«Global Product Strategy» - Free Essay Paper
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The worldwide economy becomes increasingly global every day. One of the manifestations of this trend is the USA. Many domestic companies have already experienced the negative effects of the economy’s globalization, such as the fact that their competition intensifies, the risks for the businesses are becoming much more diverse (including the effects), and the requirements for skills and knowledge of the staff are also constantly growing. However, considering the international nature of business operations exclusively through the prism of the negative effects of globalization would be inadequate. The new terms of business at the same time pose many new opportunities for the companies all over the world to produce and provide their products or services to the global market. In order to fully utilize these opportunities, companies need to have an effective development strategy. This paper examines the strategy of the companies who work providing the global products and its aspects.
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Factors of a Global Product Policy
Over the last decade, there has been a high level of growth in the number of large companies in the USA and abroad, resulting in a competitive global marketplace. The pace and nature of the international competition are determined by the management decisions in the process of growth of the group of transnational tourist companies. The companies located in cities like Moscow, London, Brussels, Tokyo and New York are not planning its own strategies in the tradition of the corporations which are operating in their domestic markets, as the interests of these companies lie abroad. Instead, such companies use their corporate resources on a global scale, seeking various opportunities for growth and profits wherever they may be found. Ghemawat (2007, p. 56) proposed a scheme that allows one to determine which aspects makes both the companies as well as the whole sectors of economy seek to offer products on the global market. This scheme is important in determining a company's global strategy. The global strategy is global in many ways, but it can include features that are locally oriented.
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In order to reap the benefits of globalization, managers of international companies should clearly define for themselves what factors and conditions in which their company operates will provide the company a transition to the global level. There are four factors which determine the nature and the extent of globalization’s effects on an industry. The first type of factors is the marketing factors, which are determined primarily by the market requests. These are based on the consumer needs, requests of ordinary consumers, global consumers, channels of distribution, the technology of transferability of the markets, and the presence in the leading markets (Ghemawat, 2007, p. 58). Second type of factors is the cost factors, which influence the companies’ decisions to offer products on the global market. These factors mainly include the global economies of scale, the effects of the learning curves, the effectiveness of resourcing, favorable logistics, national differences in costs (including currency exchange rates), high costs of product development, and rapidly changing new technologies (Ghemawat, 2007, p. 58). Moreover, the increased supply of global services and goods is in part determined by the governmental factors. The governmental factors include the favorable trade policies, comparable technical standards, general rules of marketing, the presence of competitors and customers in the public sector, as well as the interests of the host country (Ghemawat, 2007, p. 59). The final group of factors is the competitive factors. This category is formed by such factors as a high level of exports and imports, presence of competitors from other countries and continents, interdependence of different countries, as well as a globalized competition (Ghemawat, 2007, p. 59).
Factors for the globalization of the tourism industry include all of the abovementioned types of factors. International tourist companies, which continue to participate in the global activities, prefer to retain the form of international services. However, considering the issue of modern tourism business’s development in the context of a global direction, one should keep in mind that the preference of tourist firms to create a structure of international departments is justified mostly by two distinct circumstances. First, the formal organizational changes may sometimes threaten to destroy the existing working relationships. This becomes possible within the framework of the established overseas offices of a company with a strong local leadership, accustomed to a managing without interference practice. In this situation, it is desirable to give up major organizational shifts, instead continuing the search for closer coordination between the internal and overseas activities or enhancing transnational corporate control policies and strategies (Ghemawat, 2007, p. 70). The same approach is needed in those cases when a company lacks control.
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Secondly, top management of an international company may believe that overseas activities would get a better development due to an introduction of a new structure of international departments than from any alternative organizational forms. Within the model of providing international services, foreign branches of tourist companies can only gain benefit from the additional attention of the management, which is necessary for the early stages of development, especially in the framework of foreign businesses (Ghemawat, 2007, p. 72). In the future, variability in organizational structures may prove to be more relevant.
Strategy for Developing Global Products
Strategy for developing global products aimed at contributing to the most effective work results and performance of the company at an international scale, in general, can be described by introduction of integration processes. The advantages of the integration processes are the first aspects that must be remembered when it comes to business strategies in the context of globalization. The essence of integration on an international scale is to implement the traditional model of the integrated enterprise on a global scale, and then to look for the benefits from the use of cheaper labor and the production of goods on a large scale in order to serve larger markets at optimized prices. This approach is used by many successful international companies, for example Sony, Zara, etc. (Smith, 2016, p. 104).
