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Why is global strategy important?

There are at least four answers to this question depending on the context:

From a company perspective, international expansion provides the opportunity for new sales and profits. In some cases, it may even be the situation that profitability is so poor in the home market that international expansion may be the only opportunity for profits.

For example, poor profitability in the Chinese domestic market was one of the reasons that the Chinese consumer electronics company, TCL decided on a strategy of international expansion. It has then pursued this with new overseas offices, new factories and acquisitions to develop its market position in the two main consumer electronics markets, the USA and the European Union. The difficulties faced by TCL as it expanded  internationally is described in Chapter 19 of Lynch Strategic Management.

In addition to new sales opportunities, there are four other reasons for expansion beyond the home market. Oil and gas companies expand in order to secure new sources of their products – called resource seeking. Clothing companies expand in order to take advantage of low labour costs in some countries – called efficiency seeking. Some companies acquire foreign companies to enhance their market position versus competitors – called strategic asset seeking. These issues are identified in the film that you will shortly be able to see on the page ‘How do you build a global strategy?’

From a customer perspective, international trade should – in theory at least – lead to lower prices for goods and services because of the economies of scale and scope that will derive from a larger global base. For example, Nike sources its sports shoes from low labour cost countries like the Philippines and Vietnam. In addition, some customers like to purchase products and services that have a global image. For example, Disney cartoon characters or ‘Manchester United’ branded soccer shirts.
 

There are two further factors that may be important.

First, from the perspective of international governmental organisations – like the World Bank – the recent dominant thinking has been to bring down barriers to world trade while giving some degree of protection to some countries and industries. Thus global strategy is an important aspect of such international negotiations.

Second, from the perspective of some international non-governmental organisations like Oxfam and Medecins Sans Frontières, the global strategies of some – but not necessarily all – multinational companies are regarded with some suspicion. Such companies have been accused of exploiting developing countries – for example in terms of their natural mineral resources – in ways that are detrimental to those countries.