This article is the extraction of the excerpts taken from webinar “How to Make it in the Global Economy” by Walid Hejazi, Professor of International Business at Rotman School of Management. The webinar was arranged by Madinah Institute for Leadership and Entrepreneurship (MILE). In this webinar, Professor Walid Hejazi discusses why it is important to implement global business strategies and the reasons why most of these strategies fail in the long run.
It is important for companies to establish their presence in different countries in order to survive in the highly competitive modern world. The latest developments in communication and information strategies coupled with ever changing government policies have compelled companies to spread supply chain beyond borders of their home countries.
Companies deploy various global business strategies to achieve their targets but most of these strategies fail to produce results. There are many reasons behind these failures most important of which arehigh costs of doing business internationally and inability of business leaders to identify the challenges of doing business in a foreign land. Following figures explains how various American companies have struggled to penetrate into Asian and European markets.
Some experts opine that a global business strategy is just an extension of a successful domestic strategy applied at international level but this is not the case. For instance, most of the multinational organizations in United States and across the world tend to concentrate their activities near their home market. There are many reasons that force them to do so such as language and cultural barriers, difference in time zones and exchange rates, long distances, difficulty in compliance with local institutions and legal requirements etc.
It is also important to discuss why some managers emphasize on the importance of doing business internationally. Intentions like “bigger is better” and “we need a global footprint” flash in the mind of business leaders quite frequently. Similarly, companies also often exaggerate about how attractive particular international markets are.
However, they often underestimate various factors such as cost of doing business in a foreign market or whether it is really as profitable as itappears while planning to go global.All these errors lead to expensive mistakes with drastic consequences for the company.
Some companies deploy global strategies just because others are doing the same without analyzing that a strategy good for one company may not be as effective for other. Similarly, business leaders don’t bother to scrutinize why certain “global companies” such as Microsoft or HP are so successful or what created massive economic value for these companies. Most often, they cannot comprehend that company’s international expansion has nothing to do with its current business triumph.
It is also important to note that only those companies have been successful internationally that have performed exceptionally at domestic level. The most productive firms engage in direct international investment while the least productive ones only engage in local business activity. In fact, global opportunities are immense only if firms are doing well domestically.
Leaders also need to consider various factors if they do decide to go global. The attempt to seize significant first mover advantage can be effective sometimes but it can also create a lot of problems. Firms might often acquire a phenomenon known as Liability of Foreignness while operating in foreign markets making matter worst for their executives. Furthermore, it is typically difficult to invest in large emerging markets such as China due to many reasons.
Finally, there are immense opportunities in global economy but a company should be clear about why it wants to go global and how to accomplish this task successfully. If the business leaders deem it right to trade internationally, then they should go about this task diligently while considering all the opportunities and threats.