UNIT 3

Grand Strategies

Definition: The Grand Strategies are the corporate level strategies designed
to identify the firm’s choice with respect to the direction it follows to
accomplish its set objectives. Simply, it involves the decision of choosing the
long term plans from the set of available alternatives. The Grand Strategies
are also called as Master Strategies or Corporate Strategies.

There are four grand strategic alternatives that can be followed by the
organization to realize its long-term objectives:

grand strategies

1.Stability Strategy

2.Expansion Strategy

3.Retrenchment Strategy

4.Combination Strategy

The grand strategies are concerned with the decisions about the allocation
and transfer of resources from one business to the other and managing the
business portfolio efficiently, such that the overall objective of the
organization is achieved. In doing so, a set of alternatives are available to the
firm and to decide which one to choose, the grand strategies help to find an
answer to it.

Business can be defined along three dimensions: customer groups,

customer functions and technology alternatives. Customer group comprises
of a particular category of people to whom goods and services are offered,
and the customer functions mean the particular service that is being
offered. And the technology alternatives cover any technological changes
made in the operations of the business to improve its efficiency.
Retrenchment Strategy

Definition: The Retrenchment Strategy is adopted when an organization

aims at reducing its one or more business operations with the view to cut
expenses and reach to a more stable financial position.

In other words, the strategy followed, when a firm decides to eliminate its
activities through a considerable reduction in its business operations, in the
perspective of customer groups, customer functions and technology
alternatives, either individually or collectively is called as Retrenchment
Strategy.

The firm can either restructure its business operations or discontinue it, so
as to revitalize its financial position. There are three types of Retrenchment
Strategies:

Retrenchment Strategy

1.Turnaround

2.Divestment

3.Liquidation

To further comprehend the meaning of Retrenchment Strategy, go through

the following examples in terms of customer groups, customer functions and
technology alternatives.

1.The book publication house may pull out of the customer sales through
market intermediaries and may focus on the direct institutional sales. This
may be done to slash the sales force and increase the marketing efficiency.
2.The hotel may focus on the room facilities which is more profitable and
may shut down the less profitable services given in the banquet halls during
occasions.

3.The institute may offer a distance learning programme for a particular

subject, despite teaching the students in the classrooms. This may be done
to cut the expenses or to use the facility more efficiently, for some other
purpose.

In all the above examples, the firms have made the significant changes
either in their customer groups, functions and technology/process, with the
intention to cut the expenses and maintain their financial stability.

Stability Strategy

Definition: The Stability Strategy is adopted when the organization attempts

to maintain its current position and focuses only on the incremental
improvement by merely changing one or more of its business operations in
the perspective of customer groups, customer functions and technology
alternatives, either individually or collectively.

Generally, the stability strategy is adopted by the firms that are risk averse,
usually the small scale businesses or if the market conditions are not
favorable, and the firm is satisfied with its performance, then it will not
make any significant changes in its business operations. Also, the firms,
which are slow and reluctant to change finds the stability strategy safe and
do not look for any other options.

Stability Strategies could be of three types:

Stability Strategy

1.No-Change Strategy

2.Profit Strategy

3.Pause/Proceed with Caution Strategy

To have a better understanding of Stability Strategy go through the following
examples in the context of customer groups, customer functions and
technology alternatives.

1.The publication house offers special services to the educational

institutions apart from its consumer sale through the market
intermediaries, with the intention to facilitate a bulk buying.

2.The electronics company provides better after-sales services to its

customers to make the customer happy and improve its product image.

3.The biscuit manufacturing company improves its existing technology to

have the efficient productivity.

In all the above examples, the companies are not making any significant
changes in their operations, they are serving the same customers with the
same products using the same technology.

Expansion Strategy

Definition: The Expansion Strategy is adopted by an organization when it

attempts to achieve a high growth as compared to its past achievements. In
other words, when a firm aims to grow considerably by broadening the scope
of one of its business operations in the perspective of customer groups,
customer functions and technology alternatives, either individually or
jointly, then it follows the Expansion Strategy.

The reasons for the expansion could be survival, higher profits, increased
prestige, economies of scale, larger market share, social benefits, etc. The
expansion strategy is adopted by those firms who have managers with a
high degree of achievement and recognition. Their aim is to grow,
irrespective of the risk and the hurdles coming in the way.

