CRITICAL DISCUSSION QUESTION.

1. In this age of globalization, some gurus argue that all industries are becoming global and that all firms need to adopt a global standardization strategy. Do you agree? Why or Why not? I Agree that in this age of globalization all Industries are becoming global and that all firms need to adopt a global standardization strategy because To survive, firms may need to shift to a global standardization strategy

Focus is on achieving a low cost strategy by reaping cost reductions that come from experience curve effects and location economies Production, marketing, and R&D concentrated in few favorable functions Market standardized product to keep costs low Effective where strong pressures for cost reductions and low demand for local responsiveness exist Semiconductor industry

Global standardization strategy is the opposite of the multidomestic strategy The Evolution of Strategy An international strategy may not be viable in the long term To survive, firms may need to shift to a global standardization strategy or a transnational strategy in advance of competitors Similarly, localization may give a firm a competitive edge, but if the firm is simultaneously facing aggressive competitors, the company will also have to reduce its cost structures, and the only way to do that may be to shift toward a transnational strategy

Global standardization strategy treating the world market as a single entity, selling the same basic product around the world Firms pursuing a global standardization strategy focus on the realization of location and experience curve economies. Headquarters maintains control over most decisions The need for integrating mechanisms is high Strong organizational cultures are encouraged The worldwide product division is common Global Standardization Strategy Cost reductions Production concentrated in a few favorable locations No pressures to customize product offering or market to local conditions This prevails in many industrial goods industries

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 isglobal. It has advantages in terms of o 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 Global strategy as defined in business terms is an organization's strategic guide to globalization. A sound global strategy should address these questions: what must be (versus what is) the extent of market presence in the world's major markets? How to build the necessary global presence? What must be AND (versus what is) the optimal locations around the world for the various value chain activities? How to run global presence [1] into global competitive advantage? Academic research on global strategy came of age during the 1980s, including work by Michael Porter and Christopher Bartlett & Sumantra Ghoshal. Among the forces perceived to bring about the globalization of competition were convergences in economic systems and technological change, especially in information technology, that facilitated and required the coordination of a [2] [3] multinational firm's strategy on a worldwide scale. A global strategy may be appropriate in industries where firms are faced with strong pressures for cost reduction but with weak pressures for local responsiveness. Therefore, it allows these firms to sell a standardized product worldwide. However, fixed costs (capital equipment) are substantial. Nevertheless, these firms are able to take advantage of scale economies

and experience curve effects, because it is able to mass-produce a standard product which can be exported (providing that demand is greater than the costs involved). Global strategies require firms to tightly coordinate their product and pricing strategies across international markets and locations, and therefore firms that pursue a globalstrategy are typically [3] highly centralized.