Global Strategy: Harvard Business Review Essay

Question:

Discuss about the Global Strategy for Harvard Business Review.

Answer:

Global Strategy: An Organizing Frame Work, the author of this journal is Sumantra Ghoshal. The author in this article discusses about the global strategy which has been gaining importance over the years. She has discussed a the importance of having a conceptual framework for the Global strategy. The journal states that lack of having a conceptual framework has created confusion among the scholars, many articles have been published previously but none of the articles succeeded in providing a clear idea about Global strategy. The author has discussed different issues related to the global strategy. The different issues are strategic goals, managing risks, national differences and how to use these differences for creating a global advantage, economies of scope and economies of scale are discussed in the journal (Ghoshal 1987).

According to Sumantra (1987) many articles in the Harvard Business Review, Fortune, The Economist and other popular journals have been suggesting the Multinational Corporations to take up the Global Strategies. The issue has grabbed the attention of the managers of the Multinational Companies. Many conferences have been conducted have attracted many corporate. This conferences are conducted by the conference board in New York, The financial times in London and the Nomura Securities in Tokyo. Even the countries that are growing at a slower rate are using the global strategies. According to the writer global strategies are the most important tool that is used in the International business in the present scenario (Ghoshal 1987).

The global strategy is not clear to many and there are much confusion regarding the concept global strategy. The writers in this field have not been successful in distinguishing the concepts of global firm, global industry and global strategy. A global strategy is appropriate for global industries are, where firm's competitive stats in one national market is affected by its competitive status in any other countries’ market. This type of interactions between the various market positions of the companies arises from the production benefits or it can arise from the joint ventures or mergers or the sharing of the cost and the other resources in throughput the market. This is not always true because it is opposed by …. Who believes that production benefits and the benefits from the mergers and joint ventures can be created and in many cases has been created by strategic actions that are taken by the organization. In many industries the economies of scale are such as aeroframes or aeroengines, the economies of scale are very large making the need for global integration of activities very important. Many cases industries were not initially global but are striving hard to make a position in the global market and some have even acquired that position. For example, Yosh~da Kagyo KK (YKK) or Procter and Gamble (Yip 2014).

She further says that there is a difficulty that is faced by both practitioners and researchers while coming across with the small but complex literary works on global strategies is that there is no organizing framework so that the different opinions and prescriptions can be incorporated. The objectives of Corporations have many dimensions, and they many a times contradict each other. On the other and it is often difficult to give priority to them. Actions take for achieving a specific objective usually contradicts any other objective which might be equally significant . Every prescription aims at achieving certain objectives of a global strategy. The framework is very useful for identifying the trade-offs between those objectives and hence in getting a clear idea of not only the benefits but also the potential costs associated with the alternatives of the various strategies.


The author further adds that, the core concept behind making the strategy is that, the actions taken as strategies must affect the other organizations. The firms that operate in imperfect market earn efficiency rents. Therefore the aim behind this strategy is to increase the efficiency rents.

In this area of global strategy this efficiency perspective has been shown by the application of the integration-responsiveness framework given by Prahalad and further developed and then applied by a number of authors including Doz, Bartlett and Prahalad and Porter (1991) .

There are a number of risks that are faced by a multinational corporation these risks are very harmful and pose a threat to all the firms. Other risks are unique to a specific organization operating in international market. These risks can be classified into four broad categories:

The macroeconomic risks which cannot be controlled by the organization. The other risk is defined as the political risk that is caused by the policies that are made by the government, this are called policy risks. The third risk is cause by the competitors that is known as competitive risk. Every organization face this risk which differs from organization to organization. The final risk is called the resource risk as the name suggests these risks are associated with the unavailability of the resources (Roth and Morrison 2016).

