Global Strategy - an Organizing Framework by Sumantra Ghoshal - Article Example

Global Strategy Student’s Name Institutional Affiliation Introduction The article written by Sumantra Ghoshal (1987), by the title “Global Strategy: an organizing framework” is a fluent and properly documented review of an emergent literature related to international competition. Over the last few years, the global strategy concept has strongly emerged in the world of multinational corporations (MNCs). The article was written in 1987 at the time when globalization emerged as a new concept in the world of business. Similarly, the idea of “global strategy” was gradually emerging at that time, but it was more popular among multinational corporations’ managers. One of the key drivers to push the business into higher levels is the desire to achieve competitive advance with reference to its competitors. However, the company can only achieve this through “Going global." In the contemporary business world, it is hard to imagine of any corporation that is not multinational in one way or the other, or at least has some parts of its supply chain extended to some other regions across the world. In his article, Ghoshal presented a framework for coming up with appropriate strategies when the company wishes to go global. Therefore, this paper aims at reviewing Sumantra Ghoshal (1987) article, by the title “Global Strategy: an organizing framework." Global Strategy Global strategy is considered suitable for global industries that are termed as those whereby the competition position of a firm in a particular national market is considerably affected by its competitive position in other national markets. Hence, such interactions in relation to the state of the firm in dissimilar markets may be traced from scale benefits, resource sharing and costs or may emerge from the possibility of synergies across markets. The global idea approach concentrates on the method employed by the firms in organizing its flow of tasks across its global systems. The more incorporated and rationalized the tasks flow proves to be, the more the strategy of the firm is assumed to be globally. Alternatively, this focus has led to more understanding of the notion that distinct tasks results to distinct levels of benefits that stems from integrating on a global setting, as well as national differentiation and the firm must strive to strike a balance between the two and organize its value chain in order to maximize on possible advantages. The intricacies of managing large firms in a global context have been limited by establishment of polar alternatives in relation to centralization and decentralization, as well as in strategies concerning multi-domestication and globalization (Ghoshal, 1987). Global Management In his Article, Ghoshal argues that multifaceted management tasks are perceived as the combination of mere global and local aspects. Through stressing on the importance of rationalization the flow of constituents coupled with the final products in the multinational setting, the significance of people’s internal flows, information, values and technology has been de-emphasized. However, Ghoshal argues that there exist differences among the authors of global strategy that are not solely based on perceptions and concepts. Their recommendations on global management also differs and sometimes contradictory. However, he identifies a few out of the many suggestions given by different authors on the topic accessible to MNCs managers concentrating on resources for building a global strategy for their firms. Nonetheless, these suggestions have been based on insightful and reliable analyses relative to real-life situations (Ghoshal, 1987). Organizing Framework Although they are intriguing and rational, their managerial propositions are not easy to be brought together. Therefore, in his study Ghoshal advocates for an organizing framework that would aid the managers, as well as the academicians in addressing numerous issues that may arise concerning global strategic management. His premises are based on the fact simple classification criteria on multi-domestic and global strategies may not provide the significant understanding on intricacies of strategy at corporate levels in big multinational corporations. Hence, the most appropriate ideology is to have an understanding on primary strategic goals of an MNC and resources in their disposal to achieve their goals. Thus, an incorporated analysis composed of distinct means, as well as distinct ends can be helpful for both the academicians and the managers in classifying, formulating and performing an analysis of global strategies context (Ghoshal, 1987). Therefore, he proposed a framework based on the conceptual foundation and the simplicity of the main argument. Competitive advantage – means and ends The objectives of a multinational corporation can be categorized into three major categories. The firm needs to be efficient in its current activities; it should perceive the management of risks assumed in performing its activities, and it establishes internal learning capacities to enhance its adaptability and innovation in relation to future changes. Ghoshal argues that the firm can only develop its competitive advantage through adopting strategic actions that maximizes its set goals and objectives and sometimes even the conflicting ones. He provides three combinations of tools that are appropriate for firms in attaining competitive advantage. It can maximize on different markets for inputs and outputs in many countries of its operation. Similarly, the firm may take advantage of the economies of scale in its production capacity. Also, it can maximize on synergies, as well as economies of scope at its disposal due to its multiplicity of its activities and organizations. The main strategic objective of global management is to apply all the concepts of competitive advantage realize efficiency, learning concurrently in a global business and mitigating the risks (Ghoshal, 1987). The primary strategy of achieving a flourishing global strategy is to supervise how distinct goals interact with the means. He considered this as the most important aspect in the business of the framework. Through, scrutinizing global tasks strategy, the managers, as well as academicians can benefit in many ways. For example, this can assist the managers in coming up with inclusive checklist on issues and aspects that may be put into consideration while reviewing various strategic alternatives. Thus, such a checklist can help the corporations in comparing their own strategies with that of their competitors in order to know their areas of strength and weakness so as to be more competitive (Ghoshal, 1987). Similarly, while highlighting on the significance of the structure, Ghoshal depicts that it is important in distinguishing the contradictions that arise between dissimilar goals, as well as the means, hence identifying existing strategic dilemmas which may be addressed