Global Strategy … In a World of Nations?

WHETHER TO GLOBALIZE, and how to globalize, have become two of the most burning strategy issues for managers around the world. Many forces are driving companies around the world to globalize by expanding their participation in foreign markets. Almost every product market in the major world economies—computers, fast food, nuts and bolts—has foreign competitors. Trade barriers are also falling; the recent United States/Canada trade agreement and the impending 1992 harmonization in the European Community are the two most dramatic examples. Japan is gradually opening up its long barricaded markets. Maturity in domestic markets is also driving companies to seek international expansion. This is particularly true of U.S. companies that, nourished by the huge domestic market, have typically lagged behind their European and Japanese rivals in internationalization.

Companies are also seeking to globalize by integrating their worldwide strategy. Such global integration contrasts with the multinational approach whereby companies set up country subsidiaries that design, produce, and market products or services tailored to local needs. This multinational model (also described as a “multidomestic strategy”) is now in question.1 Several changes seem to increase the likelihood that, in some industries, a global strategy will be more successful than a multidomestic one. One of these changes, as argued forcefully and controversially by Levitt, is the growing similarity of what citizens of different countries want to buy.2 Other changes include the reduction of tariff and nontariff barriers, technology investments that are becoming too expensive to amortize in one market only, and competitors that are globalizing the rules of the game.

Companies want to know how to globalize—in other words, expand market participation —and how to develop an integrated worldwide strategy. As depicted in Figure 1, three steps are essential in developing a total worldwide strategy:

  • Developing the core strategy—the basis of sustainable competitive advantage. It is usually developed for the home country first.
  • Internationalizing the core strategy through international expansion of activities and through adaptation.
  • Globalizing the international strategy by integrating the strategy across countries.

Multinational companies know the first two steps well. They know the third step less well since globalization runs counter to the accepted wisdom of tailoring for national markets.3

This article makes a case for bow a global strategy might work and directs managers toward opportunities to exploit globalization. It also presents the drawbacks and costs of globalization.

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References

1. See:

T. Hout, M.E. Porter, and E. Rudden, "How Global Companies Win Out," Harvard Business Review, September–October 1982, pp. 98–108.

My framework, developed in this article, is based in part on M.E. Porter's pioneering work on global strategy. His ideas are further developed in:

M.E. Porter, "Competition in Global Industries: A Conceptual Framework," in Competition in Global Industries, ed. M.E. Porter (Boston: Harvard Business School Press, 1986).

Bartlett and Ghoshal define a "transnational industry" that is somewhat similar to Porter's "global industry." See:

C.A. Bartlett and S. Ghoshal, "Managing across Borders: New Strategic Requirements," Sloan Management Review, Summer 1987, pp. 7–17.

2. T. Levitt, "The Globalization of Markets," Harvard Business Review, May–June 1983, pp. 92–102.

3. These obstacles are laid out in one of the rejoinders provoked by Levitt's article. See:

S.P. Douglas and Y. Wind, "The Myth of Globalization," Columbia Journal of World Business, Winter 1987, pp. 19–29.

4. For a more theoretical exposition of this framework see:

G.S. Yip, "An Integrated Approach to Global Competitive Strategy," in Frontiers of Management, ed. R. Mansfield (London: Routledge, forthcoming).

5. The concept of the global strategy lever was first presented in: G.S. Yip, P.M. Loewe, and MY. Yoshino, "How to Take Your Company to the Global Market," Columbia Journal of World Business, Winter 1988, pp. 37–48.

6. K. Ohmae, TriadPower: Tbe Coming Shape of Global Competition (New York: The Free Press, 1985).

7. G. Hamel and C.K. Prahalad, "Do You Really Have a Global Strategy?" Harvard Business Review, July–August 1985, pp. 139–148;

B. Kogut, "Designing Global Strategies: Profiting from Operational Flexibility," Sloan Management Review, Fall 1985, pp. 27–38.

8. P.G.P. Walters, "International Marketing Policy: A Discussion of the Standardization Construct and Its Relevance for Corporate Policy," Journal of International Business Studies, Summer 1986, pp. 55–69.

9. For a discussion of the possibilities and merits of uniform marketing see:

R.D. Buzzell, "Can You Standardize Multinational Marketing?" Harvard Business Review, November–December 1968, pp. 102–113; and

J.A. Quelch and E.J. Hoff, "Customizing Global Marketing," Harvard Business Review, May–June 1986, pp. 59–68.

10. P. Kotler et al., Tbe New Competition (Englewood Cliffs, NJ: Prentice-Hall, 1985), p. 174.

11. Figure 3 is also presented in Yip (forthcoming).

12. M.R. Cvar, "Case Studies in Global Competition," in Porter (1986).

13. See:

C.C. Markides and N. Berg, "Manufacturing Offshore Is Bad Business," Harvard Business Review, September–October 1988, pp. 113–120.

14. "Can Ford Stay on Top?" Business Week, 28 September 1987, pp. 78–86.

15. Three public sector activities that can protect domestic competitors are blocking access to the domestic market, providing subsidies, and creating spillovers in research and development. See:

MA. Spence, "Industrial Organization and Competitive Advantage in Multinational Industries," American Economic Review 74 (May 1984): 356–360.

16. MY. Yoshino, "Global Competition in a Salient Industry: The Case of Civil Aircraft," in Porter (1986).

17. Levitt (May–June 1983).

18. C. Baden Fuller et al., "National or Global? The Study of Company Strategies and the European Market for Major Appliances" (London: London Business School Centre for Business Strategy, working paper series, No. 28, June 1987).

19. See:

Yip et al. (1988); and

C.K. Prahalad and YL. Doz, The Multinational Mission: Balancing Local Demands and Global Vision (New York: The Free Press, 1987).