Strategic Management
Strategic management is the process of strategic decision-making that sets the long-term direction for the organization. The central thrust of strategic management is achieving a sustainable competitive advantage. The strategy process consists of the analysis, development, and implementation steps. Hence ‘international strategy’ and ‘global strategy’ are sometimes used interchangeably. We take global strategy to mean something new and different from international strategy. We group them into four main phases
- Single-country strategy - Most firms operating around the world at one time operated in a single country. Firms that are now household names around the world started as small ventures in a single country. Firms operating strictly within the confines of their home country use single-country strategies to compete in their home market, where they face only one set of business factors and one set of customers. The firm’s home market kept growing and remained profitable; there was no urgent need to expand into foreign markets. Internationalization was often considered when the firm’s home market became unprofitable or the prospect for growth Started to diminish, and attractive opportunities to expand internationally were available. Even for firms that do not operate internationally, formulating and implementing a strategy that focuses solely on local competitors and customers may not guarantee their strategic competitiveness.
- Export strategy - Before a firm establishes subsidiaries outside its home market and becomes directly involved in their management, it may start by exporting its products and services outside its home market. In most exporting firms the domestic strategy remains of primary importance. While an exporting firm makes strategic decisions to select appropriate countries to export to, determines the appropriate level of product modification to meet local market peculiarities, and sets and manages export channels, the thrust of its strategy deals with the management of the firm in the home country. For this reason, this phase could be considered as a domestic strategy with an export strategy attached to it.
- International strategy - When firms first establish subsidiaries outside their home market, they move from a domestic strategy phase to an international strategy phase. Firms that manufacture and market products or services in several countries are called ‘multinational firms’. During this phase, each subsidiary is likely to have its own strategy, and will analyse, develop, and implement that strategy by tailoring it to its particular local market. At this phase, adaptation of products to fit local market peculiarities becomes the main concern for multinational firms. Internationally scattered subsidiaries act independently and operate as if they were local companies, with minimum coordination from the parent company. This approach leads to a wide variety of business strategies, and a high level of adaptation to the local business environment.
- Global strategy - As multinationals mature and move through the first three stages, they become aware of the opportunities to be gained from integrating and creating a single strategy on a global scale. A global strategy involves a carefully crafted single strategy for the entire network of subsidiaries and partners, encompassing many countries simultaneously and leveraging synergies across many countries. A global strategy involves the carefully crafted single strategy for the entire network of subsidiaries and partners, encompassing many countries simultaneously and leveraging synergies across many countries. This stands in contrast to an international strategy, which involves a wide variety of business strategies across countries, and a high level of adaptation to the local Business environment.
International strategy and global strategy: what is the difference?
There are three key differences.
- The first relates to the degree of involvement and coordination from the centre. Coordination of strategic activities is the extent to which a firm’s strategic activities in different country locations are planned and executed interdependently on a global scale to exploit the synergies that exist across different countries. International strategy does not require strong coordination from the centre. Global strategy, on the other hand, requires significant coordination between the activities of the centre and those of subsidiaries.
- The second difference relates to the degree of product standardization and responsiveness to local business environment. Product standardization is the degree to which a product, service, or process is standardized across countries an international strategy assumes that the subsidiary should respond to local business needs unless there is a good reason for not doing so. In contrast, the global strategy assumes that the centre should standardize its operations and products in all the different countries, unless there is a compelling reason for not doing so
- The third difference has to do with strategy integration and competitive moves. ‘Integration’ and ‘competitive move’ refer to the extent to which a firm’s competitive moves in major markets are interdependent. For example, a multinational firm subsidizes operations.
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