Globalization Strategies - Essay Example

Globalization Strategies Since the rise of the factory, operations managers have always had a great deal of factors to balance to ensure the success of the firm. These factors have only increased with the passage of time, the addition of more competitors, dwindling resources, varying levels of legislation and the rising concerns of a more aware public. Organizations are required to deliver in terms of cost, quality, reliability and flexibility while keeping employees happy, machines operational and delivering products and services when and where the customer wants them at low prices and in a variable range of quantities. As difficult as it can be to balance all of these factors, the rise of the computer age has provided some tools that reduce the level of paperwork while it has also blown apart many of the preconceived ideas regarding territory and boundary. Now, not only are companies attempting to compete with regional and national firms, but must also fend off the advances of international organizations while attempting to gain footholds in new countries. This introduces differing sets of criteria for the production of products, including safety materials and practices, governmental regulations or specifications, employee relations, customer culture, available technology or resources and variety of products offered, each of which must be addressed before a product can be offered in a new or old market. To help cope with these multiple concurrent concerns, operations managers and scientists have developed a wide range of strategy sets that are capable of addressing each concern independently or a variety of concerns concurrently depending upon the operation of the firm which is further defined by the type of product produced and the methods by which it is created. In order to remain competitive while achieving optimal performance in the global marketplace, operations must continue utilizing many of the strategies they’ve been using to remain competitive in the regional and national theater while focusing more upon the idea of incorporating all the workforce talent and external relationships in the process and remaining highly adaptive to rapid change. The field of global competition remains an emerging concept with many aspects of it yet to be completely understood. One aspect, however, remains constant. Global strategies are, by necessity, multi-dimensional. According to Yip (1992), there are at least five strategic dimensions that help determine the organization’s global direction. These include market participation, products/services, location of value-adding activities, marketing and competitive moves. Market participation refers to the organization’s choice of countries and markets in which it will conduct business and the degree of activity planned in terms of market share. From the operation manager’s perspective, this resonates in the various different laws, regulation and standards that must be addressed. The location of value-adding activities refers to choices made regarding where to locate functions of the business such as research or customer service after sales. This again resonates within the organization as aspects such as layout, supply chain, distribution and storage become concerns. The choices an organization makes regarding these dimensions also determines, to a great extent, whether the company anticipates a multi-local approach or a global approach which affects the types of strategies that will be most appropriate for the firm. Johansson and Yip (1993) indicate multi-local strategies seek “to maximize worldwide performance by maximizing local competitive advantage, revenues or profit; while a global strategy seeks to maximize worldwide performance through sharing and integration” (580). This affects priorities of an organization, which can have far-reaching effects on whether a firm should concentrate on product or relationship. Whether globalization is sought through local advantage and revenues or through sharing and integration, it is necessary that all organizations participating on a worldwide scale adopt some form of integrated strategy that can be adapted throughout its facilities, which will eventually reflect these various aspects already discussed. The way in which this is brought about can come through building shares in strategic countries, as is discussed in Ohmae (1985), creating market standardization (Walters, 1986), building global value chains (Bartlett & Ghoshal, 1989) or utilizing uniform marketing plans through such practices as branding (Jain, 1989). Despite this identification, the various strategies that are presented here have been shown to be utilized to only a limited degree. In the Johansson and Yip study (1993), it was found that Japanese companies were in better positions than American companies to put these strategies in place because of an increased flexibility and willingness to put new strategies in action, the ability to adopt a longer term view, the ability to sacrifice some countries to benefit the whole and the willingness to centralize decision-making. Other successful organizational characteristics that have been identified in global companies of various types include network structures (Bartlett & Ghoshal, 1989) and split control (Yip, Loewe & Yoshino, 1988). There remain several strategies used in American businesses, such as empowering employees to increase flexibility and response to local market concerns, which seem to provide beneficial results as well. In addition, several management processes have been found to contribute to success, such as global information systems, global business teams, coordination committees and task