Wednesday, April 3, 2013

Embrace a Global or Semi-Global Strategy?

Continue with business as usual or change strategy? This is the main dilemma of large corporations especially in a rapidly changing world. From the articles – “Going From Global Trends to Corporate Strategy (Becker and Freeman, McKinsey
Quarterly, 2006 Number 3)” and  “What Happens Next? Five Crucibles of Innovation That Will Shape The Coming Decade (Bisson et al., McKinsey Special Report, 2010)—SKIM”, we see that the global trends are changing. Emerging economies such as India, China and Brazil are becoming significant consumers and hence, markets.

From “What Happens Next? Five Crucibles of Innovation that Will Shape the Coming Decade”, we see why the emerging economies are as significant. The analysis is in line with Porter’s five forces. Although the porter’s five forces show how industry competition is shaped, it is the speed at which changes are happening that makes shaping strategy difficult. It takes just a few months for a company to become a star for example Skype and the same time to go bust for example Iridium.

From an article by Panos Mourdoukoutas on the “Two Misplaced Debates in Business Strategy”2, he brings out the first debate on the nature of world markets and the second on the dilemma on global vis-à-vis a local strategy.

 On the first debate, the author says, “The debate regarding the nature of the world market environment is misplaced because it views multinationalization, globalization, and semiglobalization as universal and mutually exclusive trends that create a unique world market environment, rather than non-universal, non-mutually exclusive trends that create diverse world market environments.” He also mentions that if the market were a pure global market, the business must pursue a cost leadership strategy. Cost leadership is driven by company efficiency, size, scale, scope and cumulative experience. Cost leadership primarily exploits scale of production, standardized products and high technology. 

On the second debate, he says that an international business faced with a semi-global market environment where consumers derive value from a bundle of global and local product characteristics must harmonize its strategy. This would mean the company must pursue globalization and localization at the same time. An example of this would be McDonalds. The menu of McDonald’s in India has been modified to suit the local pallet while retaining its global brand and market in developed economies. This has proven to be successful.

In conclusion, an effective strategy to take the next decade head on would be to collaborate across geographies. Global companies must have local plans that would help them tap into new markets while retaining their market in developed economies. Tweaking a company’s strategy to cater to a semi-global market environment seems the way to go.

The question of going local seems like an answer to the problem of globalization. But, what about companies like Apple especially the iPhone, which operates and sells most of its products in developed economies? How should they take advantage of the semi-global world? Would reducing their price in emerging economies erode their brand? If yes, would the erosion be so significant, that they are willing to give up the revenue opportunity?


1What Happens Next? Five Crucibles of Innovation That Will Shape The Coming Decade (Bisson et al., McKinsey Special Report, 2010)—SKIM” 

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