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In order to make the integration strategy successful, a company needs to learn the key factors of success, such as relying on a strong position. In order to succeed in the global market, integrated enterprises should establish effective management of all of the value chain components that will withstand numerous competitors. This strategy should adhere to those companies that have already established themselves in their sectors of economy. Newcomers rarely make use of this advantage, since they do not usually possess a complete set of competencies which are necessary in order to subdue all the links of the chain. Therefore, it is better to specialize in one part of the overall activity and not to risk trying to master the other. For example, Sony opted for integration (Smith, 2016, p. 108). With growing competition, the ability to combine different types of activities allows the company to be ahead of the competition in question to adapt to the changing requirements of the market and to ensure its brand image of high-quality electronics products (Smith, 2016, p. 108).
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The transfer of an enterprise to a new location for allowing access to the most beneficial resources is an important factor of the strategy for global operations. Even in the case that the integrated companies are not subcontractors, they are still interested in benefiting from the process of globalization, choosing plants for their convenient location and thereby reducing the production costs. The Spanish company Zara can serve as an example for this claim. While it produces at home more than half of its goods, but at the same time it has set up production facilities in many countries with cheap labor (primarily in Eastern Europe and Asia). Hourly pay for Chinese workers’ labor is, on average, $1, while the hourly compensation for workers in the US or Western Europe ranges from $15 to $30 (Smith, 2016, p. 111). Another example is the large metropolitan publishers who use production facilities (printing houses) located in provincial territories (Smith, 2016, p. 111). Moving to a new place, the company also makes it possible to gain access to those competencies that are absent in their own market. For example, the US credit card market players have successfully transferred some of the tasks associated with the analysis of the customer base to India. As a result, these companies have significantly reduced the costs of operations (Smith, 2016, p. 112).
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A benefit from moving can be obtained only in case the necessary skills are improved and the knowledge is deepened. First of all, a company needs the employees who will be able to establish an effective relationship, successfully overcoming the language and cultural barriers. In addition, it is necessary to allocate the funds for the measures of quality control. Finally, it is necessary to invest resources in order to address numerous country-specific risks, such as political risks, leakage of know-how or intellectual property, as well as the risk of rapid deterioration of the reputation on the global level in the event of unexpected difficulties. For example, at its plant in Haiti, Levi Strauss has faced the problem of non-compliance with the local labor laws. This had a catastrophic impact on the company’s reputation, and as a result it suffered significant losses, which exceeded savings obtained due to the cheaper labor (Smith, 2016, p. 119).
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The Need to Customize Products
Adaptation of a company to the specifics of local markets is a delicate moment and an essentially vital question. Very rarely can the world market be perceived as a single and uniform. The difference of cultures, ways of consumption, legislation and regulations are forcing the companies that want to respond effectively to the demands in other countries to adapt their offers to the local conditions.
Adaptation of the products is carried out gradually, taking into account the legal, cultural and economic conditions of the local markets. Direct legal requirements are among the most obvious reasons to adapt production, because without fulfilling them, the company loses the opportunity to obtain permission to trade in the country. This takes into account the safety standards, hygiene standards, and technical norms. Less obvious conditions for adaptation are indirect causes which are legal requirements that may affect the performance of or the demand for it. Such reasons may include, for example, high taxes, heavy-duty vehicles, etc (Wheelen, Hunger, and Hoffman, 2014, p. 76). Thus, legal factors cause forced adaptation of goods in foreign markets.
The market is not only associated with the physical characteristics of the product and its function. The value that the consumer gives to a variety of benefits of the product is heavily dependent on the values and customs of the local cultural environment. The physical properties of the goods are often required for carrying out its main purpose. Very limited changes in the performance of the main purpose of the product are required when considering the differences between the cultures. Within each specific culture, such products characteristics as color, size, design, and trademark have little to do with the performance of the destination, but rather with the added satisfaction of the user. In order to maximize the consumers’ satisfaction and create positive product characteristics, adaptation of the non-physical qualities of the product may become mandatory (Wheelen, Hunger, and Hoffman, 2014, p. 82).
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It should also be a clear distinction between what should be global, and what should not lose the local flavor. The main condition for the success of the integrated enterprise is embodied in those processes that will benefit from economies of scale due to some amount of standardization and personalization, without which a company cannot be successful at the local level. Thus, GE pharmaceutical company has developed Chinese versions of its products. Unlike in the US, in China, GE sells 80 percent of its SKUs for half the price. The products are sold so extensively on the local market that the company holds a leading position in its segment (Wheelen, Hunger, and Hoffman, 2014, p. 90).
Globalization of the world economy is accompanied by a number of significant changes. Its factors force the companies to seek to produce the global products. Now, the planning and development of the goods occur within the global context. When choosing a global strategy, a company should carefully weigh the advantages and disadvantages of their short- and long-term perspectives. The question is also whether the goods need to be adapted or redesign for each market or sold standard in the world. The companies which are more sensitive to cultural differences advocate the creation of specialized products. This is also determined by a number of conditions and can greatly benefit the company’s success.