Background
Regional strategies cannot be overlooked by any organization that seeks to have global leadership. Companies that have realized the importance of geographical distinctions and the need to combine local strategies and initiative together with global strategies and initiatives have felt the benefits of regional strategies.
In addition, regions are very important in designing cross border strategies because they have initiated globalization through the regional blocs. Regionalization therefore can be viewed as a catalyst for cross border integration. The following is a discussion on how regional strategies have helped companies to succeed globally.
Types of regional strategies
There are five categories of regional strategies, each has its pros and cons. Based on their complexity, home-based strategy is less complex, and the rest will be discussed in order of their increasing complexity. Under home base strategy, companies export to their neighboring foreign market while manufacturing and all other processes are done locally (Harvard business school press, 2009, p. 198).
- The portfolio strategy. The company has foreign operations that are accountable to the home base. This strategy aids in rapid expansion of regions outside and easing of economic shocks. However, this strategy has a weakness in that it takes time to implement and makes it difficult for companies to compete effectively with competitors from foreign regions. The main reason behind that drawback is that the strategy has less regional power to influence what happens at home (Harvard business school press, 2009, p. 198).
- The hub strategy. It entails setting up of regional bases with the aim supporting local operations through shared resources and services. Companies that want to grow at regional level normally favor it. This strategy is more or less like the home base, only that it’s multiregional. A striking advantage of this strategy is that multiple hubs can operate independently; however, the challenge comes in when the company has to decide when and how to respond to interregional changes (Harvard business school press, 2009, p. 198).
- The platform strategy. This strategy lays emphasis to cost reduction by spreading fixed costs to all the regions. The strategy is appropriate when dealing with products that can allow economies of scale and scope. The strategy focuses on providing variety at reduced costs and therefore, the customers may never realize when a company is applying the platform strategy (Harvard business school press, 2009, p. 198).
- The mandate strategy. This strategy seeks to achieve economies of scale and specialization. Particular regions are therefore empowered to supply or engage in certain activities on behalf of the whole organization although the scope of mandate has a positive relationship with degree of product standardization. The mandate strategy is associated with several risks; such strategy may make the overall strategy of the firm suffer due to undue influence from local, regional or national interests. It is also difficult for broad mandates to deal with local, national or regional variations while extreme specialization may cause inflexibility (Harvard business school press, 2009, p. 198).
Lesson learnt
The five regional strategies that can be adopted by a company that wants to achieve global leadership was the most interesting aspect learnt. They show that a bottom-up approach (less complex to complex) regional strategy helps a company to achieve it global leadership dream if executed properly. Companies that have executed the regional strategies have managed to emerge to the top, and a good example is Toyota Company.
From the study, definition of the word region was quite difficult to conceptualize. This is because companies need to define what their regions are since the word might imply either international or intranational regions. Global leadership calls for companies to apply regional strategies. It does not necessarily mean that the companies must evolve through home base, portfolio strategy, hub strategy, platform strategy and then to Mandate strategy for them to achieve global leadership. They are at liberty to choose how to go about it, but it is highly recommended to go through the strategy since other companies have been successful.
Stone house-Global and Transnational strategy
Organizations might find it difficult in making a decision as to whether they should adopt a transnational strategy or a global strategy, the dilemma can only be solved with a clear understanding of what each strategy entails. This paper gives an insight of the aspects in both strategies.
Global management
According to Porter (1986, pg 321), the value system concept has two options that help in improving corporate strategy in global markets. The two options are configuration and coordination. While configuration seeks to explain how and where each of the activities in the value system is carried out in different countries, coordination explains how the international activities are coordinated.
Concentration and dispersion are the two types of configuration that a firm may take. If concentration is chosen, the implication is that the industries are based in a selected few countries and then products are exported to foreign markets.
On the other hand, dispersion entails spreading of activities in many nations and it’s recommended if storage, transport and communication costs are high as well as if there exists economic policies such as tariffs and subsidies that tend to favor the government. Besides proper configuration, the various activities located in different nations should be coordinated effectively and efficiently.
Prahalad & Doz (1986, cited in Sharan 2009, p. 317) came up with three ways which are almost similar to those of Porter in which global management can be achieved which include; global integration of activities, global strategic coordination as well as local responsiveness. The discussion that follows gives an insight on how a firm can adopt either regional strategy, total global strategy or transnational strategy.
- Regional strategy. Adoption of a regional strategy implies that a firm operates only in certain international geographical areas of the rather than in the whole world market. Such a strategy would be favored if a firms resources are constrained and therefore cant sustain demand in the entire world market, in addition to that, non existence of trade barriers in the regions as opposed to other regions and presence of critical markets that would give the firm generous returns.
