Total Global Strategy: Managing for Worldwide Competitive Advantage

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23 Mar 2015

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Introduction

In current global environment, more and more firms are expanding their business internationally. Advances in technology, communication systems, transport, and better free trade policies has made movement and the spread of ideas much easier around the world. There are various reasons why firms look for international diversification. The international strategy adopted by the organisation depends on both external environment and capabilities of an organisation. Traditionally companies had some very basic motives for expanding its business internationally. Traditional motives date back to the 17th century when European countries began sending exploratory voyages to America and Asia to expand trade and acquire raw material. One example was the East India Company which is often termed as the first ever multinational corporation. (Microsoft Encarta Online Encyclopaedia 2009) This report evaluates the various global drivers that are considered by an organisation when they want to enter the international markets. With the use to PEST Analysis, an organisation can determine the external factors and with the help of SWOT Analysis it can evaluate its strengths and weaknesses to succeed in international markets. This report will focus on the key factors Oak tree fsaxz cconsultants must possess in order to succeed in International markets and provide an internal assessment using SWOT Analysis.

Global Drivers

With constant changes in the business environment and globalization, there are various drivers that have an impact on business. As per Yip (1992) globalization driver framework makes it possible to identify which aspects of an industry are global and which aspects differ locally. Following are some of the key global drivers that can impact an organisations business strategy.

Market Drivers

Homogenous customer needs - When customers in different countries develop similar tastes and want essentially the same type of product or service, opportunities arise to market a standardized product. Hence organisations are now integrating their strategies on cross national basis and whole world is seen as a potential area of operation. Example, The world wide reach and popularity of sportswear like Nike. They have standardized products being sold through retail outlets and stores in 160 countries across the world (Mitzberg & Ghosal, 2003

Global Consumers

  • As consumers get global and are more aware, it allows organisations to use similar marketing strategy to market their products. Global customers are of 2 types (Mooij 2001)
  • National global consumers that search and buy from suppliers all around the world but use the purchased products/services only in one country. E.G National defence agencies
  • Multinational global consumers also search and purchase from suppliers around the world, however use the purchased product/service in many countries. E.g. World health organisation purchases medicines from many suppliers and uses it in many countries.

Transferrable Marketing - In this case firms can use the same brand name, advertising and marketing elements with minimal local adaptation. For example Pepsico uses similar advertising campaign across many countries to market its products.

Global Channels - Analogous to global customers, channels of distribution may buy on a global or at least a regional basis. Global channels or middlemen are also important in exploiting differences in process by buying at a lower price in one country and selling at a higher price in another country. Global channels are rare, but regionwide channels are increasing in number (Mitzberg & Ghosal, 2003)

Cost Drivers

  • Economies of Scale - By expanding into markets characterised by cross nationally homogenous consumer tastes and needs, firms can enjoy the economies of large scale production. In such markets distribution of products can be done to various countries; however production activities are set up in a centralised location. Example, Nike has most of its production plants set up in Asian countries mainly China to take advantage of the economies of scale
  • Country differences - Factor costs and skills generally vary in countries more so in case of particular industries. Concentration of activities in a low cost country can help reduce costs. Other factors like Cultural differences can be exploited by organisations to expand business in the countries. US based fast food companies exploited the American fast food culture not only in America but other countries. (Campbell, Stonehouse & Houston 2002)
  • Sourcing efficiencies - Centralized purchasing of new material can significantly lower costs.
  • Economic factors - Companies may get advantage of economic factors by expanding internationally like cheap labour and costs of capital. E.g Nokia set up its production plants in China to exploit cheaper labour. (Mooij 2001)

Government Drivers

Companies may get tax benefits like tax differentials by placing holding companies in different locations. Example news corporation set up holding companies in Cayman islands to reap tax benefits

Trade policies - Free trade policies, lifting of trade barriers, import taxes and efforts from the World trade organisation to form world trade unions facilitate globalisation. For example the formation of the European union or the North American free trade agreement enhanced international trade between participating countries (Held 1999)

Competitive Drivers

Interdependence - A Competitor may create Inter dependence between countries by pursuing a global strategy. Classic example is the automobile industry where economies of scale are significant and where sharing activities can lower cost, markets have significant competitive interdependence. Companies like Fords which became more cost competitive induced Japanese car makers to enter more markets.

