Global Strategy

International trade has become a norm today with barriers breaking down.  Companies have to formulate global strategies to gain competitive advantage.  Of course, some industries benefit more, and some nations have a comparative advantage over others.   To create a global strategy, the managers have to understand the nature of global industries and the dynamics of global competition.

Sources of Competitive Advantage from a Global Strategy: 

Competitive advantage can be gained through a well designed global strategy.  These are

Efficiency   -   Strategy   -    Risk    -    Learning   -   Reputation

The nature of competitive advantages in global industries: 

The global industry can be defined as –

• an industry where all firms compete in all world markets of that product in order to survive;
• an industry where a company’s competitive advantage depends on economies of scale and economies of scope from across the markets.

Global markets are international markets where products are standardized.  Industries here are either multi-domestic or global.

Global Industries have global competition.  The same firms compete with each other everywhere.

Multi-domestic industries are where firms compete each other in national markets independently of other national markets.

What drives the extent and nature of globalization in an industry?

Market:

• A degree of homogeneity of customer needs,
• Existence of global distribution networks,
• Transferable marketing.

Cost:

• Potential of economies of scale,
• Transportation cost,
• Product development cost,
• Economies of scope.

Government:

• Favorable trade policies ( market liberalization)
• Compatible technical standards and common marketing regulations,
• Privatization.

Competition

The greater the strength of the competitive drivers, the greater the tendency for an industry to globalize.

Modes of Foreign Market Entry:

• Exporting,
• Licensing (includes franchising)
• Joint Venture
• Foreign Direct Investment.

The mode of selection for entry could have a significant impact on the company`s foreign

market success.

Country Management:

Country managers should have a good knowledge of strategy management, firm specific knowledge, country specific knowledge, and knowledge of global environment.

Questions:

• Define global industry.
• What are the factors that drive the global industry?