To survive or prosper in the global business environment, a firm must be skilful in how it applies its strategies to compete globally.
Although global competitive strategies are imperative for firms operating in multiple countries, the solely domestic firm must keep a global perspective to be prepared for foreign competitors entering its market in various forms (e.g. exports, franchising, FDI etc.). A global competitive strategy is the strategy a firm uses as it seeks to create or maintain an advantage over its global or international competitors. The strategies may be divided into those for creating competitive and those for avoiding competitive disadvantage.
Creating Competitive Advantage
The following are the major strategies for creating competitive advantage in the global market place.
1. Worldwide integration strategy
- The firm‘s activities are integrated worldwide and it offers similar product to all its customers around the globe.
- Such a firm will enjoy economies of scale arising from various sources, and hence its product unit cost will be low.
- In such a strategy, the firm designates certain countries as the places where certain activities are performed, e.g production could be done in South Africa, financing in Europe, taxation in the Middle East, and the manufacture of parts in China, Korea, and Mexico.
- Activities are usually designated to be performed in countries where such activities can be performed cheaply.
- An example of this strategy was the attempt by Ford to make the Ford Escort a ―world car‖. Configuring its processes, resources and strengths in pursuit of advantages enabled Ford to produce the Ford Escort at a lower cost than cars produced by competitors.
2. National responsiveness strategy
- Unlike the worldwide integration, this strategy allows subsidiaries much more autonomy to respond to local market conditions prevailing in a country.
- The ability to quickly respond to different preferences and regulatory changes across countries gives the nationally responsive firm an advantage over the firm pursuing a worldwide integration strategy.
- While the integrated firm cannot quickly alter its operations in one country without threatening the operations of other subsidiaries, the responsive firm can.
Administration coordination strategy
- Refers to a strategy which combines both worldwide integration and national responsiveness.
- Since most industries are not entirely global or entirely multi-domestic, it is often necessary that firms develop the ability to both integrate globally and be locally responsive.
- The strategy, however, is quite difficult to implement because local responsiveness and worldwide integration are trade-offs between flexibility across countries and flexibility within countries, while the firm concentrates on internal efficiency. While trying to rationalize between the two trade-offs, internal efficiency often suffers.
- The strategy requires skill and a flexible organizational structure to respond adequately both to pressures for integration and responsiveness.
- In today‘s global business, firms often cooperate rather than compete to enhance their competitiveness.
- Collaboration may take the various forms e.g. strategic alliances, joint
4. Broad-line competitive strategy
- Here a firm competes on a worldwide basis and offers a wide range of products in a given industry.
5.Global focus strategy
- In this strategy, a firm competes worldwide, but only in a part of the industry.
6.National focus strategy
- This strategy involves focusing on one or few particular national markets and trying to outperform global firms by concentrating on keeping costs low or differentiating products within those few markets.
8. Protected niche or shelter strategy
- It is a strategy where governmental protection is sought from competition in certain countries in order to gain competitive advantage.
- The strategy, however, does more to isolate a firm from competition than giving it a competitive advantage.
- Firms from smaller countries and developing countries often find this strategy particularly advantageous.
Avoiding Competitive Disadvantages
Firms often resort to the following strategies to avoid being placed at a competitive disadvantage in the global or international marketplace.
- Refers to the tendency of firms in oligopolistic industries to follow the moves of a major competitor in the industry.
2. Presence in competitor’s home markets
- The simple presence of a firm in a competitor‘s home market, even on a relatively small scale, can pose a sufficient threat to a competitor that prevents the competitor from attacking the firm‘s primary markets.
3.Presence in key global markets
- A firm cannot truly compete on a global scale if it is not present in the key global markets such as the Americas, Japanese, and Western European markets.
- These three markets account for about half of the world‘s total consumption, and share certain important economic and demographic conditions.
- If a firm does not have operations in all three areas of the triad, it may not be able to achieve maximum economies of trade.
MANAGING GLOBAL FUNCTIONS
- By their nature, MNEs/MNCs are headquartered in one country but have operations in other countries.
- In carrying out business efficiently and effectively, MNEs/MNCs come up with appropriate strategies to manage the various functions efficiently and effectively in a global scale.