- Total global strategy. According to Yip (1992, cited in Wignaraje 2003, p. 18), a global strategy should be flexible and not necessarily standardized. Therefore, there is need to consider how global the market cost, competitive and government drivers are. He therefore argued out that a firm adopting a global strategy must first develop a core strategy, internationalize it and then globalize the internationalized strategy.
- Transnational strategy. A transnational strategy allows organization to respond locally while still maintaining a global strategy of configuration and coordination. Both global and transnational strategies have some aspects that are likely to be found in each other. These aspects include global vision, global knowledge-based core competencies, global generic strategy, global coordination, differentiated architecture, and participation in key markets (Bartlett and Goshal, 1989, p. 85). There are some aspects of the transnational strategy that can be either localized or globalized. These include decision-making, value adding activities, sourcing, branding, products as well as the marketing strategy.
Transnational strategy enables an organization to adopt a global strategy of configuration and coordination while still maintaining local responsiveness. This implies that a firm will still be able to serve the local market efficiently and effectively while still serving the world market.
Coordination has been put forward as important factor for global integration with the assumption that consumer needs are similar and therefore products can be standardized. However, this is not always the case since consumer needs vary and if a standardization approach is taken, the firm is likely to be driven out of the market by local substitutes. It is therefore not clear how a global strategy sorts out this issue.
Organizations should first try to understand all the strategies before making a decision on the strategy to take. A clear understanding of the regional strategy, global strategy as well as transnational strategy is important since the firm is able to evaluate and know the strategy that will yield a competitive advantage.
How local companies keep multinationals at bay
It is interesting how local companies and especially in developing countries are to survive stiff competition from multinational companies from developed countries. Most of the rapidly developing countries such as China have been able to seize opportunities ahead of foreign investors through proper strategy formulation and execution.
This has given them a competitive edge over the multinationals in that the multinationals rarely revise their old strategies and they think that their old strategies will work upon implementation. The local companies have employed various strategies in order to survive competition from multinationals.
Strategies used
From the study, some of the strategies employed by the local companies are eye catching, and proper execution gives the local companies a competing edge. They produce goods and services that are tailored to meet the different needs of the users through proper identification of target markets and segmentation. In addition to that, the companies consider economies of scale and are keen on any obstacles that may arise (Bhattacharya and Michael, 2008). Business models are developed in such a way that the obvious obstacles that may arise are taken care of prior to their happening.
The local companies therefore screen their markets for potential challenges and try to turn them into opportunities or else side step them. Another interesting fact about the local companies is that they are able to take advantage of new and latest technologies. This gives them a competing edge over the multinationals that have old technology in place and adoption of new technology would take time and is also very expensive (Ireland, Hoskisson, and Hitt, 2008, p. 188). Local companies are therefore able to cut down on costs through use of new technology and at the same time produce high quality goods and services.
The local companies also invest in talent with the belief that proper talent will steer growth upwards. They therefore do not underestimate the potential of the many local entrepreneurs who have zeal to succeed and remain competitive for a long time. However, the multinationals have a different opinion regarding the same and do not believe that local companies can beat them since the multinationals consider the potential and ability of such managers to be low.
Conclusion
The above strategies were found to be of great assistance to the local companies. This is because they help the local companies to remain competitive by giving them guidelines on how to exploit their potential and remain above multinationals or catch up with the multinationals. However, not all strategies would give the local companies a competitive edge.
Use of Low cost labor instead of automation that is largely used by multinationals may help in cutting down operational costs, however, as the saying goes, cheap is expensive. Low cost labor may attract other costs to the company, for example, the quality of products might be compromised since it is difficult to find quality low cost labor. Automation of processes and operation is expensive but the advantages cannot be overlooked: quality products, fast, reliable, saves on time, which is a key factor to successful business.
The local companies have been able to remain competitive even though they face stiff competition from their multinational rivals. They have been forced to employ and execute various strategies for them to succeed. Customizing of their products to meet the different and varied needs of their well targeted and segmented markets have played a key role.
They have also invested in latest technology and creating of business models after a thorough scrutiny of potential and challenges thus being able to cut down on costs. Local companies have also invested in developing talents for better performance.
Reference list
Bartlett, C. and Ghoshal, S., 2002. Managing Across Borders: The Transnational Solution. New York, Harvard Business School Press.
Bhattacharya, A. and D., 2008. How Local Companies Keep Multinationals at Bay. Web.
Harvard Business School Press, 2009. Harvard Business Review McKinsey Award Winners. MA, Harvard Business Press. Web.
Ireland, R. and Hitt, M., 2008. Understanding Business Strategy. OH, Cengage Learning. Web.
Porter.E. M., 1986. Competition in Global Industries. MA, Harvard business school press. Web.
Sharan, V., 2009. International Business. New Delhi, Pearson Education. Web.
Wignaraje, G., 2003. Competitive strategy in developing countries. New York, Routledge. Web.