The firm can follow either of the five expansion strategies to accomplish its
objectives:

Expansion Strategy

1.Expansion through Concentration

2.Expansion through Diversification

3.Expansion through Integration

4.Expansion through Cooperation

5.Expansion through Internationalization

Go through the examples below to further comprehend the understanding of

the expansion strategy. These are in the context of customer groups,
customer functions and technology alternatives.

1.The baby diaper company expands its customer groups by offering the
diaper to old aged persons along with the babies.

2.The stockbroking company offers the personalized services to the small

investors apart from its normal dealings in shares and debentures with a
view to having more business and a diversified risk.

3.The banks upgraded their data management system by recording the

information on computers and reduced huge paperwork. This was done to
improve the efficiency of the banks.

In all the examples above, companies have made significant changes to their
customer groups, products, and the technology, so as to have a high growth.

================================]

Conglomerate diversification
is growth strategy that involves adding new products or services that are
significantly different from the organization's present products or services.
Conglomerate diversification occurs when the firm diversifies into an area(s)
totally unrelated to the organization current business

Conglomerate Diversification /unrelated Diversification/ Strategies

Conglomerate diversification is growth strategy that involves adding new

products or services that are significantly different from the organization's
present products or services. Conglomerat diversification occurs when the
firm diversifies into an area(s) totally unrelated to the organization current
business.

Most conglomerate diversifications are based on the rationale that

expansion into unrelated industries has a very attractive potential:

"... the basic premise of unrelated diversification is that any company that
can be acquired on good financial terms represents a good business to
diversify into" (Thompson and Strickland ).

Typically, corporate strategists screen candidate companies using such

criteria as:

•Whether the business can meet corporate targets for profitability and
return on investment.

•Whether the new business will require substantial infusions of capital to

replace fixed assets, fund expansion, and provide working capital.

•Whether the business is in industry with significant growth potential.

•Whether the business is big enough to contribute significantly to the parent

firm's bottom line.

•The potential for union difficulties or adverse government regulations

concerning product safety or the environment.
•Industry vulnerability to recession, inflation, high interest rates, or shifts in
government policy.

Three types of companies make particularly attractive acquisition targets:

•Companies whose assets are "undervalued" - opportunities may exist to

acquire such companies' for less than full market value and make
substantial capital gains by reselling their assets and businesses for more
than their acquired costs.

•Companies that are financially distressed.

•Companies that have bright growth prospects but are short on investment
capital.

Unrelated diversification has appeal from several financial angles:

•Business risk is scattered over a variety of industries, making the company

less dependent on any one business.

•Capital resources can be invested in whatever industries offer the best

profit prospects; cash from businesses with lower profit prospects can be
diverted to acquiring and expanding businesses with higher growth and
profit potentials. Corporate financial resources are thus employed to
maximum advantage.

•Company profitability is somewhat more stable because hard times in one

industry may be partially offset by good time in another.

•To the extent that corporate managers are astute at spotting bargain-priced
companies with big upside profit potential, shareholder wealth can be
enhanced.
However, there are two biggest drawbacks to unrelated diversification: the
difficulties of managing broad diversification and the absence of strategic
opportunities to turn diversification into competitive advantage.

Despite these drawbacks, unrelated diversification can be a desirable

corporate strategy.

TYPES OF STRATEGIES

Objectives:

This lecture brings strategic management to life with many contemporary

examples. Sixteen types of

strategies are defined and exemplified, including Michael Porter's generic

strategies: cost leadership,

differentiation, and focus. Guidelines are presented for determining when

different types of strategies are

most appropriate to pursue. An overview of strategic management in

nonprofit organizations, governmental

agencies, and small firms is provided. After reading this lecture you will be
able to know about:

Types of Strategies

Diversification strategies

Diversification Strategies

Diversification Strategies

Concentric

Diversification

Conglomerate
Diversification

Diversification

Strategies

Horizontal

Diversification

There are three general types of diversification strategies: concentric,

horizontal, and conglomerate. Over all,

diversification strategies are becoming less popular as organizations are

finding it more difficult to manage

diverse business activities. In the 1960s and 1970s, the trend was to
diversify so as not to be dependent on

any single industry, but the 1980s saw a general reversal of that thinking.
Diversification is now on the retreat.

Concentric Diversification

Adding new, but related, products or services

Adding new, but related, products or services is widely called concentric

diversification. An example of this

Strategy is AT&T recently spending $120 billion acquiring cable television

companies in order to wire

America with fast Internet service over cable rather than telephone lines.
AT&T's concentric diversification

strategy has led the firm into talks with America Online (AOL) about a
possible joint venture or merger to

provide AOL customers cable access to the Internet.