As opposed by Zou and Tamer Cavusgil (2016) a firm when it is operating in the international market so that it can make more profits by using new technology, or brand name, or management capabilities in various countries around the world. As per the author, the main competencies of the multinational remains within the the firm, but, they keep searching for additional profits or the desire to safeguard their existing earnings, this is the reason for the existence of multinationals corporations. Other literatures might not be able to exaplain the reason how some corporations grow and flourish. A different outlook might might suggest that the key element for the success of multinational corporations is that they operate in a different environment in different countries thus making it more capable of operating in difficult situations. This diversity gives exposure to many stimuli, and lets it to develop diverse capabilities. Thus providing it with a excellent learning opportunity compared to a domestic market.


The recent works on global strategy have been focusing at identification of the generic strategies like global cost leadership. focus or niche) and justifying specific strategic actions like cross-subsidy or pre-cmptive investments. There are three basic techniques for creating global competitive advantage: using differences in input and output markets in different countries, use of economies of scale, and using economies of scope (Roth, Schweiger and Morrison 2017).

According to Chandler, Hagstrom and Solvell (2013), the comparative advantage of locations in respect of the differences in factor costs is one the most discussed, and also the best understood source of competitive advantage in international business. Different countries have different factor and conditions and if there is no efficient market, it will lead to inter-country differences in factor costs. Various activities of the company, like as R&D, production, marketing, etc., have different factor intensities. Hence, an organization will have cost advantages by configuration of its value-chain in a way that each activity is located in the country that has the least expenditure for the factor that the activity utilizes the most. This is the main idea behind comparative advantage-based competitive advantage-a concept for which highly developed analytical tools are used from the field of international economics (Gupta and Govindarajan 2014).

National differences are also there in the output markets. The taste and preferences of the Customer vary on the basis of their countries, so does the distribution channels, government policies, regulations applied to the respective product-markets, or the effectiveness of different promotional strategies and other marketing tools. A firm can add the exchange value of its ouput by customizing its offerings as per the requirement and the demand of the market (Parkhe 2013).

Scale economies is a also useful concept, as it is applied for gaining competitive advantage. Microeco- nomic theory gives a strong theoretical and practical basis for evaluation of the impact of scale on reduction of costs. Many companies use the scale of economies as a competitive tool. Its main implication for strategy is for expansion of firm and the volume of its output must be increased so that benefits of economies of scale can be achieved. Or else any competitor who is capable of achieving such volume can create cost advantage, and this will be to a difficult situation make the firms with low volume lose its grip in the market. However scale is a static concept, there may be advantages of scale that has been defiend as the experience or learning effect. A higher volume helps a firm to use scale benefits so that it can acquire learning, and this will help in progressing and cost reduction as the firm moves down towards its learning curve (Govindarajan and Ramamurti 2016).


As discussed by Kim and Hwang, (2012) the strategic relevance of scope economies comes from a diversified firm's ability to share investments and costs throughout the same or different value chains that competitors, not having similar internal and external diversity cannot. This type of sharing occur across segments, products or markets and include combined use of various kinds of assets. A firm with such diversity can share physical assets like equipment of production, funds or the brand names throughout various businesses and markets. Manufacturing systems that use updated technologies like robots for production of various goods is an example of how a firm can use scope benefits. Cross-subsidizing markets and using global brand name are other examples of sharing a tangible asset throughout various components of a firm's product and market profile. Another important source of scope economies is sharing of external relations: with customers, suppliers, distributors, governments and other organizations. A multinational bank will provide quality service to an international customer compared to a bank that functions only in one country. As opposed by Peng (2013) companies such as Matsushita have gained benefits because they offer to a variety range of products to the market with the help of the same distribution channel. The expansion of Japanese trading companies into new businesses to fulfill the different needs and demands of their customers is another example of another variation of diversity (Lascu 2014).

As per Meyer and Estrin, (2014) that there are three arguments that help in construction of the framework. First. in the global strategy literature a kind of industry determinism has come to existence not unlike the technological determinisrn that was seen in the management literary works of the 1960s. The structures of industries significantly influence the accuracy and correctness of a corporate strategy, but there are few of such influences. Apart from the corporate strategy affects the structure of the industry the way it is influenced by it. Another argument is that simple schemes for division of strategies of the companies in different situations conceals more than it reveals.

