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In this chapter now I will analyze the context of the previous mentioned topics and go deeper into both terms the strategy and the globalization. I will close this chapter with an analysis of the term global marketing. Let’s start now with strategic thinking.
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A globalizing environment influences companies on their strategic level and hence is of interest for top-management. The strong relationship between strategic thinking and strategic management processes is now examined here. For the source of the subsequent mentioned about Strategic Thinking look up the following.
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When customers purchase goods and services they clearly seek for value. A firm can deliver value when it has developed and learned how to properly use a value-creating strategy. Such strategies are characterized by above-average returns (compared to other investments with similar risk-levels) and satisfaction of all of its stakeholders.
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The technological change and the globalization of industries and markets have re-shaped the nature of competition. Today’s organizations have to compete in turbulent and chaotic environments that brings with it uncertainty and disorder. Top-management that makes strategic decisions has to deal with it and thus needs a view that is global in nature.
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The external environment influences a corporate strategy. Management are well advised to focus on attractive industries and successful strategy implementation. For that firms should build on their unique resources and capabilities, when developing a strategy. Which means to use valuable, rare, costly-to-imitate, and non-substitutable resources and capabilities to gain competitive advantage in order to achieve above-average return through their strategic decisions.
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Situation analysis (external environment, internal organization) gives information how to leverage strategic intent into a company’s mission. It suggests how to use resources, capabilities, and core competencies to formulate target product markets and customers, summarized in the strategic mission.
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There is a need for stakeholder support because they have enforceable claims on a company’s performance. Hence a firm’s strategy affects and is affected by company’s stakeholders. With above-average return a company is able to satisfy stakeholders interests. If a company does not, managers possibly don’t have stakeholders support.
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Strategists can be a source of competitive advantage when they are able of successfully conducting thorough analysis of situations, working hard, are brutally and consistently honest, and ask the right questions of the right people at the right time. Strategists have often to choose among attractive alternatives and so they are responsible for designing and using effective strategic management processes. such processes can be effective when based on ethical intentions and subsequent actions. To achieve value and above-average returns, strategic management is concerned with the creation of appropriate organizational actions.
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Strategic thinking and resulting leadership are conditions for successful management processes. They entail to anticipate events, envision possibilities and maintain flexibility for example.
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Top-level managers are key for competitive advantage. They are also a source for competitive advantage when their work are valuable, rare, imperfectly imitable, and non-substitutable.
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Top management consists of key managers which select and implement a firm’s strategy. They hold positions in the board of directors or are officers of the corporation.
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Top management at work will almost certainly contribute in a way concordantly with their background. Marketing or Finance people will conduct a firm’s strategy in that direction. Thus it is likely, that managers do a better job when they have diverse skills. And it is likely that a board of directors improves a firm’s performance when it is involved in shaping those firm’s strategic direction. But It’s not likely that the board is much involved in strategy decisions when a CEO has more power. A CEO increases his power when he appoints people to the board of directors. And so when he simultaneously act as the CEO and has a board chair.
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CEO’s are mostly selected from internal markets. But sometimes from external markets, when they have to carry out changes. There are components of an effective strategic leadership:VisionA vision determines a firm’s strategic direction. A long-term vision is the driver of strategic thinking and behavior regarding the above mentioned remaining 5 components. Thus a company has to have a long-term vision.Core CompetenciesA firm’s core competencies should be used to prepare products that deliver value for customers. Strategic leaders (management, board of directors) have to ensure that. A cross-sharing of core competencies among units and products within a corporation is possible. Managers have to exploit and maintain core competencies.Developing Human ResourceStrategic leaders and firms see human capital to be maximized rather than as a cost to be minimized. Future strategic leaders should build skills needed to nurture a firm’s human capital. And that requires development and use of convenient program for those people.Sustaining Organizational CultureAn entrepreneurial organization enables to change culture when necessary. And shaping a firm’s culture to the better is a task of strategic leadership. Managers should aim to create a sustainable and effective organizational culture.Emphasizing Ethical PracticesEthical practices can be exercised in an ethical organization, which bank on ethical judgment and behavior. Ethical behavior is supported when people are treated with dignity and ethical behavior is rewarded. These in turn can base on a code of conduct which describes specific ethical standards a firm is willing to exercise.Establishing Balanced Organizational ControlsA flexible use of core competencies is possible when there is a balance between strategic and financial controls, in line with the budget. A balance scorecard is a tool that enables strategic leaders to do that.
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This part describes the external environment analysis, what I call the Landscape-Analysis (based on Porter’s Five-Force Analysis). A firm has to seek for opportunities and threats in its external environment due to change environment’s potential on a firm’s performance to the better. For that a company has to develop appropriate skills. Companies can use a methodological approach, like the following, to analyse the external environment and so to find opportunities and threats: scan the outer field, monitor it, forecast changes, and assess it. For the source of the subsequent mentioned about Strategic Analysis look up the following. The external environment can be split into three levels:General EnvironmentIt is the company’s task to find strategic relevance of environmental changes or trends emerging from changes. The elements of the broader society that affects market participants, and where changes emerge, are demography, economy, politics/legislation, society/culture, technology, and globalisation.Industry EnvironmentThose are factors that influence a firm, its competitive actions and responses, and an industry’s profit potential. The task for a company here is to find the right position in order to influence some forces (Porter’s 5-Force Model): 1. threat of entry, power of suppliers; 2. power of buyers; 3. product substitutes; and 4. intensity of rivalry. Because those have direct effects on a firm’s strategic actions within an industry.Competitive EnvironmentHere competitors future objectives, current strategies, assumptions and capabilities are described. Companies do compete for similar customers with similar strategies. Such companies together form a strategic group. Competitive rivalry within strategic groups is recognized as more intense than it is between strategic groups. The aim of competitive environment analysis is to find out, where rivals work on regarding future goals, current strategies, assumptions, and capabilities they have. For instant obtainment of competitor intelligence, companies are well advised to use modern internet technology.
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Today’s landscape is shaped by globalization and traditional factors of economy (labor costs, superior access to financial capital and raw materials) are no longer enough for being successful. Rather factors like internal resources, capabilities, and core competencies become increasingly important. When crossing opportunities (found in external environment analysis) with strengths, (found in internal organization analysis), a firm elevates its strategic chances. The same is true when crossing threats and weaknesses in order to display strategic risks. Firm’s are well advised to exploit current advantages while simultaneously using their resources and capabilities to form new advantages to pursuit competitive success in the future. Because no competitive advantage lasts forever and in the century of the internet it is easy to reduce the sustainability of many competitive advantages. So firms are well advised to duplicate the value-creation ability by using unique resources, capabilities, and core competencies and form new value-creating propositions. A careful analysis helps them to find resources and capabilities to effectively manage its core competencies. Competitive advantage originates more likely from capabilities (groupings of tangible and intangible resources) than from a single set of resources. Thus because competitors are less likely to see or imitate core competencies, based on capabilities within a firm and cultivated there. Some strategists see employee’s knowledge as perhaps the most important source of competitive advantage (intangible resource). Firm’s try to gain maximum benefit from that by sharing people’s knowledge. An easy way to do that is through the usage of ICT. A core competency is a capability that is valuable, rare, costly to imitate, and non-substitutable. Core competencies have to be supported to keep them a source of competitive advantage. They are only helpful when they allow a firm to exploit opportunities in the external environment. If that changes, other capabilities have to be formed that meet the four criteria of sustainable competitive advantage.As noted in Operations-Management theory, value-chain analysis helps to find out the competitive potential of resources and capabilities to perform primary and support activities. Further that helps to understand cost structures and the activities that can create value. Activities that cannot create value – found out in the value-chain analysis – are candidates for outsourcing. When a firm outsources activities, it has to choose a partner which has its competitive advantage particularly in this primary or support activity. Executives have to keep in mind that it is not from outsourced activities a company creates value.