Guidelines for Concentric Diversification

Five guidelines when concentric diversification may be an effective strategy

are provided below:

Competes in no- or slow-growth industry

Adding new & related products increases sales of current products

MERGERS AND ACQUITIONS in STRTEGIC MANAGEMENT

Are part of strategic management of any business. It involves consolidation

of two businesses with an aim to increase market share, profits and
influence in the industry. Mergers and Acquisitions are complex processes
which require preparing, analysis and deliberation. There are a lot of parties
who might be affected by a merger or an acquisition, like government
agencies, workers and managers. Before a deal is finalized all party needs to
be taken into consideration, and their concerns should be addressed, so
that any possible hurdles can be avoided.

ACQUISITIONS

‘Mergers and Acquisitions’ is a technical term used to define the

consolidation of companies. When two companies are combined to form a
single unit, it is known as merger, while an acquisition refers to the
purchase of company by another one, which means that no new company is
formed, but one company has been absorbed into another. Mergers and
Acquisitions are important component of strategic management, which
comes under corporate finance. The subject deals with buying, selling,
dividing and combining various companies. It is a type of restructuring, with
the aim to grow rapidly, increase profitability and capture a greater
proportion of a market share.

Parties in an acquisition:
The Target Company is the company that is being acquired.

The Acquirer Company is the company that is acquiring the target.

Mergers can be divided into three types:

1)Horizontal merger: It happens when both companies are in the same line
of business, which means they are usually competitors. Example: Disney
bought LucasFilm. Both companies were involved in production of film, TV
shows.

2)Vertical merger: This happens when two companies are in the same line of
production, but stage of production is different. Example: Microsoft bought
Nokia to support its software and provide hardware necessary for the
smartphone.

3)Conglomerate merger: This happens when the two companies are in

totally different line of business. Example, Berkshire Hathaway acquired
Lubrizol. This kind of merger mostly takes place in order to diversify and
spread the risks, in case the current business stops yielding adequate
profits.

The main difference between a merger and an acquisition is that a merger is

a form of legal consolidation of two companies, which are formed into a
single entity, while an acquisition happens when one company is absorbed
by another company, which means that the company that is purchasing the
other company continues to exist. In the recent years, the distinction
between the two has become more and more blurred, as companies have
started doing joint ventures. Sometimes acquirer wants to keep the name of
the acquired company, as it has goodwill value attached to it.

M&A consolidationMergers and acquisitions are complex area of a company

long-term strategy. The process takes a long time, at times, even years. It
involves number of parties and stakeholders:
1)The two companies which are being merged or coordinating to venture are
the main stakeholders, since any changes in the structure of the company is
likely impact both companies.

2)Employees will also be affected, since they are an integral part of the
companies. At times, during a merger or acquisition employees have to be
laid off.

3)The government agencies play a decisive role in any merger or acquisition,

as they want to make sure that the M&A does not create a monopoly or
impinge on the rights of general public. Any merger of acquisition must not
be a hurdle to competitive environment in the industry.

4)Pressure Groups would be interested in the impact the merger or

acquisition would have on the environment, worker welfare, consumer
welfare and overall social impact the collusion. Some companies
manufacture product/services that are controversial, hence detested by
some people. Firms must find a way to deal with possible hostility from
these people.

5)Competitors would be interested in a possible merger or acquisition

between two companies in the industry, since a collusion could threaten to
take away their market share as the combined company would be more
powerful, financially and strategically.

6)Financial institutions also have a stake in possible merger or acquisition,

since the companies involved might have outstanding debt. Alternatively, a
company involved in a post-merger or an acquisition might want to borrow
more money, so that the financial institutions would have to evaluate the
company’s financial standing and ability to repay it later.

M&A example - mergerThe Mergers and Acquisitions Process

MOTIVES FOR MERGERS AND ACQUISITIONS

Synergy

From the strategic point of view the main motive behind a merger or
acquisition is to improve the company’s performance for its shareholders
through synergy, which is a concept that states that the value and
performance of two companies combined will be greater than the sum of the
separate individual parts. Two businesses can combine to form one
company which can generate more revenues that could be done if they
worked independently. This is why potential synergy from merger and
acquisition is evaluated before the decision is made.

