Introduction
Strategic management involves several processes. A management team that is strategic in nature conducts external environment scanning and comes with the organizational short-term and long-term goals while considering the organizational strengths and weaknesses. Organizations that have launched into foreign markets have had to formulate strategies in the international context. What are the main considerations when applying strategic concepts in the global environment?
Strategic Management in the Global Environment
The management has to use four main frameworks in strategy formulation. These are the geographic scope of the foreign location, the competitive environment, the geographic access that the firm has and the interaction of the company’s values and the local values or focus (Lessard, 2003). The company should assess the attractiveness of the foreign location it wants to invest in. The company should also consider its strengths and weaknesses in relation to the new location. The management should be specific on the scope and nature of operations that will be conducted in the foreign market. Clear guidelines and goals gives the company’s staffs focus. Will the company merge with a local company or does it prefer to enter the market on its own?
The geographic access of the company is an important consideration. Both methods have their advantages and disadvantages. Porter gives several guidelines on how the competitive nature of the foreign location should be assessed. The company should analyse the existing industry rivalry. What are the barriers to entry in the specific market? How many firms offer substitute goods? The company should also consider the number of buyers in the market. Are they few and therefore have high influential power on prices or are they few? What about the suppliers? Few suppliers in the market create oligopolies to the organization. Lastly the management should decide to what extent the socio-cultural environment will affect the activities of the organization. Will the products be tailored to the local markets? The customers will have loyalty and great customer goodwill towards the company. Will the company recruit from the local employee pool? What about corporate social responsibility? The company should decide the degree of responsiveness it will have to the local conditions.
Role of Corporate Governance in Strategy Formulation
Corporate Governance plays a big role in the organization. Without sound corporate governance the company will not be able to achieve its strategies effectively. Corporate governance plays three important roles in the organization. First of all it ensures that the social interactions between the staffs themselves and the management are healthy in nature. There is a communicated standard and values when it comes to behaviour that is communicated through corporate governance. Corporate governance also ensures the continuity of the organization. Corporate governance refers to the rules and regulations in the organization which lay down the procedures by which the organization shall be administered and monitored. It also establishes various committees in the organization that oversee the different aspects of the company operations. The committees ensure they are internal controls that safeguard the company’s assets from fraud or manipulation. Promotions and recruitments have to be based on the skills and knowledge required (Kendirli & Çaglar, 2010).
Corporate governance also guards against employees practicing insider trading or having situations that cause the employees to have conflict of interest. It defines the duties, responsibilities and the rights of the management, directors or partners of the organization. Corporate governance defines the role of the Board of directors and management. In strategic formulation, corporate governance ensures sound strategies are formulated. It also ensures that there are effective and efficient mechanisms to implement these strategies. The management is accountable to the relevant authorities on the policies they choose to adopt.
The External Environment and Strategy
A business operates in an open system. It does not operate in a vacuum. The business has to consider all the dimensions of the external environment such as the regulatory/legal, economic and social environment. The external environment may adversely or favorably affect the business. The company however should ensure it is not caught unawares. It should be conversant with the trends in the legal/political, social and competitive markets. The Legal and Political environment
This is an area that can be quite a threat to the company as it carries out its business activities. New laws can be enacted that can adversely or favorably affect the sales of the business. Over time, the operations of a company may become unacceptable and the company may have to stop the operations. The country may also change its laws on protectionist laws and tariffs in the country. Companies that had ventured into certain countries through joint ventures had to leave when the governments decide to nationalize companies in different industries. The political environment also affects the strategic operations of the industry. Political unrest and instability in certain countries have caused companies to exit these markets and choose other markets to invest in.