through omission. Likewise, the article gives an explanation of the framework through a description of its two elements of its construct in comparison with the firm’s strategic goal, as well as the available sources of competitive advantage in relation to a multinational corporation (Ghoshal, 1987). Strategic Management However, the article’s literature is based on strategic management and does not fully exhaust on the concept of strategy as it can only be evident if the actions of one firm can influence the performance the other. This has its foundation on the notion that competition of firms in imperfect markets gain dissimilar “efficiency rents” depending on how they make use of resources at their disposal. Therefore, the primary goal of the strategy under this concept is to increase the aforementioned efficiency rents. Similarly, through perceiving the company as an input-output structure, firm’s entire efficiency can be termed as the ratio of its output’s value in reference to the costs incurred in acquiring its inputs. Therefore, the only way a firm can achieve its objectives is through maximizing the input-output ratio. Hence, the firm will aim to differentiate its products so as to increase its output’s exchange value and try to minimize its inputs’ costs for it to be efficient. Attempts to increase its efficiency through attaining higher economies of scale in its entire production helps it in taking advantage that might accrue due to mass production (Ghoshal, 1987). The strategic management field is presently defined by this efficiency concept while the previous contributors in the study argue that it is solely based on the principal idea of efficiency rents maximization of different resources that the firm possesses. Nonetheless, in the global strategy field the concept of efficiency has its foundations on the framework of integration-responsiveness. In general terms, the framework is a significant concept that helps in visualization of the benefits of global integration of specific tasks, as opposed to benefits accruing from differentiation as a result of dealing with national differences in government regulations, structures of the industry, tastes, as well as in distribution systems. For example, within the automobile industry the firm’s strategy such as Toyota may be aligned to maximizing on the benefits that result from global integration using a centralised production system informed process of decision making (Ghoshal, 1987). On the other hand, another firm in the same industry for instance Fiat may strive at maximizing the advantages of national differentiation through establishing integrated, as well as independent subsidiaries with the aim of exploiting enhanced links with domestic stakeholders so as to shield themselves from reputable global competitors. Therefore, in a firm’s setting, research may provide improved efficiency advantages as a result of integration. Likewise, the firm’s sales coupled with services may offer enhanced differentiation benefits. Consequently, such an analysis may help a multinational corporation to determine the most optimum method of its value chain configuration so as to obtain an enhanced overall efficiency based on how it makes use of its available resources. Conversely, the article does not elucidate on other concepts of strategic management although efficiency may be considered as a significance strategic objective. Evident from arguments raised by a notable number of previous authors, the main purpose of strategic management is the creation of value that is not solely determined by returns generated by particular assets, but also it incorporates the risks that the firm takes in the process (Ghoshal, 1987). Thus, this would lead to the next strategic goal of the firm that involves management of risks. Management of risks The Ghoshal’s article also highlights on different types of risk that multinational corporations face, some of which are universal to all firms while others are exclusive to firms operating at a global setting. Hence, these risks may be classified into four major categories. To start with, a multinational corporation may be faced with particular macroeconomic risks that are beyond its control. Some of the risks involved in this category may include catastrophic events such as natural epidemics and wars, as well as unsystematic changes in interest rates, commodity prices, wage rates and exchange rates. Similarly, some of the risks may also be political though they can suitably be referred to as policy risks as they occur as a result of policy actions implemented by the national governments. The overall effects of these policy actions may not be distinguished from those of macroeconomic forces as both may result to variations in exchange rates of a specific currency. However, from the viewpoint of management the two needs to be distinguished as macroeconomic risks cannot be controllable but policy risks can be partially controlled (Ghoshal, 1987). Another competitive risk that an MNC may face arises from uncertainties on responses from its competitors regarding its own strategies. Whereas corporations may be faced with varying degrees of risks their effects are usually complicated in the global strategies’ perspective. This has its foundation on the notion that the competitors’ responses may occur in distinct forms and in distinct markets. Finally, a corporation may be faced with a resource risk. This is regarded as the risk emanating from the adopted strategy which demands a particular resource that the firm do not have in its disposal. An important major resource for many corporations has been identified as the managerial talent. However, the resource risks may also occur as a result of lack of application suitable technology. Thus, the article does not provide more data on the risks as they vary depending on time. The article has only emphasized this issue in the paradigm of policy risks, yet the same may apply to any other risk (Ghoshal, 1987). Conclusion In conclusion, the article suggests a framework that can be helpful to MNCs managers in the process of analyzing and reassessing their firm’s strategies. However, whether these strategies are created analytically or formed organizationally, each firm has its own strategy. Hence, the degrees in which a realized strategy may diverge from the anticipated one, managers require reassessing the actual strategies of their firm. However, it is fascinating to realize that the article was documented more than two decades ago and still provides evidence on what is happening today in the MNCs. The main point is that Ghoshal was able to integrate the existing concepts with the systems of his time. Nonetheless, globalization has taken many strides ahead, though some concepts of globalization, for instance the framework in this article, will absolutely stand the test of time. Reference Ghoshal, S. (1987). Global Strategy: An Organizing Framework Strategic Management Journal, 8 (5), 425-440 Read More