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Article -> Developing a Global Strategy

Date Added: February 2006

Many U.S. organizations have expanded into emerging global markets. Unfortunately, success stories are few and far between as there are various obstacles that undermine even the most focused efforts.

The failure of these attempts can be largely attributed to the initial selection of the country that organizations choose to enter. There are methods that a company can utilize in order to reduce the risk of a poor investment.

The majority of U.S. firms operate best in their home market compared to operations in foreign countries - developed or undeveloped.1 Profits and competition entice organizations to expand globally. Companies want to grow and increase market share, and establishing a branch overseas accomplishes this goal.

While this may suffice as an excuse to enter a new market, some companies follow rivals or customers into other nations. Other organizations enter based on a "hunch." Whatever rationale a company employs, it will face similar obstacles when deciding whether or not to invest.

When looking at global opportunities, organizations must realize that conducting business in another country is vastly different. It is very unrealistic to approach a global venture in the same manner as an organization would an expansion within its own country. There are five areas that companies need to pay particular attention to:1

  1. Political and Social Systems: Countries political systems often dictate the country's economic environment.
  2. Openness: Organizations need to determine if the foreign government will allow foreign direct investment by its company.
  3. Product Markets: Due to the lack of information on consumers in emerging markets, companies may find it hard to track product consumption.
  4. Labor Markets: Organizations strain to find qualified employees because it is difficult to determine the skills and abilities of the local people.
  5. Capital Markets: There is a lack of formalized institutions that corporations often rely on such as credit-rating companies.

Coca-Cola is an example of a global entity. Coca-Cola successfully has maintained operations all over the world by focusing on the five areas of globalization. Coca-Cola adjusts its strategies to correlate with the local country to be more efficient. It hires locally and cooperates with local governments to ensure success. The goal of any global entity is to appear to be a local brand. Coca-Cola has achieved this goal - consumers believe that Coca-Cola is a local brand due to its ability to "think globally, act locally."

Because of these factors, organizations may have to rethink their strategies, as existing strategies are developed based on attributes of an organization in the U.S. Companies need to understand and develop new strategies to correlate with the characteristics of emerging markets.

The most challenging aspect of determining to expand into an emerging market is receiving information regarding the country, especially if it is undeveloped. Most of the information is imperfect, often unavailable and unreliable. There is little to no market research available on developing countries, so determining the needs and wants of potential customers is difficult.

The lack of information is not the only limiting factor when considering expanding globally. Other "cloudy" issues are supply chain management and recruiting. Supply chain management can be a nightmare in countries where there is no integration among companies to deliver goods efficiently. What is the use of inexpensively producing a product that is difficult to distribute to customers? In addition, roads and highways are either unpaved or incomplete. This greatly affects the transportation channels, as it may be impossible to effectively transport goods.

Recruiting employees can be rather difficult due to the excessive number of applicants and the lack of resources to assist in the recruiting process. U.S. corporations usually receive a high number of applicants due to the stability of jobs. Companies that hire local people are ultimately more successful. While there are some manager training programs available in emerging markets, there is no formal entity to review training processes and programs. Recruits' skills and abilities are inconclusive due to the lack of measurement.

Organizations should use caution when entering emerging markets. Extensive research should be conducted to ensure the environment is conducive to the company's needs and expectations. Companies wishing to pursue global expansion should do so with a focused strategy, to reduce the investment risk.

1 Khanna, Tarun, Palepu, Krishna G. and Sinha, Jayant. "Strategies That Fit Emerging Markets." Harvard Business Review. June 2005: 63-76.

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