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Corporate Governance is a stakeholder relationship that describes the direction and control of a firm’s performance. The strategy formulation and implementation is affected by monitoring and controlling of a firm’s Top-level management. The aim of Corporate Governance is to align managers decisions and shareholders interests in order to achieve competitive advantage. Three internal governance mechanism are distinguishable in today’s corporation from each other: the ownership concentration, the board of directors, and the executive compensation. Corporate control is synonymous with external governance mechanisms to influence managers decisions and outcomes resulting from that. The dispartment of control and ownership of a corporation is widely accepted. Whereby the owners hire managers, and those are then responsible for maximizing a firm’s value and for the related decisions. So top-management make their decision-making skills available for owners of a firm and function as their agents. Owners seek for risk minimization or diversification by investing in multiple corporations with different risk profiles. Owners are the principals of corporations and control the goals their agents pursue. Therewith owners are able to reduce those problems of pursuing different goals. Large-block shareholders are a so called ownership concentration (high number of shares). Institutional investors (mutual funds and pension funds) are a kind of that. They are able to influence top executive strategic decisions and actions. Their concentrated ownership allows them to monitor top-level management active and effective. Sometimes, such groups use their power to force managers and board of directors to make decisions that maximize a firm’s value. A firm’s board of directors (especially in USA and UK) - composed of insiders, related outsiders, and outsiders - is recognized as a governance mechanism to represent shareholders collective interests. Its not unusual when outside directors outnumber inside directors, because they are more independent of a company’s top-level managers. Another governance mechanism is the executive compensation of salaries, bonuses, and long-term incentives. Those are used to strengthen alignment of interests between managers and shareholders. The board of directors determines managers compensation and with that influences managerial decision-making that are in shareholder’s interest. Else wise as in the USA, in Germany and Japan is not the maximizing of shareholder value key. Employees have a more important role as stakeholders in Germany. Whereas in Japan shareholders virtually didn’t play an important role in controlling and monitoring top-level executives. There is a trend nowadays that such different methods become more similar. A system is then effective, when all stakeholder interests are served. A minimal satisfaction of stakeholders levels the way for long-term strategic success. Those stakeholder are:Capital market or shareholdersProduct market or customer and suppliersOrganizational stakeholders or managers and employeesMoreover, ethical behavior in formulation and implementation of strategies is formed by effective governance. For the source of the above mentioned about Corporate Government look up the following.
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Financial returns and competitive advantages are influenced through competitive rivalry a firm faces in its markets. Competitive rivalry describes the ongoing set of competitive actions and responses among competitors when they court for advantageous market positions. Firms are then identified as competitors, when they provide the same markets with the same products and targeting the same customers.
The whole set of competitive actions taken by firms within a specific market are called competitive dynamics. The set of competitive actions of a single firm is called competitive behavior. Competitive rivalry takes place on either strategic or tactical basis. A strategic step would be to enter new markets, whereas a tactical step would be to change prices for example. And so strategic steps need stronger commitment and more organizational resources to become effective. With studying competitive rivalry a firm is more likely to be able to predict competitive actions and responses of its competitors. A competitive response is to counter a competitor’s actions. The first step to better understand competitors is to analyze them. And interesting is to better predict their competitive behavior. A firm would possibly find out the number of market commonality it has with each of its competitors. And what the related importance is to each market they serve and how similar the resources are each of them invests into marketing. The more overlaying there is between a firm and its competitors, the more intense the rivalry is in general.
Market commonality and resource similarity shape a firm’s:AwarenessIt describes the degree of mutual interdependence between itself and its competitors.Motivation What are the incentives to attack and response.Ability How is the quality of available resources for attacks and responses.
And hence to gain useful knowledge about competitors. And that in turn increases the quality of prediction of competitor’s behavior. Some competitors try to gain advantage by first mover actions. Often they pocket above-average returns until competitors can react successfully trough counteraction and winning back loyalty of customers. Firms who lack the awareness, motivation, or ability needed to be ahead of competition, are pretty sure not first movers. But they are possibly second movers and with that a threat for the first movers. A characteristic of second movers is that they are able to quickly and successfully compete with first movers by incur their advantages but avoid their mistakes. So studying first mover’s goods and services, customer’s reaction and competitor’s behavior gives helpful information. When engaged in competitive rivalry a firm is well advised to initiate a large number of diverse actions. Often depending on organizational size, competitive action are either many in numbers, preferred by small firms, or a few but concentrated ones by larger firms. Product quality is a factor that dampens ones ability to take competitive actions. Because it is a base denominator to successful competition. And to change a quality position one has chosen, to capture another one, is often pretty much a challenge. Firms that are focused and gain a huge amount of revenue in certain markets (e.g. market leaders), are more able to launch strong competitive actions or responses than firms that are diversified. The reaction following actions taken by firm’s with a high reputation of predictable and understandable competitive behavior is more likely. So a firm can study the type of competitor’s actions (strategic or tactical), its reputation for the nature of competitor behavior, and its dependence on this specific market to better predict responses of competitor’s when itself is planning some competitive actions. Competitive dynamics differs between slow-cycle and fast-cycle markets. In the latter case, there are often diverse competitive advantages applied at one time and they are often temporarily and change frequently in fast-cycle markets. So here competitive advantages are subject to rapid and inexpensive imitations. Competition in slow-cycle markets aims more to protect, maintain, and extend existing proprietary advantages. Standard-cycle markets are between them and are characterized by moderately shielded from mentioned competition through using moderately sustainable advantages like serving mass-markets with economies of scale products. What all markets have in common, is, that innovation (and so shaping markets or influencing segments) is vital for successful action against competitors. For the source of the above mentioned about Comp. Rivalry a. Comp. Dynamics look up the following.
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With a strategic perspective a firm’s entrepreneurial behavior can take simultaneous effect in both opportunity seeking and competitive advantage seeking, in order to design and implement entrepreneurial strategies for wealth-creation. The identification and exploitation of opportunities is the purpose of entrepreneurship. Thereupon follows the commercialising of products and processes through innovation. Last but not least the concept of capabilities are also key for entrepreneurship. It addresses the shaping of corporate culture, the passion for business, and the controlled risk-taking manner. There is a relationship between a nation’s economic growth and entrepreneurial behavior. Economically successful nations often show a high degree of entrepreneurship. Management of innovation is executed by three basic approaches: Internal Corporate Venturing It results from autonomous and/or induced strategic behavior. The bottom-up process of autonomous strategic behavior describes a process where a single innovation becomes a product champion. Whereas induced strategic behavior addresses a top-down process of exploitation of strategies and structures to innovate processes or products. Hence in the latter case, a firm’s current strategy, its structure, and reward and control systems highly influence its success. Value sharing and entrepreneurial behavior is key for innovation and integration. Cross-functional integration supports corporate venturing activities and leads to better commercialization of innovations. Effective innovation and processes are the basis for incremental and radical innovation. Strategic AlliancesA consistent and effective process of innovation requires more and more specialized knowledge. For that firms can form strategic alliances to gain access to the needed knowledge. Sometimes firms use acquisitions to gain needed knowledge and capabilities and enrich their internal innovation processes with that. Very common are venture capitalists that support firms with needed capital or IPO’s (initial public offering) to acquire financial resources for corporate development. Strategic entrepreneurship is used to create value for all stakeholders. It has also become a globally important factor for economy development.AcquisitionsThese enables firms to grow pretty fast but not genetically. By integration of the foreign organization a management has to demonstrate that the acquisition was worthwhile.
