Global Strategic Management



During the last half of the twentieth century, many barriers to international trade fell and a wave of firms began pursuing global strategies to gain a competitive advantage. However, some industries benefit more from globalisation than does others, and some nations have a comparative advantage over other nations in certain industries. To create a successful global strategy, managers first must understand the nature of global industries and the dynamics of global competition.


Sources of Competitive Advantage from a Global Strategy 

A well-designed global strategy can help a firm to gain a competitive advantage. This advantage can arise from the following sources:

  1. Efficiency
  2. Economies of scale from access to more customers and markets
  3. Exploit another country's resources - labour, raw materials
  4. Extend the product life cycle - older products can be sold in lesser developed countries
  5. Operational flexibility - shift production as costs, exchange rates, etc. change over time
  6. Strategic
  7. First mover advantage and only provider of a product to a market
  8. Cross subsidisation between countries
  9. Transfer price
  10. Risk
  11. Diversify macroeconomic risks (business cycles not perfectly correlated among countries)
  12. Diversify operational risks (labour problems, earthquakes, wars)
  13. Learning
  14. Broaden learning opportunities due to diversity of operating environments
  15. Reputation
  16. Crossover customers between markets - reputation and brand identification


Sumantra Ghoshal of INSEAD proposed a framework comprising three categories of strategic objectives and three sources of advantage that can be used to achieve them. Assembling these into a matrix results in the following framework:




The Nature of Competitive Advantage in Global Industries 

A global industry can be defined as:

  1. An industry in which firms must compete in all world markets of that product in order to survive.
  2. An industry in which a firm's competitive advantage depends on economies of scale and economies of scope gained across markets.

Some industries are more suited for globalisation than are others. The following drivers determine an industry's globalisation potential.

  1. Cost Drivers
  1. Location of strategic resources
  2. Differences in country costs
  3. Potential for economies of scale (production, R&D, etc.) Flat experience curves in an industry inhibits globalisation. One reason that the facsimile industry had more global potential than the furniture industry is that for fax machines, the production costs drop 30%-40% with each doubling of volume; the curve is much flatter for the furniture industry and many service industries. Industries for which the larger expenses are in R&D, such as the aircraft industry, exhibit more economies of scale than those industries for which the larger expenses are rent and labour, such as the dry cleaning industry. Industries in which costs drop by at least 20% for each doubling of volume tend to be good candidates for globalisation.
  4. Transportation costs (value/bulk or value/weight ratio) => Diamonds and semiconductors are more global than ice.
  1. Customer Drivers
  1. Common customer needs favour globalisation. For example, the facsimile industry's customers have more homogeneous needs than those of the furniture industry, whose needs are defined by local tastes, culture, etc.
  2. Global customers: if a firm's customers are other global businesses, globalisation may be required to reach these customers in all their markets. Furthermore, global customers often require globally standardised products.
  3. Global channels require a globally coordinated marketing program. Strong established local distribution channels inhibit globalisation.
  4. Transferable marketing: whether marketing elements such as brand names and advertising require little local adaptation. World brands with non-dictionary names may be developed in order to benefit from a single global advertising campaign.
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  1. Competitive Drivers
  1. Global competitors: The existence of many global competitors indicates that an industry is ripe for globalisation. Global competitors will have a cost advantage over local competitors.
  2. When competitors begin leveraging their global positions through cross-subsidisation; an industry is ripe for globalisation.
  1. Government Drivers
  1. Trade policies
  2. Technical standards
  3. Regulations


The furniture industry is an example of an industry that did not lend itself to globalisation before the 1960's. Because furniture has a high bulk compared to its value, and because furniture is easily damaged in shipping, transport costs traditionally were high. Government trade ...

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