During the last half of the twentieth century, many barriers to international trade fell and a wave of firms began pursuing global strategies to gain a competitive advantage. However, some industries benefit more from globalization than do others, and some nations have a comparative advantage over other nations in certain industries. To create a successful global strategy, managers first must understand the nature of global industries and the dynamics of global competition.
An international strategy means that internationally scattered subsidiaries act independently and operate as if they were local companies, with minimum coordination from the parent company. Global strategy leads to a wide variety of business strategies, and a high level of adaptation to the local business environment. The challenge here is to develop one single strategy that can be applied throughout the world while at the same time maintaining the flexibility to adapt that strategy to the local business environment when necessary. A global strategy involves a carefully crafted single strategy for the entire network of subsidiaries and partners, encompassing many countries simultaneously and leveraging synergies across many countries.
The three key differences between Global and International strategy are,
- The first relates to the degree of involvement and coordination from the centre. Coordination of strategic activities is the extent to which a firm’s strategic activities in different country locations are planned and executed interdependently on a global scale to exploit the synergies that exist across different countries. An international strategy does not require strong coordination from the centre. A global strategy, on the other hand, requires significant coordination between the activities of the centre and those of subsidiaries.
- The second difference relates to the degree of product standardization and responsiveness to local business environment. Product standardization is the degree to which a product, service, or process is standardized across countries. An international strategy assumes that the subsidiary should respond to local business needs unless there is a good reason for not doing so. In contrast, the global strategy assumes that the centre should standardize its operations and products in all the different countries, unless there is a compelling reason for not doing so.
- The third difference has to do with strategy integration and competitive moves. ‘Integration’ and ‘competitive move’ refer to the extent to which a firm’s competitive moves in major markets are interdependent. For example, a multinational firm subsidizes operations or subsidiaries in countries where the market is growing with resources gained from other subsidiaries where the market is declining, or responds to competitive moves by rivals in one market by counter-attacking in others.
The international strategy gives subsidiaries the independence to plan and execute competitive moves independently—that is, competitive moves are based solely on the analysis of local rivals. In contrast, the global strategy plans and executes competitive battles on a global scale. Firms adopting a global strategy, however, compete as a collection of a globally integrated single firms. An international strategy treats competition in each country on a ‘stand-alone basis’, while a global strategy takes ‘an integrated approach’ across different countries.
Reasons for going international might be many but the typical goal is company growth or expansion. When a company hires international employees or searches for new markets abroad, an international strategy can help diversify and expand a business.
Economic globalization is the process during which businesses rapidly expand their markets to include global clients. Such expansion is possible in part because technological breakthroughs throughout the 20th century rendered global communication easier. Air travel and email networks mean it is possible to manage a business from a remote location. Now businesses often have the option of going global, they assess a range of considerations before beginning such expansion.
Overseas operations are often attractive to executives seeking to reduce their budgets in order to increase profit. For example, it is possible to cut business overhead costs in countries with relatively deflated currencies and lower costs of living. U.S.-based businesses can further reduce overhead by operating in countries that have free trade arrangements with the United States. It is often cheaper to employ a workforce in these countries since the cost of living is lower. When companies experience financial crises, executives sometimes attempt to save what remains of the company by reformulating the budget and moving overseas.
Expanded markets entice many executives into going global. William Edwards of All Business explains that going global can reduce a company's reliance on local and national markets. That is, downturns in consumer demand at home are offset by upturns in consumer demand in international markets. Larger markets also mean the potential for greater profit, so companies go global to seek new business opportunities and even to expand the range of goods and services that they offer. Sometimes businesses expand to under-exploited regions to gain market dominance before an industry competitor expands into the region.
Change is an ever present facet of business development. Businesses transfer ownership, for example, and end up reformulating their entire business structures. Companies hire outside consultants to advise restructuring during financial crises. Sometimes the fact that businesses go global is the product of the inevitable ebb and flow of commerce. An overseas buyer may transfer operations to the home country. The majority of an industry's business may shift overseas, making global expansion all the more desirable. Competition may develop in regions such that it is unwise for your company not to follow.
