Definition
After the wave of industrialization, wherein factories dominated the landscape and manufacturing was the means by which companies grew, globalization became a byword. Globalization, in simple terms is the internationalization of business, of the products and services attached to it. Globalization is a result of the accessibility of travel, further enhanced by technological advances, which renders physical barriers as non-constraints but simply as geographic facts. Along with this kind of development, businesses were forced to adapt their reach to a global audience, else be devoured by more able competitors. Thus, global strategy was born.
Global strategy is defined as the techniques employed by the company in the conduct of its international business. Richard Lynch, a professor on the topic defines global strategy as the processes undertaken by the firm in its international expansion. According to him, it involves three sectors, multinational strategies, global strategies and international strategies, all interrelated with each other. Meanwhile, the business dictionary view global strategy as the company’s cluster of plans which aims to offer products or services at a global scale. Essentially, global strategy as the name implies is a set of processes, methods, or plan that aims to successfully penetrate markets on a global scale.
Description of Components
The four components of global strategy are the market participation, value proposition, supply chain infrastructure and the management model.
Market participation pertains to the customers or clientele of a particular product or service. The company first needs to specifically identify the market it caters, whether it is the younger ones, the working class or perhaps the affluent. It may also be in terms of gender roles, such as stay at home parents, or children, whose parents substitute them as purchasers. Along with that, the market penetration of the good has to be ascertained. Whether the good being offered is currently well known yes has to be sustained, or a product which is wholly a new player in the business, are some of the issues that have to be threshed out in outlining a firm’s market participation. The identification of market participation also plays a vital role in selecting modes of reaching clients since advertisements have to be tailored to the audience it aims to reach. Coca Cola, a drink which has global presence is aimed towards all ages, but it has been customized to different sectors as well. Coke zero for instance is aimed towards women who are more often that not, on a diet and would be more than happy to reduce their caloric intake. Meanwhile, the Coke in can targets travellers due to the car-friendly shape of the container and its ease in being lugged around. Mc Donalds meanwhile isa fastfood joint aimed towards middle class families who have children, as the ads often involve them.
Value proposition on the other hand refers to that benefit, feature or advantage that a good, product or service offers. It is very important that a business’ client base clearly grasp the value proposition of a good. The customer is motivated in availing of a good based on what it can provide to him. A good for instance may be of high quality, but if the buyer is unconvinced that he should purchase such, then all efforts would not translate to revenue. Likewise, the advertising materials may be beyond creative, yet if the customer does not subscribe to the belief that having such product would not make him happier or more attractive, then the business is unable to take full advantage of its media presence. To benefit from a value proposition, it has to be clear, concise and more than convincing, to motivate an individual to be a client. More than being a customer, it has to create happy customers who can relate their experience with those in their community, thereby creating a wider loyal base for the business. As with the earlier example, Coca Cola is associated with happiness and memories, as its heart touching commercials would like us to believe.Apple products on one hand offer exclusivity and screams sleekness as its futuristic design exclaims so.
While market participation and value proposition relate to the marketing and sales aspect of global strategy, the supply chain infrastructure pertains to the transport and availability of the good, product or service in domestic and international business hubs. It includes the logistical providers or modes used, such as trucks, planes and usually, shipping containers for non perishable dry goods. It also includes the suppliers which have to timely deliver raw materials or provide service in a synchronized manner. The supply chain also includes warehousing for durable goods and other bureacratic matters that have to be settled such as tariffs, taxes and custom dues. In its supply chain model, a company has to focus in timeliness. It plays such an undeniable role especially in doing business in a global scale. A customer may be interested in a good for example and would purchase or order a set of it. In turn, the company must be able to provide not only the amount required by the client, but also offer it at that specific time. There are a few supply chain hubs in the world, such as HongKong for Asia and Antwerp, Belgium and Dusseldorf, germany for Europe. These provide the infrastructure in transporting goods from the origin to the point of sale. For service oriented business meanwhile, the internet infrastructure plays a major role. Thus, for businesses that provide services, it is essential that the country has reliable and fast internet connection.
Lastly,the business has the management model which would run it smoothly. The management model consists of the process or method employed by a firm to run a profitable global presence. It includes the employees, such as labor that may be locally sourced or talents that may need to be flown in from the mother office. It also pertains to the leadership style involved, such as regional models or a unique business model for each country. Citibank for instance, which is a global bank has a regional model. In Asia, it has a banking style which is usually originates from its Singapore Hub, a business model which may be dissimilar from its North American mandate.
Risk
As with all businesses, risk is inherent. It may not be totally eliminated but it can be minimized or anticipated at the very least to soften its impact. Among the risks involved in operating a business at a global pace are macroeconomic risks and geopolitical risks.
