Deliverable Length: 2–3 pages
Mike, one of the marketing strategists on your team, stops at your office door wanting to talk. “We use fabrics that are made domestically; however, there are
issues with using these same fabrics globally. There are laws and regulations that prevent us from shipping these fabrics to other countries. This is a huge
concern. One of our primary selling points is the consistency of quality of our product.”
You confirm Mike’s concern, “That’s an excellent point,” you say. “Now you’ve just given yourself and our team more work for the presentation. I’m sure that will
come up. One of the board members used to run a textile plant in China.”
Mike nods his head in agreement. “I imagine textiles will not be the only resource concern,” he says.
Consider the following in your response:
Why should resources be a concern in a global strategy?
What resources may be a concern in the country you selected?
How will this impact the decision to move to the country that you selected?
How will this impact your competitive strategy in your global market?
Global Strategy and Diversification Strategy
Another decision that a firm has to make is whether to expand geographically or undertake a global strategy. Firms tend to enter the global markets for one of four reasons; market seeking, resource seeking, rationalized or efficiency seeking, or strategic asset seeking (Dunning, 2000).
As argued by Porter (1990), industries vary in their global competitiveness along a spectrum from multidomestic to global. Multidomestic industries, such as consumer banking or many retail sectors, compete on a country-by-country basis with few linkages between them. In contrast, competition within a global industry is connected whereas a firm’s competitive position in one country affects its position elsewhere. Examples of global industries include commercial aircraft, consumer electronics, or automobiles. Although firms in multidomestic industries tend to have a choice regarding globalizing, it is often a necessity in global industries given the structure and nature of competitiveness.
Within an industry, countries differ as to their level of attractiveness and nature of competition. As described by Porter (1990), there are four main attributes that jointly determine what is deemed a national advantage or country specific advantage:
- Factor conditions: This pertains to the country’s factors or economic inputs necessary to compete within an industry, such as the availability of skilled labor, infrastructure, natural resources, location, etc.
- Demand conditions: Countries also differ as to their level of demand for an industry’s product or service. When a country has a greater share of demand, it can be advantageous if it enables national firms to obtain a clearer and quicker understanding of buyer needs.
- Related and supporting industries: The existence of complimentary industries also plays a factor into the national advantage of a country. This can occur through preferential access to needed inputs, as well as the creation of new opportunities through the intertwining of industries.
- Firm strategy, structure, and rivalry: Lastly, the nature of the domestic rivalry among firms as well as the governing mechanisms for creating and managing firms together influences the national advantage. The culture and norms within a country impact firms in many ways.
The decision as to what countries to enter as part of a global strategy is dependent in part by these national advantages of the firm’s home-based country, the firm’s competitive advantages (i.e., its bundle of resources and capabilities), and whether or not it makes sense for firms to enter the national area itself to exploit its advantages (Dunning, 2000).
In addition to diversifying geographically, a firm has the option of expanding by diversifying its products and services by entering new industries. There are three major reasons why firms typically develop a diversification strategy:
- Growth: One of the biggest reasons for diversifying is growth. Many times, firms may be in a stagnant industry with little growth potential and therefore look outside the industry for more opportunities.
- Risk Reduction: Another reason for diversification lies in risk reduction. Instead of having all its eggs in one basket,” a firm enters multiple industries in order to spread out the risks and ensure more consistent returns for its stakeholders.
- Profitability: Closely related to growth and risk reduction, a third motive for diversification is to increase a firm’s overall profitability.
Firms that pursue a diversification strategy can many times obtain an advantage through economies of scope or cost savings through the holdings of multiple business segments. In addition to the cost savings through a consolidated corporate financial analysis, there may also be strategic benefits through branding or collocating. There are typically lesser transaction costs or savings to diversifying internally rather than simply contracting or licensing the product.
Dunning, J. H. (2000). The eclectic paradigm as an envelope for economic and business theories of MNE activity. International Business Review, 9(2), 163–190.
Porter, M. E. (1990). Competitive strategy: Techniques for analyzing industries and competitors. New York: Free Press.