The costs of operating a global strategy may be greater than the benefits – see academic research from Douglas and Wind, Rugman and Verbaeke, Ghemawat and others. For the full details, go to the end of chapter 19 in Lynch Strategic Management.
Set against these benefits, there are at least six economic costs of international and global strategies:
Lack of sensitivity to local demand
Leavitt argued that people would be prepared to compromise on their individual tastes if the product was cheap enough deriving from economies of scale and scope. Is this really correct? Other writers argued that there could be costs in adapting products to match local tastes, local conditions like the climate and other local factors like special laws on environmental issues.
Transport and logistics costs
If manufacturing takes place in one country, then it will be necessary to transport the finished products to other countries. The costs for some heavy products, like steel bars, may be greater than the economies of scale from centralised production in one country.
Economies of scale benefits may be difficult to obtain in practice
Plant takes time to commission, local competitors still using old plant and cheap labour may still be competitive.
Communications costs will be higher
Standardisation of products and services needs to be communicated to every country. In virtually every case, it will also be necessary to monitor and control the result. All this is time consuming, expensive and at the mercy of local managers who may have their own agendas and interests.
Management coordination costs
In practice, managers and workers in different countries often need to be consulted, issues need to be explored and discussed, local variations in tax and legal issues need to be addressed. This means that senior managers operating a global strategy need to spend time visiting countries. It cannot all be done on the telephone and worldwide web. This takes a tremendous toll of people personally.
Barriers to trade
Taxes and other restrictions on goods and services set by national governments as the goods cross their national borders.
Other costs imposed by national governments to protect their home industries
Costs like special taxes or restrictions on shareholdings.
In practice, the business case for a global strategy will vary with the product category. The real issue for many companies is what decisions are treated globally and what locally. This is explored in the separate section on this website: ‘How do you balance global and local?’
Below is a film that briefly summarises the six reasons why companies develop international and global strategies.