Foundations of International Business
As per Govindarajan and Gupta (2008), global strategies provide direction to the organization towards future challenges. The major benefit of global strategy is in a way that it may be more suitable in those organizations where it is very difficult to reduce cost but pressure for local responsiveness is less. Therefore a standardized product is manufactured and sale out worldwide. Global strategy organizes and co-ordinates product, price and placement strategies across international markets and locations, firms that are utilizing global strategies are pretty centralized and integrated with the group stakes and strategies.
The major reason of using global strategies is that they help to increase and foster economic independence among national markets and multinational enterprise is a key driver of globalization as well. For the purpose of assessing whether these organizations are implementing global level operations, it is possible in a case if firms are global in their real market penetration level across globe. By getting the date of 500 MNEs, it can be stated that some firms are successfully global but most of the firms are not because their operations are based on breadth and depth of market coverage (Rugman & Verbeke 2004).
Global strategy means there is only strategy applied on all the branches of the world by a group of companies regardless of any socio-cultural differences. For example, IKEA will be applying same pricing strategies for every country for the same product. Some major characteristics of global strategies are:
- Every product is similar in all countries
- Low level of centralized decision making authority at local country levels.
- This strategy is only effective in case of less differences in countries.
- It provides benefits such as low cost, standard activities, and quick product development (Porter 1986).
IKEA Global strategy gives results in terms of:
Authentic distribution network.
One mission statement that was followed closely in all countries for each line of business.
Strong financial control.
High level of practical research and development.
Quick marketability and quality maintenance, as the intended market is global instead of individual.
There were certain pros and cons for global strategy and these cons and pros are as follows:
- Furniture composite parts were same to maintain the economy.
- Customization cost of external structure of furniture was comparatively lower.
- The furniture business was there with low growth.
- There were different consumer needs and preferences with respect to color, size. Houses are small in Japan so they need smaller and lighter colored furniture (Bartlett and Ghoshal 1989)
There was another dominant furniture trading industry in United States. An organization named as IKEA is using global strategy and (having an edge over opponents) from following sources
Some major decisions related to globalizations were beneficial in terms of increasing efficiencies in areas such as:
- From Foundation to broaden market, balance economy is the essence
- It helps to exploit different other countries key resources like workforce and low price raw materials.
- Increase in the product life cycle of each line of business; in this way, older products can be sold in lesser developed countries because of non-familiarity with these products in under-developed countries such as Asian countries.
- Working flexibility, cost per shift, change over time, replacements rate (Hamel & Prahalad 1993, pp.84-91).
- Commencement of mobile service facility and sole market supplier of the product.
- Sale price within countries
- Transfer price.
- Divide macroeconomic risks.
- Spread operational risks.
Diverse working environment renders chances of advance learning.