For more of the above mentioned about competitiveness look up the following.
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The term economic globalization means the process of dramatically increased trade and cultural exchange, which results in a changing world economy and national societies. For the source of the subsequent mentioned about Globalization look up the following link. Globalization in business usage it refers almost exclusively to trade liberalization (free trade). Back in the period of the two World Wars, political economic exchange across borders was shortened dramatically. In that period the Bretton Woods institutions were created (IMF, GATT) and globalization trends reversed. So in the post-WW2 environment, international trade expanded. In the 70’s, the effects of cross-border trade became increasingly visible, both in terms of the benefits and the disruptive effects. The global economy has allowed business to develop partnerships and alliances throughout the world, which in turn is a success factor in today’s business. The main advantages of a global economy are: 1. to maximize economies of scale; 2. benefit from the largest and cheapest raw materials and technology; 3. opportunity for smaller companies for a faster global expansion; 4. more choices when recruiting workforce; 5. the opportunity to target a larger customer base (greater earning potential). Globalization also creates niche markets and requires everyone to keep up with globalization in order to stay competitive. Technology and trade separate the economy into two camps - those with the skills to participate in the global economy and those who lack them (David Shane, Indiana Education). Advances in technology are giving ability for direct country competition in terms of education and skills. The global economy has created an environment in which many large corporations are becoming transnational firms. This trend has developed in to a worldwide ‘race-to-the-bottom’ where companies are so focused on staying competitive that they often outsource production to developing countries with the lowest labor and economic standards. These transnational corporations often lobby their government in order to gain access into these developing countries. The real global economy would have no boundaries. Companies of any size could sell their products all over the world, and cater to buyers all over the globe. Consumers could purchase goods from almost any country that has a communication network, preferably the internet. It would be an economy in which customers, businesses, suppliers, distributors, and manufacturers all operate without regard to physical and geographical boundaries. With the ever increasing global economy, people and businesses are realizing that they are competing with people around the world for contracts and business deals. The major disadvantage for a shift toward a global economy is the loss of domestic jobs. Other disadvantages include: trade barrier issues, currency problems, the possibility of increased transportation cost and lastly the possibility of language barriers. Economies of Scale large scale outputs related with unit cost reductions, and they represent a major role for increasing returns. Increased international trade results from specialization in production of certain market offerings. Economies of scale result from expanded outputs and stable or decreased inputs (unit costs). To fully benefit from a firm should cover a substantial proportion of the total world demand. Because country markets often do not allow for large scale production, but the world market does.
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Globalization describes the meaning of being or being able to go everywhere around the globe. Regarding business, globalization describes the global integration of a business strategy. Whereas Internationalization describes the geographic expansion of activities.
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Adding to the beforehand mentioned, economy globalization center around the following topics:Closer Contact among EntitiesThe closer contact between different parts of the world (global village), with increasing possibilities of personal exchange, mutual understanding and friendship between world citizens, and creation of a global civilization.
Increasing RelationshipsThe increasing relations among members of an industry in different parts of the world (globalization of an industry), with a corresponding erosion of National Sovereignty in the economic sphere (economic globalization and free trade).
Legal and Financial MeansThe use of substantial and sophisticated legal and financial means to circumvent local laws and standards. In order to leverage labor and services of unequally-developed regions against each other (effects of for-profit multinational corporations).
Spread of CapitalismThe spread of capitalism from developed to developing nations.The economic aspect of globalization can be seen in contrast to economic nationalism and protectionism. Hence it is seen as related to:Laissez-faire capitalism (pure or free market view is best left to its own devices which dispenses inefficiencies).Neo-liberalism (focuses on free-market methods that rejects government intervention in the domestic economy, fewer restrictions on business operations, and property rights. In foreign policy. Neo-liberalism favors foreign market openings by economic pressure, diplomacy, and/or military intervention).
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The World Bank defines globalization as the increased flow of capital and mobility of labor through changes in technologies and policies. And globalization is the growing integration of economies and societies around the world – has been one of the most hotly-debated topics in international economics over the past few years. Rapid growth and poverty reduction in China, India, and other countries that were poor 20 years ago, has been a positive aspect of globalization. But globalization has also generated significant international opposition over concerns that it has increased inequality and environmental degradation. Or as Nicholas Stern (Former Senior Vice President and Chief Economist of the World Bank) states: “Globalization often has been a very powerful force for poverty reduction, but too many countries and people have been left out, Important reasons for this exclusion are weak governance and policies in the non-integrating countries, tariffs and other barriers that poor countries and poor people face in accessing rich country markets, and declining development assistance”. Some anxieties about globalization are well-founded, but reversing globalization would come at an intolerably high price, destroying the prospects of prosperity for many millions of poor people. We do not agree with those who would retreat into a world of nationalism and protectionism. That way leads to deeper poverty and it is fundamentally hostile to the well-being of people in the developing countries. Instead, we must make globalization work for the poor people of the world”. Or as the OECD development center notes, globalization is the institutional and real integration of national and regional markets into a single worldwide organism, is neither restricted to the last few decades, nor is it, as yet, an irreversible, let alone complete process. Even in its most advanced form it does not absolve nations from adopting sound economic policies, and their quality remains essential for economic efficiency and growth. Globalization won’t be completed soon. Because it is a dynamic, open-ended process, has no end, just as there is no end to socio-economic development. For this reason, and bearing in mind the continuing fourth industrial revolution spurred by the development of the Internet, the future is bound to bring even greater changes. The IMF (International Monetary Fund) describes economic globalization as a historical process and the result of human innovation and technological progress. There is increased integration of economies around the world, particularly through trade and financial flows. It refers also to the movement of people (labor) and knowledge (technology) across international borders. The term used since the 80’s reflects technological advances that have made it easier and quicker to complete international transactions (trade and financial flows). It means the extension beyond national borders of market forces known for centuries at all levels of human economic activity (village markets, urban industries, financial centers). Markets promote efficiency through competition and specialization of labor (to focus on what is done best). Global markets offer the opportunity to serve on a global scale (access to capital flows, technology, cheaper imports, and larger export markets). But countries must be prepared to embrace the policies needed, and in the case of the poorest countries may need the support of the international community as they do so.