Growth

Mergers or acquisitions can exponentially increase the growth of the

company, as it has more resources at its disposal. When two companies
combine their expertise, assets and market share are also combined, which
leads to more opportunity in the market for growth. The market share which
was previously shared by two companies will now exclusively belong to one
company. The increased market power is likely to generate more
opportunities for sales, revenue, and profitability.

Acquiring Unique Capabilities

Sometimes, mergers and acquisitions take place in order to acquire unique

capabilities or resources, which could prove paradigm-shifting for the
company. This would include patents and licenses, which the acquiring
company will gain access to once the merger is completed. A patent, license
or certain technology could make a lot difference for the company, which
could help it substantially increase sales and profits, since it might create a
natural monopoly situation for the new company. When two different
companies combine, it could also result in unlocking hidden value, which
becomes apparent as resources and experiences combined bring innovation
and efficiency.

Exploiting the Market

Market systems in most economies are not perfect, which means there is
room for companies to exploit these imperfections to their own advantage.
Taking over another company or merger could facilitate a monopoly-like
situation, which would give the company an edge over its competitors.
Alternately, a merger could be done with a motive to control the supply of
certain raw materials which will give the company an undue advantage over
other companies.

As an Answer to Government Policies

Mergers and acquisitions also take place in order to cope with adverse
government policies, which may require a certain size of a firm to exist.
Some governments offer tax breaks and other incentives to large
corporations, which encourage mergers as more profit can be made as tax
liability is lower. In order to deal with government pressure to survival
within an industry, companies mergers and acquisitions have greater
leverage to influence government policies.

Transfer of Technology
Another popular reason for mergers and acquisitions is transfer of
technology, especially for highly specialized companies with unique
technologies. Companies buy other companies in an attempt to acquire a
certain technology which is patented or unique. Subsequently, these
technologies are used to make better products/services, hence greater
market share and profits.

To Handle Large Clients

Mergers and acquisitions, especially in the service industry, also take place
in order to follow big clients. There are a lot of examples of such M&A
activity happening for law firms, since sometimes the clients are so big, it
forces firms to merge in order to serve them better. The merged firms have
more resources and expertise to handle powerful clients. It also gives
companies a way to bootstrap earning, hence better performance at the
stock exchange for listed companies.

Diversification

Mergers and acquisitions allow companies to diversify into other areas of

business, hence it spreads risks and present opportunity for more sales,
profits and recognition in the market. For example, if clothing store merges
with a textile company, it would help both companies, since they would be
able to keep a greater margin of profit. Diversification can also take place in
a totally different industry altogether. For example, if a restaurant chain
store acquires a clothing store, it would have reduced its risks, since even if
people stop eating out, hypothetically speaking, they could still make money
from the clothing store, and other way.
Personal Incentives

In some rare cases, a merger or an acquisition is initialised due to managers

personal incentives in form of higher salary, benefits etc., and has nothing
to do with strategic planning.

Diversifications:

Strategic Management - Diversification

Diversification strategies are used to extend the company’s product lines

and operate in several different markets. The general strategies include
concentric, horizontal and conglomerate diversification.

Each strategy focuses on a specific method of diversification. The concentric

strategy is used when a firm wants to increase its products portfolio to
include like products produced within the same company, the horizontal
strategy is used when the company wants to produce new products in a
similar market, and the conglomerate diversification strategy is used when a
company starts operating in two or more unrelated industries.

Diversification strategies help to increase flexibility and maintain profit

during sluggish economic periods.

Warren Buffet on Diversification

“Diversification is protection against ignorance, it makes little sense for

those who know what they’re doing.”

Concentric Diversification
A concentric diversification strategy lets a firm to add similar products to an
already established business. For example, when a computer company
producing personal computers using towers starts to produce laptops, it
uses concentric strategies. The technical knowledge for new venture comes
from its current field of skilled employees.

Concentric diversification strategies are rampant in the food production

industry. For example, a ketchup manufacturer starts producing salsa,
using its current production facilities.

Horizontal Diversification

Horizontal diversification allow a firm to start exploring other zones in terms

of product manufacturing. Companies depend on current market share of
loyal customers in this strategy. When a television manufacturer starts
producing refrigerators, freezers and washers or dryers, it uses horizontal
diversification.

A downside is the company’s dependence on one group of consumers. The

company has to leverage on the brand loyalty associated with current
products. This is dangerous since new products may not garner the same
favor as the company’s other products.