forces among other personnel and technology driven coordination solutions (Prahalad & Doz, 1987). From an organizational manager’s point of view, then, in order to determine the best strategies to use to facilitate global success, it is necessary to take a look into how each of these aspects factors into the global marketplace. Organization managers must consider market participation as it applies to standards and practices, product or service offerings of the company and the necessary processes that accompany these, location and layout strategies in terms of reaching the consumer base, and competitive moves in terms of establishing relationships with supply chains and distribution channels. In determining these things, it is necessary also to have a ‘big picture’ understanding of the company’s overall approach to global participation, whether it is seeking a multi-local or truly global approach and to determine which integrated global strategies – central decision-making or empowered split decision-making – might best apply to the individual organization as it is defined by the processes involved in product or service creation. As is often the case, the best strategies for one company to go global may not be the answer for another company, even when offering similar product lines. To fully understand not only how different strategies might apply differently, but how one strategy may be a best strategy for one company and not another, it is necessary to understand the underlying principles of the strategy involved as well as how it applies in real-world situations. Therefore, each strategy discussed will be related as much as possible to a real-world company that has applied this strategy successfully in the global marketplace while underscoring how it might not apply to a similar company with slightly different practices or approaches. Market participation can be a difficult subject for many companies going global as they struggle to understand and integrate their firm into an existing or developing marketplace and must juggle the temptations of maximizing company benefits with local and national regulations and business ethics. The strategies used by Nike in their efforts to become a world leader in athletic wear provide an example of both the positive and negatives sides of globalization policies. Nike’s initial strategy and founding idea was to grow by importing and distributing athletic shoes designed and produced by other companies in foreign nations where the cost of labor and materials were less (Locke, 2003). With its first initial successes, the company took over the design of the shoes and began seeking its own subcontracting arrangements with other Japanese producers, expanding their reach to other countries as production expenses in Japan began to rise. In response to Korean incentives, the company closed many of the plants it had opened in Japan and the United States to take advantage of the low-cost alternatives available in Asia (Locke, 2003). It was a strategy that worked again and again, each time costs began to rise in the developing countries, Nike’s strategy was to find another country at a lower stage of development with lower costs and higher incentives as a new center of production. This combination of outsourcing and low-cost production enabled the company to capture the leading edge of the athletic shoe market while maintaining a relatively low number of direct employees and little investment in manufacturing plants or equipment. With few investments in overseas property, the company has been able to move as needed to take advantage of changes in regulations, lower costs or added incentives, but has had to develop subcontracting relationships in other portions of the world for its expanded apparel products due to different regulations and laws relating to the different product categories. The downside of these significant advances was the type of working conditions and wages given to the employees at these subcontracted factories. While they kept the prices of the products down and maximized the benefits to Nike, the workers themselves suffered tremendously, linking the Nike name, once these facts were discovered, with “slave wages, forced overtime and arbitrary abuse” (Phil Knight, president of Nike, cited by Locke, 2003). When the various issues regarding Nike subcontractors in Indonesia, Pakistan and Vietnam were first brought to public attention, the company insisted it had little to no control over what happened in these factories as that was the responsibility of the subcontractor, but events occurring since then have emphasized the concept of corporate responsibility and its importance for companies that wish to succeed and remain highly reputable competitors on the global scene. Some companies are able to expand their global appeal by turning to their product design strategies as a means of introducing standardized offerings or products to address global consumer desires or concerns, presenting a responsible company up front and backing it up through the product line. An example of this type of strategy adoption can be seen in the case of Whirlpool, a company that re-designed its products to introduce environmentally-friendly products reflecting a worldwide concern over global warming. In 2003, the company announced that it was adopting a greenhouse gas (GHG) reduction strategy (Hoffman, 2006) throughout its product lines. What makes the strategy particularly effective is the fact that it is a natural outgrowth of the company’s long-term emphasis on energy efficiency. Through its product offerings, the company has a “historic focus on cost and quality in a low margin industry,” as well as “a close connection to