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Some source declare that globalization holds up on liberalization which in turn means the combination of laissez-faire capitalism with the removal of barriers for movement of goods. Here nations increased specialization and exports and strengthen their pressure on protective tariffs and other barriers to freeing trade. The word globalization (gold standard) emerged along with industrialization. Ricardo's work on comparative advantage (The Principles of Political Economy and Taxation, 1817) and Jean-Baptiste Say's law (Law of Markets) were the basis. the ideas was that nations would trade effectively, and that any temporary disruptions in supply or demand would correct themselves automatically. This era is said to have lasted till the first World War, and then collapsing with the crisis of the gold standard in the late 1920's and early 1930's. Trade Negotiation Rounds (GATT) has then driven the newly emerging globalization era. And the World Trade Organization (WTO) should now mediate trade disputes.
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The globalization trends after WW2 were greater international movement of commodities, money, information, and people; and the development of technology, organizations, legal systems, and infrastructures to allow this movement. And some of the globalization issues that are discussed now are:The Increase in international trade is faster than the growth in world economy.The Increase in international flow of capital includes foreign direct investment.Greater trans-border data flow (IC-Technologies).The push for an international criminal court and international justice movements (ICC, ICJ).Greater international cultural exchange through export (Hollywood, Bollywood).Terrorism undergoes globalization (attacks all over the world are possible).Spreading of multiculturalism and access to cultural diversity, but on the other hand reduction in diversity (assimilation, hybridization, Westernization, Americanization Sinosization of cultures).Erosion of nations (sovereignty, borders) through international agreements and organizations (WTO, OPEC).Greater international travel and tourism.Greater immigration, (also illegal immigration).Development of a global ICT infrastructure.Development of global financial systems.Increase in the share of the world economy controlled by multinational corporations.Increased role of international organizations that deal with international transactions (WTO, WIPO, IMF).Increase in the number of global standards (copyright laws).International agreements lowered the barriers for international trade since WW2 and the process is ongoing. Let’s have for example a quick view at initiatives of the General Agreement on Tariffs and Trade (GATT):The promotion of free trade.The reduction or elimination of tariffs.The construction of free trade zones with small or no tariffs.The reduction or elimination of capital controls.The reduction, elimination, or harmonization of subsidies for local businesses.The intellectual property restrictions.The harmonization of intellectual property laws across nations.The supranational recognition of intellectual property restrictions (patents).
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Globalization is not just a nice business - there disadvantages and some people fight against it. Some public-interest activists see various aspects of globalization as harmful. And so do strong state nationalists. However one of them, Noam Chomsky, said that the aim of the anti-globalization movement should also be to globalize - but justice. Fair trade theorists argue that those with more financial leverage benefit exquisitely more from unrestricted free trade benefits than the poor do. Anti-globalization activists also see globalization as a corporatist agenda, which limits the freedoms of individuals in the name of profit. And that increased autonomy and strength of enterprises shapes the political policy of nation-states. And some claim that globalization has a whiff of imperialism, and was one of the drivers behind the Iraq war and other conflicts around the globe. Globalization also imposes credit-based economics, which leads to unsustainable growth of debt and resulting crises.
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So called democratic globalists point out that the (above mentioned) first phase of globalization should be completed to put into force the will of World citizens. This by building political institutions that act on a global scale. Followers of the free trade ideology believe that free trade leads to a more efficient allocation of resources and specialization in production. And that in turn leads to lower prices, more employment and higher outputs. The laissez-faire capitalists suggest that democracy and capitalism produces higher levels of material wealth. Hence globalization for them is the beneficial spread of democracy and capitalism. Critics of anti-globalization support their thesis that globalization benefits all with statistics of global acting organizations (number of people living below $1 shrinks; life expectancy doubles; income inequality decreases).
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There are politicians that defend the model of single country states. And some claim that globalization does not overcome nation-states. Global interventionist policy of single states (USA) thwarts the globalization process (see above Iraq war). And some prefer nowadays the terms internationalization, rationalization, and trade blocs rather than globalization. Because the importance of nation states is greater in an internationalized world than in globalized one, since the latter one eliminates nation states. Possibly there is no radical globalization happening and never before in history internationalization turned completely into globalization.
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If home markets are too small, underdeveloped, or a product is early in a market, there can be a need for international trade for every kind of business (MNE’s, SME’s, SSU’s). So companies are engaged in international trade because of:Expand SalesExpansion of sales aims for example to address one’s product to a larger group of potential customers. And that should lead to higher profits, assumed that manufacturing costs are stable or even decrease, and markup is the same, the more products are sold.Acquire ResourcesWhen acquiring resources, companies seek for products and services in the quality needed and to competitive costs. That can lead to the purchase of foreign products and services.Minimize RiskTo minimize risks, companies try to take advantage of different business cycles (recessions and expansions) in order to stabilize their operations and profits. For further information about that see also Appendix VI. Barriers for international trade become simpler. And today’s business sees national (government) regulations to clear out. Further communication and transportation are speedier than ever before, almost everywhere accessible, and their costs decline. That accelerates globalization.
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George S. Yip believes that globalization affect every industry. And he thinks that industry globalization drivers are the underlying conditions in each industry that create the potential for using a global strategy: “To achieve benefits of globalization, managers of worldwide businesses need to recognize when industry conditions provide the opportunity to use global strategy levers”.
An increase in industry globalization is often seen as a boost of competitive forces, not only but also by increasing geographical scope. And the globalization of customers increases their bargaining power relative to an industry competition, while the globalization of competitors reduces the bargaining power of customers. For the source of the above mentioned about Industry Potential look up the following. See also Appendix II: Industry Globalization Potential. And a summary of industry globalization drivers: Appendix VIII.
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Common Customer Needs and TastesCommon needs make allows for few product varieties that can serve many markets. For example to focus on common fundamental needs rather than on (reliability, economy) on peripheral differences (like styling). That can make products well acceptable in numbers of countries. Common needs also allow for a sequential invasion of markets with highly standardized products. The internet can reinforce the appeal of brands that are already globally recognized. Further it can create more opportunities regarding contender brands. Relatively unknown brands will be able to rapidly build up word of mouth via the internet and global presence via the web. Global Customers and Channels Global customers buy on a centralized or coordinated basis. There are national global customers that purchase products or service worldwide but use them in their homeland (national defense agencies). And there are multinational global customers, which searches the world for suppliers but uses the purchased in many countries (WHO). They search for uniformity of goods and services around the globe. Concentration or worldwide coordination of activities (development, engineering, selling, after-sale services etc.) ensure a global sale-ability. And so customers feel the global constancy of goods and services. The same idea is pursued when using a global marketing approach. An opportunity when serving global customers, is by having already penetrated many of their organization in different countries (effect of practice). But it’s also a threat because competitors are perhaps able to rapidly capture the total account (centralized buying) of such customers. Corporate customers who become global, often seek for standardized and simplified buying for services they consume. Thus they often tend to consider also global (often large) corporate suppliers. The internet plays an important role for global customers and channels. Thus because customers are able to search the web for preferred goods and services from anywhere around the world. And the internet gives small companies an easy access to the world. Newly formed internet channels often bypass traditional sales channels and bring new opportunities for marketers.Transferable MarketingMarketing elements (brand names, advertising etc.) that need little local adaption, due to the nature of certain buying decisions, they are easily transferable and so save time and cost. It’s no longer necessary to tailor a marketing approach for each country, but rather to use a uniform or slightly modified marketing mix on a global basis. As noted above (global customers and channels) global customers may prefer large global suppliers. Hence globalization can bring along high entry barriers for smaller firms. There can be a need for additional marketing elements in order to overcome international entry barriers due to customers accustomed to goods and service they already know from diverse communication sources or trough international travel. Companies who are able to launch global successful products, perhaps can put non-global rivals out-of-market by using one-country at a time success. The internet also affects transferable marketing. First the internet itself has a global reach and second internet users share a common style of interaction and that enables suppliers to fish for customers in a highly standardized way. Lead CountriesLead countries (product and processes innovation) that harbor innovative competitors or demanding customers, are critical to participate there. Rivalry in lead countries is stronger as competitors recognize the strategic and possibly financial importance of success there. In particular they need to recognize the investment in such markets and its payout. Especially if these markets are the home of major global rivals. The internet allows to identify lead countries and to monitor the rivalry ongoing there.