Internationalisation of value add activities / Global sourcing - Internationalisation allows organisation to access and develop resources and capabilities in ways not possible in its home country, thereby enhancing its competitive advantage and position. E.g GE has its back office activities like analyses of insurance claims done in India to utilise highly skilled labour in India to enhance efficiencies

Enhance knowledge base - Companies seek to enhance their knowledge base by entering markets that are strategically important as a source of industry innovation for example USA for computer software and UK for popular music (Krotseng 1997)

Key Success Factors that OTC must possess

Every organization has mission that describes the reason for its existence i.e. its purpose and where it intends to go i.e. its direction. The mission of the organization reflects its unique values and vision. Achieving this mission takes immense participation and skill of all employees of the organisation. The goals and objectives of every employee at every level must be aimed towards the mission. However achieving just goals and objectives is not enough. The organization must at the same time perform well in some key areas on a very consistent basis to achieve their goals. These key areas which are unique to the organization and the industry in which it competes are defined as the organization's critical success factors (Caralli 2004)

An organization prime reason for existence is to serve its stakeholders that are the customers, employees, business partners, shareholders, and communities that benefit from the organization's existence and growth. The organization's mission embodies the focus by stating the organization's purpose, vision, and values. Stakeholders are best served when an organization operates in a manner that ensures the goals and objectives are met and the mission is accomplished. To achieve this mission in a logical and systematic way the organization needs to develop a strategy. The strategy is a set of goals and targets that the organization must achieve in a specified period of time. These goals are then transformed into lower level tactical plans and a set of activities to be carried out at various levels throughout the organization. This process of strategic planning provides a means for ensuring that the entire organization is focused on a shared purpose and vision. Critical success factors define the key areas of performance or key performance indicators that are essential for the organization to accomplish its goal, objectives and mission. Managers implicitly know and consider these key areas when they set goals, also as they direct operational activities and tasks that are important to achieving goals. However, when these key areas of performance are made unequivocal, they provide a universal point of reference for the whole organization. Thus, any activity or initiative undertaken by the organisation must ensure consistently high performance in these key areas; else, the organization will not be able to achieve its goals/objectives and consequently may fail to accomplish its mission (Rockhart 1981)

Some of the Key factors that OTC would need to consider are listed below.

Short Term Operational Success factors - Operational success factors refer to bringing projects in the door, to have the capacity to execute them, keeping tight track on projects, and being able to evaluate and manage essential drivers of financial performance. OTC would need to maintain these operational factors while they invest in new international markets, to ensure that their existing markets do not decline. Various engagement controls like work force management, scheduling tools, and financial reports, enable to manage the engagement more carefully to meet the expected schedules, budgets & quality of deliverables. Some key financial drivers like optimum staff utilization, revenue factor, cash flows and overhead costs need to be tracked, managed and benchmarked not only for the whole organization, but for individual units and staff as well. This will help OTC with its financial forecasting and managing liquidity.

Capabilities - The internal factors that determine a company's potential for the international marketing success can be called the capabilities of the firm. Capabilities are the specific blend of the skills of its personnel times their motivation to apply those skills in the ways desired by the tom management time the availability of appropriate resources. If either are not oriented and upto the competitive standards, or if the firm has inadequate resources, the resulting capabilities will not lead to achievement of company goals. (Grunert 1993) In OTC's case their core competency lies in consultancy and training for marketing activities, however their knowledge in online consultancy is limited. Though they have been able to penetrate the online market and already have 36 clients, they would need more skills and expertise in this domain. None of the employees are currently specialists in online business, hence to ensure an optimum resource pool to enhance their online consultancy business, they can look at hiring additional resources.

Customer Expectations and aspirations - The best way to determine the success factor in a potential market is by identifying the expectations and aspirations of the consumers or the target market, important stakeholders in the market and then derive the capabilities/skills a company needs to fulfill these aspirations and expectations. In most cases the market needs to be divided into segments on the basis of the characteristics of each segment. The aspirations and expectations of each market segment could differ, and may require a different marketing strategy. Once the segmentation has been done, the most important dimension of macro-environment as well as the specific factors on these dimensions the future development of which might present significant challenges to firms doing business in those segments (Dahringer 2006). For OTC to determine the key customer expectations, market research can be conducted in the target markets and segments. They can also conduct customer satisfaction surveys with the existing customers to determine which areas of service have benefited the customers most.

