Build an effective regional strategy to optimize global strategy

Does your organization an international player and provides goods & services world wide? Are you competitive in foreign soil, if no then you need to restructure your global business strategy?

Lot of companies make mistake by following a single world wide strategy which make organization uncompetitive in foreign soil that impact their overall global business.

How to develop global business strategy? The best way is to regionalize strategy according to cultural, political, legal and economical condition.

Organizations like Toyota, GE & Wal-Mart have successfully created regionalize strategy to enhance growth & profitability.

Increasing cross-border integration has enhanced the prospect of regionalization. Data suggests that regionalized location attract more FDI and some difference between the reason can combined with similarity to expand the regions overall economic activity.

Defining your regions depends upon characteristic like geography, culture, administrative, political & economical condition.

There are 5 different ways to build regional strategy. Every regional strategy has its own strengths & weakness. It is upon an organization to choose strategy according to their business, products & benefits. Organization can use combination of any of these strategies. Toyota is the only organization that uses all the 5 combinations to built an overall global strategy.

Home Base Strategy:

In this type of strategy organization maintain R & D and manufacturing in the country of origin. This type of strategy is useful when economies of concentration outweigh those of dispersion. Bulk of the fortune 500 company still follows this type of strategy. Even organizations that move on globally followed home base strategy for a very long period of time.

Fore more than a decade Toyota serve their international clients through direct export. GE did the same for home appliances & Bayer in Pharmaceuticals.

This type of regional strategy is very effective for time-sensitive items to get to the market very quickly however these strategy cut down organizations future growth potential and it can put themselves in trouble once market matures or when there are some uncertain economic condition.

Spanish fashion company Zara faces the same problem when value of dollar depreciates again Euro. These makes Zara’s cost of production inflated against their competitors who relay more on dollar-denominated imports from Asia.

Portfolio Strategy:

The strategy involves setting up or acquiring business outside the home region that report directly to the home base. The advantage of this strategy is that it provides faster growth in non home region and the opportunity to average out economic shocks and cycles across region.

Though portfolio strategy is simple however it takes time to implement if organization wants to expand through organic growth. Even though if organization takes Merger & Acquisition route then also it takes some time.

Again Toyota is a very good example of this kind of strategy. Toyota applied its renowned production system (its distinct competitive advantage) to factories it built in the most important overseas market North America, however it took around 10 years to develop those facilities.

Hub Strategy:

Companies that wanted to add value to their regional level develops HUB strategy. Hub strategy provides shared service with in a region to different countries. This kind of strategy develops to create economy of scale because such resources may be hard for one country to justify.

In a purest form Hub strategy is a multiregional version of the home base strategy. Hub strategy often involves transforming a foreign operation in a stand-alone unit.

Toyota began producing a limited number of locally exclusive models in its principal foreign plants. Each plant has its own platform with products designed for sale within the region.

The challenging in executing a Hub strategy is achieving a right balance between customization & standardization. Companies too responsive to interregional variation risk adding too much cost or sacrificing too many opportunities to share cost across the regions. As a result, they may find themselves vulnerable to attacks from companies taking a more standardized approach. On the other hand, the companies that try to standardize across regional hub- and in so doing overestimate the degree of commonality from region to region-are vulnerable to competition from local players.

The Platform Strategy:

Hubs spread fixed cost across countries within a region. Interregional platforms go a step further by spreading fixed cost across the region. Most automaker tries to reduce the number of basic platform they offer worldwide in order to achieve economies of scale in design, engineering, administration, procurement and operations.

Toyota achieves economies of scale by reducing their platform from 11 to 6 and invested in global car brand such Camry and Corolla.

The idea behind reducing the number of platform is not to offer less varieties but to offer variety with cost effectiveness.

One drawback of platform strategy is that taking platform standardized too far can backfire if regional customization creates excessive disparity across regions.

Mandate Strategy:

It focuses on economies of specialization as well as scale. Companies that adopt this strategy award certain regions broad mandates to supply particular products or perform particular roles for the whole organization.

Toyota’s innovative international multi-purpose vehicle (IMV) fuel common engines and manual transmissions for pickup trucks, SUV’s and minivan from Asian plants to four assembly Hubs in Latin America & Africa. These parts are then forwarded on to major global markets except US, where vehicles are larger.

One drawback of this strategy is that it can’t handle variation in country, national or regional condition that’s why Toyota IMV excludes the US.

Toyota features in all the above mentioned five strategies. It provides perhaps the most compelling and complete example of how the effective application of regional strategies can develop a powerful global strategy and it makes Toyota number 1 automaker in the world.

Does your organization follows appropriate regional and global strategy? Please find out by clicking on below mentioned link.

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16 Responses to “Build an effective regional strategy to optimize global strategy”

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  8. David Kennedy Says:

    This is not original and was taken without reference from:
    Ghemawat, P. (2005). “Regional Strategies for Global Leadership”. Harvard Business Review.

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