Conglomerate Diversification

In conglomerate diversification strategies, companies will look to enter a

previously untapped market. This is often done using mergers and
acquisitions.

Moving into a new industry is highly dangerous, due to unfamiliarity with

the new industry. Brand loyalty may also be reduced when quality is not
managed. However, this strategy offers increasing flexibility in reaching new
economic markets.

For example, a company into automotive repair parts may enter the toy
production industry. Each company allows for a broader base of customers.
There is an opportunity of income when one industry's sales falter.
Differentiate Domestic Strategies from Global Strategies

Companies on either extreme adopt multi-domestic or global strategies.

Corporations with multiple foreign operations that act independently of one
another follow domestic strategies; each individual operation is treated as an
independent business, with the country of each operation essentially
becoming its domestic market. On-site managers of such an operation are
more or less independent entities, focused solely on their local market and
free to develop individually tailored strategies.

A fundamental question facing MNCs concerns the extent to which a

corporation with operating units scattered around the world should
integrate and/or standardize their operations. The options form a
continuum between operations and products that are exactly the same
throughout the world and operations and products tailored for each market
in which they appear.

At the other extreme, corporations that standardize or tightly integrate

operations in different countries follow global strategies. These corporations
operate all units, regardless of location, under a single unifying strategy.

Under such a strategy, on-site managers scattered across various countries

see themselves as serving the same single, homogeneous worldwide market.
Firms following a strict global strategy handle adaptations to market needs
centrally, because the corporation views the entire world as a single market.

In their purest forms, domestic and global strategies differ greatly from each
other along two dimensions, as illustrated in Figure 9.5. First, firms
following a pure domestic strategy allow managers in each country to adapt
their products and services to fit local market preferences, government
regulations, technological capabilities, and competitive situations.

Continuum from Global to Domestic Strategy

Consequently, even ‘sister’ business units in the same industry usually offer
very different products and services. In contrast, business units in a
corporation following a purely global strategy sell very similar products and
services. The rationale for this difference can be understood best when you
consider a second important difference.

In the case of a pure domestic strategy, each country’s business unit will
comprise as much of the value chain as feasible—for example, R&D,
marketing, inbound logistics, production, sales, distribution, and service—
and its operations will all be tailored to the needs of that country. On the
other hand, a firm following a pure global strategy serves its various
markets from centralized facilities, limiting replication of the value chain in
various countries.

Microsoft, IBM and Google have the same strategy of locating a base in India
(Bangalore), Australia and Hong Kong for the Asia-Pacific Rim countries.
Companies like Hyundai and Ford Motors, have their R&D, marketing
inbound logistics, and production departments centralized in one location
while each country may have its own sales, distribution, and service centres.

Global businesses usually locate the centralized portion of their value

chains where they have cost advantages or better capabilities. Look at the
ad for dream matte from Maybelline, ‘New York, a strategy to lure high-end
customers and adding tough competition to domestic brands (Figure 9.6).

The choice of domestic and global perspectives depends on the balance of

socio-economic pressures driving international competitors. On the one
hand, social pressures encourage managers within each country to be
responsive to the unique cultural and political circumstances in their
narrow slice of the overall world market.
On the other hand, economic pressures encourage managers to treat
operations in different countries as part of a greater whole that must be
managed for overall efficiency. These social and economic forces are so great
that they are commonly referred to as the two ‘imperatives’ facing MNC
managers. The social forces encourage firms to operate under a domestic
strategy, while the economic forces create pressure to use a global strategy.

The social imperative:

Three social forces encourage MNCs to adapt the individual parts of their
far-flung operations to specific situations. First, cultural differences across
countries often necessitate changes in tactics for dealing with stakeholders.
Second, governments in countries around the world frequently insist that
the actions of MNCs be consonant with their host nations’ interests.

Third, as industrialization spreads, local competitors scramble to serve

narrowing market segments, forcing MNCs to be equally adaptable. When
local suppliers can produce tailored products, customers are no longer
forced to accept products designed for another market’s consumers.

Thus, most businesses adjust the way they do business from one country to
the next. Firms must often adapt their products and marketing techniques
to suit the host country’s particular circumstances. Some adaptations are
fairly minor: Hewlett- Packard changes its keyboard layouts to reflect
different countries’ typing requirements and its business software to match
different accounting practices. Other changes are more substantive, as in
the case of Avon in Japan.
On the other hand, economic pressures encourage managers to treat
operations in different countries as part of a greater whole that must be
managed for overall efficiency. These social and economic forces are so great
that they are commonly referred to as the two ‘imperatives’ facing MNC
managers. The social forces encourage firms to operate under a domestic
strategy, while the economic forces create pressure to use a global strategy.