Macroeconomic risks include inflation which largely impacts business performance. Uncontrolled inflation for instance may result to unforeseen currency fluctuations. This is turn may adversely affect the revenue and profits generated and remitted into the head office. Along with that, interest rate risks can increase the cost of loans, especially those which have floating interest rates. In the 1997 Asian Financial Crisis for example, businesses which have a presence in the region and had outstanding loans were exposed to ballooning interest rates, to which they were not hedged. In effect, their financial sheets were negatively impacted by a surge in interest payments. The Greek crisis on one hand was brought about by the undeclared fiscal deficits. Thus, firms which had Greek presence had to absorb the effect of the economic standstill. Almost all global firms though had already left Greece.
Business cycles are also among the macroeconomic risks faced by a company. Economic downturns for example which may be due to lifestyle shifts or a decrease in tourism in a particular country can affect the sales of a product aimed towards travellers. Nivea Sunscreen for example caters to beach goers who wish to keep their alabaster skin. With a decline in tourism, sales of sunblock and sunscreens in Thailand were down as well.
Geopolitical risk is another matter that has to be tackled to successfully conduct business in a global scale. Among the other risks, this kind of risk is difficult to hedge, as it involves politics and social dynamics internal to a country and its culture. In the middle east, the Arab Spring has lead to the Arab Uprising which we all know, have girm consequences currently. Thus, Libya which was once a playground for the affluent Arabs has become a wasteland, along with Syria and other Islamic countries. Oil companies are also one of those firms which are largely driven by geopolitics, as oil price is dictated not by supply and demand but by political ties and tension. The current Arab scuffle for example has brought oil to record lows, such that the barrel is now more expensive than its contents. However, in this case, oil firms have already hedged prices. The question is, what level have they insured their losses.
Aside from geopolitics, global firms also need to be aware of technological advances which may drive them out of business. This is relevant especially for companies which offer services. Uber for example has made a killing with the forward looking business model it gives to commuters. But, with the advent of smaller transport providing firms, in some countries, Uber did not flourish. In Singapore for instance, GrabTaxi has a following which Uber cannot replicate.
Although not all risks can be anticipated, at least a smartly managed global business can anticipate and insure itself from the potential losses of the possible risks. One option is to hedge exchange rates and to purchase forwards. Oil companies for example in regions have already hedged the price of oil. Meanwhile, it is also prudent to at least estimate the political situation in country before doing business. This is where rating agencies come in, especially for emerging markets such as Myanmar in Asia and the South American block.
Success Factor
The success of a company with a global base depends on the strategies it employs. The strategy to be effective must be multi-pronged, in that it should consider the risks, the product involved, the market and its potential growth. Risk assessment is one part, but risk taking plays a larger role, as it would determine if a business can indeed flourish in a particular country or region.
Starbucks is one example of a globally recognized successful brand. It has a strong supply chain, such that it has a continuous supplier of coffee beans from Africa to Asia to the Americas. Its store has a global design, which is similar all over the world. It has a value proposition which is robust, it does not pretend to sell over the top coffee, rather it ties the coffee with experience, the ambiance, the feeling that it would give. Its market base is comprised of the middle class and the affluent, with the rate it prices its good, it is far from being cheap. It has a local labor force but its business mantra is global, that is it provides excellent customer service.
Louis Vuitton on one hand has a clear consumer base, it only caters to the affluent and the wealthy. Its value lies in its exclusivity, its market proposition. The bags it sells are hand sewn and only made in France, its sole factory. It relies on customized delivery, thus it does not need to ship goods in a large scale or huge container.
On one hand, Gap is a clothing brand whose products rely on a labor force all over the world. Its shirts and clothes are relatively mass manufactured, that is, it has a hundred copies of one design, to be sold to the same number of customers. Its sweat shops are in China and in Bangladesh countries that offer cheap labor. It is supplier dependent, that is, without the laborers that churn out the clothes it sells, it may run out of business. To be able to hedge that risk, Gap has various suppliers from each country.
Lessons Learned
Globalization is not a trend, but has already become a norm. For companies to survive, they have to expand overseas and that means adapting to tastes, markets and risks. Products have to be tailored to the market it caters, thus some food items for example have to be tweaked to suit local tastebuds.
One very important aspect of global strategy however is that, although regions and countries which are culturally diverse would require products and services that cater to their specific tastes, some businesses which have a smaller client base do not need to bother with such. This is particularly true for items which sell affluence. Hermes is an example of this. It only has a few bags, and a waiting list which can only be penetrated by a select few. However, Hermes does nto tailor its design to the nationality or the region of the client it serves. Asians, Americans and Africans, no matter what ethnicity or culture would buy Hermes. The reason is, they are not actually buying the product, rather the right to own the product. Contrary to the behavior of business which mass manufacture goods, exclusive goods do not tailor fit their products, their clients rather adjust to their offerings.
References
“What Is Global Strategy? And Why Is It Important?" Global Strategy RSS. Richard Lynch. Web. 25 Feb. 2016.
Bremmer, Ian. "The Top 5 Geopolitical Risks for 2016." Time. Time, 7 Jan. 2016. Web. 25 Feb. 2016
DeKluyver, Cornelis. "Fundamentals of Global Strategy, v. 1.0." Flat World Knowledge. Fundamentals of Global Strategy. Web. 25 Feb. 2016.
