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2.4 Summary

In determining management strategies, global companies must focus on the distances between domestic and destination markets, select destinations on the basis of those distances, and strategically consider how to reduce them. This requires new product development that takes products sold in the domestic country and matches them to local needs. Country-specific marketing will also be essential, thus incurring higher costs. In terms of economies of scale, it may be more effective for companies to develop global products to be launched into global markets. The risks associated with global businesses are very different from those in domestic businesses. Political risks, exchange rate fluctuations in local markets, and other factors must be accounted for; risk factors differ depending on a company's focus of localization or global expansion. Thus, when determining global business strategies, companies must make major decisions of whether they wish to focus on localization or global expansion.

Furthermore, from the perspective of improving corporate value via cost reduction, companies have the option of shifting production to developing nations with lower cost. However, while expanding production overseas may result in direct reductions in manufacturing costs, the increase in local management overhead costs may result in no cost reductions unless certain economies of scale are maintained. In addition, companies are exposed to risks distinct to global businesses from the production perspective. China has witnessed increasing awareness in terms of labor rights, with labor unions demanding wage hikes. Unions have long been active in India, requiring a serious approach to handle labor disputes. Corporate earnings are greatly impacted when large strikes result in long-term factory closures. In addition, in industries such as the automotive industry, in which the production process comprises a series of close partnerships within a supply chain, the halt of production in one factory impacts the entire supply chain. It is important that companies account for these costs and benefits when determining the validity of shifting a portion of corporate activities overseas. When using the CAGE or AAA frameworks, it becomes critical to extract micro-level factors in the targeted country, however, this may greatly impact profitability.

In addition, these frameworks are created given an external business environment that differs from the domestic country. In corporate management strategy theory, this is akin to the positioning theory that seeks areas of fit to an external business environment. As previously mentioned, global strategies depend on the circumstances prevailing in the countries and regions, and will differ based on the types of products and services provided. Each company must have an understanding of the company's strengths and weaknesses when creating management strategies. Differences in business environments between the domestic country and target markets are not given; rather, companies must observe changes in global environments and trends. Speedy strategies that react to those changes are also important. In the case of the global cell phone market, demand in developing nations increased rapidly, and at one point, mass-produced, low-cost products with limited functionality became popular. In that process, Nokia, Motorola, and other global corporations increased their market shares using models “adapted” for low-income regions. However, explosive popularity of Apple's iPhone shifted the global market trend to highly functional smartphones. Nokia lost its market share and Motorola's cell phone division was sold to Google. However, Samsung was able to quickly ride this trend, and attained significant popularity. Thus, organizational capability that is able to dynamically change its corporate strengths, that is, management resources to external changes in the environment, becomes particularly essential in highly uncertain global businesses.

The final issue is the management of local entities, in which headquarters of Japanese corporations have stronger control compared with their US and European counterparts. This is because of the impact of historical inertia of the standalone product model that provided high quality products at low cost which took over world markets. However, the rise of corporations from developing nations has led to the inability of Japanese corporations to compete on the standalone product model, as has been covered in Chap. 1. The future pursuit of a customer value model in global business will require new product development and the creation of service models, all while precisely grasping the trends in target markets. As observed in the case of Panasonic, Japanese companies are searching for a balance in trans-national management between global integration and local responsiveness. As they do so, the debate on the integration of a company's global entities and activities across differing countries and regions is important. We return to this topic in Chap. 13, which contains the summary of this book.


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