As trade barriers relax, small-business operators are starting to grow their businesses by expanding into global markets. But the differences between global and domestic markets -- differences in culture and language, competitive practices, raw material supply chains, manufacturing and product specifications, logistics and political and legal systems -- affect the way companies operate overseas. The fundamental challenge confronting all businesses when expanding into global markets is selecting the most appropriate business strategy to address these differences.
Four Approaches to the World Market
Global business strategies is an umbrella term that includes business strategies ranging from using a straight domestic business strategy in global markets to completely immersing the business into local markets by operating as a local-market business unit.
The four global business strategies commonly employed by global companies are the international strategy, the multinational strategy, the global strategy and the transnational strategy.
Companies that employ the international strategy usually do not change their domestic business strategy to accommodate differences in global markets. The international strategy is the domestic business strategy that's simply applied to global markets. All decisions are centrally made at a company's headquarters. A typical example of the international strategy is a company that exports its products to foreign countries using host country distributors or other types of middlemen.
Multinational companies pursue localized business strategies tailored to the countries where they operate. Local-market business units operate as autonomous units, separate from the parent company within the parameters of overall corporate guidelines. They make autonomous investments and product-development decisions and pursue marketing and sales strategies that are indigenous to the cultures where they operate. The strategies may be quite dissimilar from the strategies of sibling units in other countries or from the parent company's domestic business strategy. Nestlé S.A., headquartered in Switzerland, is considered the grandfather of multinational companies with autonomous business units all over the planet.
Global strategies are variations of domestic business strategies. Companies using global strategies treat global markets as a huge domestic market. They sell the same products using the same marketing strategies in all countries where they operate. Most strategic product-development, investment and marketing decisions are centralized at world headquarters. However, global companies generally delegate local-market decisions to local-market business units. Many global electronics companies, such as Apple, operate as global companies. They sell the same products in all markets using the same marketing and communication strategies.
Transnational companies pursue hybrid domestic-global strategies. Centralized “control” is quite different from the “top-down” control typically found in international and global business strategies. Transnational vertical control is about synchronizing the activities of specialized global business units to achieve a totally integrated global company. For example, a business unit in Germany might do the research and development and product development, while business units in Ireland and Korea might do the manufacturing.
Economies of Scale vs. Economies of Scope
Selecting the most appropriate global business strategy is about attempting a compromise between economies of scale to maximize the efficiency of large-scale production and economies of scope to be responsive to local-market preferences. International and global business strategies emphasize economies of scale. Multinational strategies emphasize economies of scope. The transnational strategy tries to do both.
Small-business operators generally enter global markets by employing domestic business strategies to maximize economies of scale and employ global strategies that emphasize economies of scope to address local-market preferences as resources permit.
- Harvard Business Review: Demystifying Strategy: The What, Who, How, and Why
- Difference Between.net: Difference Between Domestic and International Marketing
- Harvard Business School: Globalization: The Strategy of Differences
- Business Case Studies: Developing a Global Strategy
- Boundless: Global Strategy
- Global Strategy.net: Global Strategy
George Boykin started writing in 2009 after retiring from a career in marketing management spanning 35 years, including several years as CMO for two consumer products national advertisers and as VP for an AAAA consumer products advertising agency. Boykin mainly writes about advertising and marketing for SMBs.