- The functions include but not limited to Marketing, HRM, Finance, and R&D, Innovation and Production.
- Should be designed to help identify opportunities and take advantage of them.
- Involves consideration of:
- The product or service to be sold,
- The way in which the output will be promoted,
- The pricing of the good or service, and
- The distribution strategy to be used in getting the output to the customer.
3. There is therefore need for MNEs/MNCs to consider fundamental of international marketing strategy.
4.Marketing strategy begins with an international market assessment, the evaluation of the goods and services the MNE can sell in the global market place.
5.Product strategies will vary depending on the specific good and the customer; some products need little or no modification, and others require extensive changes.
6.There are a number of ways in which MNEs promote their products, although the final decision is often influenced by the nature of the product.
7.Pricing in international markets is influenced by a number of factors including government controls, market diversity, currency fluctuations, and price escalation forces.
8.Distribution strategies differ on a country-by-country basis, and MNEs ought to spend a considerable amount of time in examining the different systems in place, the criteria to use in choosing distributors and channels, and how distribution segmentation can be accomplished
Human Resource Management
- International HRM entails the process of selecting, training, developing, and compensating personnel in overseas positions.
- HRM strategies involve consideration of staffing, selecting, training, compensating, and labour relations in the international environment.
- Attention should be paid to language training, cultural adaptation, and competitive compensation among other things.
International financial management by MNEs should consider a number of critical areas:
- The management of global cash flows,
- Foreign exchange risk management,
- Capital expenditure analysis, and
- International financing.
R&D and innovation
R&D and innovation form the basis for new product development and modifications, business process reengineering, and knowledge creation. Therefore, central to R&D and innovations decisions is the product life cycle theory. The way MNEs manage these operations is determined by the extent of globalization and/or localization adopted by a specific MNE. Most MNEs manage their R&D and Innovations as projects, hence will involve substantial investments. R&D could be decentralized or centralized depending prevailing market conditions. MNEs need to continually research, develop, and bring new offerings to the market place due to proliferation of cheaper substitutes. In production of goods and services, MNEs ought to look at cost, quality, and well-designed
production systems. To ensure efficiency in production, MNEs should manage their international logistics effectively. To improve production, MNEs pay critical attention to:
- Technology and design,
- Continuous improvement of operations, and
- The use of strategic alliances and acquisitions.
These are bound to help MNEs meet new product and service challenges while keeping costs down and quality up. Thus strategic decisions are a dynamic and complex process because of the impact of several factors. However, executives can reduce this complexity by putting a few questions while going for strategy.
- Does the strategy fit management’s values, philosophy, know-how, personality, and sense of social responsibility?
- Is the strategy consistent with the internal strengths, objectives and policies of the organisation?
- Does the strategy not conflict with other strategies of the organisation?
- Is the strategy likely to produce a minimum of new administrative problems for the organisation?
- Does the organisation have sufficient resources to implement the strategy?
- Does the strategy balance the acceptable minimum risk with maximum profit potential consistent with organization‘s resources and prospects?
- Does the strategy require too much or too large of organization‘s resources?
Environment has become so complex; predicting the future with accuracy is difficult. The number of variables to be considered in the decision making process are increasing. Production and related technologies become obsolete within a short span of time. The number of events-both domestic and world-affecting the organization has increased. With all this happening over-reliance on experience prove to be costly. More reliance has to be placed on creativity, innovation and new ways of looking at the organization in the world in which we exist. A rapidly changing environment requires that managers to make a clear distinction between long range planning and strategic planning which is a component of strategic management.
Strategic management sets the major directions for the organization i.e., mission, major products/ services to be offered arid major market segments to be served. Without the major directions being set before, establishing objectives does not carry much sense. The Strategic management is the major tool for planning and implementing major changes an organization must make. Many organizations tend to spend substantial amount of time and effort in developing the strategic plan, without devoting sufficient attention to the means and circumstances under which the strategic’ plan to be implemented. It has often been seen that changes come through the implementation thus the need for proper corporate culture, organization structure, rewards and recognition, and appropriate policies regarding performance appraisal need to be stressed.