10. global strategies

Strategy Management

Global Strategies

Dr. B. K. Mukherjee 2

Global StrategiesGLOBALIZATION, in its true sense, is a way of corporate life

necessitated, facilitated and nourished by the trans-nationalisation of the World economy and developed by corporate strategies. It is a mind-set which views the entire world as a single market.

A global strategy seeks to meet the needs of customers worldwide, with the highest value at the lowest cost. This may mean

locating production in countries with the lowest labour costs or abundant natural resources;

locating research and complex engineering centres where skilled engineers and scientists can be found; and

locating marketing activities close to the markets to be served.A global strategy includes designing, producing and marketing

products with global needs in mind, instead of considering individual countries alone.

However, when a business crosses the national borders of a given country, it becomes enormously more complex – a wide range of legal, political, cultural and sociological dimensions enter the picture.


Case: Arvind MillsMISSION STATEMENT OF ARVIND MILLS CO. LTD

“To achieve global dominance in select businesses built around its core competencies through continuous product and technical innovations and

customer orientation with a focus on cost effectiveness.”It is interesting to note that the Mission statement concentrates on

core competencies, instead of specific products or businesses (eg, Denim or Saris). These competencies include knowledge of all aspects of the textile business, the ability to think global, strategic flexibility, speed and financial engineering skills.

RENOVISION ON THE ART OF GLOBAL DOMINANCE Source raw materials wherever they are cheapest. Manufacture wherever in the world is most cost effective. Sell in those global markets where prices are highest. Raise finances globally. Forge international strategic alliances (eg, Fiat cars sold by Tata

Motors in India). To manage all these, take on the best talent from all over the

world. And you will have achieved the stature of a true multinational.


Stages of GlobalizationKenichi Ohmae, in his well-known book, “The Borderless World”, has

identified five different stages of development before a firm becomes a truly global corporation:

Stage-1: Arms-length export/service activity of essentially domestic company which moves into new overseas markets by linking up with local dealers and distributors.

Stage-2: The company takes over these activities on its own.Stage-3: The domestic based company begins carrying out its own

manufacturing, marketing and sales in the key foreign markets.Stage-4: The company moves to a full insider position in these

markets, supported by a complete business system including R&D and engineering. The domestic headquarters has to extend its reach and provide support functions, such as HRM and finance, to all overseas activities. All through stage-4, the ‘headquarters mentality’ continues to dominate, with different local operations linked to each other through their relation with the centre.

Stage-5: The company moves toward a genuinely global mode of operation, where it has to denationalize its thinking and create a system of values shared by corporate managers around the globe.


Complexities of GlobalizationENVIRONMENTAL AND CULTURAL DYNAMICS [Ramaswamy & Namakumari]This can be understood by studying the people of different countries,

their patterns of life, their social interactions, their sensibilities, their faiths and fancies: in other words, the global manager has to become a native in the foreign land. He has to communicate with the people in their lingo and idiom.

Endel J. Kolde has said: “Multinational enterprises must function in a world of contrasts: old and new, primitive and modern, pious and agnostic, unutterably beautiful and sickeningly squalid, educated and ignorant, progressive and stagnant, sophisticated and naïve – all in constant agitation. To interpret this volatile diversity, to make sense of this apparent chaos, we must try to identify the underlying forces – the prime movers – which produce the global dynamics.”

Cultural diversity continues in spite of modern communication and transport having brought nations closer. A nation’s history, its social and religious heritage, the value system of its people, the code of conduct handed down through generations – all these comprise a nation’s culture.

Moreover, culture is not static. It often undergoes continuous evolution. Sizing up the cultural dynamics of different nations of the world is one of the biggest challenges of global business.


Entry strategiesGenerally three approaches are followed in entering foreign markets:1. EXPORTS: Produce at home and export abroad. This is the primary

route to entry into global markets.2. LICENSING: Enter into contractual agreements for

Licensing/Franchising of technology and know-how with interested foreign companies, without owning assets in a significant way.

3. To own and control assets abroad through JOINT VENTURE with foreign partner, thereby benefiting from the

local partner’s knowledge and understanding of the host country’s competitive conditions, culture, language, political and business systems. However, there is a risk of losing control over technology.

DIRECT FOREIGN INVESTMENT by way of a WHOLLY-OWNED SUBSIDIARY by setting up a completely new operation in the host country, or

MERGER or ACQUISITION: By acquiring an established company and using it to promote its products in the host country, eg. Vijay Mallya’s UB Group acquired a small British company, Wiltshire Brewery, thereby gaining ready access to a chain of 300 pubs throughout Britain to market its Kingfisher and Kalyani brands of beer. Although it is the most costly method, many high-tech companies preferwholly-owned subsidiaries to joint ventures or licensing

arrangements.


Advantages & DisadvantagesEntry Mode Advantages Disadvantages

Exporting Location and experience curve economies

High transport costsTrade barriersProblems with local mkt agents

Licensing Low development costs and risks No location and exp. curve eco. No global strategic coordination Lack of control over technology

Franchising Low development costs and risks No global strategic coordination Lack of control over quality

Joint ventures

Access to local partner’s knowledge Shared development costs & risks Political dependency

No global strategic coordination No location and exp. curve eco. Lack of control over technology

Wholly-owned subsidiaries

Protection of technology Global strategic coordination possible Ability to realize location and experience curve economies

High costs and risks

[Hill & Jones, p.287]

10. global strategies

Economy & Finance

Transcript of 10. global strategies