Entry Strategies for going international
Foreign market entry strategies differ in degree of risk they present, the control and commitment of resources they require and the return on investment they promise. There are two major types of entry modes:
1) Non-equity mode, which includes export and contractual agreements,
2) Equity mode, which includes joint venture and wholly owned subsidiaries.
The market-entry technique that offers the lowest level of risk and the least market control is export and import. The highest risk, but also the highest market control and expected return on investment are connected with direct investments that can be made as an acquisition (sometimes called Brownfield) and Greenfield investments.
Exporting and importing
The first and the most common strategy to be an international company is: import and export of goods, materials and services. Exporting is the process of selling goods or services produced in one country to other countries. There are two types of exporting: direct and indirect. Indirect export means that products are carried abroad by other agents and the firm doesn’t have special activity connected with international market, because the sale abroad is treated like the domestic one. For these reasons it is difficult to say that it is an internationalization strategy. In the case of direct exporting, the firm becomes directly involved in marketing its products in foreign markets.
Licensing is another way to enter a foreign market with a limited degree of risk. The international licensing firm gives the licensee patent rights, trademark rights, copyrights or know-how on products and processes. In return, the licensee will: produce the licensor’s products, market these products in his assigned territory and pay the licensor fees and royalties usually related to the sales volume of the products. This type of agreement is generally welcomed by foreign public authorities because it brings technology into the country.
Franchising is similar to licensing except that the franchising organisation tends to be more directly involved in the development and control of the marketing programme.
The franchising system can be defined as a system in which semi-independent business owners
(Franchisees) pay fees and royalties to a parent company (franchiser) in return for the right to become identified with its trademark, to sell its products or services, and often to use its business format and system. Compared to licensing, franchising agreements tends to be longer and the franchisor offers a broader package of rights and resources which usually includes: equipment’s, managerial systems, operation manual, initial trainings, site approval and all the support necessary for the franchisee to run its business in the same way it is done by the franchisor. In addition to that, while a licensing agreement involves things such as intellectual property, trade secrets and others in franchising it is limited to trademarks and operating know-how of the business.
Advantages of the international franchising mode are as follows:
- low political risk
- low cost
- allows simultaneous expansion into different regions of the world
- well selected partners bring financial investment as well as managerial capabilities to the operation.
There are also disadvantages of the international franchising mode:
- franchisees may turn into future competitors
- demand of franchisees may be scarce when starting to franchise a company, which can lead to making agreements with the wrong candidates.
- a wrong franchisee may ruin the company’s name and reputation in the market
- comparing to other modes such as exporting and even licensing, international franchising requires a greater financial investment to attract prospects and support and manage franchisees.
Foreign joint ventures have much in common with licensing. The major difference is that in joint ventures, the international firm has an equity position and a management voice in the foreign firm. A partnership between host- and home-country firms is formed, usually resulting in the creation of a third firm.
This type of agreement gives the international firm better control over operations and also access to local market knowledge. The international firm has access to the network of relationships of the franchisee and is less exposed to the risk expropriation thanks to the partnership with the local firm
This type of agreement is very popular in international management. Its popularity stems from the fact that it permits the avoidance of control problems of the other types of foreign market entry strategies.
In addition, the presence of the local firm facilitates the integration of the international firm in a foreign environment
A strategic alliance is a term used to describe a variety of cooperative agreements between different firms, such as shared research, formal joint ventures, or minority equity participation. The modern form of strategic alliances is becoming increasingly popular and has three distinguishing characteristics:
- they are usually between firms in high - industrialized nations
- the focus is often on creating new products and technologies rather than distributing existing ones
- they are often only created for short term durations.
Technology exchange - this is a major objective for many strategic alliances. The reason for this is that technological innovations are based on interdisciplinary advances and it is difficult for a single firm to possess the necessary resources or capabilities to conduct its own effective R&D efforts. This is also supported by shorter product life cycles and the need for many companies to stay competitive through innovation.
The greatest disadvantage of strategic alliances is the risk of competitive collaboration – some strategic alliances involve firms that are in fierce competition outside the specific scope of the alliance.
This creates the risk that one or both partners will try to use the alliance to create an advantage over the other.