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These drivers depend on economics of a business. Particularly, they affect the levers of global activity location, of global market participation, and of global products.Global Scale EconomiesGlobal scale economies apply when single-country markets are not large enough to allow competitors to achieve ample returns. But scale at a given location of an activity can be increased by participation in multiple markets, combined with product standardization and/or selected and concentrated value activities. Often, economies of scope rather than economies of scale pushes a business to globalize. Global scale economies reduce the threat of entry, particularly from potential entrants that are national companies. Since a single national-market approach does not provide competitive economic scale compared to a global approach. Global scale of economies broaden the scope of competitive rivalry. And a loss of share in any country will impact the cost position of any sister country with which activities are shared. Fixed costs required to enter an industry are a serious issue. Cost globalization drivers may be less favorable for services that are primarily people-based (lesser scale economies, flatter experience curves). Global companies can try to substitute equipment for labor in order to achieve lower costs and better performance than local companies do. The internet drives down global economies of scale and scope by reducing minimum efficient scales. Diverse activities are replace-able by Web-based activities. So scale and investment barriers for a global spread are being bypassed (international distribution) and newly internationalizing companies can safe investments. Value chains and business systems are being broken up and consolidation of market players and market share takes place at deconstructed stages, which in turn leads to larger scales. On the one hand, there is less pressure on new entities to globalize. But on the other hand, these new entities have to have clearly focused business models and competitive advantages that are easily transferable and leverage-able internationally. This reduction of transaction costs will particularly help aggressive and well-managed smaller firms from emerging markets. Steep Experience Curve EffectEven if scale and scope economies are exhausted, expanded market participation, product standardization, and activity concentration can accelerate the accumulation of learning and experience effects. The first one applies to direct manufacturing while the latter one applies to the entire production process. The steeper the learning and experience slopes, the greater the potential benefits. Managers should beware of overaggressive pricing that destroys not just the competition but the market also. A steep experience curve has similar effects as global scale economies on the threat of entry and rivalry among competitors.Global Sourcing EfficienciesIn many cases, satisfactory supplies can be sourced locally. But in some other cases, the need to maintain global standards will require global sourcing, possibly at higher costs. But centralized purchasing allows cost savings on production inputs. Global coordination in purchasing strengthens the venture’s low-cost production advantage (sourcing efficiencies) and has a similar effect as global scale economies on the threat of entry and rivalry among competitors. The internet enhances global sourcing efficiencies. A primary internet phenomenon has been the creation of global Web-based purchasing systems. Favorable LogisticsThe cumulative ratio of sales value to transportation cost enhances the ability to concentrate production. Other logistical factors include the absence of time-urgency and little need for close-by customer facilities. Low transportation cost allows concentration of production. Low cost ease the entrance to foreign markets, for example by exporting. Rivals can readily shift products from country to country, such that competition is between global production capabilities. Companies have to balance the trade-offs between logistics and overall market appeal. Logistics is seldom a barrier to globalization for information-based services. Differences in Country CostsConcentration of activities in low-cost or high-skill countries can increase productivity and reduce costs. But there is a risk of training future offshore competitors. Large variations in costs among the countries that produce or might produce a particular product increase the threat of entry from foreign sources. Low cost of goods sold relative to the selling price, is often an industry’s best protection from cheap imports. FX-rates provide a major source of variation in costs between countries. But usually labor-intensive industries or those in which local materials and supplies are both important and plentiful, are countries where FX-rates have a major impact on country costs. The internet supports efficient communication and coordination to make off shoring of activities easier to manage. Off-shore advantages are to bridge time-zones and lower costs. High Product DevelopmentThe ratio of product development costs to the size of national markets acts as a globalization driver. Developing a few global products rather than many national products should reduce product development costs. And those costs have a similar effect as global scale economies on the threat of entry and rivalry among competitors. ICT brings along more effectiveness and efficiency through linking product development teams together.Fast-Changing TechnologiesFast-changing technology involves high product development costs, but increases industry globalization potential:Costs of embodying a technology change typically drive companies to amortize costs across many markets.Pioneers of a particular technology feel pressure to rapidly globalize that technology in order to exploit it before imitators do so. So both the cost and pre-emption reasons just cited spur companies to increase their global market participation.A company can better exploit and protect its new technologies by globally integrated competitive moves that include a clear prioritization of when and where to use the technology against competitors.Broadband telecommunication channels plays a major role in opening up new markets.
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Government globalization drivers depend on the rules set by national governments and affect use of all global strategy levers. It is likely that businesses which needs and creates local presence profits from government drivers.Favorable Trade PoliciesTrade policies by host governments affect the following issues and their globalization potential: Import tariffs and quotas, non-tariff barriers, export subsidies, local content requirements, currency and capital flow restrictions, ownership restrictions, and requirements on technology transfer, freeness of media. National trade policies affect in particular the concentration of manufacturing activities of firms on their ground. The easing of government restrictions can set off a rush for expanded market participation. Rivalry among existing international competitors increases with favorable trade policies because it makes it easier for rivals to compete in each other’s market. Social policies affect labor costs (work hours or days) and so do tax laws and environmental regulations. But also technical standards influence these costs and allow or ban certain types of activities. The freeing up of international trade (goods and services) has brought an increased rivalry and with that a change in the economical structure to a more global focus (Mergers & Acquisitions). And that can be the only one chance to keep competitiveness. Compatible Technical StandardsGlobally standardized products need globally accepted standards or at least standards common in countries of interest. But some standards are the product of protectionism. Since compatible standards possibly enable new entrants to achieve the needed scale. Common Marketing RegulationsCommon marketing regulations increase rivalry among existing international competitors and makes it easier for them to invade each other’s markets. Government-Owned CompetitorsThe globalization potential of an industry can be stimulated by government-owned competitors. Such competitors often enjoy protected home markets and subsidies and are often major sources of foreign exchange earnings. That can allow them to aggressively graze foreign markets. A formula for competitors is to have a global strategy to fend off government-owned companies. Different motivations among private-owned- and government-owned companies often strengthens rivalry.Government-Owned CustomersGovernment-owned customers are often a barrier for globalization. But privatization of them can drive global competition. Host Government ConcernsHost government concerns are recognized by firms pursuing a global strategy. When shifts in relative factor cost occur, such firms are able to quickly respond and relocate their activities. Governments concern about specialization of value-chains of a global-business. Because this can keep knowledge outside their national territory. Local reliance is often desired by companies and governments regarding major or strategic industries. Thus governments are unwillingly to allow major industries to purchase supply from foreign countries for key inputs.
