Total Global Strategy for Small and Medium-Sized and Multinational Enterprises - Pro and Contra - Literature review Example

Globalization Name Id No Unit code and name Lecturer Name Assignment Due Date Introduction A great number of Small and medium sized enterprises (SMEs) and Multinational enterprises MNEs who operate in the foreign countries views internationals markets as either some extension to their home markets while others view them as markets which have dissimilar needs than the home markets. In regard to the first situation the SMEs and MNEs try to make some modifications to the to the business strategies that are being applied in the home market so as to address the different needs to the international markets. In the second situation the firms mainly resort to the adaptation of their core business strategies to the different international environment and this approach that is obsolete and inadequate. In the late 1980s and early 1990s a great number of enterprises were deliberating on whether to globalization or not. After some time, these debate seems to have ended and a great number of companies now assume that they ought to globalize unless they are offered with a major reason of not to. The spread of the web and internet seems to be a compelling reason to globalization. Companies that develop a website seem to have an instance global reach and at the same time a corresponding demands for the delivery. Additionally, a lot of evidence has shown that companies engage in globalization are better in their financial performance and they are able to engage in better competitive with the competitors in their respective industry. This paper sets out to carry out a literature review on the key arguments for and against the existence, role and importance of a total global strategy for SMEs and MNEs in 2015/16. Literature review Global strategy is a term that has been shortened term which deals with these core areas that of the multinational, global and international strategies. Fundamentally, the three major areas are those strategies that are designed so as to enable organizations to attain their objectives and mostly in regard to international expansion (Aybar & Ficici 2009). A total global strategy entails the thinking on an integrated way of all the aspects of the business that is its production sites, suppliers, competition and markets (Doz, Santos, and Williamson 2001). It entails the assessment of very service and product from a domestic market standards and international market standards. This means that international perspectives should be embedded in the service and product formulation during the design stage and should therefore not be treated as an afterthought. Therefore, organizations need to meet the global standards prior to seeking world markets and also being world class in the local markets and this is likely to lead to a deeper organizational understanding of the cultural and local differences for them to truly be global (Birkinshaw, Bresman, Nobel 2010 and Yamakawa, Peng and Deeds 2008). Arguments for and against the existence of a total global strategy’ for SMEs and MNEs in 2015/16 A lot of literature exists on the existence of a total global strategy for SMEs and MNEs. Organizations that are going global means that they want to expand their operational beyond their national boundaries. It would be adequate to clarify what of meant by the term going global or having a global strategy since it has some major implications that are totally different (Gammeltoft, Barnard, Madhok 2010). The resources of the business that are needed in a global strategy may include but are not limited to a company sales team, brochures of the products that are offered by the company and this needs to be done in different languages so as to meet the needs of the various groups of customers from various geographical areas and a team that handles orders in the home country or in the location where the company factories are located (Mathews 2006). Thus, the business resources required in going global are greater. Characteristically, organizations will need to have a number of factories in low labor costs countries, engage in global advertising and branding, a sales team located on each of their major markets and also expensive intellectual property and patent registration in the various countries of operation to protect their innovations (Gao, Murray, Kotabe, Lu 2010). But despite the large amount of global resources required in a total global strategy it is important due to the rewards that are associated with a global strategy. Hence it is clearly evident that a great number of companies do not have a global strategy as defined in international business literature and as a matter of fact with the major multinationals operating in the globe lacks a true global strategy in regard to an absolutely incorporated production and no localized brands (Gubbi, Aulakh, Ray, Sarkar, and Chittoor 2010). For instance, some highly successful companies such as the PepsiCo tend to have a great level of dominance in the savory snacks products all over the globe. On the other hand, it still has some local brands which are mainly sold in markets such as in the UK. It is also noted that the company do not make use of its Lays brand name when marketing to the UK consumers, but the term is mainly applied when marketing to the rest of the world and this is mainly due to historical reasons such as the acquisition of Walkers a brand that was a market leader in the UK. It is also important to note that though some companies may have a global strategy, it takes a considerable amount of time to develop and it also calls for a substantial amount of the resources in terms of money, expertise and management time (Peng, Bhagat, Chang 2010). For instance a company such as Coca Cola took a number of years in developing their current position the soft drink market. For a great number of companies it is more realistic to come up with a total global strategy (Guillen and Garcia-Canal 2009). Role of a total global strategy’ for SMEs and MNEs in 2015/16 A major role that is played by a total global strategy is management of the various differences that exist at the borders of the various markets (Peng and Heath 1996). As a matter of fact it can be noted that a great number of the executives usually fail in exploiting the production differences, the market and mainly focus on the tension that