Globalization has facilitated organizations to structure their business practices strategically to improve their viability and competitiveness in the ever-changing global market. Globalization has been facilitated by technological advancements that have dismantled barriers that existed previously. The ease in the flow of capital, movement of goods and services, technological advancements and improvement of infrastructure in most parts of the world has made it easier for organizations to establish a presence in foreign markets.
Michael Porter (1986) classified industries as either being: Global industries i.e. those that compete on a global platform or Multi-domestic industries i.e. firms that have specific strategies that are unique to different markets.
Characteristics of companies with a Global strategy;
- The companies effectively compete in all markets
- They operate on the belief that for their company to be successful they need to establish a presence in every corner of the world to enable them compete effectively
- A standardized products is designed for all of its customers
- The decision-making organ for the companies is centralized
- These companies address customer needs and wants across international borders
- The company focuses on activities and business ventures that they are likely to have competitive advantage over other companies that deal with the same product.
- Amalgamating and harmonizing of the company’s activities and practices is facilitated across borders
A global strategy is most effective in instances where differences brought about by different cultural practices between countries are relatively diminutive and the competition is global. Companies such as Sony that adhere to this strategy enjoy economies of scale, lower costs attributed to the standardized process of production and faster product development also as a result of the standardization of the process of production (porter, 1986).
Characteristics of Companies with a Multi Domestic Strategy
- This strategy is informed by the differences of cultures that are practiced in different countries therefore tailoring its products to address the needs of individual countries
- The decision-making organ of the company is decentralized to meet the needs of individual countries
- The companies are usually characterized by local sourcing owing to decentralization
Multi Domestic Strategy addresses the needs of individual countries while developing its products. This is an effective way to ensure sustainability and growth of the company in the respective markets. However, the strategy attracts high costs because of tailoring their products to specific markets, duplication of products in other markets and high costs of personnel required to facilitate the running of these companies.
Drivers that Determine Globalization in an Industry
The homogeneity of customers’ needs usually determines the strategy that companies with a global presence employ. Other factors such as the existence distribution channels globally and the ability to apply similar marketing strategies in different markets act as market drivers (porter, 1986).
These are the implications that arise from preferring one strategy to another. Cost that inform mass production resulting to benefit from economies of scale, low product development cost and other costs incurred usually inform companies weather to move into new markets.
Refers to the influence the governments have in determining players in the market. Privatization, favorable trade policies and the practice of common marketing regulation generally favor globalization of markets (porter, 1986).
The strength of drivers that favor competition usually determines an industry ability to globalize. Competitive drivers allow for fair competition in the market place, favoring companies that offer the best products.
Porter, Michael E., (1986). Competitive Advantage: Creating and Sustaining Superior Performance