How to Take Your Company to the Global Market
George S. Yip
Pierre M. Loewe
Michael Y. Yoshino
Deciding how to deal with the globalisation of markets poses tough issues and choices for mangers. There are both external business forces, and internal organisational factors to consider. External business forces revolve around the interaction of industry drivers of globalisation and the different ways a business can be global. Understanding this interaction is key to formulating the right global strategy. Internal organisational factors play a major role in determining how well a company can implement global strategy. This paper provides a systematic approach to developing and implementing a global strategy.
MOST MANAGERS have to face the increasing globalisation of markets and competition. That fact requires each company to decide whether it must become a worldwide competitor to survive.
This is not an easy decision. Take the division of a multibillion-dollar company, a company that's very sophisticated and has been conducting international business for more than fifty years. The division sells a commodity product, for which it is trying to charge 400% more in Europe than it does in the United States. The price was roughly the same in the United States and in Europe when the dollar was at its all-time high. The company built a European plant which showed greater return on investment with that European price. But the dollar has fallen and, if the company drops its European price to remain roughly the same as the US price, the return on the plant becomes negative, and some careers are in serious jeopardy. So it is attempting to maintain a 40% European price premium by introducing minor upgrades to the European product.
But its multinational customers will have none of it. They start buying the product in the United States and transhipping it to Europe. When the company tries to prevent them from transhipping, they go to a broker, who does the work for them; they still save money.
The manufacturer doesn't have a choice. It's working in a global market. And it's going to have to come up with a global price. But management is fighting a losing battle because it is unwilling to make the hard strategic and organisational changes necessary to adapt to global market conditions.
European and Japanese corporations also face these kinds of organisational roadblocks. Large European firms, for example, historically have been more multinational than US companies. Their international success is due, in part, to decentralised management. The companies simply reproduced their philosophy and culture everywhere, from India to Australia to Canada. They set up mini-headquarters operations in each country and became truly multinational with executives of different nationalities running them.
Now they are having problem running operations on a worldwide basis because these multinational executives are fighting the global imperative. In one European company, for example, the manager running a Latin American division has built an impenetrable wall around himself and his empire. He's done very well, and everyone has allowed him to do as he pleases. But the company's global strategy requires a new way of looking at Latin America. The organisation needs to break down his walls of independence. So far, that's proved next to impossible.
Japanese companies face a different set of problems. On the whole, they have followed a basic, undifferentiated marketing strategy: make small Hondas, and sell them throughout the world. Then make better Hondas, ending up with the $30,000 Honda Acura. It's incremental, and it has worked.
Now, however, the Japanese must create various manufacturing centres around the globe and they're facing many difficulties. They have a coordinated marketing strategy and have built up infrastructures to coordinate marketing, which requires one particular set of skills. But now...