exists between the concept of localization and standardization. A new framework has therefore being developed and it encompasses the three effective responses to globalization. Through the concept of adaptation, companies aim at boosting their market share and revenues by making and maximizing their relevance in the local market (Peng and Luo 2000). Through the concept of aggregation, companies aim at delivering economies of scale by coming up with both regional and global operations. And lastly through arbitrage, they make use of the disparities between the regional and national markets by locating their supply chain in various places for example they can choose to position their call centers in Japan, locate their factories in countries such as china and their retail shops in places such as America and Europe. Through these three concepts the company can score itself on how it is performing on its global strategy. A total global strategy is well suited for those industries where the firms operating in the industry are faced with pressures to reduce cost but at the same time they firm have weak pressures in regard to local responsiveness (Yip 2011). For that reason, these firms are able to offer standardized products to all their consumers all over the globe. Nonetheless, the fixed costs tend to be substantial and thus the companies take advantage of the experience curve effects and that economy of scale so as to mass produce a standard product which is eventually imported provided that the demand for the product is higher than the costs involved. For a global strategy to be effective firms should coordinate their pricing strategies and products tightly in all their international locations and markets. Arguments for importance of total global strategy’ for SMEs and MNEs in 2015/16 A total global strategy for SMEs and MNEs in 2015/16 seems to be of great importance. One major importance is in regard to the company’s perspective. Intentional expansion offers companies with the opportunity for new sales and as a result new profits (Yip 2011). In some instances the profitability in the home and local markets may be poor and thus a total global strategy may be viewed as the only viable opportunity for a firm to attain profits. For instance, the poor profitability that was being experienced by TCL in the Chinese domestic market was a major driver that the Chinese consumer electronic company TCL opted for a total global strategy for their international expansion. Afterwards the company has pursued this with new factories, offices as well as acquisitions with the aim of developing its market position in USA and in the European Union consumer electronics markets. Despite the sales opportunities there are other major reasons behind the total global strategy and this at times vary based on the industry that a company is operating in (Yip 2011 and Yip and Hult 2011). For instance, a great number of the oil companies apply a total global strategy with the aim of securing resources and this is termed as resource seeking. Companies in the clothing industry make use of a total global strategy so as to take advantage of the low labor costs in some countries and mostly in the developing countries and this are termed as efficiency seeking. Other companies aim at acquiring foreign companies with the aim of enhancing their position in the market over their close competitors and this is termed as strategic asset seeking (Luo, Xue and Han 2010). Another importance is from the perspective of the customer. International trade ought to lead to lower prices in services and goods due to the scope and economies of scale mainly derived from the global base and a total global strategy (Peng 2003). For example a company such as Nike shows are made in the low labor costs countries such as in Vietnam and in the Philippines. At the same time some consumer prefer services and products that have a strong global image for instance they may prefer Manchester united soccer shirts as compared to local soccer shirts. The other importance of total global strategy can be viewed from the perspective of global governmental organizations such as the World Bank. The dominant thinking in the business world is aimed at bringing down ant barriers related to world trade but at the same time offers some protection to some industries and countries (Khoury and Peng 2011). In regard to these the global strategy is of great importance in such negotiations. The other importance is in regard to the global non-governmental organization. Some of the global strategies that are adopted by some SMEs and MNEs are viewed with a lot of suspicion by other players in the industry. Due to this kind of suspicion such companies are mainly accused of exploiting the developing countries for instance in matters related to their natural resources in manners which are detrimental to those countries and these countries are mostly the developing countries (Qian, Khoury, Peng and Qian 2010). The other importance relates to market diversification. In simpler terms, organizations are able to lessen their vulnerability to the recurring economic downswings or to regional disturbances through the extension of their geographical reach (Ramamurti and Singh 2009 and Rugman 2005). A good example of these are the companies that were active in western Europe and in the united states in the late 1980s and they benefited greatly during the economic lag during the recession in the US and also during the European Community economic slump though it peaked some months later when the US was starting to cycle out the downturn that they were experiencing (Straume 2003). Additionally, the geographic diversification usually lessen risks that are mainly afflicted to product cycles and also help on marketing of seasonality inherent products such as the Ski equipment and also improves and increases the competition in the regions. Additionally, global strategy is also of great importance due to the various benefits associated with overseas manufacturing, foreign investing, importation of goods and services, partnering with the other foreign firms so as to augment the domestic efforts (Tan and Meyer 2010). In regard to these, a great number of companies benefits and attain profits by doing away with the domestic workforces and moving a great number of their production activities and facilities to lower labor cost areas, they also move to areas with cheaper