage its resources and core competencies to achieve its market superiority.  Its firm structure necessitates it to contribute to the society where it has its local operations while shareholders require it to increase the value of the firm.  Its commitment to serve stakeholders in co-equal basis with the best it can calls continuous improvement of its value chain and competitive position.  In the process of continuous improvement, its human capital and other resources developed their respective leveraging capabilities and flexibility to endure complex environmental results and aggressive competitor movements like that of Unilever.  This complex set of Nestle strategies and adaptation reflects its historic feat to survive stiff competition and near bankruptcy.  Challenges seemed a company tool to excel and discover new ways to solve problems even though it entails not a single but multi-faceted application of global and business strategies.    Recommendation             Its balancing strategy between internalization and outsourcing should be designed as to prevent occurrence of stifled innovation or inefficiencies because a supplier produces a product at a lower cost (2003).  Due to increased management monitoring, software like RedPrairie should be promoted and installed in different country divisions in order for information to be linked in not only to top management decisions in the Swiss headquarters where research and development is located but also to country offices in order to align their objectives to the trend of other offices or their business partners.  Failure like managerial myopia or lost of flexibility could result to gain the black side of integration and outsourcing instead of exploiting their potentials.  However, technology could be overestimated as the number one option to integrate and enhance communication than face-to-face planning.  In order to avoid this, the management should consider a biannual meeting to country divisions, suppliers and other governmental authorities for strategic planning activities.             Further, maintaining the cost leadership and differentiation strategy at the same time could drown the firm and be “stuck in the middle” (2003).  To prevent this, it should keep its first mover advantage with that of the close rival, Unilever, and other niche competitors especially in pharmaceutical and pet products.  It should maintain the thread that links its diversified business into one superior veil— health and nutrition.  Intensifying its research, but preventing over-research as too much research can lead to morbidity or can result to exposure to competitors, and being aggressive in innovating environmentally conscious practices can assure its long-term breakthrough: bounded but effective.  Its sustainable development that includes the whole stakeholders intensify its first mover advantage, at least being a diversified food company, that can provide it the conducive environment to improve operations to protect its historic reputation.             Acquisitions and diversification strategies of the firm should also be controlled and monitored to avoid it to resort to greater levels of diversification because of low performance (2003).  Ineffectiveness or inefficiency should be regarded as a multi-option of divestures, restructuring or internal and external improvements not just simply an option to release a lot of money to buy new firms or subsidiaries in different business.  The trend of Nestle in latest acquisition/ partnership is to team up with pet foods and cosmetics industry apart from being human food company.  Economies of scale and scope might not be realized rather reflect the opportunistic behaviors of managers to retain their positions of increased their salary due to increased responsibility.  As a result, Board of Directors awareness and knowledge of company operations and evaluation of managers are necessary to identify the culprit in the organization.  Transparency should be adhered while directors should convene regularly to have in depth grasps of the logical cause of a proposed diversification.                  Finally, market research should be conducted in regions with varying preferences on packaging or product itself for effective multi-domestic strategy (2003).  It will assure that Nestle does not only comply with regulations on health issues but also satisfies the customers by conducting surveys to get the pulse of the consumers on ht end-result of research and manufacturing operations on top of health security and quality assurance.  In addition, global strategy in primary research endeavors from the firm’s headquarters should attempt to coordinate with other research companies in other countries to promote universal discoveries of new founded technologies.  This could enhance speed to market of innovative products from nestle by simply buying the patent form these foreign researchers.  The job of the research team is to improve and align patented technology to the firm’s brand image avoiding the rigorous and costly development of such technology.  It should be cautioned that such foreign research firm or institution should be accredited by some international bodies to assure quality for the receiving firm.                                          Credit:ivythesis.typepad.com

Global Stage

“NESTLE MAKES THE BEST FOR YOU”: A GLOBAL PERSPECTIVE Nestle Background In history, the company seemingly saw every chal...

