Why do companies such as Wal-Mart, FedEx and America Online want to pursue a global strategy despite failures and losses? They recognize that business is becoming a unified, global field as trade barriers fall, communication becomes faster and cheaper, and consumer tastes in everything from clothing to cellular phones converge. Germany’s Bertelsmann AG, which purchased US publisher Random House put it this way. There are no German and American companies. There are only successful and unsuccessful companies.
Companies that think globally have a competitive edge. Consider Gayle Warwick Linens, whose luxury linens are woven in Europe, embroidered in Vietnam, and sold primarily in Britain and the United States. A French company handles logistics. Gayle Warwick and her employees in London spend their time managing a web of global relationships. Hong Kong’s Johnson Electric Holdings Ltd’s factories and research labs are thousands of miles away from a leading automaker. Yet the company has cornered the market for electric gizmos in US automobiles by using information technology. Via video conferencing Johnson design team meet face to face for two hours each morning with their customers in the United States and Europe. The company’s processes and procedures are so streamlined that Johnson can take a concept and deliver a prototype to the United States in only a few weeks.
In addition, domestic markets are saturated for many companies. The only potential for significant growth lies overseas. Kimberly Clark and Procter & Gamble which spent years slugging it out in the flat US diaper market, are targeting new markets such as China, India, Israel Russia and Brazil . The demand for steel in China, India, and Brazil together is expected to grow 10 per cent annually in the coming years three times the US rate, providing opportunities for companies such as Nucor and North Star steel. For online companies too going global is a key to growth as a growing percentage of Internet users are outside the United States. Western Europe and Japan together account for a huge share of the world’s e-commerce revenue.
The reality of today’s borderless companies also means consumers can no longer tell from which country they’re buying. US based Ford Motor Company owns Sweden’s Volvo, while Chrysler still considered an American brand, is owned by Germany’s Daimler Chysler and builds its PT cruiser in Mexico. Toyota is a Japanese company , but its has manufactured more than 10 million vehicles in North vehicles in North American factories.
Corporations can participate in the international arena on a variety of levels. The process of globalization typically passes through four distinct stages, as illustrated in the Exhibit below
Four stages of Globalization:
Strategic Orientation >> Domestically oriented > Export oriented multi-domestic > multinational > Global
Stages of development > initial foreign involvement > Competitive positioning > Explosion of international operations > global
Cultural Sensitivity > Of little importance > Very important > Somewhat important > Critically important
Manger Assumptions > One best way > many good ways > The least cost way > Many good ways.
In the domestic stage market potential is limited to the home country with all production and marketing facilities located at home. Managers may be aware of the global environment and may want to consider foreign involvement .
In the international stage, exports increase and the company usually adopts a multi domestic approach, meaning that competition is handled for each country independently. Product design, marketing and advertising is adapted to the specific needs of each country requiring high level of sensitivity to local values and interest . Typically these companies use an international division to deal with the marketing of products in several countries individually.
In the multinational stage the company has marketing and production facilities located in many countries with more than one third of its sales outside the home country.
Finally, the global or (stateless) stage of corporate international development transcends any single home country. These corporations operate in true global fashion making sales and acquiring resources whenever a country offers the best opportunities and lowest cost. A this stage ownership control and top management tend to be dispersed among several nationalities.
Source: New Era of Management