In this arrangement, the international firm makes a direct investment in a production unit in a foreign market. It is the greatest commitment since there is a 100% ownership. There are two primary ways for direct investments: firms can make a direct acquisition in the host market or they can develop its own facilities from the ground up and this form is called Greenfield investment. Acquisition has become a popular mode of entering foreign markets mainly due to its quick access. Acquisition is lower risk than Greenfield investment because the outcomes of an acquisition can be estimated more easily and precisely. Greenfield investment is the establishment of a new wholly owned subsidiary. It is often complex and potentially costly, but it is able to full control to the firm and has the most potential to provide above average return. Greenfield investment is high risk due to the costs of establishing a new business in a new country. This entry strategy takes much time due to the need of establishing new operations, distribution networks, and the necessity to learn and implement appropriate marketing strategies to compete with rivals in a new market.
Foreign market entry strategies are numerous and imply a varying degree of risk and of commitment from an international firm. In general, the implementation of an international development strategy is a process achieved in several steps. Indirect exporting is often used as the starting point; if the results are satisfactory, more committing agreements are made by associating local firms.
In the international competitive environment, the ability to develop a transnational organizational capability is the key factor that can help the firm adapt to the changes in the dynamic environment. As the fast rate of globalization renders the traditional ways of doing business irrelevant, it is vital for managers to have a global mind-set to be effective. Globalization of business has led to the emergence of global strategic management. A combination of strategic management and international business will result in strategies for global cooperation. However, there are obstacles to progress along the way.
The problems caused by these obstacles can be solved by cooperative ventures based on mutual advantages of the parties involved. Proper effective communication will be a key element for global strategies because what is proper and effective in one culture may be ineffective and improper in another. Marketing products globally is complex and difficult because of several factors including:
International Strategic Alliances, coordination and control of international marketing, communication, regional trade blocks, and choice of global strategy. The firm with the choice of an effective global strategy that takes into consideration its strengths and weaknesses in the face of the opportunities and threats in the environment, will survive.
Artificial Intelligence (A.I.) will soon be at the heart of every major technological system in the world including: cyber and homeland security, payments, financial markets, biotech, healthcare, marketing, natural language processing, computer vision, electrical grids, nuclear power plants, air traffic control, and Internet of Things.
While A.I. seems to have only recently captured the attention of humanity, the reality is that A.I. has been around for over 60 years as a technological discipline. In the late 1950’s, Arthur Samuel wrote a checkers playing program that could learn from its mistakes and thus, over time, became better at playing the game. MYCIN, the first rule-based expert system, was developed in the early 1970’s and was capable of diagnosing blood infections based on the results of various medical tests. The MYCIN system was able to perform better than non-specialist doctors.
While Artificial Intelligence is becoming a major staple of technology, few people understand the benefits and shortcomings of A.I. and Machine Learning technologies.
Machine learning is the science of getting computers to act without being explicitly programmed. Machine learning is applied in various fields such as computer vision, speech recognition, NLP, web search, biotech, risk management, cyber security, and many others.
The machine learning paradigm can be viewed as “programming by example”. Two types of learning are commonly used: supervised and unsupervised. In supervised learning, a collection of labeled patterns is provided, and the learning process is measured by the quality of labeling a newly encountered pattern. The labeled patterns are used to learn the descriptions of classes which in turn are used to label a new pattern. In the case of unsupervised learning, the problem is to group a given collection of unlabeled patterns into meaningful categories.
Within supervised learning, there are two different types of labels: classification and regression.
In classification learning, the goal is to categorize objects into fixed specific categories. Regression learning, on the other hand, tries to predict a real value. For instance, we may wish to predict changes in the price of a stock and both methods can be applied to derive insights. The classification method is used to determine if the stock price will rise or fall, and the regression method is used to predict how much the stock will increase or decrease.
Santosh Lahane ( Lean Six Sigma Consultant - Trainee)
Lean and Six Sigma has a its broad applications and success stories in oil & gas and Petrochemical industry by using principles of enhanced productivity, safety and environment as well as process quality management in a well-defined framework. It has widely being used in Various Industries and achieved a tremendous results using its statistical tool and techniques, which has resulted a huge reduction in the variance of the process plus the increase in the profit of the organization.
