Global Strategic Management

During the last half of the twentieth century, many barriers to international tradefell and a wave of firms began pursuing global strategies to gain a competitiveadvantage.However, some industries benefit more from globalization than do others, andsome nations have a comparative advantage over other nations in certainindustries. To create a successful global strategy, managers first mustunderstand the nature of global industries and the dynamics of globalcompetition.Sources of Competitive Advantage from a Global StrategyA well-designed global strategy can help a firm to gain a competitive advantage.

This advantage can arise from the following sources:

Efficiency:

-Economies of scale from access to more customers and markets

-Exploit another country's resources - labor, raw materials

 -Extend the product life cycle - older products can be sold in lesser

developed countries

 -Operational flexibility - shift production as costs, exchange rates, etc.

change over time

Strategic:

-First mover advantage and only provider of a product to a market

-Cross subsidization between countries

 -Transfer price

  Risk :

 -Diversify macroeconomic risks (business cycles not perfectly correlated

among countries)

-Diversify operational risks (labor problems, earthquakes, wars)

Learning:

-Broaden learning opportunities due to diversity of operating environments

Reputation:

-Crossover customers between markets - reputation and brandidentification

The Nature of Competitive Advantage in Global Industries:

  A global industry can be defined as:

 -An industry in which firms must compete in all world markets of thatproduct in order to survive.

-An industry in which a firm's competitive advantage depends oneconomies of scale and economies of scope gained across markets

-Some industries are more suited for globalization than are others. The followingdrivers determine an industry's globalization potential

1. Cost Drivers

 -Location of strategic resources

  -Differences in country costs

  -Potential for economies of scale (production, R&D, etc.) Flat experiencecurves in an industry inhibits globalization. One reason that the facsimileindustry had more global potential than the furniture industry is that forfax machines, the production costs drop 30%-40% with each doubling of volume; the curve is much flatter for the furniture industry and manyservice industries. Industries for which the larger expenses are in R&D,such as the aircraft industry, exhibit more economies of scale than thoseindustries for which the larger expenses are rent and labor, such as the drycleaning industry. Industries in which costs drop by at least 20% for eachdoubling of volume tend to be good candidates for globalizationsemiconductors are more global than ice

2. Customer Drivers:

  -Common customer needs favor globalization. For example, the facsimileindustry's customers have more homogeneous needs than those of thefurniture industry, whose needs are defined by local tastes, culture, etc.

   -Global customers: if a firm's customers are other global businesses,globalization may be required to reach these customers in all theirmarkets. Furthermore, global customers often require globallystandardized products.

  -Global channels require a globally coordinated marketing program.Strong established a local distribution channel inhibits globalization.

   -Transferable marketing: whether marketing elements such as brandnames and advertising require little local adaptation. World brands withno dictionary names may be developed in order to benefit from a singleglobal advertising campaign.

3. Competitive Drivers:

   -Global competitors: The existence of many global competitors indicatesthat an industry is ripe for globalization. Global competitors will have acost advantage over local competitors.

    -When competitors begin leveraging their global positions through crosssubsidization, an industry is ripe for globalization.

4. Government Drivers:

  -Trade policies

  -Technical standards

  -Regulations