Competitors Analysis - It is important for the organization to determine and define their competition. To be able to complete a strategically useful compatriot analysis one has to determine the structure of its competitive environment, that is the relevant competitors. The competitors may vary depending on whether the product market is considered globally, regionally or locally. The most important competitors will be the firms that supply the same services, that is online business consultancy and training. Apart from existing competitors, there may be threats from new emerging competitors. OTC would need to ensure they build on their core competencies to ensure they have the competitive advantage. Considering they have high margins on their Online consultancy business, that can explore options of providing competitive prices for their services which will give them a advantage against their competitors.

Sales force - As per Avlonitis and Karayanni (2000) that sales force has a central role to play in the Internet marketing strategies implementation. For OTC, Paul Jenkins with his 7 years of experience in sales would need to play a critical role in formulating the marketing strategies and the implementation.

OTC would need to perform a PEST Analysis for each foreign market they intend to target to evaluate the external environment before they form their marketing strategy. PEST Analysis is a management technique that enables an analysis of four critical external factors that may impact the overall performance of the organization. These factors are: Political, Economic, Social, and Technological. PEST analysis is often conducted using brainstorming techniques. It offers an environment-to-organization perspective (Bangs 2002)

Political - Political environment vary widely between countries and can alter rapidly. Hence it is important to determine the political risk before entering a country. For example Russia, since the fall of the union has seen rapid changes in its political environment which has induced many countries to choose other countries for expanding internationally.

Economic - the GDP of the country and disposable income are the critical parameters considered. A fast growing and developing economy can have many opportunities for the organisation, hence making expanding in the region favourable. For example most companies are now expanding their markets in fast growing economies like India and China. One more factor the company needs to consider is the currency risk.

Social - Cultural differences and social factors need to be considered. For example Mc Donalds before entering the Indian market had to take in to account the culture. Hence, they choose not sell beef burgers as consumption of beef is not allowed as per dominant religion followed in India.

Legal - Legal regime varies in every country, hence all legal aspects need to be considered to determine the extent of enforcing contracts, protection of intellectual property or avoid corruption. For examp>for a company like Smirnoff to expand in to the Suadi market will not make any sense.

SWOT Analysis

This approach, which has been explained by Ansoff and Kotler, involves analyzing the strengths, weaknesses, opportunities and threats facing the business. In order to succeed, a business needs to understand what its strengths are and which areas are they vulnerable in. An assessment of their internal resources and capabilities needs to be done in order to take advantage of the opportunities available in the market place, identify the weaknesses they have and to face the challenges from competitors and the outside environment. (Kotler 2008)

Strengths

Innovative business model - OTC posses a very innovative business model providing online consultancy will make them reach out to a wider scope. OTC is currently positioned to take advantage of what are two converging trends in the outsourced professional services industry: increasing demand for outsourced professional services by corporate clients and the high demand for consultancy services in the field of marketing.

Diverse client base - OTC has established a diverse client base of over 300 clients

Variety of services - OTC offers a wide variety of services, hence can offer end to end solutions to its clients.

High Revenue performance - OTC has generated high revenues and had the additional capital to invest in new projects. This capital can be effectively utilize to expand business

Resource pool - OTC has a very highly trained and experienced resource pool. The average service experience of the employees of 4 years (Mean).

Weaknesses

Expertise in Online business - Though OTC has a very diverse resource pool, they lack resources that have expertise in online business.

Sales force - OTC has only one experienced employee for sales. For expanding in to international markets, OTC would need a larger sales force which has experience of entering new markets.