natural resources, more efficient access to the marketer of neighboring countries, less regulation from some government coupled with all the other advantages that acts as a bolster to profitability (Nachum 2004). The other impetus for companies who engaged in a total global strategy relates to the life cycle of the product. For instance, some of the goods which may be viewed as being obsolete in some markets such as in the US can at times be marketed abroad and be successful (Mooij 2001). This aspect leads to an increase in the product life span and companies in each industry reduce their new product development costs and at the same time make good of the learned efficiencies and mostly to product production, marketing and distribution. Similarly, global selling also offers a number of tax benefits. A great number of countries all over the globe also strives in attracting foreign business activities by offering reduce property, import and income taxes. Moreover, firms allocate their costs, revenues and profits in a manner that reduces the overall tax burden (Mintzberg and Ghoshal 2003). Arguments against a ‘total global strategy’ for SMEs and MNEs in 2015/16 At the same time there are other authors who have argued against the concept of a total global strategy. It is also argued that the costs associated with a total global strategy at times surpass the importance and benefits of the strategy. For example, Meyer, Estrin, Bhaumik and Peng 2009, have argued that individuals may at times compromise on their tastes if the services and products are cheap enough to offer them with an economy of scope and scale. In relation to this idea, others have argued that the costs involved may be higher when companies tries to adapt products and services so as to match the local conditions such as the climate, tastes as well as other local aspects such as special laws relating to environmental protection (Vijay and Anil 2008). Another argument against a total global strategy related to the logistics and transportation costs. If a SME or MNE decides to manufacture goods in one country and them transport them the cost will be higher due to the transportation as opposed to when they decide to manufacture the goods in a country where the products will be sold (Luo and Tung 2007). The cost of a number of heavy products such as the steel bars may at times exceed the economies of scale from a common production place in one country. It is also argued that the economies of scale benefits that are associated with a total global strategy may seem realistic in theory but it is difficult to obtain in practice (Belis-Bergouignan, Bordenave & Lung 2000). New plants takes time to be commissioned and the local competitors who may be making use of old plants as well as cheap labor may still be a good source of competition for the new entrants in the market. Another point against a total global strategy related to the communication costs involved. The communication costs will ultimately be higher since the standardization of services and products will need to be communicated to the company personnel in every country of their operations. In nearly every case, it may seem necessary to control and monitor the result (Kotler, Armstrong and Saunders 2008 and Peng 2011). All this steps seems to be expensive, time consuming and at the same the SMEs and MNEs seem to be always at the mercy of the local managers who at times may have and maybe be advancing their own interests and agendas rather than the enterprises agenda (Khanna, Palepu and Bullock 2010). This issue is further complicated by the management coordination costs required in a total global strategy. Managers and employees who are based in the different countries need to be consulted from time to time on issues that should be discussed and explored in relation to the local variations in legal and tax issues and they should be addressed on a timely basis. This means that the management teams need to spend a considerable amount of their time making trips to some countries since not all issues can be tackled through the web or through the telephone and this usually takes a toll on the individuals personally (Barnard 2010 and Young, Peng, Ahlstrom, Bruton, Jiang 2008). Others argue that a total global strategy cannot be achieved due to the barriers to trade. Restrictions and taxes that are implemented by the national government on the services and goods as they cross borders makes it impossible to have a total global strategy. This is based on the fact that they may need to increase the costs of the goods and services to meet the economies of scale (Birkinshaw 2003). Conclusion Based on the above literature review it is evident that a great number of firms are now making use of a total global strategy. A lot of evidence has shown that companies engage in globalization are better in their financial performance and they are able to engage in better competitive with the competitors in their respective industry. The paper also asserts that a total global strategy entails the thinking on an integrated way of all the aspects of the business that is its production sites, suppliers, competition and markets. It entails the assessment of very service and product from a domestic market standards and international market standards. This means that international perspectives should be embedded in the service and product formulation during the design stage and should therefore not be treated as an afterthought. A total global strategy for SMEs and MNEs in 2015/16 seems to be of great importance in regard to new sales and profits, extension of product lifecycles and a great number of companies benefits and attain profits by doing away with the domestic workforces and moving a great number of their production activities and facilities to lower labor cost areas, they also move to areas with cheaper natural resources, more efficient access to the marketer of neighboring countries, less regulation from some government coupled with all the other advantages that acts as a bolster to profitability. It is also argued that the costs associated with a total global strategy at times surpass the importance and benefits of the strategy. For example, Leavvitt have argued that individuals may at times compromise on their tastes if the services and products are cheap enough to offer them with an economy of scope and scale. 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