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Part I Global Business Strategy

2. Management Strategies for Global Businesses

2.1 Introduction

This chapter examines management strategy theories for global businesses. What extent of company's resources should be assigned to overseas operations, and what minimum percentage of revenues should come from overseas operations? Should investments be made in regions such as China or Southeast Asia with existing substantial business establishments, or should expansions into new markets such as India, the Middle East, and Africa be considered? Which corporate functions should be transferred overseas? This chapter attempts to understand the theoretical aspects of decision-making in the allocation of management resources within global businesses.

We first present an overview of corporate management strategy theory as a premise to understand global strategy. The objective of management strategy is to effectively utilize corporate management resources, such as personnel and technology, in accordance with external environmental factors such as competition and customer needs. In that process, there is a resource-based management theory that emphasizes on internal factors to create strategies that make use of the strengths of a company's internal resources. In addition, there is a positioning theory that emphasizes on external factors such as the selection of areas that are deemed suitable to acquire midand long-term profits through a company's external environment analysis. These approaches are introduced herein, although in reality, a company's internal factors and external environment influence each other, and change over time. Therefore, these two approaches must be considered together when setting a specific management strategy.

With that in mind, we then examine global management strategies—those that acknowledge national borders. It is critical to understand the differences between environments across key business destinations and domestic business environments. Advancements in telecommunications technology such as the internet, lower transportation costs, and elimination of trade barriers due to the initiatives of international organizations such as WTO, are factors that have contributed to a flatter world. However, as noted previously, national border barriers still exist, and are particularly evident in developing nations such as China and India. Global businesses must understand differences in business environment that are significantly different from their home countries, and overcome them or use local environments to their benefit to capture attractive markets that exist on the other side of these barriers, as is the case with offshore software development. With that in mind, we review strategy designing theories. Finally, we examine corporate management strategy in case of global expansion. Specifically, we focus on the headquarters' level of control in overseas operations. Corporate activities integrated on a global level require a certain level of control of overseas entities. However, the presence of national barriers indicates that there are management methods appropriate to business environments in which overseas entities operate. Thus, it is often more effective to delegate everyday operations to local entities. This chapter minutely analyzes the balance between headquarter control and local autonomy. Japanese corporations exert a stronger level of headquarters' control compared with their western counterparts. In addition to international comparisons, I-R grid framework and current state of affairs are examined.

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