Relationship between globalization and business strategy

Globalization: The Strategy of Differences - HBS Working Knowledge - Harvard Business School

relationship between globalization and business strategy

Understanding the patterns of economic linkage, and how they are for the Globalization of Education and Management and at IESE Business. This study advances prior knowledge on globalization and business by empirically inflow of foreign investment and improved relations between countries. The findings show that Globalization has differential effects on business to to these opportunities and challenges requires a restructuring of strategy and.

In the 21st century, many well-known brands — Fiat-Chrysler, for instance — have management, manufacturing and sales divisions in several countries. Some brands with American identities manufacture cars in Mexico and China; brands with Japanese identities build some models entirely in the U. Today, nearly every car on the road has components that originated in more than one country. The inevitable result of this trend toward globalization is the increasing interdependence of national economies.

This precipitated similar tariff increases by the Chinese government on American goods. As a result, stock markets worldwide fell sharply. The Significance of Globalization for Small Business As indicated by the stock market's response to a feared trade-war between the U.

How Does Globalization Affect an Organization's Business Approach?

When the Chinese responded to the Trump administration's tariff increases, they targeted businesses in the so-called "Red States" — the same states whose voters favored Trump in the election. If you have a pig farm in North Carolina, the threatened Chinese percent tariff on pork imports directly hurts your business.

relationship between globalization and business strategy

But, as your exports decrease -- bringing down profits with it -- you, as well as other farmers, will be less able to afford new equipment. This affects American farm machinery manufacturers, such as Georgia farm equipment manufacturer AGCO, and all of its suppliers.

These suppliers include the same U. Not to belabor the point, but this serially affects all of CNH Global's suppliers worldwide and all the companies that sell services and goods to those suppliers. A single large trade event -- in this instance the threatened trade-war between the U. The butterfly can be felt globally.

relationship between globalization and business strategy

If one were to list all the different ways a small business should respond to globalization, that would be a very long list. Correctly choosing how much to adapt a business model is certainly important for extracting value from international operations.

Globalization- trade and transnational corporations - Society and Culture - MCAT - Khan Academy

But to focus exclusively on the tension between global scale economies and local considerations is a mistake, for it blinds companies to the very real opportunities they could gain from exploiting differences. Indeed, in their rush to exploit the similarities across borders, multinationals have discounted the original global strategy: Of course, we're all familiar with arbitrage in its traditional, and least-sustainable, form—the pure exploitation of price differentials.

But the world is not so homogeneous as to have removed arbitrage from a company's strategic tool kit.

Globalization: The Strategy of Differences

In fact, many forms of arbitrage offer relatively sustainable sources of competitive advantage, and as some opportunities for arbitrage disappear, others spring up to take their place. I do not claim that arbitrage to exploit differences is any more a complete strategic solution than the optimal exploitation of scale economies.

If they are to get their global strategies right in the long term, many companies will have to find ways to combine the two approaches, despite the very real tensions between them. Reconciling Difference And Similarity One would think companies that try to exploit differences would not find it easy to exploit similarities as well. And indeed, a large body of research on the horizontal versus the vertical multinational enterprise has shown that there are fundamental tensions between pursuing scale economies and playing the spreads.

See the table " Conflicting Challenges. Finer-grained analysis of case studies—particularly of companies that have in various ways been global innovators—suggests that it is possible to combine the two approaches to some extent.

For a start, it's possible to apply different strategies to different elements of a business. CEMEX pursued a financial strategy of arbitraging capital cost differences even as it implemented a standardized operational strategy. It set up complete, uniform production-to-distribution chains in most of its major markets, reinforced by cross-border scale economies in such areas as trading, logistics, information technology, and innovation in the broadest sense of the term.

Mixing and matching was possible in this case because, to a large extent, CEMEX can choose how to raise capital independently from the way it chooses to compete in product markets. Some companies have gone further. But he also implemented a production strategy that was intended to arbitrage cost differences by concentrating manufacturing operations—and, ultimately, other activities—wherever in the world they could be carried out most cost effectively.

ByGEMS obtained 15 percent of its direct material purchases from, and had located 40 percent of its own manufacturing activities in, low-cost countries. Even the best management can only go so far in melding the two strategies. Like CEMEX, GEMS was able to pursue both approaches because it could organize its operations into relatively autonomous bundles of activities like product development in which economies of scale and standardization were essential and those like procurement and manufacturing where arbitrage economies were being pursued.

What's more, it was able to coordinate its widely dispersed operations by applying centrally developed learning templates. In particular, Immelt applied the "pitcher-catcher concept," developed elsewhere in GE, in which for each move, a pitching team at a high-cost existing plant works with a catching team at a low-cost new location, and the move is not considered complete until the performance of the catching team meets or exceeds that of the pitching team.

How does globalization relate to strategy, especially in large companies? | Global Strategy

As a result, GEMS and GE seems to have managed to move production to low-cost countries faster than European competitors such as Philips and Siemens while also benefiting from greater scale economies. But even the best management can get only so far in melding the two strategies.

Acer, one of the world's largest computer manufacturers, supplies a cautionary tale of what can happen when companies go too far.

Acer entered early into the contract manufacturing of personal computers, operating in low-wage Taiwan, and made good money with that arbitrage play. But in the early s, it began to push Acer as a global brand, particularly in developed markets. This two-track approach turned out to be problematic.