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The following drivers elevate the potential of globalization of an industry and boost the need for response on global strategy levers.High Exports and ImportsThe most basic competitive driver for goods and services is the value of import and export. The nature of competitive forces changes when the volume of trade changes Hence the higher the trade between countries, the higher the interaction of competitors in those countries. That requires a more global strategy.Competitors from Different ContinentsCompetition within global markets tends to be more harsh. And different backgrounds can cause different objectives and approaches in doing business.Interdependence of CountriesSingle countries gain global competitiveness by sharing activities with countries. But that also heightens interdependence among them. Since competitors worry about market share in interdependent countries (simultaneously), it is more difficult for firms to enter such markets. Because competitors are likely to give up profits in one country to protect their position in interdependent countries.Globalized CompetitorsA firm’s usage of global strategy levers determines the extent of their global strategy. Global strategy levers are in particular: global market participation, global products and services, global activities, global marketing, and global competitive moves. The activation of an industry’s globalization potential by companies, also encompasses the expansion into major markets: being the first in introducing standardized products, being the first in using uniform marketing programs. The globalization pressure on an industry as a whole is strengthen when a competitor pursues a global strategy. The threat of entry from new entrants is reduced when there are existing globalized competitors. Potential national entrants are often suppressed by incumbents with global strategies which are able to use worldwide assets and resources to do so. Transferable Competitive AdvantageWhen competitive advantage can be transferred globally, it possibly becomes the ultimate globalization driver. Competitive advantages, like technology-based ones, are – with little adaption - easily transferable and therefore in favor of global or globalizing companies. Others (legal-industry) are much more locally rooted and thus their advantage bases on local knowledge or local relationships.The Internet’s Effect on Competitive Globalization DriversThere are several effects that the internet has on competitive globalization drivers: It elevates the speed of moves and countermoves within markets; it allows competitors to communicate with each other legally and to use it for public signaling; potential customers are more able to compare competitors, and their prices. Due to the Web, industry leaders face the threat of pure Web-based rivals with global reach, starting from the day when they put their Website up. Because the amount of physical investments is lessened when transferring and leveraging competitive advantages globally.
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A global strategy requires number of choices on strategic dimensions. These dimensions are called global strategy levers and they determine whether a strategy is more a multi local or a global one. For the source of the above mentioned about Industry Potential look up the following. See also the summary of global strategy levers: Appendix VIV.
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Since means global strategy to pursue a global strategy-oriented way, managers are not well advised to select countries based on their stand-alone attractiveness. But rather on the basis of their global strategic importance. This thinking apply when searching for the level of market participation, e.g. the target market share, and the nature of participation, e.g. direct contribution or partnership. Managers that select markets have to keep in mind – despite different motivations - that such decisions entail different potential consequences. Hence managers have to be careful not to deviate from their global strategy. Critical points when building a global strategy are:To have an internationally transferable business model.A strong competitive advantage that can be leveraged internationally.A high developed home market compared to other markets.Transferable Business ModelA globally transferable business model is the base plate for globalization. The business model describes how a firm transforms inputs to add values for particular customer groups plus the way how to manage that. A global strategy now is the global usage of a company’s business model. Yip states that the most globalizable business models are those, which involve to bring the company’s logic in the marketplace. Which requires the customers to change their behavior than it requires the company to meet customer’s needs. Leverage-able Competitive AdvantageThe bases for competitive advantage can differ and encompass six categories: customer market, products and services, business systems or value chain, assets and resources, partners, and scale and scope. See also Appendix II: Competitive Advantage Hexagon.
Yip’s advice is that a company can start from a single corner of the hexagon but should suddenly add strength at every point of it.Customer Market AdvantageThe ultimate competitive advantage would be to have no competitors in the marketplace. That can happen when markets are just in the stage of creation. Clearly companies with that advantage need to develop other advantages not to become too vulnerable when competition enters the market. Product and Service AdvantageThis advantage is often apparently for competitors, which allows them to study and probably copying it. So this advantage is likely to shrink when competitors work on their own products and services. Business System / Value-Chain AdvantageA value-chain that is superior in customer’s mind brings advantage to the firm which master it. An excellent point for every company is to coordinate the value-chain better than competitors do.Assets / ResourcesAssets (tangible, intangible) encompass factories to patents to brand names and reputation. Intangible assets base mostly on tangible ones and are only valuable in combination with them.Partner AdvantageClever partnering can also bring competitive advantage for the involved firms. This by using a partner’s strength to leverage the own business.Scale and Scope AdvantageAdvantages of economies are a must: Economies of scale describes the way to reduce costs per unit with increases of production volume. While economies of scope come from sharing costs across multiple products or lines of business. Bigness (or relatively large market share) itself can be an advantage. The economies are an examples, or the fact that a big company can outrange smaller companies.Adding to Bases of AdvantagesThe real market power comes from the mix of multiple bases of advantages. So firms should seek for advantage on their initial base of advantage and increase the advantage in order to add continually other bases of advantages to their depot.Competitive Advantage to GlobalizeA highly dominant market position allows for quick globalization. Hence the more transferable the basis of advantage is, the easier it is to spread that over a larger area. Market players of developed economies have a competitive advantage, proofed in the highly competitive environment characteristically in such economies. Therefore, such companies can often use their competitive advantage against market players in less developed economies.Effects of the internet on global market participationFirms that want to reduce costs are likely to pull back from smaller or non-strategic markets. But the internet makes it is possible to serve these markets even if there are not physical present there. Obviously firms can handle such markets with less effort. And it even allows for a certain kind of customization, without adapting products to the market. With the internet a company reaches overseas customers from the start and within hours.Types of global market participationTurnover share has to be recognized in relation to the total global turnover. Its importance increases either when its share from non-home-markets reflects the global turnover or when it originates from important countries. But a firm should not concentrate most of its revenue in just a few countries. To fully benefit from a global strategy, a company needs to have significant presence in each country. This is basic for integrated competitive moves with global reach. A firm with small a share in each country but with a broad market presence is more a threat than the opposite. In that process, firms can leverage their business by gaining essential market shares in country after country and by transferring the resulting economies of scale to them. The best starting point is a home market with a huge potential so to reach low-cost production already there. Presence in globally strategic marketsThere are some countries that are globally strategic for a certain business, because they are:A large source of revenues or profitsThe home market of global customersThe home market of global competitorsA significant market of global competitorsA major source for industry innovationHome markets often represent major sources of revenues or profits. When competitors enter such markets, it often means to limit funds for competitors in their home market. Further the idea of a global strategy includes subsidization across countries. Success in large markets is critical and to deny this to global rivals as well. Regional leading markets can also be strategically important. Especially when they serve as transformers for related markets (Brazil in Latin-America, Germany in Central-Europe etc.). Global Market ShareBenefits of global markets are: 1. to exploit economies of scale, 2. to possess greater bargaining power when dealing with suppliers and distribution channels, and 3. to enjoy more customer acceptance. Combined