Benefits and Limitations of Global Strategy

Global strategy refers to a company's approach to expanding its business beyond its domestic market, seeking opportunities in foreign markets. The benefits of a global strategy include economies of scale, improved brand recognition, customer satisfaction, diversification of the business, recovery of R&D costs, emergence of new markets, and reduced global poverty. However, there are also limitations to consider, such as lack of concentration on local demand, cultural influences making market entry difficult, operational risks, dependence on foreign nations, and trade barriers in some places.

BLOG: GLOBAL STRATEGY
WHAT IS GLOBAL STRATEGY?

GLOBAL STRATEGY
6th August 2019
In business, global strategy refers to a strategic guide to a business organisation to globalisation.
At the present scenario, the world becomes more connected which allows a company to generate
revenue by utilising the resources prevailing in countries that are located outside the national
border. Global strategy of a business is something that a business uses to apply to reap the
rewards of conducting business in the worldwide market. During the end of the twentieth
century, a number of barriers related to international trade walls due to this, a large wave of
companies started pursuing global strategies with the aim of gaining competitive advantages.
Academic research on global strategy came around 1980s by literary works presented by
Michael Porter, Christopher Bartlett, and Sumantra Ghoshal. Global strategy is associated with
economic systems, and technological change more especially changes in information technology
which facilitated the coordination of a multinational company's strategy on the worldwide scale.
In developing a global strategy for a business, it is quite useful to differentiate between the three
forms of a company's business expansion in the international market which arise from its
resources, capabilities as well as current position in the international arena. Here, if a company
uses to focus mainly on its domestic markets, then the strategies it applies outside its domestic
markets are treated as international strategies. For instance, a chocolate manufacturing company
might sell its excess produce i.e. chocolate outside its domestic country, but its core strategic
focus still directed to the domestic market. One of the main decisions in relation to set global
strategy starts by considering how much substitutions or local variation are available for a
particular in a domestic market. Business leaders nowadays tend to make strong focus on the
way to capture as much share in foreign market as possible and in doing so they begins with by
setting global strategy, adding new culture, launching new offices, supporting foreign currencies,
and more. In today's globalised world, almost every growth seeking company focuses on setting
global strategy to expand its business in international market and to extract the benefits of
globalisation.

Definition and Discussion on Global Strategy
A global strategy is one that a company takes when it wants to compete and expand in the global
market. In some other words, a company pursues global strategy when it wishes to expand its
business internationally. A global strategy stands as the plans a business organisation uses to
develop in order to target and ensure its corporate growth beyond its national borders. More
specifically, global strategy is something by which a company aims to enter into foreign markets
to increase the volume of its goods' sale abroad. Global strategy is a shortened term which covers
three different strategies such as global, international, and multinational. Essentially, all these
three different areas in relation to business refer to the strategies that are designed in order to
enable a company to achieve or meet its corporate objective of business expansion in the
international market.
In support of the definition provided by the Cambridge Dictionary, a global strategy is a detailed
plan showing how a company or product or service could become successful in every country
across the world and the planning process on how a company or product or service could gain
success from the worldwide market. A global strategy involves integrated thinking about every
aspect of the business such as its production sites, suppliers, markets, investors, and competition.
It also involves the assessment of every single product and service from national and
international market standards' perspective. It means a company needs to embed international
perspectives while designing a product or service for placing it in the global market by applying
global strategies. It also means meeting the world standards before seeking the world markets as
well as being a world-class company also in the domestic market. An efficiently formulated
global strategy helps a company to address the way to enter and build the required global
presence, the optimal location or locations across the world for conducting value chain activities,
and the way to continue global presence for gaining competitive advantage from the global
market.
Global strategy requires companies to coordinate their strategies related to product and pricing
across international locations and markets tightly; therefore, companies that pursue global
strategy become highly centralised. As opposed to a multi-domestic strategy, a global strategy
often become appropriate for the industries which include companies that face strong pressures

