7.2 Global Strategy Formulation

Global strategy formulation is a crucial aspect of international business. Companies must choose between global, multidomestic, transnational, and international approaches to compete effectively in diverse markets worldwide.

Key considerations include balancing global integration with local responsiveness and developing a strong competitive position. Firms must also implement their strategies through alliances, partnerships, and appropriate organizational structures to succeed globally.

Global Strategy Approaches

Types of Global Strategies

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• Global strategy involves treating the world market as a single entity and offering standardized products worldwide to achieve efficiency and cost advantages through economies of scale
• Multidomestic strategy involves tailoring products and services to meet the specific needs and preferences of different national markets, recognizing that markets differ significantly across borders
• Transnational strategy seeks to simultaneously achieve global efficiency, local responsiveness, and worldwide learning by balancing the benefits of standardization with the need for adaptation (Honda)
• International strategy involves transferring core competencies and products developed at home to foreign markets while undertaking little local customization, viewing international operations as secondary to domestic ones (Harley-Davidson)

Key Considerations in Global Strategy

Balancing Global Integration and Local Responsiveness

• Global integration refers to the centralized management of geographically dispersed activities and the efforts to achieve synergies and cost efficiencies across global operations
• Local responsiveness refers to the ability to understand and cater to the unique needs, preferences, and business practices of specific countries or regions
• Standardization vs. adaptation involves deciding the extent to which products, services, and business processes should be uniform worldwide or adapted to local market conditions (McDonald's uses a combination of standardized core menu items and locally adapted offerings)
• Global competitive advantage can be achieved through various means such as exploiting cost efficiencies, leveraging unique resources and capabilities, or rapidly spreading innovations across global markets

Developing a Globally Competitive Position

• Companies must assess their relative competitive position in each market and determine how to allocate resources to maintain or improve their global competitiveness
• Firms may need to balance investments in mature, established markets with investments in high-growth, emerging markets to ensure long-term success
• Developing a clear understanding of the company's core competencies and how they can be leveraged in different global markets is essential for creating a sustainable competitive advantage (Apple's design capabilities and brand strength)
• Continuously monitoring and adapting to changes in the global competitive landscape, such as the emergence of new competitors or shifts in customer preferences, is crucial for maintaining a strong global position

Implementing Global Strategy

Global Strategic Alliances and Partnerships

• Global strategic alliances involve collaborative agreements between firms from different countries to jointly pursue shared objectives, such as entering new markets, developing new products, or sharing knowledge and resources
• Alliances can take various forms, such as joint ventures, licensing agreements, co-marketing arrangements, or R&D partnerships (Sony and Ericsson formed a joint venture to combine their mobile phone businesses)
• Successful global alliances require careful partner selection, clear definition of roles and responsibilities, effective communication and trust-building, and the ability to navigate cultural differences and manage potential conflicts
• Alliances can provide benefits such as access to complementary resources and capabilities, risk sharing, and faster market entry, but they also involve challenges such as the potential for misaligned objectives or the risk of unintended knowledge spillovers

Designing a Global Organizational Structure

• A well-designed global organizational structure aligns the company's global strategy with its operational capabilities and enables effective coordination and control of worldwide activities
• Common global organizational structures include the global product division structure (based on worldwide product lines), the global area division structure (based on geographic regions), and the global matrix structure (combining product and geographic dimensions)
• The choice of global organizational structure depends on factors such as the company's size, industry, level of global integration, and the diversity of its product lines and geographic markets (Procter & Gamble uses a global matrix structure)
• Effective global organizational structures must balance the need for global coordination with the ability to respond to local market requirements, while also facilitating the flow of knowledge and best practices across the organization
• Implementing a global organizational structure may involve challenges such as managing complex reporting relationships, ensuring clear decision-making processes, and fostering a shared global mindset among employees from different cultural backgrounds