Toward a new global strategy - B-School Brain Trust/Advice from Anderson

Chief Executive, The, Jan, 1996 by George S. Yip

Debunking the one-size-fits-all approach to entering the international marketplace, companies are developing customized strategies that - ironically - put a premiun on standardized products and services.

While no one would argue that the key for survival for U.S. companies is their ability to globalize, the rules of the game have changed. Conventional wisdom for international business - that companies should adapt their strategies to each country in which they do business - has been debunked by falling trade barriers, improved transportation and communications, and converging consumer tastes. Companies now need globally integrated strategies that maximize commonality and standardization across all countries, while minimizing the cost of local adaptation. This means, for example, designing products that are global from the start rather than adapting a home country product to each new foreign market.

This new global strategy does not mean one approach for every company. Different industries have different global needs, and a company's competitive position and internal resources also influence its global strategy. Developing a new global strategy often means restructuring a company's domestic and international divisions to compete with international competitors - and for American companies, change often doesn't come easily.

Take Black & Decker, now a $5 billion, Towson, MD-based manufacturer of power tools, which faced formidable competitive pressures to globalize in the late 1980s. At the time, Black & Decker's market share was being eroded by a Japanese competitor, Makita, whose own strategy to produce and market globally standardized products worldwide made it the low-cost producer. Internally, Black & Decker's international fiefdoms combined with national chauvinism to stifle product development and new product introductions. The company's solution was to embark on a major program coordinating new product development worldwide to develop core standardized products that could be marketed globally with minimal modification. Streamlining R&D also offered economies of scale and less effort duplication, reducing cycle times. The company strategically emphasized design, eventually becoming a leader in design management. Black & Decker consolidated worldwide advertising by using two principal agencies, giving the company a more consistent worldwide image. It also strengthened the functional organization by giving functional managers a larger role in coordinating with company management. Finally, Black & Decker purchased General Electric's small appliance unit, giving it world scale economies in manufacturing, distribution, and marketing.

Black & Decker's globalization strategy originally faced skepticism and resistance from management. The chief executive, Nolan D. Archibald, took a visible leadership role and made management changes to move the company toward globalization. By 1994, eight years after the globalization effort began, the company's revenues had tripled, and profitability had improved even more.

Developing and maintaining a customized global strategy requires managers to make many choices, among them:

* Products/services. Should a company offer the same or different products in different countries?

* Location of value-added activities. Where should the company locate each of the activities that comprise the entire value-added chain - from research to production to customer service?

* Marketing. Should a company use the same or different brand names, advertising, and marketing elements in different countries?

While locally adapted products and services offer the advantage of matching local needs and tastes, companies are recognizing the benefits of standardization rather than localization.

Globally standardized products offer the benefits of cost reduction in both development and production, enhanced customer preference from being the same around the world (e.g., Coca-Cola, Club Med vacations, and computer software), and even improved quality from having fewer products to support (e.g., Toyota's renowned product quality stems in part from its focus on a few standardized models, in contrast to General Motors' proliferation of different models for different regions of the world).

But standardized, global products can still allow for local touches. The trick is to select those with the greatest local appeal while adding the least cost. For example, beverage cup holders - introduced in Toyota cars - are much prized by car drivers in the U.S. but not elsewhere. Adding this feature costs little, so most carmakers in this country followed Toyota's innovation.

For services, such local adaptation can be extremely easy. By changing supplementary services rather than the core one, companies can tailor services for foreign customers for little or no additional cost. United Airlines customizes its trans-Pacific service simply by replacing some of its American cabin attendants with Asian ones.

The classic multinational strategy has been to reproduce activities - particularly production - in many countries by setting up factories and other manufacturing assets overseas. The classic export-based strategy has been to locate as much of the value chain as possible back home, while locating overseas only downstream activities - such as selling, distribution, and service - that have to be performed close to the end customer. A global strategy involves a third approach: locating each individual activity in the one (or few) countries most appropriate for that activity. So a business pursuing a global activity strategy might locate research in the United Kingdom, development in Germany, raw material processing in Mexico, sub-assembly in the U.S., final assembly in Ireland, and so on. The key principles in locating the value chain are to minimize duplication and cost, maximize learning, and retain flexibility.