Globalization reflects a belief that the world is becoming more homogeneous and that distinctions between national markets are not only fading but, for some products, will eventually disappear. As the inefficiencies of duplicating product development and manufacturing in each country become more apparent, the pressure to leverage resources and coordinate activities across borders becomes more urgent.
Typically, companies experiment with exporting before making direct investments in overseas markets. The decision to reach beyond exporting is usually based on market factors, barriers to trade, cost factors, and the investment climate, with market factors playing the biggest role. Global investments can vary in commitment and control and range from creating or purchasing wholly owned subsidiaries to joint ventures. While many organizations prefer full ownership because it comes with full control, government regulations sometimes make this option impossible. In some situations, it is not even desirable. A joint venture with partial ownership is sometimes the best alternative.
Other options include strategic alliances or partnerships that allow companies to align with businesses that have complementary technologies and skills. Strategic alliances, often encouraged by governments, are on the upswing. In addition, as countries develop service-based economies, some businesses expand through contractual arrangements in lieu of equity investments.
The global appliance industry is a good example of how and why manufacturers in that category embraced globalization. Facing increased competition in the U.S. from imports, American appliance manufacturers looked overseas for growth. In Europe, they found a market with rapid expansion, breakdowns in trade barriers within the European Union , and a less saturated market than in the U.S. Appliance giants that included General Electric, Whirlpool, Electrolux, and Bosch-Siemens took advantage of the opportunities by acquiring regional manufacturers or forming strategic alliances with them. Whirlpool bought the appliance arm of Dutch electronics concern N.V. Philips, acquiring ten European plants, popular regional brands, and a third-place market share ranking.
Regional preference in appliances show the challenges of implementing a global strategy for this industry. The French prefer top-loading washing machines while the British prefer front-loaders. When it comes to stoves, the french like cooking at high temperatures that cause grease splatters, making self-cleaning ovens popular. Because Germans cook with lower temperatures, the self-cleaning feature is not in such demand. While taking these variations into account, manufacturers have had to be careful not to create a one-size-fits-all product that simplifies manufacturing but, in the end, appeals to no one.
Companies in other industries face increasing global competition and challenges similar to those in the home appliance industry. Even large companies that dominate their domestic markets cannot survive on domestic business alone when they are in industries that are increasingly globalized.They must be in all major markets to survive shakeouts or risk being niche market specialists.
This is an excerpt from Dr. Czinkota’s book Global Business: Positioning Ventures Ahead, co-authored by Dr. Ilkka Ronkainen.
Michael R Czinkota and Ilkka A Ronkainen, Global Business: Positioning Ventures Ahead (New York: Routledge, 2011), pg. 88-89.