in relation to cost reduction whereas the pressures from local responsiveness stand weak.
Therefore, the global strategy allows these companies to sell standardised products or services
worldwide. Nevertheless, these companies are capable of taking advantage of economies of scale
and the effects of the learning curve, because of their ability to produce standard quality products
in mass that it can export in the global market. Global strategy assists a company to deepen its
understanding of cultural differences at the local and national level to become a truly global
company.
Importance of Global Strategy
On the micro-level, global strategy pertains to a company's resource allocation to help the
company in availing the profit opportunities related advantages outside its domestic markets. In
broadest interpretation, a global strategy encompasses a company's activities like overseas
manufacturing, importing, and foreign investing. However, in the marketing-related activities'
context, this text views a global strategy that includes a company's business activities related to
exporting, partnering and licensing in foreign nations to sell products and services in the markets
of those foreign nations. On the other side, on the macro-level, this strategy is applied by
countries, regions, trading partners, as well as other entities for accomplishing economic
objectives that are related to competition and foreign trade. For instance, most countries use to
impose different types of quotas, tariffs, and other trade restrictions on importing goods.
Similarly, a number of nations form a group in order to form one or more self-serving business
agreements which exclude global regions or other countries across the world.
States or nations often engage in the business strategies, through tools like tax incentives,
government-sponsored promotions with an intention to improve competitiveness in the global
market or to assist companies in local market. Whether it is on the micro or macro level, global
strategy always supports a company to step-out for the international market and to expand its
business successfully in such international arena. Furthermore, global strategy is very important
from different perspectives. From the perspective of a company, global strategy helps a company
to step-out for international expansion which provides a number of opportunities for sales that
ultimately results in increased profits. Sometimes, it becomes tough for a company to sell its

goods or services in a situation where there the profitability opportunity is very poor in its
domestic market but there are a number of profit opportunities prevailing in the international
market. At this situation, global strategy helps the company to expand its business by selling its
goods or services for availing the international market opportunities for profits.
Along with the new opportunities for sales, there are some other reasons for which a company
needs to focus on expanding its business beyond the domestic market by applying a global
strategy. For instance, if oil companies use to expand for securing resources then it called the act
of seeking resource. Similarly, if cloth manufacturing companies expand for taking the
advantage of low-cost labour available in some foreign countries then it should call the act of
seeking efficiency. Furthermore, some companies found acquiring foreign companies for
enhancing their market position against their competitors and this is called the act of seeking
strategic asset.
From the perspective of a customer, international trade must lead to lowering the selling price
prices for products and services. This is because they believe that with international trade a
company becomes able to derive scope along with the advantages of economies of scale from the
global market base. For instance, Nike sources all its sports shoes from countries like Vietnam
and Philippines where the cost of labour is relatively lower than the other countries. Moreover,
some customers prefer to buy products that have a strong brand image globally. For instance,
soccer shirts branded by ‘Manchester United.' Appropriate application of global strategy assists
companies to create a global image which provokes customers to go for the brand that ultimately
makes a brand successful in terms of attracting customers and revenue generation. From the
international government organisations' perspective, like the World Bank, global strategy is
something through which barriers in conducting trade in the global market and the dominant
thinking could be demean while providing some protection to few countries as well as industries.
Thus, a global strategy stands as a vital aspect of these kinds of international negotiations.
Sources of Competitive Advantages from a Global Strategy

Global strategy leads companies to enter into the international market where they could create a
customer base, build a strong image of their brand, and sell their products and services at profit
by utilising the profit opportunities attached to the market. A perfectly designed global strategy
helps a company to avail the competitive advantages from the international market. These
competitive advantages arise from a number of sources such as:
Strategic:
 Advantage of a first mover and the only seller of a particular product or service to a
specific market
 Transfer price
 Cross stabilisation between nations
Efficiency:
 Economies of scale for accessing more markets and customers
 Operational flexibility
 Exploitation of resource of another country such as raw materials, and labour
 Extend of the life-cycle of a product (selling of older products in less developed
countries)
Learning:
 Broaden the opportunities of learning due to the diversity of business operating
environment
Risk:
 Diversify the risks that are microeconomic in nature
 Diversify the operational risks such as labour related issues, terrorisms, natural calamities
and more
Reputation:
 Crossover consumers between markets – brand identification and reputation.