its Midwestern roots, out of which emerges a strong belief in corporate citizenship” (Hoffman, 2006) despite its current ranking as the world’s largest home appliance manufacturer with sales in more than 150 countries. The new product line, designed to reduce the amount of greenhouse gases emitted when consumers use the products, determined to be the most significant source of greenhouse gases within the product phase, addresses not only the cost savings concerns of consumers, but also the planetary concerns of legislators around the world and environmentally-conscious consumers. However, like the Nike experience, the efforts of Whirlpool have not always been as positive as they’d like. For example, Hoffman (2006) detailed the company’s first energy efficient effort, a refrigerator that won accolades from around the world for its innovative design and lower energy usage, but had difficulty getting the consumer interested and barely defrayed development costs with prize money won for the design rather than sales. A similar cross-market experience in which front-loading washers preferred in England were introduced in America as a cost-saving feature met with similar disappointment until the company developed a front-loading washer that provided for the larger load capacity desired by the American consumer while retaining much of the energy and material efficiency offered in the European model (Hoffman, 2006). Despite the setbacks, the company persevered and in both cases was able to win the public to the more efficient appliances through a combination of rising energy costs, greater awareness of environmental factors and continued effort to increase efficiency on the part of the company. “All of this leads to the conclusion that a focus on GHG reductions through energy efficiency is central to the company’s core strategy” (Hoffman, 2006). In this case, the company’s founding principles were happily in agreement with the new trends emerging nationally, globally and legislatively, allowing its global expansion strategies to grow naturally out of its product lines. Yet another global strategy adopted by many multi-national companies is determined through physical location expansion. The Adidas shoe company, struggling to compete against the Nike giant, has furthered its global expansion plans through a recent merger with the Canton, US-based Reebok brand, the third largest shoe seller in the world. Both brands had suffered against the Nike brand individually, so the merger concept was deemed as an effective means of competing more effectively against a common competitor (“The Adidas-Reebok Merger”, 2005). Far from shutting down its competitors, Adidas has instead absorbed them, continuing to roll out the brand lines with some significant changes in place to both bring the Reebok company more into line with Adidas’ current strategies, but also to re-focus the brand’s consumer appeal through additional worldwide expansion. “Reebok is looking to open up to 90 stores in Russia this year and as many as 200 in China while it continues to expand in key markets such as India and Latin America” (Abelson, 2007). By purchasing one of its major competitors, Adidas gains the production facilities, designs and other assets of Reebok and sets up an opportunity to differentiate the brands to best marketability in a variety of markets. “While Adidas plans to promote itself as high-performance, high-end fashion, Reebok will market itself more as a fitness and lifestyle brand” (Abelson, 2007). Although the merged company expects to keep both brands almost as separate as they have been, the merger enables them to compliment each other rather than compete with each other, differentiating each brand to fit particular niche markets worldwide, thus also utilizing product strategies as a means of increasing global presence in addition to the international distribution and supply chain assets that can now be shared. Many organizations use this type of merger or buyout of competitors as a prime global strategy in expanding to new markets for a variety of reasons, the first being the instant availability of resources in terms of supply chains, distribution centers, employees and facilities. In moving into other countries and other environments, companies need to take into consideration not only their own products and services, but the resources of materials and workers available in a local market as well as the individual tastes and desires of the consumers in that area that have been formed by a combination of cultural background, national identity and personal preference. To help work around that barrier, US-based United Airlines opted to join Air China based in Beijing in the Star Alliance, a group of airlines reserving the ability to sell air passage tickets on each others’ planes (United, 2003), thereby retaining their local brand draw while gaining a more global reach. Although early predictions held that the world would be highly globalized in a short period of time, “experience has shown that companies need not always create one-size-fits-all global brands just because the world appears to be shrinking. Indeed, firms should recognize that adapting brands to local conditions will on many occasions be the best approach, and at times the only approach, because local conditions will leave them no other choice” (Managing Brands, 2005). Yet even buying into a mostly localized strategy is not always enough to ensure success. While most companies recently are gravitating toward more localization and less standardization, analysts such as Ghemawat propose these firms should focus more on arbitrage, or the strategy of difference. “In fact, many forms of arbitrage offer relatively