Expanding globally allows firms to increase their profitability and profit growth by entering new markets where indigenous competitors lack similar competencies, by lowering costs and adding value to their product offering through the attainment of location economies, by exploiting experience curve effects, and by transferring valuable skills between their global networks of subsidiaries. In another word, the strategies which increase profitability may also expand a firm’s business and thus enable it to attain a higher rate of profit growth (Hill, 2009). When a company plan to compete in the international environment there are two crucial factors affect the firm’s choice of strategy which are strength of pressures for cost reductions versus those for local responsiveness. Firms typically choose among four main strategic postures to response these two factors when competing internationally. These can characterized as global standardization strategy, localization strategy, transnational strategy and international strategy which have been illustrated as figure 1. In this report, as a management consultant, the two cases from our client will be brief introduced firstly. Then, we will examine these four main strategies related the cases which delegated by our client and recommend to each of them one optimal choice of the basic strategies to compete in the international environment. Finally, we will highlight the impacts of the recommendation for each company’s organizational architecture.
We have two clients which from both media industry and manufacturing industry. One is a media company from the US. It wants to sell the newspaper that it designed for New York City in Shanghai. The second client is a European producer of commercial aircraft. It wants to sell its airplanes in China. Both of them want to compete in the international environment by one of the basic strategies, we will examine each strategy for these two company on the grounds of these own business environment.
Global Standardization Strategy
Firms that pursue global standardization strategy focus on increasing profitability and profit growth by reaping the cost reductions that come from economies of scale, learning effects, and location economies; that is, their strategic goal is to purse a low-cost strategy on a global scale. Firms implement this strategy try not to customize offerings sine customization involve shorter production runs and duplications, which tend to raise costs. To sum up, this strategy should be adopted when the company facing high pressures for cost reduction as well as low pressure for local responsiveness.
As the nature of this strategy, we recommend the producer of commercial aircraft to adopt this strategy. The causes can be identified as following. Firstly of all, the aircraft as a kind of high cost production, the price is the main competitive weapon and it always serve universal needs which means the tastes and preferences of consumers in different nations are similar. These key features fit the core nature of the global standardization strategy. Moreover, the company can carry out such strategy to realize the location economies, which are the economies that arise from performing a value creation activity in the optimal location and this can enable the firm to lower the costs of value creation and achieve a low-cost position. The last but not least, the experience curve which including learning effect and economies scale can be obtained. A number of studies have observed that the product’s production cost decline by some quantity about each time cumulative output double. The relationship in the aircraft industry has been observed. The each time cumulative output of airframes was doubled, unit costs typically declined to 80 percent of their previous level. Thus, production cost for 4th airframe would be 80 percent of production cost for the 2nd airframe; the 8th airframe’s production costs 80 percent of the 4th’s,...
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