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Home > Business Strategy Best Practice > Toward a Total Global Strategy

Business Strategy Best Practice

Toward a Total Global Strategy

by George Yip

Table of contents

Executive Summary

  • Globalization has become a goal for many companies.

  • But simply spreading activities around the globe is not enough; companies need coherent global strategies.

  • In the past, multinationals tailored their products and services to local markets. This represented a multi-local rather than global approach.

  • The challenge now is to develop truly integrated global strategies that leverage competitive advantage across all markets.

Introduction

In the 1980s and the 1990s, many companies were still debating whether they should globalize. For most, this debate has now ended. Companies assume that they should globalize unless they can find very good reasons not to.

The spread of the internet and the Web provides one compelling reason. Any company that creates a website has instant global reach, with corresponding demands for delivery and service. In addition, evidence shows that companies that globalize achieve better competitive and financial performance.

But globalizing, in the sense of spreading activities around the world, is not enough. Companies also need to be globally integrated. They need globally coherent strategies, global networks, and the ability to maximize profits on a global basis. However, turning a collection of country businesses into one worldwide business that has an integrated, global strategy is not easy. It presents one of the stiffest challenges for managers today. Developing and implementing an effective global strategy is the acid test of a well-managed company.

The Case for Globalization

Whatever the anti-globalization protestors may say to the contrary, a range of forces is driving companies around the world to globalize. Many managers view this as expanding their participation in foreign markets. But companies also need to globalize in another sense. They need to integrate their worldwide strategy. This contrasts with the traditional multinational approach.

In the past, multinationals have tended to set up country subsidiaries that design, produce, and market products or services that were tailored to local needs. But this model is now in question. Increasingly, the multinational approach is seen as a “multilocal strategy” rather than a truly global strategy.

Today, a growing number of managers are asking, if they are in a global industry, whether their business should have a global strategy. Better questions are: how global is our industry, and how global should our business strategy be? This is because virtually every industry has aspects that are global or potentially global. But some industries have more aspects that are global, and more intensely so.

Similarly, a strategy can be more or less global in its different elements. An industry is global to the extent that there are inter-country connections. A strategy is global to the extent that it is integrated across countries. Global strategy should not be equated with any one element—standardized products, or worldwide market coverage, or a global manufacturing network. Instead, global strategy should be a flexible combination of many elements.

Beyond the Multinational Model

Recent and coming changes make it likely that in many industries a global strategy will be more successful than a multilocal one. Indeed, having a sound global strategy may well be the requirement for survival as the changes accelerate. These changes include: the increasing convergence of consumer tastes across countries; the reduction of tariff and non-tariff barriers; technology investments that are becoming too expensive to amortize in one market only, and competitors who are moving from country-by-country competition to global competition.

In the 1990s, the world saw greater convergence in customer needs and tastes; the drastic reduction of many government barriers to free trade and investment; an acceleration of enablers in communications, and a surge in globally applicable new technological products and services. All this does not mean that every industry has become entirely global. But today, nearly every industry has a significant global segment in which customers prefer products or services that are much more global in nature.

Around the global segments, however, regional, national, or sub-national niches still exist. The size of the global segment varies, from very large in the personal computer industry, to relatively small in many parts of the food industry. But the global segment is increasing in size in nearly all cases.

Tumbling Barriers to Trade

Around the world, trade barriers continue to fall. The most important examples include: the North American Free Trade Agreement among the United States, Canada, and Mexico; the continuing integration of the European Union; the formation of the new World Trade Organization in 1995, and China joining that body in 2001. The Asian Crisis of 1997 to 1999 has also helped to open up economies such as Japan and South Korea.

At the same time, the rise of the newly industrializing countries (NICs) such as Hong Kong, Taiwan, South Korea, Singapore, Thailand, Malaysia, Mexico, and Brazil has increased the number of viable sites for sophisticated manufacturing operations with low labor costs. Even China and India are beginning to join the industrialized world and the global market economy.

Almost every product or service market in the major world economies now has foreign competitors. They compete to sell everything from computers, to fast food, or medical diagnostic equipment. Increasing foreign competition is itself a reason for a business to globalize in order to gain the size and skills to compete more effectively. But an even greater spur to globalization is the advent of new global competitors who manage and compete on an integrated global basis.

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Further reading

Books:

  • Yip, George S. Total Global Strategy II. Harlow, UK: Prentice Hall, 2002.
  • Yip, George S. The Asian Advantage: Key Strategies for Winning in the Asia-Pacific Region. Cambridge, MA: Perseus, 2000.

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