sustainable sources of competitive advantage, and as some opportunities for arbitrage disappear, others spring up (Ghemawat, 2004). According to Galbraith, “In most industries, customers prefer fewer suppliers and closer, longer-term relationships with them” (2001). An example of such attention to local conditions can be seen in the growing number of multinational entrepreneurships such as that of Ismail Karaoglu, who recognized the fine leather and high quality accessories he could obtain in Italy to fashion into wallets and other goods in Istanbul to sell in Russia and other former Soviet republics (Karra & Phillips, 2004). More and more of the larger corporations are also starting to see some of the advantages of playing to the strengths of individual economies. “For instance, Rupert Murdochs News Corporation has its chief markets in the UK, the US and Australia but places its acquisitions in these countries in holding companies headquartered in the Cayman Islands, which does not tax corporate income. The result is an average tax rate of 10 percent on Murdoch’s company’s profits, whereas competitors such as Disney are paying close to official tax rates of 30 to 35 percent. The advantage has allowed Murdoch to expand further into the United States, growing the company and driving up employment” (Ghemawat 2004). Other companies, such as Dutch-based Phillips Electronics, have managed to make their brand both local and global at the same time. “’Today,’ says Dawar, ‘[Philips] is not just a Dutch brand that has gone international, but it is in fact a local brand. People will tell you this in Austria, Australia, India and Canada—there are a number of places around the world where Philips has gone very local.’” (Frost 2005). Organizations also must pay specific attention to supply chain and distribution strategies when expanding to a global position. Like other aspects of the organization, there are several different approaches taken to this as well. Companies that expand through the acquisition processes described above into global streams face unique challenges in this department. Whirlpool provides an excellent example of some of the problems that can occur. “Whirlpool CIO Esat Sezer says that by 2000, the company had grown by acquisition and geographic expansion to the point that old systems, stitched together by spreadsheets and manual procedures, couldn’t cope with the exploding complexity” (Anthes, 2005). The result was a supply chain train wreck that had not only customers unhappy, but employee morale at an all-time low. The only solution was a complete overhaul of the entire system, bringing in Information Technology experts to install an integrated system that enabled the company to not only manage internal production, but keep in contact with external suppliers, distributors and after sales service departments. By contrast, Inditex, the parent company of the popular Zara clothing stores, achieved its success through a unique company structure in which all design, prototyping, decision-making, supply procurement, planning, production and delivery schedules are done in a single room while reports stream in daily from each of the more than 650 stores located in more than 50 countries, keeping the company in touch with the wants, needs and desires of localized regions (Harkness, 2003). One of the most important globalization strategies that must be determined, then, emerges as a need to develop integrated systems of information sharing, regardless of the means by which the company plans to compete in various world markets. To address some of the technical demands of a differing world market, several companies now specialize in integrating systems management for ease of use and flexibility (Whitney, 2003). Whether the company chooses to keep an umbrella company head in a home market that directs the company’s general direction and goals or chooses instead to allow smaller subsidiary groups to take over the management of entire product lines, the need for efficient, up-to-date, accurate information sharing is vital to the success of the company. Sophisticated ERP models are obligatory if the operation wishes to incorporate material planning with customer demands and supplier subsidiaries, both internal and external, as well as various means of distribution channels. While there are numerous strategies that can help an organization become successful on a global scale, the best strategy to use is highly dependent upon the individual company. Some, such as Nike, are built almost exclusively on close relationships with subcontractors while others, such as Zara clothing, excel thanks to a highly integrated, centrally located headquarters. Strategies will depend upon how the organization expands its base, whether through the acquisition of other firms, the development of subcontractors or the building of new facilities, as well as the type of products or services the organization has to offer. Locations will have an effect upon best strategies as well, as different laws, taxes, incentives and regulations will all determine the resources and practices allowable in a given area and the overall cost of production. In the end, the best way to determine best global strategy for an individual organization is through careful analysis of the company’s goals and ethics, products offered, supply and distribution chains, resources, level of technology, legal and regulatory considerations and production processes before determining which strategy will provide for the most efficient, economic and ethically balanced combination as a means of attracting and retaining consumers. References Abelson, Jenn. 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