BZ480 – Strategies of Globalization and Regionalization

Globalization refers to the process of expanding business operations beyond the organization’s country of origin into worldwide markets. With declining markets in mostcountries and presence of highly advanced technology, businesses are being forced toestablish global presence (Rugman, &Verbeke, 2004).Among the companies with huge global presence include Apple Incorporation (Inc.), Amazon, and Samsung Inc. among many others. Globalization is seen as a tool of gaining competitive edge to the firms that expand their operations to global platforms as it offers numerous benefits that including establishment of global economies of scale.The two strategies employed by companies when globalizing their operations are forming partnerships with overseas marketsleaders, including customers, suppliers and competitors, and buying out businesses that are already in existence within a the country of interest (Deresky, 2000). The process of forming partnerships is referred to as merging while that of buying out businesses is known as acquisition.

Although Wal-Mart was performing well in the United States (U.S.) and had a business model that would help it stay ahead of its competition, it still needed to goglobal so as to survive in a competitive market. U.S. accounts for approximately 4% of the entire worldwide market and thus by going global, the company would be able to tap into the other 96% of the market population. Furthermore, Wal-Mart had saturated the local market and its competitors had started expanding into global markets. This made global expansion vital for ensuring the company’s survival.Wal-Mart entered some markets, such as Canada, through acquisition. This was possible due to the similarities between U.S and Canadian cultures and the availability of a poorly performing local company, Woolco. This mode of entry benefited the company by reducing resistance in the foreign market by both existing competitors and the consumers. Wal-Mart used a merging strategy to enter the Mexican market. The company formed a 50-50 merger with the largest Mexico’s retailer, Cifra.This was mainly because there are significant cultural and economical differences between the two countries and thus Wal-Mart required a partner who could offer operational expertise on the new market (Govindarajan& Gupta, 1999).

Regionalization

Regionalization refers to focusing competitiveness on region-to-region basis instead of focusing it on global basis like it is the case with globalization. This strategy is applicable in regions where the local markets are closely linked together hence allowing an organization to adopt a more localized responsive strategy (Rugman&Verbeke, 2004). In implementing this strategy, those charged with governance on the regional level run their branches as independent bodies hence different regional branches have different product mixes and competitive positions even though they belong to the same parent organization (Deresky, 2000). Most multinational organizations adapt this strategy in order to leverage the advantages of both globalization and localization strategies. Below are the five-regionalization strategies

The Home Base Strategy where companies initially serve their global markets from their home base. These companies locate most of their operations including their Research and Development and manufacturing in the company’s home country (Deresky, 2000). For 50 years, Toyota applied this strategy where its international sales were all direct exports originating from Japan(Toyota, n.d).

The Portfolio Strategy, which involves setting up the company’s operations outside its home region but all divisions report to the company’s home base. Companies that expand their operations beyond the markets that they can serve efficiently from their home base usually employ this strategy (Rugman&Verbeke, 2004). Toyota is among the companies that have employed this strategy effectively during its preliminary investments in the U.S. where the company founded a Toyota Production System in Northern America but the original plant maintained control(Toyota, n.d).

The Hub Strategy, which is merely a multiregional form of the home-base strategy. It involves building regional bases that provide a selection of shared resources to the company’s local operations(Rugman&Verbeke, 2004). A good example is the move made by Toyota in 1990s, where it began creating regional hubs so as to make its regional divisions more self-supporting and reduce the company’s dependency on Japan(Toyota, n.d).

The Platform Strategy where the platforms are used to spread fixed costs across a region with the aim of increasing variety and reducing production costs(Rugman&Verbeke, 2004). In its effort to increase its economies of scale, Toyota has been consolidating its brand platforms and investing more in global car brands(Toyota, n.d).

Lastly is the Mandate Strategy, which is very closely related toplatform strategy.This strategy allows certain regions to perform certain organizational roles, such as global consulting and financial service, in order to create economies of scale and specialization(Rugman&Verbeke, 2004). For this strategy, Toyota began awarding some of its plants regional mandates for the production of scale sensitive parts like engines and transmissions (Toyota, n.d). Today’s world is neither strictly global nor strictly local and thus organizations need to be able to combine both global and regional strategies in orderto gain powerful competitive advantage.

 

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