7/31/2019 Critical Discussion Question

1/4

CRITICAL DISCUSSION QUESTION.

1. In this age of globalization, some gurus argue that all industries are becoming global

and that all firms need to adopt a global standardization strategy. Do you agree? Why

or Why not?

I Agree that in this age of globalization all Industries are becoming global and that all firms

need to adopt a global standardization strategy because To survive, firms may need to shift to a

global standardization strategy

Focus is on achieving a low cost strategy by reaping cost reductions that come from

experience curve effects and location economies

Production, marketing, and R&D concentrated in few favorable functions

Market standardized product to keep costs low

Effective where strong pressures for cost reductions and low demand for local

responsiveness exist

Semiconductor industry

Global standardization strategy is the opposite of the multidomestic strategy

The Evolution of Strategy

An international strategy may not be viable in the long term

To survive, firms may need to shift to a global standardization strategy or a transnationalstrategy in advance of competitors

Similarly, localization may give a firm a competitive edge, but if the firm is simultaneously

facing aggressive competitors, the company will also have to reduce its cost

structures, and the only way to do that may be to shift toward a transnational

strategy

7/31/2019 Critical Discussion Question

2/4

Global standardization strategy treating the world market as a single entity, selling the same

basic product around the world

Firms pursuing a global standardization strategy focus on the realization of location and

experience curve economies.

Headquarters maintains control over most decisions

The need for integrating mechanisms is high

Strong organizational cultures are encouraged

The worldwide product division is common

Global Standardization Strategy

Cost reductions

Production concentrated in a few favorable locations

No pressures to customize product offering or market to local conditions

This prevails in many industrial goods industries

Globalstrategy

Companies such as Sony and Panasonic pursue a globalstrategy which involves:

Competing everywhere

Appreciating that success demands a presence in almost every part of the world in order tocompete effectively

Making the product the same for each market

Centralised control

Taking advantage of customer needs and wants across international borders

Locating their value adding activities where they can achieve the greatest competitiveadvantage

Integrating and co-ordinating activities across borders

A globalstrategy is effective when differences between countries are small and competition

isglobal. It has advantages in terms ofo Economies of scale

Lower costsCo-ordination of activitiesFaster product development

However, many regret the growing standardisation across the world.

Multi domestic strategy

7/31/2019 Critical Discussion Question

3/4

A multi-domestic strategy involves products tailored to individual countriesInnovation comes from local R&D

There is decentralisation of decision making with in the organisation

One result of decentralisation is local sourcing

Responding to local needs is desirable but there are disadvantages: for example high costs dueto tailored products and duplication across countries

Comparison of the two strategies

Four drivers determine the extent and nature of globalisation in an industry:

(1) Market drivers

Degree of homogeneity of customer needs

Existence global distribution networks

Transferable marketing

(2) Cost drivers

Potential for economies of scale

Transportation cost

Product development costs

Economies of scope

(3) Government drivers

Favour trade policies e.g. market liberalisation

Compatible technical standards and common marketing regulations

Privatisation

(4) Competitive drivers

The greater the strength of the competitive drivers the greater the tendency for an industry toglobalise

Global strategy as defined in business terms is an organization's strategic guide to globalization.

A sound globalstrategy should address these questions: what must be (versus what is) the

extent of market presence in the world's major markets? How to build the

necessary global presence? What must be AND (versus what is) the optimal locations around

the world for the various value chain activities? How to run global presence

into global competitive advantage?[1]

Academic research on globalstrategy came of age during the 1980s, including work byMichael

Porterand Christopher Bartlett &Sumantra Ghoshal. Among the forces perceived to bring about

the globalization of competition were convergences in economic systems and technological

change, especially in information technology, that facilitated and required the coordination of a

multinational firm's strategy on a worldwide scale.[2]

[3]

A globalstrategy may be appropriate in industries where firms are faced with strong pressures

for cost reduction but with weak pressures for local responsiveness. Therefore, it allows these

firms to sell a standardized product worldwide. However,fixed costs(capitalequipment) are

substantial. Nevertheless, these firms are able to take advantage of scale economies

http://en.wikipedia.org/wiki/Global_strategy#cite_note-0http://en.wikipedia.org/wiki/Global_strategy#cite_note-0http://en.wikipedia.org/wiki/Global_strategy#cite_note-0http://en.wikipedia.org/wiki/Michael_Porterhttp://en.wikipedia.org/wiki/Michael_Porterhttp://en.wikipedia.org/wiki/Michael_Porterhttp://en.wikipedia.org/wiki/Michael_Porterhttp://en.wikipedia.org/wiki/Sumantra_Ghoshalhttp://en.wikipedia.org/wiki/Sumantra_Ghoshalhttp://en.wikipedia.org/wiki/Sumantra_Ghoshalhttp://en.wikipedia.org/wiki/Global_strategy#cite_note-1http://en.wikipedia.org/wiki/Global_strategy#cite_note-1http://en.wikipedia.org/wiki/Global_strategy#cite_note-Christopher_A_1989-2http://en.wikipedia.org/wiki/Global_strategy#cite_note-Christopher_A_1989-2http://en.wikipedia.org/wiki/Global_strategy#cite_note-Christopher_A_1989-2http://en.wikipedia.org/wiki/Fixed_costhttp://en.wikipedia.org/wiki/Fixed_costhttp://en.wikipedia.org/wiki/Fixed_costhttp://en.wikipedia.org/wiki/Capital_(economics)http://en.wikipedia.org/wiki/Capital_(economics)http://en.wikipedia.org/wiki/Capital_(economics)http://en.wikipedia.org/wiki/Capital_(economics)http://en.wikipedia.org/wiki/Fixed_costhttp://en.wikipedia.org/wiki/Global_strategy#cite_note-Christopher_A_1989-2http://en.wikipedia.org/wiki/Global_strategy#cite_note-1http://en.wikipedia.org/wiki/Sumantra_Ghoshalhttp://en.wikipedia.org/wiki/Michael_Porterhttp://en.wikipedia.org/wiki/Michael_Porterhttp://en.wikipedia.org/wiki/Global_strategy#cite_note-0

7/31/2019 Critical Discussion Question

4/4

andexperience curve effects, because it is able to mass-produce a standard product which can

be exported (providing that demand is greater than the costs involved).

Global strategies require firms to tightly coordinate their product and pricing strategies across

international markets and locations, and therefore firms that pursue a globalstrategy are typically

highly centralized.[3]

http://en.wikipedia.org/wiki/Experience_curve_effectshttp://en.wikipedia.org/wiki/Experience_curve_effectshttp://en.wikipedia.org/wiki/Experience_curve_effectshttp://en.wikipedia.org/wiki/Global_strategy#cite_note-Christopher_A_1989-2http://en.wikipedia.org/wiki/Global_strategy#cite_note-Christopher_A_1989-2http://en.wikipedia.org/wiki/Global_strategy#cite_note-Christopher_A_1989-2http://en.wikipedia.org/wiki/Global_strategy#cite_note-Christopher_A_1989-2http://en.wikipedia.org/wiki/Experience_curve_effects