Six sigma with its statistical approach and DMAIC methodology has been implemented successfully in various fields to reduce the number of defects and to bring the quality level in the organization to its expected. Over the past years, the GCC (Gulf Cooperation Council) countries have experienced considerable growth in the oil and gas industry particularly exploration and production (E&P) activities. Oil and gas companies, in the UAE, have implemented an efficient and reliable framework associated with the safety and operational excellence. With new technical advances, cheap extraction of shale oil has now become possible. Hence, it becomes a necessity more than ever, to find an optimum way to stay competitive in the market. The question raised then is: which approach is most suitable or optimum for the framework required and how could it be achieved?
This framework must rely on efficient quality control and assurance methodologies such as Six Sigma, Lean and Kaizen to guarantee a position of being the largest global producer in the oil and gas business. While researching the prevalence of Six Sigma adoption among major oil and gas companies, we were surprised to find that a number of oil companies in the GCC such as, Abu Dhabi Company for Onshore Oil Operations, Abu Dhabi Gas Liquefaction Company, Saudi Aramco, Saudi Electricity Company, Kuwait Gulf Oil Company, Kuwait Petroleum Corporation, Maersk Oil Qatar, Medco Energy, The Bahrain Petroleum Company, etc...) have already established Lean Six Sigma practices in place which are used to address the new challenges they face. Oil and gas companies should be looking to be shielded against barriers imposed by the advent of new shale oil technologies and should also look to boosting their Lean Six Sigma operations, to ensure that full potential is reached as the energy industry is facing its future challenges head on.
Lean Six Sigma has been applied by companies in oil and gas industry to improve production, increase reliability and reduce costs while running safe operations. Too much waste, too much redundancy and lengthy turnaround times result in even the most efficient oil and gas companies failing to meet customer expectations 25-50% of the time. Lean Six Sigma can help in ensuring that customer expectations are met and potential savings of $100millions are realized. Despite some misconception that some managers have about the implementation of Lean, it will stay the most efficient methodology to apply in the oil and gas business. Success of Lean depends also on top management decisions. The application of these methodologies when applied successfully to projects can produce rewarding results.
Six Sigma, the quality improvement methodology made famous by Motorola in the 1980s, has garnered much-deserved recognition in the last few years as more and more companies swear by its effectiveness in improving their bottom lines.
Although Six Sigma methodology was made for manufacturing sector in initial days but these days Six Sigma is widely used in service industry like supply chain, hospitality, banking, IT, ITES, etc. But still there are many companies who stay away from this breakthrough methodology may be because it looks very technical and difficult from outside, but in reality it’s not like that. With the help of few trained people from within or outside the organization (consulting firms), six sigma tools can easily be used in your organization. There is no need to shy from this great methodology which can save you millions. Look at the improvement and saving part.
These days there are various options available to learn six sigma, the popular business improvement methodology, starting from free videos and books available online to the textbooks and various training organizations. But considering the importance of the course one should keep in mind that choosing the right platform for training is critically important. Most of the managers and organizations prefer getting a classroom training from a professional training organization because there you will get to learn more due to certain factors like, personal guidance, experiences of the course colleagues, demo projects, assistance in your project, etc.
From 1987 until 2007, use of Six Sigma, has saved Fortune 500 companies an estimated $427 billion, according to research published by iSixSigma and according to a Wikipedia claim world majors like Amazon, Bank of America, Boeing, CSC, Credit Suisse, Dell, Ford Motors, General Electric are the ones who have been benefited from this great and simple approach.
So, what are you waiting for now! Go and get certified in Six Sigma.
It was the same Joseph Juran who linked manufacturing and the healthcare industry; he wrote: as the health industry undertake change, it is well advised to take into account the experience of other industries in order to what worked and what has not. In the minds of many, the health industry is different. This is certainly true as to its history, technology and culture. However, the decisive factors in what works and what does not are the managerial processes, which are alike for all industries.This is the reasoning that allows the principles of lean production and management to be applied in healthcare, despite these being originally developed for application in other industries.