with a sound market share across countries, those advantages can be used again and again (see also above global market participation). Global BalanceGlobal balance means to be present in all important markets equally and not to have accumulated the business in just a few countries. But rather to have a smooth distribution throughout the globe. A local market share should be close to the global market share. Firms that behave globally, try to operate in a manner with uniform impacts everywhere. So to execute integrated competitive moves. Globally Unimportant CountriesThere is no need to include global unimportant countries into a global strategy when applying global strategy levers. Benefits of Global Market ParticipationA global strategy brings several benefits along a firm may want to exploit. These are:Cost ReductionIt is likely that the higher the market share or the market participation, the lower the costs. This by economies of scale. Global strategies focus on broader - global - scale of economies.Improved QualityExposure to global and demanding customers and innovative competitors can influence quality. The premise for that is the willingness to learn from global competition.Enhanced Customer PreferenceGlobal availability can be one of global customers preferences. Such customers are growing and become more and more important because of their size. Therefore a firm should be able to serve customers in all markets of importance of their global accounts (total global account management).Competitive LeverageThe global balance allows for more attacks and counterattacks and creates hostage for good behavior. Important countries are those, where global stakeholders are present (customers, competitors, suppliers, investors etc.). There, firms have the chance to gain up-to-date knowledge of their relevant environment.Drawbacks of Global Market ParticipationSome of the drawbacks are the early or great commitment to certain markets that firms give. Coordination costs are another issue, if there are differences and barriers between countries. But also transportation and inventory costs heighten coordination costs. The broader the scope of a firm (and possibly the bigger its size), the more likely it is that customer focus disappears. There are still some globally blocked industries. But there are some ways to expand to them anyway: 1. acquiring a foreign participant in this industry; 2. to form a international strategic alliances; and 3. to hire out one’s expertise to foreign partners or customers.Differing Strategic Roles for each CountryIf a firm pursues a global approach, it should recognize country-businesses as a strategic portfolio. The Boston Consulting Group popularizes cross-subsidization of businesses within a corporate portfolio. Yip adapted the BCG’s matrix and shows how to allocate country roles. So funds from CASH-COW MARKETS are invested in WILDCAT MARKETS that become future STAR MARKETS. See also Appendix IV: Growth-Competitive Matrix. Another way of allocating such roles to countries is to show the global strategic importance of each country. See also Appendix IV: Global Importance Matrix. From time to time those estimations should be adapted as country-markets evolve.
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The second global strategy lever deals with the question “how to serve markets with global products and services?”. The totally standardized global product does possibly not exist. So there is a need for a certain degree of customization, in order to trade it all around the globe. Therefore the ideal global product has a large standardized core and small customized periphery. Managers have to deal with the question of global versus local demand when designing global products. Standardized products can bring along improved quality and enhanced customer preference, next to cost savings. The product more likely to be global successful, is the one designed for that. For that designers have to know what are the similarities as well as the differences of customers needs around the globe. If standardization leads to low-cost products, it can leverage one’s competitiveness and simplify invasion of new markets. Customization in turn can mean to increase costs and due to that prizes. Standardized products are especially important for firms which lack financial resources.
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The choice of locations represents the third global strategy lever. It should reflect all the benefits to harvest as mentioned before. Numbers of markets and places are related with a global strategy. Hence a network of locations should meet local needs around the globe: For the right country strategy see also Appendix V: Geographic Location of Activities. The ideal pattern of locations (no assumption) should enable a manager to find the right answer how locations for global activities are made of. Frequently R&D and Manufacturing are located in globally strategic countries. That means for R&D locations: 1. a major source of innovation; 2. the presence of highly skilled and/or low-cost R&D workers; 3. some highly demanding customers. And for Manufacturing locations: 1. some favorable factor conditions; 2. a closeness to major markets; 3. the manufacturing presence of global competitors. Whereas factor conditions include: 1. low-cost raw materials or labor; or 2. highly skilled or productive labor. Exchange rates can be a source of competitiveness as well. And they are sometimes unpredictable. Some speculate that when they locate production in low-productivity countries with weak currencies, and those country’s overall productivity grows slower than that of their companies, they will be able to exploit the effect of a lower overall price increase as an advantage. That allows managers to recognize all the facts of where his business is located now and what the costs would be to change it. Further a manager has to find out, what are the differences and similarities among activities and related needs in terms of location. If business change, location decisions will also change. A good locations prevents from disruption and provides flexibility. Centralization can possibly be substituted by coordination of dispersed activities. In order to enhance competitive advantage, firms should weight up strategic advantage against comparative (country-based) advantage of locations. A globally leveraged strategy seems to be the most sustainable. Whereas a untenable strategy hardly survive. See also Appendix IV: Strategic vs. Comparative Advantage.
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Customer attitudes and behavior among countries aren’t the same. Thus it’s not easy to find the right marketing strategy that becomes globally successful. But the benefits of a global strategy are also valid for the Marketing:Cost reductionEnhanced customer preferenceImproved program effectivenessA sound way for market development is to give it a global character. That asks for integrated worldwide efforts and a related organization. Firms are often prefer uniform market activities, especially when planning to sell products on a worldwide basis. Key elements to recognize in a global marketing approach are mentioned in Appendix V: Marketing Elements. Marketing experts have to deal with elements of a Marketing-Mix, which give opportunities and limitations for a global approach. These experts should go to the maximum of their imagination when creating Marketing programs, nonetheless of national preferences and prejudices. But anyhow take into account nationalistic reactions when dealing with global Marketing programs. Global Marketing managers look for similarities among countries and markets. These to profit from the above mentioned benefits of a global strategy.
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The fifth of Yip’s global strategy levers describes all the activities that aim to outplay the competition. Such moves should mean a serious threat to competitors when they are organized and strategic in nature. A list of competitive moves are mentioned in Appendix VI: Competitve Moves. Global competitive moves require coordination and subordination of national preferences, in order to succeed on a worldwide basis. But this is also a challenge for global managers, since they have to catch up with local requirements. Nonetheless if there is a need for regionalization or not, all related strategies and activities need to be developed in the context of the global strategy.
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Perhaps there are organizational barriers that have to be removed, in order to organize a business globally. It may works best when starting with the most easily changeable aspects. And so to prepare the way for the more difficult changes. Different level of organizations can have different level of being global. The most perceptible aspects of organizations are structure, management processes, people, and culture. Globalization will work then fully, when all the mentioned aspects will cooperate with each other. A global company is able to go everywhere it wants and with that bring in assets, use resources needed, and generates profits on a global scale. And that with the speed of the Internet century. If companies don’t do that, their competitors will do it. There are two sayings that express this idea: “there is no place to hide in a global world” or “being as global as possible, and as local as necessary” . See also a summary of organizational elements to change: Appendix X.
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Executives have to analyze the status of globalization in their business in order to assess its globalization potential. A guideline to evaluate it is given by Yip: See Appendix VII: Global Strategy Analysis. The analysis work brings clarification about today’s and future’s globalization potential of markets and businesses. Further it shows the context of competition a company is bound in. A evaluation of action plans helps to priorities changes necessary to conduct.
