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