Toward a Total Global Strategy

by George Yip

Executive Summary
Globalization has become a goal for many companies. But simply spreading activities around the globe is not enough; companies need coherent global strategies. In the past, multinationals tailored their products and services to local markets. This represented a multi-local rather than global approach. The challenge now is to develop truly integrated global strategies that leverage competitive advantage across all markets.

Introduction
In the 1980s and the 1990s, many companies were still debating whether they should globalize. For most, this debate has now ended. Companies assume that they should globalize unless they can find very good reasons not to. The spread of the internet and the Web provides one compelling reason. Any company that creates a website has instant global reach, with corresponding demands for delivery and service. In addition, evidence shows that companies that globalize achieve better competitive and financial performance. But globalizing, in the sense of spreading activities around the world, is not enough. Companies also need to be globally integrated. They need globally coherent strategies, global networks, and the ability to maximize profits on a global basis. However, turning a collection of country businesses into one worldwide business that has an integrated, global strategy is not easy. It presents one of the stiffest challenges for managers today. Developing and implementing an effective global strategy is the acid test of a well-managed company.

The Case for Globalization

Whatever the anti-globalization protestors may say to the contrary, a range of forces is driving companies around the world to globalize. Many managers view this as expanding their participation in foreign markets. But companies also need to globalize in another sense. They need to integrate their worldwide strategy. This contrasts with the traditional multinational approach. In the past, multinationals have tended to set up country subsidiaries that design, produce, and market products or services that were tailored to local needs. But this model is now in question. Increasingly, the multinational approach is seen as a multilocal strategy rather than a truly global strategy. Today, a growing number of managers are asking, if they are in a global industry, whether their business should have a global strategy. Better questions are: how global is our industry, and how global should our business strategy be? This is because virtually every industry has aspects that are global or potentially global. But some industries have more aspects that are global, and more intensely so. Similarly, a strategy can be more or less global in its different elements. An industry is global to the extent that there are inter-country connections. A strategy is global to the extent that it is integrated across countries. Global strategy should not be equated with any one elementstandardized products, or worldwide market coverage, or a global manufacturing network. Instead, global strategy should be a flexible combination of many elements.

Beyond the Multinational Model

Recent and coming changes make it likely that in many industries a global strategy will be more successful than a multilocal one. Indeed, having a sound global strategy may well be the requirement for survival
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as the changes accelerate. These changes include: the increasing convergence of consumer tastes across countries; the reduction of tariff and non-tariff barriers; technology investments that are becoming too expensive to amortize in one market only, and competitors who are moving from country-by-country competition to global competition. In the 1990s, the world saw greater convergence in customer needs and tastes; the drastic reduction of many government barriers to free trade and investment; an acceleration of enablers in communications, and a surge in globally applicable new technological products and services. All this does not mean that every industry has become entirely global. But today, nearly every industry has a significant global segment in which customers prefer products or services that are much more global in nature. Around the global segments, however, regional, national, or sub-national niches still exist. The size of the global segment varies, from very large in the personal computer industry, to relatively small in many parts of the food industry. But the global segment is increasing in size in nearly all cases.

Tumbling Barriers to Trade

Around the world, trade barriers continue to fall. The most important examples include: the North American Free Trade Agreement among the United States, Canada, and Mexico; the continuing integration of the European Union; the formation of the new World Trade Organization in 1995, and China joining that body in 2001. The Asian Crisis of 1997 to 1999 has also helped to open up economies such as Japan and South Korea. At the same time, the rise of the newly industrializing countries (NICs) such as Hong Kong, Taiwan, South Korea, Singapore, Thailand, Malaysia, Mexico, and Brazil has increased the number of viable sites for sophisticated manufacturing operations with low labor costs. Even China and India are beginning to join the industrialized world and the global market economy. Almost every product or service market in the major world economies now has foreign competitors. They compete to sell everything from computers, to fast food, or medical diagnostic equipment. Increasing foreign competition is itself a reason for a business to globalize in order to gain the size and skills to compete more effectively. But an even greater spur to globalization is the advent of new global competitors who manage and compete on an integrated global basis.

The Global Revolution

In the 1980s these global competitors were primarily Japanese. Their central approach to global competition was one of the factors that allowed Japanese companies to conquer so many Western markets. In the 1990s, American and European companies responded to the Japanese challenge by focusing much more on quality. This was exemplified by the adoption of six-sigma quality by General Electric and Motorola. In addition, a growing number of American and, especially, European companies began to develop new models of globalization that were more flexible than the centralized Japanese approach. Companies such as Asea Brown Boveri, for example, developed networked models that combined the benefits of both global integration and national responsiveness. In recent years, the communications and information revolution has also made it much easier to apply a globally integrated approach to management. Improvements in air travel, computers, satellites and telecommunications make it much easier to communicate with, and control, far-flung operations. Today, in a world where e-mail has become pervasive, it is easy to forget the dramatic impact of the humble facsimile machine. Its immediacy plugged every executives desk into the global market. The internet and the Web completed this revolution.

