In a world of both increasingly porous borders and increased concerns about international competition, businesses looking to sustain growth and ensure continuity require leaders with a clear understanding of global strategic management.
Global strategy is, of course, still a strategy. So we begin with the basics of business strategy. In the strategy classroom, we speak of the three lenses and the six questions of strategic management.
The six questions describe the AIM strategic management cycle and branch off from the central question: “Who are we?” This involves clarification of mission, vision and values; and these answers are expected to illuminate all the other phases of strategic management. The classic approach to strategy then traditionally begins with the second question of “Where are we?” This question is the phase of a strategic situation analysis and covers external and internal analysis. It includes historical analysis, trend and pattern analysis and forecasting. The third question is the first step of strategy formulation and entails the identification of anchor long-term objectives for the planning horizon. The next two questions lie at the heart of strategic planning: “How do we get there?” and “How do we do it?” These questions aim to cover both the strategic plan and the operating plan. Finally, we have the question that is asked during strategy implementation “How are we doing?” This question must be anchored by performance indicators and targets developed during the planning step itself. These questions ground strategy whether it is local, national, regional or global.
The three lenses, or perspectives, of strategy are: (a) competitive advantage; (b) resource-base; and (c) institutions. Most business strategy discussions center on the question of competitive advantage. This is true because most businesses exist in a competitive environment where customer preferences and choice drives revenue generation. The choice of value proposition is then driven by an evaluation of corporate resources, assets and capabilities, with an appreciation that sustainable competitive advantage is anchored by resources or capabilities that are rare and difficult to copy. Finally, the lens of institutions is used to ensure that the planned business model takes into account the larger environment. This lens is particularly important when businesses go through a transition phase where the current business model incorporates certain assumptions about the environment, which might not necessarily apply in a new environment. This final lens becomes particularly important in global strategy, when businesses must compete in what could be a radically different environment.
International or global?
In the global strategy classroom, we first ask about definitions.
The easier definitions begin with the spectrum from international to multinational to transnational corporation. What is the difference between international and multinational? An international corporation is simply a corporation that transacts between borders―through importation or exportation or both. By contrast, a multinational corporation makes direct investments in other countries and actually have operations beyond its own national borders. This differentiation grounds one of the management decisions involved in creating a global strategy―when does it make sense to have physical operations in a country as opposed to simply transacting via import or export? Next, what is the difference between a multinational and a transnational? The key difference is coordination and governance. Where a multinational is essentially a collection of businesses existing in multiple locations, a transnational has coordinated offerings and operations across borders.
It is tougher to define the term “global corporation.” On the one hand, it is possible to think about globalization simply from the point of view of geographic reach. How many countries, regions or continents does your business reach? But how do we measure this? Do we measure by revenue? Earnings? Customer base? Sourcing? Once the question of reach is answered, the next question is one of governance and coordination. There is also the question of global brand versus global business.
Global Strategy Questions
We also ground the study of global strategy with a few key questions: (a) Why? (b) Where? (c) When? (d) How? and (e) What next?
This week, we tackle the question of Why? We begin with this question because the question of intent must ground all the other questions. There are generally three categories of answers to the question of why a country would wish to cross its national borders.
In his articles on global strategy, Pankaj Ghemawat identifies two general reasons for internationalizing: globalizing markets, and globalizing supply chains. This essentially reflects the traditional view of international trade: exports (chasing markets) and imports (improving sourcing and inputs). Globalizing markets refers to exporting and is essentially about revenue. Many companies internationalize to broaden its revenue opportunities, both simply from the point of view of increasing revenue as well as for diversification. Globalizing supply chains is about chasing lower cost and/or better quality inputs. Diversification, or risk management is an important reason for globalizing both markets and supply chains.
Finally, there is the third category, which is generally the question of governance and simply general business model efficiency. This category involves choosing locations for corporate headquarters and key elements of the corporate value chain, such as, for example, research and development. The reasons might include locating in a country which has the tax regime or governance environment that is most desirable for the company.
Next week, we continue this discussion on global strategy.
References: (a) Gallegos, Herrera et al Asian Institute of Management Strategic Management Department Strategic Management Cycle, 2017, (b) Ghemawat, P. (2001). Distance still matters. Harvard business review, 79(8), 137-147.
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