Questions over Consultancy business - A number of the large global accounting and consultancy firms have been forced to shed their consultancy businesses with concerns arising about conflicts of interest after Anderson's involvement in the Enron debacle. OTC will also have to consider the position of its consulting operations in order to maintain the integrity of its core businesses. If positive steps were not taken in this area then the company's overall business would be likely to suffer

Diluted consultancy services - The buyers of consultancy work are now much more skeptical and demanding, both in terms of service and price. The collapse of Enron in the US has resulted in negativity across the industry. The wide range of consultancy services provided by OTC could be viewed as a dilution of the core functions of the consultancy and in the current environment where service and price are key differentials, customers would no longer be willing to over pay for advisory functions.

Opportunities

External consultants and Project professionals - Concurrent with the growth in demand for outsourced services, the number of professionals seeking to work on a project basis has increased considerably due to a desire for flexible hours and work arrangements along with competitive wages and benefits; demanding engagements that advance their careers, enhance their skills and add to their overall experience base; and a work environment which provides a diversity and more control over client engagements. Opportunities are available to hire external consultants for the areas in which OTC has limited resources. For example, Marketing and Online business.

International Expansion - There are also significant opportunities available to grow business internationally and the company intends to invest in order to expand its international presence on a very strategic and an opportunistic basis. The Online business model provides excellent opportunity for growth in foreign markets. It can also generate good revenues as the margin per client is higher when compared to other services provided by OTC.

Leverage growing client base - The Company can continue to focus on attracting new clients. OTC could develop new clients, primarily by leveraging the considerable contact networks of its management and contacts and through a referral system from existing clients. A referral system with incentives for existing clients can be very effective. In addition, the company could attract new clients by building its brand name and reputation through its national and local marketing efforts.

Threats

Competition - OTC operates in a competitive and fragmented market. It competes for clients with a variety of organizations that offer similar services/products. The company's principal competitors include: consulting firms; traditional and Internet-based staffing firms and training firms. The company competes for clients on the basis of the quality of services, the timely availability of consultants with requisite skills, the scope and price of services, and the geographic spread of services. Many of its competitors have greater financial/capital resources, generate higher revenues and have a bigger brand name than OTC. In addition, it could face stiff competition when it tries to enter new foreign markets.

Intellectual property - OTC' success has resulted in part from the company's methodologies and other proprietary intellectual property rights. The company relies upon its very experienced and skilled resource pool. Considering that it is a relatively small team of employees, any unexpected movements within the organization can cause problems.

Investor/client sentiment - This past few years has seen a record number of accounting and corporate governance scandals, which have had a significant impact on investor and client confidence in the marketplace. In addition, geopolitical concerns about possible further military action and terrorist activities could continue to have an effect on the global consultancy markets. A lot of companies have been impacted by recession and are cutting costs. For most companies, the first step towards cost cutting is reducing the business with external consultancy firms and perform those activities in house.

References

  1. Yip, G. S. (1992) Total Global Strategy: Managing for Worldwide Competitive Advantage, Englewood Cliffs, N.J.: Prentice-Hall Inc.
  2. Mintzberg, H & Ghosal, S (2003) The strategy process - Pearson Education limited.
  3. Mooij, M K (2001) Global Marketing and Advertising: Understanding Cultural Paradoxes, Sage Publications
  4. Campbell, D Stonehouse, G & Houston B (2002) Business strategy: an introduction, BH Publications.
  5. Held, D (1999) Global transformations: politics, economics and culture, Stanford university press
  6. Krotseng, L (1997) Global sourcing, PT Publication
  7. Rockhart, John F. & Bullen, Christine V (1981) A Primer on Critical SuccessFactors. Cambridge, MA: Center for Information Systems Research, Massachusetts Institute of Technology
  8. Caralli, R (2004) The Critcal Sucess factor method - Establishing afoundation for enterprise Security Management, Carnegie Mellon University.
  9. Grunert, KG and C, Ellegaard (1193) The concept of key success factors:Thoery and Method, John Wiley & Sons
  10. Muhlbacher, H & Dahringer, L (1993) International marketing: a global perspective, Thompson Learning.
  11. Bangs, D (2002) The market planning guide, Dearborn trade publishing.
  12. Kotler, P Armstrong G, Saunders. J (2008) Principles of Marketing - Pearson education limited.
  13. The Age of Exploration, Microsoft Encarta Online Encyclopedia 2009. Accessed 08/12/2009.
  14. http://sec.edgar-online.com/resources-connection-inc, accessed on 09/12/2009



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