A map with a detailed comparison of the elements of strategies will help the managers understand it in a better way and improve the competitive status of their companies. Third and the final argument, is that sufficient importance has not been given to the the issues of risk and learning in the strategy literature, especially in the area of global strategy. These are very important strategic objectives and needs be considered in a very explicit manner for the evaluation the strategic status of companies. This framework is not for replacing the analytical tools that presently exist but an enhancement that strengthens these theories (Hotho, Lyles and Easterby?Smith 2015).

The framework does not provide any new ideas or solutions, but only a synthesis of current ideas and tools. The advantage of this type of synthesis is that it will assist the managers in integrating the dynamic strategic actions into an overall strategic thrust by showing the consistencies and contradictions among those actions. For academics this brief opinion of the current literature on global strategy will show that there is a a requirement for more practical based and systematic research to examine and justify the hypotheses which presently is seen in the literature as prescriptions and research conclusions. The partial analyses will lead to valid conclusions only if excluded variables are controlled. The rival hypotheses needs to be considered and eliminated. The body of descriptive and normative research is sufficient to let future researchers to take a systematic approach to improve the reliability and validity of their findings and suggestions (Lei and Slocum 2012).

The framework. is believed to be significant to some researchers in thinking about appropriate research issues and designs for further studies the field of global strategic management. The previous works in this particular have not been able to provide sufficient knowledge and guidance about the concept but this particular article has made the idea about the Global strategy to the readers and the scholars. The author was the first in this area to provide a framework so that it can become comprehensible. One reading this article easily understands the scope of Global Strategy and the important factors in the concept of Global strategy.

References

Chandler, A., Hagstrom, P. and Solvell, O., 2013. The dynamic firm: the role of technology, strategy, organization, and regions. Oxford University Press.

Ghoshal, S., 1987. Global strategy: An organizing framework. Strategic management journal, 8(5), pp.425-440.

Govindarajan, V. and Ramamurti, R., 2016. Reverse innovation, emerging markets, and global strategy. Global Strategy Journal, 1(3?4), pp.191-205.

Gupta, A.K. and Govindarajan, V., 2014. Global strategy and organization. Wiley.

Hotho, J.J., Lyles, M.A. and Easterby?Smith, M., 2015. The mutual impact of global strategy and organizational learning: Current themes and future directions. Global Strategy Journal, 5(2), pp.85-112.

Jia, F., Jia, F., Orzes, G., Orzes, G., Sartor, M., Sartor, M., Nassimbeni, G. and Nassimbeni, G., 2017. Global sourcing strategy and structure: towards a conceptual framework. International Journal of Operations & Production Management, 37(7), pp.840-864.

Kim, W.C. and Hwang, P., 2012. Global strategy and multinationals' entry mode choice. Journal of International Business Studies, pp.29-53.

Lascu, D.N., 2014. Total global strategy: Managing for worldwide competitive advantage. Journal of Marketing, 58(3), p.121.

Lei, D. and Slocum, J.W., 2012. Global strategy, competence-building and strategic alliances. California Management Review, 35(1), pp.81-97.

Meyer, K.E. and Estrin, S., 2014. Local context and global strategy: extending the integration responsiveness framework to subsidiary strategy. Global Strategy Journal, 4(1), pp.1-19.

Parkhe, A., 2013. Interfirm diversity, organizational learning, and longevity in global strategic alliances. Journal of international business studies, 22(4), pp.579-601.

Peng, M.W., 2013. Global strategy. Cengage learning.

Roth, K. and Morrison, A.J., 2016. An empirical analysis of the integration-responsiveness framework in global industries. Journal of International Business Studies, 21(4), pp.541-564.

Roth, K., Schweiger, D.M. and Morrison, A.J., 2017. Global strategy implementation at the business unit level: Operational capabilities and administrative mechanisms. Journal of International Business Studies, 22(3), pp.369-402.

Yip, G.S., 2014. Total global strategy. Prentice Hall PTR.

Zou, S. and Tamer Cavusgil, S., 2016. Global strategy: a review and an integrated conceptual framework. European Journal of Marketing, 30(1), pp.52-69.

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