The Global and Domestic Strategy

The Global and Domestic Strategy

In a rapidly changing global economic scenario companies are often faced with a dilemma of pursuing a global strategy or adopt a more local and domestic approach to the market. To understand the differences between the global and domestic strategy we need to first define strategy.

Definitions of strategy:

Scheme: an elaborate and systematic plan of action

A strategy is a long term plan of action designed to achieve a particular goal. Strategy applies to many disparate fields, such as:

Military strategy

Marketing strategies

Strategic management

Football strategy

Game theoretical strategy

Economic strategy

Neuro-linguistic programming strategy

(Source: en.wikipedia.org/wiki/Strategy)

We can understand that strategy is a systematic plan to achieve certain goals and objectives set out by a company.

Definitions of Global strategy:

Worldwide consistency, standardization and relatively low cost are stressed. www.engmanage.co.za/terms_strategy.htm

Firms that pursue a Global Strategy are faced with great pressures from cost reductions but with weak pressure for local responsiveness. Therefore it allows these firms to sell a standardized product worldwide. However, fixed costs (capital equipment) are substantial. Nevertheless, these firms are able to take advantage of scale economies & experience curve effects, because it's able to mass produce a standard product and it can be exported (providing demand for it is greater than the costs involved)

http://www.en.wikipedia.org/wiki/Global_strategy

As economies grow, more and more companies are following a global strategy to produce and manufacture in low cost countries and sell and market the products throughout the world. These companies are called Multi National Corporations (MNC's).

Interestingly it has been found in many studies that large companies tend to follow their global plans in new markets and fail miserably as they fail to take into account the local / domestic scenario. For example, for many years Coco-Cola took its advertisement decisions for all global markets from its head quarters in Atlanta, USA. As the demands for the American and Asian markets were different, this strategy failed badly in India and other Far East Asian countries. This prompted the company to de-centralize its advertisement function to the respective local countries that understood the market much better. As a result the company has been able to show good strength and brand value in these new markets.

The implementation strategy for any company should be to ‘Think Global and Act Local. Regional needs of markets differ and customers demand that products be suited to their wants. Unlike the past where customers would have to make do with available products sold in their market without much concern to the local needs. This is due to growing competition and opening up of world economies.

As part of the strategy of any company it must address the following basic questions:

Identify its market (countries to sell their products in)

Companies must analyze and identify countries they want to do business in. This would involve a detailed market research to assess the potential of the markets, the strength, weakness, opportunities and threats. This is extremely important as a first phase to clearly embark on a future strategy with a mix of domestic and international strategy.

Identify products

After market identification, companies must address which products to sell in which markets - based on geographical needs, culture, climate, potential to spend and other factors companies have to decide on products to sell in these markets. Growing globalization means that a wider range of products have universal acceptance as people have started to accept newer products simultaneously in many countries.

Location of businesses

As competition grows Asia is fast becoming the low cost mass produced factory of the world. Large manufacturing corporations have set up factories in China, India and other countries to take advantage of low labor costs, large domestic markets and favorable government policies to substantially reduce manufacturing