Friday, September 5, 2008

Converting Global Presence into Global Competitive Advantage

Global presence doesn’t ensure companies into global competitive advantage. Thus, companies need to transform global presence into global competitive advantage. It requires systematic analysis, purposeful thinking, and careful orchestration, and is never ending process. Companies must exploit five value creation opportunities, which are:

  1. Adapting to local market differences. By responding to country-level heterogeneity, companies can reap benefits in three fundamental areas: Increased market share, improved price realization, and neutralizing local competitors.
  1. Exploiting economies of global scale. The potential benefits of economies of scale can appear in various ways: spreading fixed costs, pooling purchasing power, and creating critical mass.
  1. Exploiting economies of global scope. Global scope refers to the multiplicity of regions and countries in which company markets its products or services. In fulfilling the needs of multilocation global customers, companies have two potential avenues through which to turn global scope into global competitive advantage: providing coordinated services and leveraging their market power.

Tapping he optimal locations for activities and resources. By optimizing the location for every activity in the value chain, companies can yield one or more of three strategic benefits: performance enhancement, cost reduction, and risk reduction.

Maximizing knowledge transfer across locations. Locally created knowledge can yield strategic benefits to the global enterprise, ranging from faster product and process innovation, lower cost of innovation, and reduced risk of competitive preemption.

Creating global competitive advantage requires several actions as implication. They must evaluate the optimality of the global network for each activity in the value chain along three dimensions: activity architecture, world-class competencies for each facility, and frictionless coordination between similar activities; between complimentary activities. Based on this evaluation, firms should then design and execute actions to eliminate or at least reduce the suboptimalities.


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