global business - global strategy

A global industry

A global industry can be defined as:

• An industry in which firms must compete in all world markets of that product in order to survive
• An industry in which a firm’s competitive advantage depends on economies of scale and economies of scope gained across markets

Global markets are international markets where products are largely standardised.

Michael Porter argued that industries are either multi-domestic or global.

Global industries: competition is global. The same firms compete with each other everywhere.

Multi-domestic industries: firms compete in each national market independently of other national markets.

In general businesses adopt a global strategy in global markets and a multi-local strategy in multi domestic markets.

Global strategy

Companies such as Sony and Panasonic pursue a global strategy which involves:

• Competing everywhere
• Appreciating that success demands a presence in almost every part of the world in order to compete effectively
• Making the product the same for each market
• Centralised control
• Taking advantage of customer needs and wants across international borders
• Locating their value adding activities where they can achieve the greatest competitive advantage
• Integrating and co-ordinating activities across borders
• A global strategy is effective when differences between countries are small and competition is global. It has advantages in terms of
  • Economies of scale
    Lower costs
    Co-ordination of activities
    Faster product development

However, many regret the growing standardisation across the world.

Multi domestic strategy

• A multi-domestic strategy involves products tailored to individual countries
  Innovation comes from local R&D
• There is decentralisation of decision making with in the organisation
• One result of decentralisation is local sourcing
• Responding to local needs is desirable but there are disadvantages: for example high costs due to tailored products and duplication across countries

Comparison of the two strategies

Four drivers determine the extent and nature of globalisation in an industry:

(1) Market drivers

• Degree of homogeneity of customer needs
• Existence global distribution networks
• Transferable marketing

(2) Cost drivers

• Potential for economies of scale
• Transportation cost
• Product development costs
• Economies of scope

(3) Government drivers

• Favour trade policies e.g. market liberalisation
• Compatible technical standards and common marketing regulations
• Privatisation

(4) Competitive drivers

• The greater the strength of the competitive drivers the greater the tendency for an industry to globalise

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