CONTENTS
1. APPROACH TO DEVELOPING GLOBAL STRATEGIC OPTIONS
2. ASSESSMENT OF BUSINESS CORE COMPETENCIES
a. Marketing Competencies 4
b. Operating Competencies 5
c. Management Competencies 5
3. ASSESSMENT OF GLOBAL OPPORTUNTIES
a. Market Opportunities
b. Resources Opportunities
c. Business Operating Environment
4. MAPPING COMPETENCIES TO OPPORTUNITIES
5. CONCLUSION
APPENDICES--not attached
REFERENCES--not attached
Approach to Developing Global Strategic options
Global Strategic Options are based on assessing business core competencies, and when global opportunities avail, the business will assess its global strategic options and exercise its potential to enhance and extend global competitive edge.
With trade liberalization and technological improvement , the gathering pace and depth of globalization offers businesses tremendous opportunities with economy of scale or/and scope, while at the same time, threaten to overwhelm them with global competition from foreign and even locally “globalized” competitors.
The key opportunities of globalization are from market and resources. The challenge of global market to business is its ability to orchestrate an appropriate global marketing mix in view of the diversity of global demand patterns. Market opportunities may be viewed from the size and/or affordability of demand. The global resource opportunities offer its cost-effective resources (include labor, land, capital and competencies). Nevertheless, opportunities may be constrained by the specific country or region’s business operating environment.
The business globalization strategy seeks to enhance the business value adding capacities, subjected to its internal core competencies and its resources in exploiting the global opportunities. Besides the business resources and competencies, the intangibles of corporate/product/service image, market share and the intellectual property rights’ ‘competencies’ are equally important.
The competitive advantage/s of a business is vis-à-vis its competitors and their competitive reactions where all seek to expand its business space for growth (in market size or/and profitability) and control (market or resources entrenchment) over its competitors.
ASSESSMENT OF BUSINESS CORE COMPETENCIES
Assessing Business Core Competencies takes the form of a periodic audit review on business’s own ability to project itself into the international arena. The assessment should be based on the perspective of current and the projected competitive horizon .
The three main areas of core competencies are operating, marketing and management competencies . In addition, there is also a need to assess the current state of the business internal resources. For example, to invest into a large project overseas with a current limited financial resource (and/or the limited scope that the business is able to raise funds or over-gearing the business) would be too risky, even though the project may be worthwhile in many ways.
Firstly, the assessment of business operating competencies consists of its materials, development, production and total quality management (TQM) processes. In materials management, the sub-levels include procurement, outsourcing, supply chain and material development management. In product/service development management, the focus is in the adoption of Failure modes and effect analysis or/and Quality Function Deployment approaches where there is a systematic development process to ensure appropriate product development. The production management focuses on lean, reliable, flexible, modular and effective production processes with appropriate production machinery/IT purchase policy. In TQM, the focus is in the organization of the production process where Kaizen, root-cause solving, team and empowerment are effectively implemented.
Secondly, the business’s marketing competencies consist of market research/assessment, product/service communication, service delivery and after-sales services management. Market assessment is an important component of identifying customers’ preference on current and also future expectation of the product/service. Product/service and corporate communication (where branding places a part) serves as an important role of creating an appropriate image for the product/service and the business to the general public which consists of customers (past, existing and potential), investors, regulators, public agencies, and the internal staff. Service delivery includes pricing strategy and distribution channels where pricing serves as a communication tool to differentiation (economical or premium product/service offering) and operating profit margin determinant while distribution channels ensure smooth delivery of product/service to customers as and when and where the product/service is in demand. After-sales services seek to ensure complete delivery of total product/service to the customers’ delight through assistance and assurance on proper use of product/service, replacement of defective product/service and feedbacks to the production and marketing operations on the customers’ level of satisfaction and preferences.
Lastly, the business’s management competencies consist of sound human resources HR , organizational structuring, technology/IT, financial and risk, and strategic management. To project the business internationally, appropriate international HR management has to be in place as well as the adopting appropriate organization structure to support the multi-varied environment of a global business. IT management is an important leverage as it can enhance most if not all other operations of the business. Technology management is particularly significant for product-based high technology business, given it impact on costs and on the overall competitiveness. With globalization, the financial environment is generally more volatile, where foreign exchange (FX) movement or funding availability can have significant impact on the business profitability, thus require sound financial management. Similarly, risk management plays an important role of assessing and possibly containing unwarranted risks . Strategic management is the heart of ensuring business success as it shoulder the tasks of ensuring all operations are aligned to strategic goals of the business and at its highest effectiveness. It constantly assess the business and environment and develop appropriate strategies for the business which often requires the management to take calculated risks (as risks do offer potential rewards) and maintains sound perspective of the time horizon of the business and the environment while pursuing sustainable mid and long term innovations and development of the organization.
ASSESSMENT OF GLOBAL OPPORTUNTIES
Assessing Global Opportunities would involve a review of the global, regional and country scanning on opportunities from industry and country’s view, and also the competitors’ status for market and resources opportunities, and the operating environment . Besides the new locations, there is also a need to periodically reassess current operations (home and all overseas’ units).
