A global strategy must specify the extent to which the activities of the organization should be tailored to a specific location. Multinational companies create value when they can perform a particular activity better or less costly than any available alternatives. Such performance emanates from a multinational’s access to superior institutions back home. Access to these institutions eliminates weaknesses that come from institutional voids in the destination country (Khanna, 2002). Such a strategy is tailored in consideration of how the organization will maximize the location’s strength and significantly reduce costs. However, the sustainability of such positioning is directly related to the continued persistence and existence of institutional voids. Thus, institutional voids persist for a long due to multiple reasons which guarantee the success of positioning based primarily on filling an institutional void. Therefore, an organization’s strategy should be tailored to a particular location when institutional voids exist.
An organization’s strategy can be tailored to a particular location by choosing to invest in an industry-specific cluster. Being co-located within a cluster creates the perception of a prominent cluster which lowers the marketing costs as companies share in the goodwill of the location (Khanna, 2002). Additionally, highly qualified talent often gravitates towards such clusters which ensure adequate staffing by experienced and capable staff. Thus, by choosing to invest in an industry-specific cluster, an organization earns itself cheaper and easy-to-access labor. Venturing into overseas business is a complex undertaking that requires a company to undertake multiple internal and external changes to ensure the success of the operation. In addition, a great deal of risks is involved which serves as a deterrent to some risk-averse companies. Finally, local firms might have superior access to local institutions which could be disadvantageous to the multinational.
In conclusion, global strategy can be tailored to a specific location if an institutional void exists at that particular location. Institutional voids exist for multiple reasons and are not easy to rectify. However, before venturing into internal business, an organization should evaluate the internal and external environment to understand its strengths and weaknesses.
Reference
Khanna, T. (2002). Local Institutions and Global Strategy. Harvard Business Review, Web.