Venturing overseas by any company is a complex process that combines strategy, capital, and other resources. If all the necessary factors are considered, an overseas subsidiary could act as a launch pad for an organization to establish other subsidiaries in different jurisdictions. However, multiple global strategies despite strong brands by a company and other advantages associated with multinationals (Ghemawat, 2018). The reasons for these failures are varied and include a failure to substantiate size and strategy, differences between countries, distances between countries, and generally running out of space to grow and inadequate hedging of risks.
One of the reasons why global strategies fail is an apparent lack of insight into recognizing size and strategy. Overall, companies that venture overseas are fairly profitable and have a decent capital base to support their move (Ghemawat, 2018). However, being large or medium does not translate into success. Instead, an organization should be able to study a new market and develop strategies for entering that market because strategy trumps size. Multinationals exit new markets due to losses if they adopt the wrong strategy (Ghemawat, 2018). Their exit comes despite their size, while smaller companies with brands that are not globally recognized succeed due to the adoption of the right strategy.
The second reason is that the management of the multinational company fails to recognize the differences between each country. Each country is unique in terms of culture and consumer behavior (Ghemawat, 2018). A company must be able to conform to the local culture and respond to certain behaviors. Consequently, one strategy for entry into one foreign market cannot be used as a blueprint for entry into other markets. Using one strategy as a blueprint indicates failure by the executive to differentiate between various countries (Ghemawat, 2018). Failing to differentiate between countries is a prerequisite for a chaotic and ultimately unsuccessful attempt at entering a new market.
The third reason why the strategies fail is because of ignoring the distance. Despite advances in technologies that have eliminated some of the disadvantages posed by the long distance between a subsidiary and a parent company, distance remains a key factor that determines whether a strategy succeeds or fails (Ghemawat, 2018). Additionally, due to the physical distance between the subsidiary and the parent company, some critical functions are often filled by less-than-ideal candidates. Further, close supervision, which is always necessary when a company is trying to penetrate a new market, is limited by distance. Therefore, if a company does not account for distance when designing a global strategy, its likelihood of failure increases exponentially.
The final reason for failure is if a company runs out of room to grow or inadequately hedges risks that arise as a result of venturing globally. A global strategy may fail if the company exhausts the regional potential for growth without breaking even. This type of failure is more common for companies whose expansion relies on the capture of a regional market. Additionally, moving operations overseas or opening a subsidiary is usually accompanied by a degree of risk. Successful global strategies find ways to mitigate this risk to ensure that it does not affect the successful entry into a new market. However, in some instances, organizations fail to hedge the risks associated with international operations properly, leading to the failure of their global strategy.
Reference
Ghemawat, P. (2018). Redefining global strategy: Crossing borders in a world where differences still matter. Harvard Business Review Press.