Strategies in Action

STRATEGIES IN ACTION         INTRODUCTION                 A much accepted idea in the contemporary society dwells on the matter that the world today is becoming relatively small. National borders are opened to facilitate the unrestricted transfer of goods, services, technology and information. Lifestyles in one nation are somehow dictated by lifestyles and trends in another as the Internet and mass media break the barriers of geographical location and time. Today, the world is a global community as globalization takes place in a rapid pace and continuous to penetrate every sphere of societal living. Globalization often brings into discussion the concept of trade liberalization as a potent force of development. Trade liberalization and globalization go hand in hand as the exchange of goods, manpower and technology across national boundaries become the key characteristic of the globalization process. Thus, the modern world basically thinks of the multi-national corporations when confronted with discussions about globalization. Multi-nationals are some of the major players of globalization and are said to be the drivers of trade liberalization. These corporations extend their operations, technology and human force into foreign locations to deliver goods and services to the global consumers. This giant operational step necessitates strategies that do not only work for the local setting but should also be accepted by the worldwide audience. GLOBAL STRATEGY                         The growing pressure and importance of competing in the international market has driven managers to give renewed attention to the design and mechanisms of a global strategy and the globalization of markets. Advocates of adopting a uniform global business strategy or standardization claim that the fundamental needs of humans across the world are not dictated by national or cultural idiosyncrasies. They argue that humans essentially need the same things to satisfy their basic wants, thus, cultural diversity should not be a major consideration for business officials in their pursuit of global strategies and operations. The concept of a standardized global business strategy posits that   the various products sold locally can be appreciated in the international markets with only some minor modifications in product attributes ( 1997). There are three fundamental levels of the development of a global strategy – export and import activities, foreign licensing and technology transfer, and foreign direct investment (2002). No matter what level, the overall global strategy is said to render a range of benefits in achieving economies of scale such as maintaining the home country image of the product, minimizing costs of product changes, easier handling processes and manner of stocking the product, faster delivery, and minimal managerial time and effort ( 1997).              (1992) argue that companies pursue global operation in order to exploit global synergies abounding in the international business arena. This means that when firms go global, they expose and share the core factors of the multi-national operation such as marketing, research and development and manufacturing for joint utilization of other multinationals. A basic example of this approach to global strategy is Honda Motors which globally leverages the advanced engine technology in motorcycles of the company to ensure expansion into the automobile, snow-blower and lawn mower industry segments of the global market. A second example is Yves Saint Laurent which leverages its prestigious global brand name in high-end fashion to extend its business scope into the perfume, cosmetic and cigarette industry domains worldwide. The two companies’ and all other companies who seek a share of the global market want to take advantage of global synergies in order to gain competitive advantage. Global synergies through a global strategy have clear implications with competitive advantage as a positive impact on corporate profitability becomes a possibility. The chain reaction is basically realized through improved innovative capacity or some form of cost reduction on the part of the multi-national company Taking Honda as an example once more, the company’s engine technology which is originally developed for producing motorcycles, becomes virtually available for the production of engines in the various capacities in which Honda used it across the globe, with lesser costs (). Global synergies made possible by global strategy offer competitive advantage to a multi-national firm in five areas: efficiency, strategic, risk, learning, and reputation. Competitive advantage in efficiency takes place because adopting a global strategy would enable a company to gain access to more consumers and markets which enhance economies of scale. There is also a possibility that the firm can harness raw materials and labor force of other countries as the operation penetrates other territories (2006). Cleveland (2006) says that firms adopting global strategy can purchase expertise instead of develop it or have access to specialized skills that the firm presently lacks by opening employment opportunities in new locations (). Further, technical proficiency is enhanced by expanding in markets with greater expertise in certain aspects of technology (2005). Also, global strategy results to operational flexibility since exchange rates of currency change over time which gives the firm more opportunities for earning (2006). The multi-national firm can also enhance customization of products by exploiting skills patterned after the customs of the home market ( 2006). Strategic competitive advantage through global strategy comes because there is a possibility that the firm would be the first provider of a certain product in the market/country which expands operational efficiency, the presence of transfer price and cross subsidization among countries. Global strategy can also provide firms with a more comprehensive risk management since the firm has to diversify macroeconomic risks and operational risks due to differences in business cycles, labor issues, and natural settings of countries. The fourth source of competitive advantage in global strategy is increased learning opportunity as the firm is permitted to operate in diverse environments which enhance the company’s knowledge base relative to the different facets of business operations. Finally, global strategy makes reputation possible as the firm is guaranteed wider customer base and brand identification among these customers (2006).                (2005) argues that global strategy primarily poses risks in the security of the business. Foreign exchange and intellectual property issues need to be taken into consideration in global strategy ().  (1992) explain that global synergy promised by global strategy can be best achieved through operational control. Foreign operation entails spanning various national territories which makes control a vital factor. To achieve global synergies, core inputs between transacting nations must be shared or utilized collaboratively. However, the collaborative use and sharing of core inputs makes it difficult to figure out the distinct contribution and performance of each transacting nation.  This difficulty requires security and monitoring measures from managers and higher officials. The very fact that global strategy means operating in various locations makes the requirement for control a primary disadvantage of global strategy. There may also arise opportunistic behavior among managers who are tasked to exercise managerial discretion over the collaboration and monitoring of activities between independent transacting nations in the foreign operation. Hence, the power of global strategy to create global synergies between the central multi-national company and other subordinate business units demands a high level of control in the foreign operation (1992). According to  (2006) global strategy necessitates a centralized control with limited decision making power at the local level of operation. This characteristic renders disadvantages in coordination. The extensive business operation may pave the way for inefficiencies in the various processes of the business which makes coordination very important. A firm adopting a global strategy often encounters difficulty in obtaining complex performance requirements since this requires consistent collaboration between the various sub-units. Also, even if global strategy enables firms to access a wider range of skills and expertise, it also leads to loss of core competencies of the business as the operational capacities become dispersed to multiple locations due to outsourcing. Another disadvantage of global strategy dwells on intellectual property theft wherein partner-countries may be possible spies of competitors (2006). Finally, standardization may result to production of goods that do not necessarily suffice any customer need ( 2007).   SPECIFIC/PECULIAR NATURE OF NATIONAL MARKETS                           According to  (2004) international business strategy gives great emphasis on location specificity and underscores the importance of deliberating and answering the basic question of “Why do countries differ?” for firms taking interest in global operation. Difference among countries in the world lie in numerous aspects: cultural which include race, social norms, religion, and language; administrative comprising the political and economic processes; and geographic and economic which include wealth and income patterns ().  (1997) claims that although fundamental human needs do not vary across the world; cultural, political and social idiosyncrasies of a nation have essential influences on the buying behavior and decisions of the population. These realities put forward a significant argument that global strategy which follows a standardization of universal products may not be appropriate in certain conditions (). To address the complexities and differences among nations, cultural, political and social differences must be analyzed (2004) and firms pursuing international business strategy must be able to tailor their products accordingly using the adaptation strategy in global business ( 1997).  (1991) cite that within an international context, companies also opt to compete on a country-by-country basis. These companies make use of the multi-domestic strategy wherein market positions are protected from forces of the global market  and the firms compete in industry segments that are most affected by local differences. Some characteristics of the multi domestic strategy are: products are patterned after the preferences and norms of the individual countries; product and operational innovation emanate from the research and development efforts at the local level; decentralized decision making; and local sourcing ().             Multi-domestic strategy provides the following advantages: lesser political risk, minimal exchange rate risk, local responsiveness, products tailored on a specific market, and autonomy of the business unit in each country which results to faster decision making and response (2006). Firms adopting the multi-domestic strategy do not encounter much political risks. In this strategy, the local management attempts to operate effectively and formulate decisions regarding research and development, production, marketing and distribution based on business customs and practices in the local setting. The managers implement studies on what the local customers need and prefer in goods and services. They also consult with the local administrative bodies on local regulations governing the conduct of business. Moreover, a multi-domestic strategy ensures that a specific person from the company can be designated in required local representations. Thus, all business decisions and operations are based on what the local setting and local laws dictate. This characteristic of the multi-domestic strategy minimizes the possibility of non-compliance and threats of local authority intervention in the business operation ( 2007). Secondly, the multi-domestic strategy is not primarily governed by exchange rates. The value of the products is based on the prevailing rates at the local setting and the rates in the international market are not given much importance. Thus, when exchange rates in the global market change, firms using the multi-domestic strategy are not entirely affected ( 2007). Thirdly, multi-domestic strategy allows local responsiveness. The existence of local laws and regulations sometimes calls for a single domestic manufacturer that can provide the needs of the population. Firms adopting the multi-domestic strategy comply with local regulations and thus, become a potential sole domestic producer. This domination stimulates attention, participation and support from local consumers and leaders ( 2001).  