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GLOBAL STRATEGY

Increasing
Profitability Through Globalization
• The success depends not just on the goods
and services but upon the distinctive
competencies that underlie their
production and marketing

• Globalization increases profits by:

– Expanding the market
– Realizing economies of scale
– Realizing location economies
– Leveraging the skills of global subsidiaries

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Competitive Pressures
• Two main pressures:
– Pressure for cost
reduction
– Pressure to be locally
responsive

• These pressures place

conflicting demands on
a company

Cost Reductions
• Cost reductions are common in:
– Industries where price is the main competitive
weapon
– Industries with universal need products
– Universal Need: When consumer preference is
similar or identical in different nations
• Companies may achieve cost reduction by
basing production in a low-cost location or
by offering a standardized product.

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Local Responsiveness Pressures

• These arise from differences in:
– Consumer taste and preferences
– Infrastructure or traditional practices
– Distribution channels
– Host government demands

• The more that customer preferences vary,

the more local responsiveness is required

Choosing a Strategy
Basic four strategic
Postures:

1. Global Standardization
Strategy
2. Localization Strategy
3. Transnational Strategy
4. International Strategy

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Global Standardization Strategy

• Focuses on increasing profitability by
pursuing a low-cost strategy on a global
scale

• Works best if there is:

– Strong pressure for cost reduction
– Low pressure for local responsiveness

Localization Strategy
• Customizes goods or services to provide a
good match to tastes and preferences in
different national markets

• Works best if there is:

– Low cost pressure
– Varied taste and preferences by nation

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Transnational Strategy
• Attempts to achieve low-cost,
differentiated products across markets and
to foster a flow of skills between different
subsidiaries

• Works best if there is simultaneous :

– High cost pressures
– High local responsiveness pressures

International Strategy
• Centralizes product development, but
manufactures and markets globally

• Works best if there is:

– Low cost pressure
– Low pressure for local responsiveness
– A universal need product
– No significant competitors

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Changes in Global Strategy Over Time