How can I better understand my company’s global strategy?
Before deciding on specific marketing activities, organizations must better understand their global strategy. Global strategy is to array the competitive advantages arising from location, world-scale economies, or global brand distribution, namely, by building a global presence, defending domestic dominance, and overcoming country-by-country fragmentation. In order to develop a marketing plan and engage in the International Planning Process, the following conceptualizations can be developed by marketers to see if and how global marketing efforts should be made.
Global Industry: This can be defined as where a firm’s competitive position in one country is affected by its place in other countries and vice versa. A global industry means not just a group of domestic industries, but also how each are interlinked and how rivals compete with one another worldwide. In order to understand your global industry, marketers should determine the degree of globalization of their industry. The diagram below displays the four major forces that drive globalization potential of an industry.
Competitive Industry Structure: This conceptualization is used to understand the nature of global strategy, and explains the dimensions that make up the competitive industry structure. These key factors are used determine the industries profitability. In theory, an industry where each of these conditions are low, the greater opportunity for profitability.
Competitive Advantage: To better understand your business on a global scale, competitive advantage must be realized in one of two ways: cost leadership or differentiation. Cost leadership strategy uses economies of scale to deliver products or services at the lowest cost to the customer. Differentiation occurs when company’s are able to deliver benefits to the customer that exceed those of competitors. Differentiation is more broadly defined, and includes unique features that may involve the products/services themselves, distribution methods, or promotional techniques. Overall, consider how your business is able to create value for its customers that results in greater profits for itself.
Hypercompetition: Remember that competitive advantage is temporary, and it is especially important for global companies to focus on how they will maintain competitive advantage in all markets in the future. Hypercompetition is another conceptualization that refers to the fact that all firms are faced with aggressive forms of competition that are tougher than oligopolistic or monopolistic competition, but also considers competition is not perfect, meaning a firm can take action to influence its market. This change in the way a firm competes is known as creative destruction. In a hypercompetitive environment, part of global strategy is to disrupt the market on the basis of price, quality, timing, knowledge and financial resources in order to outlast competitors. Using this conceptualization, consider what your company can do to change a situation to your advantage.
What are my alternatives for market-entry strategy?
If you are thinking about going global, but are unsure of how to expand into a new market, there are many market-entry strategy options. Deciding which method is most appropriate depends heavily on the planning process, but this post discusses the most common ways used today. I encourage everyone to analyze the costs and benefits of each before making a decision.
- Exporting: Exporting accounts for around 10 percent of global economic activity. Direct exporting occurs when a company sells to a customer in another country, and is most common with company’s taking their first international step. Indirect exporting usually means that the company sells to a buyer (importer or distributor) in the home company. Indirect and direct exporting can be achieved by using The Internet or Direct Sales methods.
- Contractual Agreements: Licensing and Franchising: This method involves long-term, non-equity associates between a company and another in a foreign market. Licensing agreements mean establishing a presence in a foreign market without large capital investments. Instead, patent rights, trademark rights, and rights to use tech and operational processes are given to another company. Franchising is a form of licensing in which the franchiser supplies a standard package of products, systems and management services and provides more support in the business overall.
- Strategic International Alliances: A strategic international alliance (SIA) is a business relationship established by two or more companies to cooperate out of a mutual need and to share risk in achieving common goals. International Joint Ventures and Consortia are two types of SIA’s. International Joint Ventures are characterized as follows: (1) JV’s are established, separate, legal entities, (2) They acknowledge intent by the partners to share in the management of the JV, (3) they are partnerships between legally incorporated entities, such as companies, chartered organizations, or governments and not between individuals and (4) equity positions are held by each of the partners. Consortias are similar to joint ventures but differ in two distinct characteristics. First, they typically involve a large number of participants and second, they frequently operate in a country or market where no participant is currently active. Basically, consortias are formed to pool financial and managerial resources and reduce risk. It is common for consortias to form in construction projects where there a large number of major contractors with different specialties. By establishing a separate company, negotiation and production can occur more readily.
- Foreign Direct Investment: Investment with a foreign nation is another way for a company to develop and enter a market. Investing locally has many benefits, including: taking advantage of low-cost labor, avoiding high import taxes, reducing high costs of transportation to a new market, gaining access to raw materials and technology, or as a means of gaining market entry altogether. The most common form of foreign direct investment is when companies establish manufacturing operations throughout the world. This trend in FDI will continue to increase as barriers preventing free trade are eliminated and companies can do business wherever it is most cost effective.
Cateora, Philip R., Mary C. Gilly, and John L. Graham. International marketing. 14th ed. New York: Mcgraw-Hill Irwin, 2009. Print.
Kotabe, Masaaki, and Kristiaan Helsen. Global marketing management. Hoboken, NJ: J. Wiley, 1998. Print.