We mentioned that the lean philosophy calls for value creation through elimination of waste. These wastes are common in all industries and are not unique to healthcare. The following is a summary of these wasteful activities:
Producing something in excess, earlier, or faster than the next process needs it
The cost of managing a large supply inventory may not be obvious at first glance; beside consumption follow-up and space required to store, there is a need to follow expiration dates and to constantly ensure that the items in the inventory are not technologically obsolete. It was already shown that the overall cost of smaller and more frequent shipments is lower than a large-volume purchase for which a discount was provided
A lot of walking waste can arise from poor design of the working area
In healthcare this can be evident when moving patients, lab tests, information, etc.
There are times when material provided to the customers (patients) mandated by regulations can be confusing. For example, multiple insurance claim forms, including ones that are not bills, can confuse the unexperienced novice
There are many examples for these defects that can be related to poor labeling of tests, incomplete information in patients' charts or in instructions provided to referrals, etc.
There is not much need to explain why waiting a few hours in line is a wasteful activity
Under-utilizing staff :
Under-use is not only time-dependent but also involves deeper levels such as not sharing knowledge or not taking advantage of someone's skills and creativity; under-use typically shows in hierarchical structures and not using teams.
Alex Rajan ( Senior Manager - Operations and Lean six sigma consultant )
A Brief Introduction to Six Sigma
Six Sigma is a rigorous and disciplined process improvement methodology that uses data and statistical analysis to measure and improve any organization’s operational performance. Six Sigma methodology was developed by Motorola in 1986. General Electric (GE), under the leadership of Jack Welch, embraced Six Sigma in 1995 and reported $12bn of savings in their first 5 years. After observing GE's many successes with Six Sigma, other organizations adopted six sigma methodology for process improvement.
By using this management methodology, companies would be able to eliminate defects in any process. A process is said to have achieved six sigma if it produces 3.4 defects per million opportunities. For a process, defect is considered as anything that is outside the customer specifications.
Six Sigma Methodologies
Mainly two methodologies used in Six Sigma are DMAIC and DMADV. DMAIC stands for Define, Measure, Analyse, Improve and Control and is used for existing processes. DMADV is used for new processes and it stands for Define, Measure, Analyse, Design and Verify. Each phase of DMAIC and DMADV has various deliverables to be achieved while executing a process improvement project. DMAIC methodology helps in reducing the variations in a process by identifying the root causes for any problem and resolving them by implementing the best solution. DMADV methodology helps to design a new process after analyzing the customer requirements.
Six Sigma in an Organisation
An organization usually makes a roadmap for Six Sigma implementation. The roadmap involves the creation of infrastructure, identification of six sigma projects, project group selection and six sigma training, project execution and six sigma implementation. Different people in an organization, when involved in six sigma implementation take up roles and responsibilities as Champions/Sponsors, Process Owners, Master Black Belt, Black Belt, Green Belt and Yellow Belt. Black belts, Green Belts, and Yellow Belts would form project teams and execute six sigma projects.
For the organization, Six Sigma would benefit by reducing Defects (50-90%), Waste (10-60%), Rework, Process cycle times (20-50%) and improvements in Quality, Production Efficiency, Productivity (10-20%), Customer Satisfaction, Capacity, Profitability and Competitive edge.
Six Sigma has proven to be a successful process improvement methodology in industries like Manufacturing, Telecommunications, Banking, Finance, Insurance, IT, ITES, BPO, KPO, Healthcare, Pharmaceuticals, Logistics, Shipping and Supply Chain.
A company or organization can take best advantage from Six Sigma methodology by providing right training and skills to its employees. Employees who are equipped with Six Sigma expertise and knowledge can solve problems in the best way to enhance productivity and spontaneously this will lead an organisation towards growth and success.
Amitabh Saxena is an award winning lean six sigma trainer and expert. He is the founder and CEO of Anexas Consultancy and loves to write and share his expertise. Over the years he helped and trained thousands of Entrepreneurs, Business Professionals worldwide by providing Lean Six Sigma, PMP, and other professional training.