Fourthly, since the multi-domestic strategy enables companies to research, design, produce, and market its products according to the distinct demand of each country in which they operate, these firms are able to come up with products that are uniquely available in each country and that the people enjoy. For instance, Coca Cola adopts the multi-domestic strategy which makes consumers find Coca Cola products in even the most remote location in the world with a distinct taste. Accordingly, each country where Coca Cola operates has its own unique Coca Cola product that is not sold outside the national boundaries. The United States has MellowYellow while Germany has MezzoMix. Even if these products are different in taste and are not sold in the same country, they are both manufactured by Coca Cola (2007).  Finally, to compete using the multi-domestic strategy, a business firm is required to maintain the activities of the business mainly independent in every country location since the ability to determine and foster local adaptation and responsiveness will depend predominantly within each country’s territory. Thus, the business unit in every location is provided with the authority to implement its strategies and render decision on operational matters. The ultimate aim is to suffice the tastes and preferences of the local area of operation. Considering the focus on local responsiveness in a multi-domestic strategy, the company is guaranteed accessible market intelligence in real time because of the autonomy of the business unit. There is no need for time-consuming deliberation with the authorities of the head office which means lesser effort, lesser cost of communication and time. These situations entail increased response time in countering competitors’ moves and any market changes (1991).             Essentially, recognizing and addressing the needs of every market is the main goal of any business endeavor. In international business, this is more desirable because of the risks associated with having to penetrate national boundaries that have their own culture, laws and needs for products and services. However, the pursuit for local responsiveness has its risks. Firms adopting the multi-domestic strategy basically incur higher costs due to tailored products and duplication across countries. Since business units of the business firm are independent of each other and are operating in specific locations, production and marketing strategies are also unique. This means that in any case, two or more business units in separate locations may have the same products and marketing approach which make the firm spend a considerable amount for the same thing ( 2007). Also, a firm using the multi-domestic strategy has no control over and is unable to transfer core competencies within the organization to other locations. This is mainly due to the autonomy given to every local business unit. The separation of the central office and the sub-office, and the sub-unit from one another connotes specialized competencies in every unit that cannot be consulted or harnessed by another unit. Thus, many firms using the multi-domestic strategy are self-contained and cannot reap the benefits of pooling their resources and marketing intelligence with other business units from other locations in the world (2007). Furthermore, the authority given to a business unit in every location to discover and implement their own innovative strategies sometimes leads to production of goods that are research-driven and not market driven. Finally, decentralization in the multi-domestic strategy delays marketing of the product as the firm may be required to comply with various local regulations before the product is allowed to be introduced in the market (2006).   EXAMPLES OF MULTI-NATIONAL CORPORATIONS                           Philips is an example of a company that adopts a multi-domestic strategy. The firm has established extensive mechanisms according to the company’s current structure as well as the competitive realities of each region that the company has an operation. For instance, in North America, Philips’s ultimate goal is to reinforce its market position and gain satisfactory levels of performance in the American market. The activities of the company in the United States are specifically arranged for every global product division. In Europe, Philips has a better market position and its primary objective is to reorganize the status and role of the large operations in the Netherlands, the home country, within the broader structure of the European market (2005). Multi-domestic strategy has provided Phillips with benefits such as innovative capacities shown by every regional operation, entrepreneurial spirit, specific products patterned after the preferences of every country of operation and high quality operation caused by backward integration (2006). However, the multi-domestic strategy has also rendered some problems for Phillips. Among these are high cost structure and adverse effects of the immense power of subsidiary units. On example of the negative effect of autonomy in the sub-units is the failure of the company to set the V2000 format as the standard in the VCR market in the later part of the 1970s because the American subsidiary did not adopt the V2000 format (2007).             On the other hand, an example of a company operating with a global strategy is Matsushita. The strategy enabled Matsushita to develop a solid global distribution network, a common vision statement that is followed by the entire company, financial control over all aspects of operation, extensive research and development, and easier marketing of products because individual country buy-in is not applicable. Challenges faced by the company with the strategy include issues with the Japanese currency, dependency on a sole product which is the VCR and loss of non-Asian personnel due to glass ceilings (2006).                                                 Credit:ivythesis.typepad.com

Strategies in Action

STRATEGIES IN ACTION INTRODUCTION A much accepted idea in the contemporary society dwells on the matter th...

Strategies in Action

Strategies in Action

STRATEGIES IN ACTION INTRODUCTION A much accepted idea in the contemporary society dwells on the matter th...