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Case Studies
Gillette
Gillette, the US shaving products company, provides one of the most aggressive examples of globally standardized strategy. While many corporate strategies still regard local adaptations as essential to their success in foreign markets, Gillette minimizes adaptation for cultural differences. The company sells the same products, uses the same production methods, enforces the same corporate policies, and uses the same advertising in every country where it conducts business. The results are impressive. The company now dominates the shaver market with a 70% market share worldwide. The main advantages of this business model are scale and flexibility, most notable in research and development costs and leveraging intellectual capital across the globe. In addition, the company is more nimble. This was demonstrated during the Asian crisis in the late 1990s. Rather than maintain advertising expenditures in an area with flat to negative growth, Gillette chose to shift its marketing funds to Eastern Europe, where better sales growth was forecast. It is because the company treats the world as one region that it has such flexibility in its operations.

Toyota
Toyota is another company that has benefited from an integrated global approach. It recognized early that in the automobile industry, where some local customization is essential, a global strategy requires multiregional production. In the late 1990s, Toyota spent over $10 billion on global expansion in an aggressive effort to become the first truly globally organized car manufacturer. The company developed manufacturing hubs in the three major marketsNorth America, Europe, and Asiawith the ability to customize vehicles for regional markets. Such extensive coverage now allows Toyota to react quickly to local tastes, bypass regional trade barriers, and utilize locally based suppliers to increase cost efficiencies. The company set up an assembly plant in the United States as early as 1987 and continued expansion at a number of sites there and in Canada throughout the 1990s. In Europe, by 2001, Toyota had a regional parts center in Belgium, and manufacturing plants in the United Kingdom, France, and Turkey (another is scheduled to open in Poland in 2002). This local production allows Toyota to bypass tariffs and locally produce Toyotas Europe Car. In Asia, a local network of suppliers and assembly hubs allows Toyota to build sturdy, simply designed, low-priced cars that appeal to the Asian consumer.

Making It Happen
So how can companies create truly global strategies? For most, there are three separate stages involved. 1. Developing the core strategy: this is the basis of sustainable strategic advantage. It is usually, but not necessarily, developed for the home country first. Without a sound core strategy to build upon, a global strategy cannot be successful. Internationalizing the core strategy: this stage involves the international expansion of activities, and adaptation of the core strategy. Companies need to have mastered the basics of international business before they can attempt a global strategy (because the latter often involves breaking the rules of international business). Globalizing the international strategy: this involves integrating the strategy across countries to leverage the companys total global potential.

2.

3.

Multinational companies are usually adept at the first two steps. What they are less familiar with is the third stage. For one thing, total globalization runs counter to the accepted wisdom of tailoring for national markets. Yet, it is this third step that is vital to creating a successful total global strategy. The first step towards a global strategy, then, is the creation of a viable core strategy. This involves several key elements:

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selection of the type of products or services that the business offers; the types of customers that the business serves; the geographic markets served; major sources of sustainable competitive advantage; functional strategy for each of the most important value-adding activities; competitive posture, including the selection of competitors to target; investment strategy.

At the second stage, a business expands outside its home market and needs to internationalize its core business strategy. The key to internationalizing is to select the geographic markets in which to compete. This choice has much more importance for an international business than for a national business. For most businesses, international market selection presents issues that are much more challenging. These include the role of barriers to tradesuch as import tariffs and quotas, and foreign ownership rules as well as differences from the home country in laws, language, tastes, and behavior. Other aspects of internationalization strategy involve how to adapt products and programs to take account of foreign needs, preferences, culture, language, climate, and so on. Typically, the end result is that the company ends up with strategies and approaches that involve large differences among countries. These differences can then weaken the companys worldwide cost position, quality, customer preference, and competitive leverage. This is where a global strategy comes in. It involves strategic integration across all markets to leverage competitive advantage. A key issue here is: what aspects of strategy should be globalized? Managers can answer this question by analyzing industry conditions or industry globalization drivers. This provides the basis for evaluating the benefits and costs of globalization, and creates a clearer understanding of the different ways in which a globalization strategy can be used through the use of global strategy levers. Industry globalization drivers are externally determined by industry conditions or by the economics of the business. They fall into four groupsmarket, cost, government, and competitive drivers. Taken together, these represent the industry conditions that determine the potential and need for competing with a global strategy. Each group of drivers is different for each industry and can also change over time. Global strategy levers, on the other hand, are the choices available to the business. They operate along five dimensions: market participationinvolves the choice of country markets, and the level of activity; products/servicesinvolves the extent to which business offers the same or different products in different countries; location of value-adding activitiesinvolves the choice of where to locate each of the activities that comprise the entire value-added chain, from research to production to after-sales service; marketinginvolves the extent to which a business uses the same brand names, advertising and other marketing elements in different countries; competitive movesinvolves the extent to which a worldwide business makes competitive moves in individual countries as part of a global competitive strategy;

A global strategy should aim to ensure that all global strategy levers are optimally positioned relative to the industry drivers, and relative to the position and resources of the business and its parent company. In this way, a company ensures that the global whole is greater than the sum of its local parts.

More Info
Books:
Yip, George S. Total Global Strategy II. Harlow, UK: Prentice Hall, 2002. Yip, George S. The Asian Advantage: Key Strategies for Winning in the Asia-Pacific Region. Cambridge, MA: Perseus, 2000.

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See Also
Thinkers Igor Ansoff Louis Gerstner Finance Library Corporate Strategy: An Analytic Approach to Business Policy for Growth and Expansion

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