Author: globestrategy

When to Go Global

When to Go Global

Cost Leadership

A global strategy may be appropriate in industries where firms face strong pressures to reduce costs but weak pressures to respond locally; globalization therefore allows these firms to sell a standardized product worldwide. By expanding to a broader consumer base, these firms can take advantage of scale economies (cost advantages that an enterprise obtains due to expansion) and learning-curve effects because they are able to mass-produce a standard product that can be exported (providing that demand is greater than the costs involved).

Market Expansion

Globalization is not limited to cost leadership, however. Differentiation strategies also enable economies of scope, either fulfilling different needs in different markets with a similar series of products, or developing new products based upon the needs and consumption habits of a new market. Differentiation as part of a global strategy will often require localization, as organizations must adapt to consumer tastes better to compete in the new country. For example, Coca Cola tastes different depending on the country where it is bought because of differences in local preferences.

Sourcing

Other popular and primary strategic reasons for globalization include building supplier relationships, improving access to raw materials (unique to a given region), and cutting costs by using other regions’ specializations. Starbucks sources coffee beans from all over the world, as climate dramatically affects the type and quality of the bean. The globalization strategy of Starbucks—while it includes selling in many countries—is hugely depending on global sourcing, and strategic managers must carefully monitor this process for costs and benefits.

Global strategies require firms to coordinate tightly their product and pricing strategies across international markets and locations; therefore, firms that pursue a global strategy are typically highly centralized.

Corporate Strategy Implications

With global markets in mind, strategic managers must expand their perspective and use varied models to generate different strategies for different places. For example, companies must now conduct a PESTEL analysis for each region in which they operate and recognize expense and competition deviations between regions. For example, tariffs in country A may be much higher than country B, but country B has fewer individuals willing to pay a high price for the good the organization is selling. Managers must conduct a cost/benefit analysis to identify which country actually offers the best profit potential. These analyses are how strategists incorporate global concerns into strategic management.

Gross domestic product (GDP) worldwide
Gross domestic product (GDP) worldwide
The map identifies GDP (nominal) in different countries, highlighting which countries offer high consumer spending opportunities for multinational enterprises.

Source: Boundless. “Global Strategy.” Boundless Management. Boundless, 17 Nov. 2014. Retrieved 07 Feb. 2015 from https://www.boundless.com/management/textbooks/boundless-management-textbook/strategic-management-12/common-types-of-corporate-strategies-90/global-strategy-436-1455/

What is global strategy

Global strategy, as defined in business terms, is an organization’s strategic guide to pursuing various geographic markets. A global strategy should address the following questions: What should be the extent of an organization’s market presence in the world’s major markets? How can the organization build the necessary global presence? What are the optimal locations around the world for the various value-chain activities? How can the organization turn a global presence into global competitive advantage?

Source: Boundless. “Global Strategy.” Boundless Management. Boundless, 17 Nov. 2014. Retrieved 07 Feb. 2015 from https://www.boundless.com/management/textbooks/boundless-management-textbook/strategic-management-12/common-types-of-corporate-strategies-90/global-strategy-436-1455/

Differentiation at Microsoft

Microsoft over the past couple of years has jumped on the price discrimination bandwagon. It was difficult for them to engage in product and price differentiation because they were generating piles of cash as a monopoly. Microsoft is a monopolist in the operating systems arena and with their office suite of applications. The marginal cost to produce incremental levels of software and other information goods, such as DVDs and music, is essentially zero. But as usual, the fixed costs are substantial, and because Microsoft is a price setter, they chose to sell at a price that covers their fixed costs but still permits them to make a large profit without irritating too many consumers.[73]

For many years, Microsoft was not interested in price discrimination based on geography, market segment, or per capita GDP. But Microsoft had to move toward price discrimination because the willingness-to-pay for software was related to software piracy. Students and individuals with low incomes are price-sensitive and will simply turn to piracy when the price exceeds their willingness-to-pay. They also had to offer certain market segments lower prices because piracy was essentially rampant. Microsoft began to realize that they were leaving money on the table because they did not take dramatic steps to price discriminate through product differentiation.

Sometimes product differentiation does not work.[74] Microsoft tried to differentiate the Vista operating system (see the snap shot of Windows 7 and Vista Versioning in Figure 5.6, “Windows 7 and Vista Product Differentiation”). But Vista never gained legs for a variety of technical, customer support and marketing reasons. The product was not ready for prime time. They continued to product differentiate and price discriminate with the release of Windows 7. Home Premium was priced at $199.99, Professional at $299.99, and Ultimate at $319.99. They definitely used the Goldilocks versioning. It appears that Windows 7 was a success because it was a stable, fast, and friendly operating system.

Of late, Microsoft has also had to contend with Google’s foray into the online office application suite called Google Docs and IBM’s offering of open-sourced Linux-based applications. The competition is heating up and the Microsoft monopoly is under attack on many fronts. Monopolies are often transitory as the competition looks for a crack in the armor and a chance to drink from the fountain of plenty. The growth of cloud computing (where data storage and CPU cycles move toward the utility model) and the availability of net-centric applications could continue to erode Microsoft’s market share. They have, however, started to address the attack by introducing a cloud-based Office 365 and the Azure development platform.Screen Shot 2015-02-07 at 15.13.19

Search and the Role of Learning- About in Developing Ideas for New Products and Services

In addition to generating new knowledge, conducting R&D leads to smarter organizations because the knowledge these organizations already have helped understand new information when it becomes available. The best way to conduct R&D and to improve the organizational innovation and creativity is to learn-by-doing and to engage in search activity. In this section, we will discuss searching for ideas first and we will discuss learning-by-doing later.