The Competitive environment
One of the biggest factors in the environment that affects the business strategy is the competitive markets. The company will have to be innovative in a market with many similar goods so that they can offer to the public a differentiated product. They will have offer something different to the customer that will make them stand out. They may offer excellent customer service, efficient services or cheaper products. As the company decides whether to invest in a certain market, it looks at the direct competition it would face if it entered into the market. In industries that have intense competition there are many companies of the same size that offer the same products. Such industries have high rates of market exits as the competitive environment is too tough for certain businesses. The companies in the industry will also experience low rates of growth. The company has to be aware of what the competitors are doing and offering in the market. The competitors pose a threat to the company and it has to work hard to stay ahead of the competition.
The Technological Environment
The technological advancements in the external environment will also affect the strategy of the organization. There are great opportunities that the company can take advantage of in this aspect of the external environment. If the company does not keep itself aware of what is happening on the technology front, they will find themselves with outdated and obsolete products. Customers will go to competitors to get the latest products. This is an area for the company to show the public that it is the best in the market.
The Social Environment
There are four aspects of the social environment that will impact the company strategy. The first one is the customer’s preferences and wants. The customer’s desires are never static. The customers keep on changing their wants therefore influencing the kind of products in the market. Companies pay a lot of money in market surveys and research on consumers to find out if their customers are pleased. The second dynamic in the social environment is the culture and societal expectations. In going to the different markets especially in the global markets, the company has to put into consideration the people’s culture. The third aspect in the social environment is the aspect of social responsibility. In the world today, companies have had to involve themselves in corporate responsibility initiatives. The demography of the population will also influence the company’s strategy. In countries where the young population is being rapidly being replaced by the older generations due to reduced birth rates, companies have to employ different strategies. For companies looking to recruit the young people, they may be forced to recruit from other countries or outsource services (Chaneta, 2007). The Economic Environment
In times of economic depression, the company will not be able to sell the volumes of goods they had anticipated. They have to re-strategize on how they will survive in the harsh market environment. In times of economic boom, the company re-strategizes on how they will take advantage of the excess cash and deposits that the customers have.
Challenges and Solution in Strategy Implementation
It is harder to implement strategies than to formulate them. There are several factors that affect the efficiency of strategy implementation in the organization. First of all a vague, ambiguous or poorly phrased strategy will make the organization not achieve anything. Even if the managers are skilled in execution strategies it will be of no effect. The management should ensure that they come up with strategies that are clear. The organizational capabilities should match the strategies formulated. There should be great communication from senior management to staff on the strategies adopted by the organization. All the people should be on the same page with access to the relevant information (Hrebiniak, 2006).
Poor relationships, unhealthy competition and conflict and lack of coordination among the departments also make it difficult for the organization to implement its strategies. There should be teamwork, clear roles and responsibilities and reward systems to ensure the staff work together to achieve the organizational goals. The executors can also impede the implementation of the strategies. The success of the strategies depends on the quality of people involved in the process in terms of their skills, knowledge, attitudes, perspectives and experiences. What are the tactics that the staffs are using in their everyday work? Do they have to be persuaded to work? Do their supervisors collaborate with them? The organization should ensure they are equipped and trained for the work at hand.
The involvement, support and participation of the top management also affect the execution of the strategy. They all should be trained in strategy formulation. They should own the vision so that they are able to transfer it to the rest of the staff. The middle management or the supervisors should be willing to take the appropriate risks and be innovative or creative for the company to excel. They should be able to guide the staff well. The organization structure should also support strategy implementation. The structure should not be rigid causing the staff frustration and stress.
References
Chaneta, I.(2007). Strategic Management Process. Journal of Comprehensive Research, 5, 17-25.
Hrebiniak, L.G. (2006). Obstacles to Effective Strategy Implementation. Organizational Dynamics, 35, 12-31.
Kendirli, S. & Çaglar, I. (2010). Corporate Governance as a Strategic Management Factor: Investigating Financial Institutionalization In Çorum SMEs, Academic and Business Research Institute Conference - Las Vegas 2010. Retrieved from: http://www.aabri.com/LV2010Manuscripts/LV10101.pdf
Lessard, D. (2003). Frameworks for Global Strategic Analysis. Journal of Strategic Management Education, 1(1), 1-12.