Firstly, the assessment focuses on the market opportunities consist of the demand, competitors, substitutes and entry barriers to business as illustrated in Figure3 above. In Figure4 below, the demand sub-levels are the demographic, effective size, purchasing power, customization needs, customers’ loyalty, and the regional countries’ demand profiles. The competitors profiling is equally important whereby their positioning, their competencies and the local distributors or agency strength have to be considered. Agency strength may be tapped if the business environment is highly unfavorable. The demand characteristics have to be further analyzed; given that different country/region market at times usually have different characteristics from the home country demand. In GE strategy’s guideline, enter the market only if the business can be among the top three businesses in the selected industry.
Secondly, the resources opportunities consist of land, labor, labor competency and capital factors of production. Labor competencies may include knowledge, skills , work ethics or/and entrepreneurial spirit. Another key factor is the generic producer strength where outsourcing can be considered as an option. Other labor considerations are listed in Figure5 below. Land resources may be in a form of low rental, raw materials/semi-manufactured inputs, fertile soil or/and geographical advantage. Capital competencies may be reflected in the lower cost of raising local capital and efficient capital market. Strategies available are vertical, horizontal, merger or acquisition, outsourcing or supply chain “hubbing” or competency centre setup options.
Lastly, the business operating environment consists of legal/regulatory, economic/taxes, culture and the country/region infrastructure. Business’ ability to project overseas with the market or/and resources/competencies opportunities is subjected to the foreign business operating environment .
The legal system affects, and at times, restricts business choice of business setup. Full or majority (greater than 50%) ownership of foreign operations is often disallowed in many countries and especially in certain industries. Sometimes, only a joint-venture with a local company is allowed. The local legal codes and its process of legal redress, especially in trade disputes, is also another area of concern. Another important factor is the recognition of copyrights as imitations of product/service often have adverse effects of business’s image and market opportunities. Corruption hampers or restricts the effectiveness of the operations or it becomes an indirect cost to the business.
Regulatory procedures and rules like labor regulation on minimum wages, welfare, pension and even the right to use foreign labor in the host country can affect the costs and effectiveness of the operations. The ease of importing foreign inputs is another factor of consideration. Anti-monopoly policy often becomes a big challenge when the operations become too successful or restrict the option of acquisition of suitable host country businesses . Accounting rules may affect the profitability, thus its tax exposure, for example, the recognition of allowable expenses will affect the profitability which translates into the tax exposure of the operations.
Economic and taxation policies also affect the costs and the market opportunities. The interest rates or exchange rate policies have direct impact on the resources’ costs. The foreign exchange control limits the funds movement from the host country. The economic well-being of the host country affects its ‘taste’ preference of goods/services . Transfer pricing policy accounting recognition also affects the tax exposure of the foreign operations. Tax policies will also affects the cost of operations. The host country corporate tax, import, custom and VAT/GST taxes are different from country to country. Double taxation law between home and host country has benefited businesses from their tax exposure in two countries simultaneously.
Infrastructure also plays an important part to the viability of setting up the host country operations. Depending on the business products/services offering, some operations may be greatly compromised if the transportation (land, sea or air) is inefficient. Others may be highly dependent of the effectiveness of the supporting industries to maximize its own productivity.
Culture is an often overlooked but an equally important factor for consideration when investing in another country. Hofstede’s 5-cultural traits model is a useful toolkit in understanding the differences and similarities between the home and the host countries. Its also has material business impact on the other two axis of considerations, product/service demand and the labor factor. Social stability is another important factor.
Though business environment doesn’t change significantly in relatively short period, these factors often vary, depending on the stability of the political system of the country. The change rate (decline or improvement), is also equally important. For major investment, the time-frame is usually long and as such, it is more sensitive to changes of policies. The stability factor (or the rate of change) is relative to the business life cycle (usually measured in the capital or product/service’s life).
The Strategic Options to Opportunities available is dependent on the specific company in the specific industry at each specific point of time and the projected business time horizon.
The main options are enhancing current core competencies or/and strengthening the weaker competencies’ areas through innovations (new product or service introduction or patents) or development (also known as learning organization approach ). The three key areas of core competencies are management, operations or/and marketing competencies. Again, it has to be within the context of competitive environment that the business is operating in and the internal resources that the business possesses. Timing and scale of entry are also factors of consideration.
MAPPING COMPETENCIES TO OPPORTUNITIES
The following mapping approach will serve as a platform for identifying the current status of the business competencies vis-à-vis the opportunities. A simplified model is available in Appendix 10. A quantitative methodology to analyzing opportunities is available in Appendix 11.
Other options for considerations are as in Figure 8: Mapping of competencies to opportunities.
The formation of regional grouping has encouraged the adoption of common economic and fiscal policies, thus allowing integration of the countries within the bloc. The business analysis has to take the regional grouping and each specific country into consideration, given the growing commonalities of demand, resources and operating environment similarities and the opportunities within the regional grouping.
While it is necessary to work through the details, it is utmost important for the business to keep its eyes on its vision and its goals so that policy implementations are in congruent with its vision (or in alignment) and maintaining consistent practices that will offer synergy of actions which will bring about exponential value adding to the business.
CONCLUSION
Globalization is here to stay with its pressing global competition on the businesses . At the same time, globalization also presents opportunities to global resources, and market reach. The challenge to the business management is to grow its core competencies or/and develop new competencies, through innovations and development so as to tap on the global opportunities while staying focused on its alignment of its business strategy so as to achieve global dominance and growth.
(Words: 2035)
Written by LIM, Kay Soon
1st published oon the 28Dec2007