Benefits of Global Strategy
 Opportunities to gain economies of scale: Successful implementation of a global
strategy helps companies to gain economies of scale. The concept of economies of scale
stands for the proportionate cost saving by increasing production level. The extra amount
of cost savings which occur after increasing the production volume allows companies to
reduce per-unit costs that always attract customers those who prefer to avail quality
products at low cost and ultimately increases revenues. When a company is larger as well
as has huge support from consumers, then it becomes able to produce more products at
less cost. Materials are bought in larger volume to produce more which saves money on
the manufacturing or production end. After adopting a global strategy, a company also
becomes able to bought labour at a lower rate which also assists the company to gain the
benefits of economies of scale.
 Improves brand recognition: Implementation of a global strategy by a company helps it
to promote its brand in the global market which ultimately brings brand recognition in the
global arena. The globally recognised brand assists a company to enlarge its customer
base in the worldwide market and increase its sales volume.
 Customer satisfaction at the global arena: Customers located in multiple nations who
have the demand for the same goods, service, and quality become able to expect as well
as receive the same across the world. This increase customer satisfaction and trust
towards the company which is highly significant for developing a loyal customer base
across the global market.
 Diversification of business: When a domestic company step-out for an international
market, a global strategy helps it to offset losses that the company might suffer during the
economic downturn of its domestic country. The establishment of a thriving business in
the overseas market can sustain the company's domestic-based business for a long time.
 Recovery of R&D (research and development) costs: Global strategy helps a company
to recover research and development cost along with some other development costs by
allowing it to introduce new products and services across the foreign countries. The
introduction of a new business model, products allow these foreign countries to

contribute to such costs. Application of global strategy helps companies to extract the
benefits of knowledge and innovative idea sharing with foreign nations that ultimately
reduce R&D costs and other development costs of the companies that apply such a
strategy.
 Emergence of a number of new markets: Application of global strategy helps
companies to find and enter into new markets that ensure greater sales for the companies.
New markets create new customers base and new opportunities for companies to operate
businesses in those markets that result in increased sales and profits.
 Reduces global poverty: The more a number of new markets emerge, the greater the
employment opportunities and economic growth of the world. When a company
implements a global strategy, it starts investing in the local markets of foreign nations in
several ways. This practice creates new opportunities for jobs that help people of the
foreign nations start working or get employment. Opportunities for job increases
employment that ultimately eases out poverty from those foreign countries, and increases
economic productivity.
Limitation of Global Strategy
 Lack of concentration on local demand: In order to derive the benefits of economies of
scale, companies use to design and apply global strategy to expand their business in the
global market. In doing so, they forgot about concentrating on meeting the demand of
their local and domestic market.
 Cultural influences make entering into new markets difficult: While setting global
strategy, companies are required to focus on the cultural differences such as differences
in religious thoughts and beliefs, social practices and more, which is quite tough as well
as cost consuming. If a company fails to understand the cultural orientation and
differences of the foreign market where it tends to enter, then the global strategy might
fail to perform optimally.
 Presence of operational risks: A global strategy stands as a strategy to engage in an
international business partnership. Due to this, a global strategy often gets influenced by

the political and other external business environment related factors, economies and laws
of the foreign nations over time. If the external business factors turn unfavorable then a
successful global strategy might fail and the company that has applied such strategy also
fails to meet its expectations from foreign trade.
 Dependence on foreign nations: Implementation of global strategy makes a company
dependent on a foreign market that might not expect. While applying global strategy,
companies start to focus on foreign markets about which they might not have in-depth
knowledge that lead them to make a global strategy less effective to enter into the
markets.
 Presence of trade barriers in some places: The presence of numerous value-added
taxes, subsidies, and tariffs affect the selling prices of goods and services sold in the
international market. All these trade barriers lead a global strategy to perform less or
sometimes make incapable to perform for a company that has formulated and
implemented such a strategy to achieve a strong global presence.