In order for a business to grow beyond a certain point, it must be able to transition from being a domestic company to an international company. This transition requires that business to have a globalization strategy. There must be a way to communicate specific brand messages to international communities that relate in the same way the business creates domestic prospects. Some companies do this very well. Coca-Cola, for example, has an over 90% global brand saturation rating.
There are always some disadvantages to the transition from being 100% domestic to an international organization. Cost is one of the biggest factors to be considered. Whether the globalization strategy involves partnerships, localized investments, or some other method of market penetration, spending has to happen to go global without a guarantee for a return. Here are some of the other key points to consider in the pros and cons of a globalization strategy.
Here Are the Pros of a Globalization Strategy
1. It allows a brand to begin building through the economies of scale.
When a business is larger and has more consumer support, then it can produce more goods at a lower cost per item. Materials are purchased in larger quantities and this saves the organization money on the production or manufacturing end. It also allows the business to sell goods at a lower price point, which promotes increased revenues. Even labor can be purchased at lower rates when a globalization strategy is adopted.
2. It improves the life-cycle of goods that are created.
For this example, let’s compare the United States with any developing country. Consumers in the US expect new, innovative products in their marketplace. There is more profit potential in these products because the wealth of the economy supports it. In the developing nations, a globalization strategy extends the life-cycle of these products because what is old to US consumers is new to consumers in that developing nation.
3. It lessens the impact of competitive businesses in the same industry.
A globalization strategy gives an organization the chance to have brand exposure occur for a larger demographic of potential customers. Demand can happen in waves around the world, which makes the company more resilient against local competition. Even if a product isn’t popular in one country, it could be a best-selling item somewhere else in the world.
4. It is easier than ever before for a business to implement a globalization strategy.
Thanks to the advantages that the internet provides, almost any business can develop a strategy to have an international presence. Web platforms for individual freelancers, artists, or other creatives can provide exposure to potential customers all over the globe. Many sites are available that allow a freelancer to be hired by someone virtually anywhere in the world, which was virtually impossible to do before the levels of internet saturation the world has today.
5. Globalization helps the world to progress as a whole.
Companies that enter into international markets are bringing with them better technologies, new ideas, and the chance to help those local foreign markets develop faster than they would on their own. This creates its own set of problems because some nations will attempt to copy or steal the intellectual property that is brought in, but overall globalization helps to make the world a more equal place to live.
6. It can help to reduce global poverty.
When an organization implements a globalization strategy, it will begin investing into foreign local markets in a variety of ways. This creates new job opportunities that can help people begin to work their way out of poverty. Any time there is increased economic productivity brought about by globalization, poverty percentages fall as opportunities begin to increase.
Here Are the Cons of a Globalization Strategy
1. There are cultural influences that can make market penetration difficult.
A great example of this is how McDonald’s approached placing franchises in the nation of India. Cattle are sacred creatures to many in this culture, which made marketing hamburgers something that just couldn’t be done. Instead of assuming the culture would adapt to their signature product, McDonald’s created alternative products that were based on local preferences. A globalization strategy cannot be a one-size-fits-all solution. Cultural influences with such a strategy can make it virtually impossible to get involved with some markets.
2. There is always an operational risk that must be considered.
A globalization strategy means international political partnerships, but laws and economies change over time. Something that was once inviting may suddenly become costly. It is not unheard of for a national government to take over a local business entity, even if the business has an international headquarters, for the “general good” of the country.
3. There are higher ongoing risks to obligation fulfillment.
If an international organization is competing with a local company for a market share, what happens when a natural disaster hits? The local company can be more responsive at time than the international company because shipping and manufacturing processes are interrupted. The opposite can also be true, but the international company is more exposed to changing conditions.
4. Although free trade is more prevalent than before, there are still barriers in place.
There are numerous value-added taxes, tariffs, and subsidies that affect the prices of international goods. These are in place to specifically limit the amount of business that international companies can create for themselves in other countries. Since 2008, the largest 20 countries in the world today have imposed 1,200+ new restrictions on imports and exports.
5. A globalization strategy inevitably shifts the primary working force to low-cost labor nations.
When a globalization strategy is implemented, one of the largest costs an organization faces is the salary requirements of its labor force. This means that jobs are transferred to lower cost nations or existing workers are forced to take pay cuts in order to maintain their job. For US workers, it is estimated that the trade deficits that were in place as of 2013 were responsible for the lost of over 3 million jobs.
6. Globalization allows businesses to have a greater influence on the political arena.
When a company can grow into being an multinational entity, it needs to protect its best interests in every market. The only way to do this is to influence political decisions in their favor. After all, if they don’t, then they experience the disadvantage of ongoing operational risks. There is a very real possibility, however, that a conglomerate of multinational businesses could become so influential that they the power they have can influence global politics.
The pros and cons of a globalization strategy can help an organization continue to expand and be competitive. This type of strategy also carries with it some unique risks that must be carefully managed. By evaluating these key points, any business of any size can begin to go global and reap the benefits that 7 billion potential customers can provide.
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