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As we know from previous chapter about Globalization, companies face diverse challenges and opportunities in today’s business environment (deregulation, technology-advantages etc.). Philip Kotler sees the challenge of globalization like the following:Digitalization and connectivity (broadband access etc.)Disintermediation and reintermediation (dotcom economy)Customization and customerization (operational and marketing customization)Industry convergence (dealing with intersection of two or more industries)Marketing in general, is seen as an instrument to create, promote and deliver goods and services to consumers and business-partners. Marketing managers assemble a set of tools, called the Marketing-Mix, to reach target markets. Marketing is not the only one philosophy that managers have to consider when doing business. But since Marketing’s task is to attract customers, marketers may argue that Marketing is the key element to satisfy customers. Hence, every single contact between the firm and the customer should be organized and coordinated by the Marketing department. An ideal role for Marketing purposes in an organization is shown in Appendix XI: Ideal Role of Marketing. Kotler says that customers are value-maximizer, which tend to form an expectation for their own and acting in that sense when buying goods and services. So logically they try to buy from those companies, that suggest to deliver the highest value to meet their needs. Companies counteract with Total-Customer-Satisfaction strategies. To extend customer-relationship – possibly for a lifetime - makes sense in order to safe costs. building up networks is clearly a benefit of today’s marketing. In doing so, firms develop superior capabilities in managing effectively core processes (new-product development, inventory management, customer acquisition and retention). Guided by a desire to obtain and realize high standards. His conclusion is, that no longer companies do compete against each other – but marketing networks do. Kotler sees marketers as trend trackers and opportunity seekers. It’s their responsibility to identify significant changes in the macroeconomic (see Figure 13 - Environments). And he recognizes some current marketing trends. In the demographic area, these are: 1. the population growth; 2. the changing mixes of ages; 3. the ethnic composition; 4. the educational levels; 5. the rise of non-traditional families; and 6. the large geographic shifts in population. And all that calls for micro-marketing rather than mass-marketing. The trends in the economic environments are: 1. the income distribution; 2. the saving-levels; and 3. the availability of credits. Then the trends in the technological area are: 1. technological changes; 2. related governmental regulations; 3. opportunities for innovation; 4. and changing R&D expenses. The natural environment deals with: 1. shrinking raw material resources; 2. , rising energy costs; 3. pollution levels; and 4. changing behavior of governments and societies regarding environmental protection. The socio-cultural area deals with: 1. country-specific core and secondary values, including needs of subcultures. And in the other environments left (the political and the legal) companies have to deal with regulations and special-interest groups. When dealing with capital good markets, a market researcher finds that buying behavior is sometimes complex. That requires understanding of a buyer’s information gathering and evaluation behavior. Some question a potential buyer might ask for are found in B2B Buying Process. Further the buying decision process and its stages are also of relevance for researcher. Market research is closely related with Information Technology (MIS), since IT converts given market information in decision support instruments. An MIS consists of four components: 1. internal record system; 2. market-intelligence system; 3. marketing research system; and 4. computerized marketing decision support system. Kotler mentions several global forces, that affects today’s economic area.:Speedup of international transportation, communication, and financial transactions that leads to the rapid growth of world trade and investment.Movement of manufacturing (capacity and skills) to low-cost countries.Rising economic power of Regions (Fare-East) and Trade-Blocs.Debt problems of a number of countries and fragility of international financial systems.Increased level of trade and counter trade.Move toward market economy instead of socialist systems.Rapid dissemination of global lifestyles.Opening of new markets (China, India, East-Europe, Arab and Latin countries).Multinationals become transnationals.Increasing numbers of cross-border corporate strategic alliances.Increasing ethnic and religious conflicts.Growth of global brands in autos, food, clothing, and electronics.Industrial Buying (B2B) is a more comprehensive way of obtaining materials needed to produce goods and services. Business marketers need to be aware of the role of professional purchasing and related influences. The buying processes incorporates several phases: 1. problem recognition; 2. general need description; 3. product specification; 4. supplier search; 5. proposal solicitation; 6. supplier selection; 7. order-routine specification; and 8. performance review. When talking about B2B buying, the seller faces organizational decision-makers which mostly have a formal approach in doing their job. Therefore, sellers too have to be well prepared. When dealing with competition, one comes to the point to deal with Porters Five-Force Model. Here the task is to find out, who are current competitors and who will be tomorrow’s competitors. It is more likely that established business are hurt by emerging competitors or new technologies than by current competitors. A competitor analysis aims to find out the following of each competitor:Strategies - what kind of way do competitors pursue in the market?Objectives - what is competition aiming in the market?Strengths & Weaknesses - of competition.Reaction patterns - slow or fast reactors in the market.Adjacent to that, Kotler’s description of an industry is a group of firms that offer a close range of goods or services that are close substitutes for one another. Criteria for industry classification are: 1. Number of sellers; 2. Degree of product differentiation; 3. Presence or absence of entry, mobility and exit barriers; 4. Cost structure; 5. Degree of vertical integration (backward, forward); 6. Degree of globalization. There will be the chance to deal with that in the strategy part.
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At the marketing strategy level there are clear statements needed and several topics to handle:Priorities of products and markets.Politics of branding- and communication.Guidelines for the marketing-infrastructure and the leadership.When dealing with strategies one comes clearly to the point of Porter’s Generic Strategies. These strategies are: 1. Overall-Cost-Leadership – to obtain the lowest production and delivery costs in order to dictate prizes and win large market shares; 2. Differentiation – concentration on superior performance in an area of importance of large numbers of customers in certain markets; 3. Focus – on narrow market segments in order to pursue either cost-leadership or differentiation within the segments. See also Appendix XI: Influences on Marketing Strategy. On the other hand, Kotler distinguishes several marketing strategies one can choose from. See Appendix XI: Kotler’s Marketing Strategies.
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Now after the strategy level follows the Marketing-Operations level, the priorities here are:Marketing-Mix This is a vital part of a marketing concept and aims to organize operational action on specific product and/or market zones.Single Arrangements These are singly events out of the concept so as to enforce specific product and/or market targets.
Every business concept bases on planning and above all stays strategic planning. That is also valid for Marketing Planning includes activities like: The definition of business mission.A SWOT analysis.A formulation of goals and strategies.A formulation of supporting programs.The implementation of programs.And feedback gathering as well as the exertion of control.A Marketing Concept consists of the analysis of opportunities; the development of marketing strategies; the planning of marketing programs; the organization and Implementation of activities; and the control of marketing effort. The first step is the analysis of opportunities and it helps to find out what are the gaps between existing and needed resources and capabilities, so to realize those opportunities. The results are yielding to the market-oriented strategic planning. And that takes place on four levels: corporate, division, business unit, and product. In the latter case, the marketing planning should be done for each product level. How to develop marketing plan is noted in Appendix XI: Marketing Concept Approach. A more newly approach of organizing marketing ideas, is the concept of the 7-P’s. The first 4-P’s we know already are: 1. product, 2. price, 3. promotion, and 4. place. The next 3-P’s now are: Participants (importance of human element in all aspects of marketing). Process (services, unlike physical products, are experienced as a process at the time that they are purchased), and physical evidence or peripheral clues (physical surroundings associated with a service encounter or retail location).Partners (growing importance of collaborative channel relationships). Another way to structure the marketing is by applying the new concept of the 4 C’s, which means:Customer solutionCost to the customerConvenienceCommunicationA good point is to consider marketing more as an art than just a war for overaggressive prices. Thus marketing demands for some creative ideas. With that I now hand over to the next section.
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