Learning-about, or the search process, involves reading magazines, books, and technical articles, attending schools, observing the competition, one-on-one discussion, interacting with customers, and attending symposia and conferences. It involves acquiring knowledge and integrating and synthesizing that knowledge. This is the first step in developing individual and organizational knowledge structures. Learning-about in its basic form is search and synthesis. It is too expensive in terms of time and resources for organizations to build every product and service that is conceived. Many companies therefore learn-about an idea by reading, interacting with experts, and also by attending symposia and conferences related to an emerging technology. The goal is to gain insight and understand the potential of an emerging technology or a new idea.

It is our thesis that book learning, lectures, and even homework are usually beneficial. This is essentially the learning-about process. Search plays a key part in the learning-about process. This is particularly true when an organization searches outside the organization for ideas related to product innovation. Search can be classified in terms of the breadth and depth of the search.
[28] The breadth of the search refers to the number of outside sources used and consulted. The depth of search refers to the intensity of the relationship between the searcher and the external sources. Table 1.1, “External Sources of Information” lists potential sources of external information that can be used by entrepreneurs and product developers when engaging in an innovative activity.

As illustrated in Figure 1.9, “Breadth and Depth of Search and Innovative Activity” (adapted from Laursen and Salter [29]), it appears that the breadth of search is important for incremental improvements innovation and that both breadth and depth of search are important for new and radical innovation. In terms of the breadth of the search, it appears that the sweet spot is about eleven sources plus or minus two sources (see Figure 1.10, “Breadth of Search and Innovative Performance”, adapted from Laursen and Salter [30]). This is a rather useful finding upon further reflection. When searching for new information, it is often difficult to determine how much information to gather and the number of sources for collecting information in order to avoid information overload. The point is that you have to seek out a variety of sources of information in order to improve the chances of introducing a successful innovation.

Table 1.1. External Sources of Information

Sources of information from the market

Suppliers of equipment, materials, components, or software

Clients or customers

Competitors

Consultants

Commercial laboratories/R&D enterprises

Sources of information from institutions

Universities or other higher education institutes

Government research organizations

Other public sectors, e.g., business links and government offices

Private research institutes

Sources of information from the profession

Professional conferences and meetings

Trade associations

Technical/trade press and computer databases

Fairs and exhibitions

Sources from specialized places

Technical standards

Health and safety standards and regulations

Environmental standards and regulations

Screen Shot 2015-02-07 at 14.34.43

Extracted from

Developing New Products and Services by the Saylor Foundation: Available on http://www.saylor.org/site/textbooks/Developing%20New%20Products%20and%20Services.pdf

The Role of R&D Process in Innovation

The objectives of R&D are to develop existing and new core competencies, to further existing and new products, and to develop existing and new business processes through invention and innovation. [23] The R&D process is the engine that drives product and process differentiation. Innovation is typically defined as the ideas, the products, the services, or processes that are perceived as being new and different and they have been implemented or even commercialized.

Research and development are usually thrown together as one concept, but in reality they are somewhat distinct processes. [24] Research is typically considered to be science-oriented whereas development is the mechanism for translating the science into commercial products and services. Basic science can be thought of as the engine for pushing new discoveries and ideas into society. This is in contrast to the concept of market pull. Market pull is essentially the process of translating the basic science into products and services in order to satisfy customer needs, wants, and demands. The interaction between science push and market pull creates a very powerful feedback loop that spurs on the development and diffusion of new products and services. [25]

As noted earlier, the diffusion and awareness of technologies typically follows an S-curve. In the early stages of the S-curve, there are very few people aware of the technology. Market research is not important at this stage because there are few untapped wants because of the lack of awareness. As a technology matures and begins to take off, there is a propagation of awareness with increased insight of the possibilities of a technology. [26] It is at this stage that market research becomes viable. It is also at this stage that many similar products begin to emerge because of the surfacing of a kind of group aha because of the interconnectedness of businesses and research groups. This group aha occurs because market research by producers and product development laboratories leads to the same conclusions about consumer wants. Once consumers begin to use products and have had the opportunity to experience a product, they also begin to identify areas of deficiencies in the product and areas where a feature might be added. And this is where market research is very effective because market researchers are very adept at identifying changes in consumer wants.

As the market matures, the demand for the products also begins to decline with the emergence of substitute products and technological obsolescence. It is then necessary to re-prime the pump and reload science. This is done by working with new science and new technologies in order to identify new opportunities for developing products and services. The figure below “Push, Pull, and Reload” illustrates the concepts of science push and market pull and how they relate to diffusion and awareness.

Screen Shot 2015-02-07 at 14.27.01

Some individuals believe that there is a limit on the ability of innovative activities to bring new products to the market. This suggests that differentiation cannot go on forever. This line of reasoning is similar to the idea attributed to someone in the U.S. patent office that: “Everything that can be invented has been invented.” There is good news, however, from the patent office. Research has shown that companies can keep innovating and still contribute to the bottom line because it appears that, in general, there are no diminishing returns to scale for R&D expenditures. [27] In essence, continued investment in R&D yields rewards, revenues, and profits. Even though a particular technology may have a performance limit, advances in R&D and in basic science along with customer pull will start the process anew. Moore’s law continues to work for Intel because they continuously re-prime the pump. They have gone from focusing on the clock rate of their CPU, which is constrained by thermodynamic considerations, to exploring multiple CPU cores and restructuring the overall microarchitecture of their chips.

Extracted from

Developing New Products and Services by the Saylor Foundation: Available on http://www.saylor.org/site/textbooks/Developing%20New%20Products%20and%20Services.pdf

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