The social imperative:

Three social forces encourage MNCs to adapt the individual parts of their
far-flung operations to specific situations. First, cultural differences across
countries often necessitate changes in tactics for dealing with stakeholders.
Second, governments in countries around the world frequently insist that
the actions of MNCs be consonant with their host nations’ interests.

Third, as industrialization spreads, local competitors scramble to serve

narrowing market segments, forcing MNCs to be equally adaptable. When
local suppliers can produce tailored products, customers are no longer
forced to accept products designed for another market’s consumers.

Thus, most businesses adjust the way they do business from one country to
the next. Firms must often adapt their products and marketing techniques
to suit the host country’s particular circumstances. Some adaptations are
fairly minor: Hewlett- Packard changes its keyboard layouts to reflect
different countries’ typing requirements and its business software to match
different accounting practices. Other changes are more substantive, as in
the case of Avon in Japan.

On the other hand, economic pressures encourage managers to treat

operations in different countries as part of a greater whole that must be
managed for overall efficiency. These social and economic forces are so
great that they are commonly referred to as the two ‘imperatives’ facing
MNC managers. The social forces encourage firms to operate under a
domestic strategy, while the economic forces create pressure to use a
global strategy.
The social imperative:

Three social forces encourage MNCs to adapt the individual parts of their
far-flung operations to specific situations. First, cultural differences across
countries often necessitate changes in tactics for dealing with stakeholders.
Second, governments in countries around the world frequently insist that
the actions of MNCs be consonant with their host nations’ interests.

Third, as industrialization spreads, local competitors scramble to serve

narrowing market segments, forcing MNCs to be equally adaptable. When
local suppliers can produce tailored products, customers are no longer
forced to accept products designed for another market’s consumers.

Thus, most businesses adjust the way they do business from one country
to the next. Firms must often adapt their products and marketing
techniques to suit the host country’s particular circumstances. Some
adaptations are fairly minor: Hewlett- Packard changes its keyboard layouts
to reflect different countries’ typing requirements and its business software
to match different accounting practices. Other changes are more
substantive, as in the case of Avon in Japan.

Avon’s door-to-door marketing methods have successfully sold its cosmetics

nearly everywhere in the world. However, during its first year in Japan, the
company had little success using this approach. After studying the problem,
the managers at Avon discovered that Japanese women are often too
reserved to make forceful sales pitches to strangers.

The company then adjusted its approach to selling in Japan, emphasizing

making sales to women who were not strangers and creating an advertising
campaign featuring a soft-sell approach with poetic images. After this
adjustment, the firm enlisted more than 350,000 sales women in Japan and
its Japanese sales grew more than 25 per cent per year.
The economic imperative:

In some industries, the volume necessary to achieve the greatest economies

of scale and learning curve effects cannot be reached within a single
country. In this case, it makes sense to combine operations in different
countries to increase throughout and gain economies of scale. A corporation
with global integration can use its network of operating sites to achieve
greater overall efficiency than any single site could achieve individually.

For example, Caterpillar, the world’s leading producer of heavy earthmoving

equipment, utilizes this sort of integration in its worldwide operations. The
factories that build Caterpillar products require heavy capital investment,
which is best absorbed by high-volume production of a fairly standardized
product line.

Furthermore, although the company’s customers around the world require

access to a broad range of earthmoving equipment, specific requirements for
each type of machine do not vary much by nation. In other words, one
customer may want a particular selection of bulldozers, high lifts, backhoes,
and so on, but the equipment required to execute the earth work
(excavation) is basically the same in any country.

Therefore, Caterpillar has its factories within a given country focus on

volume production of a relatively narrow range of products, resulting in
maximum economies of scale and learning curve effects within each factory.

As a result of this focus, no single factory can produce the broad line of
equipment that customers need, so each factory cooperates with others in
Caterpillar’s worldwide system to provide the overall range of products
required. When the same parts are manufactured in more than one nation,
the central design control ensures that these parts are interchangeable and
that they will fit on any appropriate Caterpillar, regardless of its country of
origin. This is a global strategy because each country’s operation is viewed
as part of a single worldwide plan.
The use of such strategies and the globalization of industries are on the rise
because of several trends. The emergence of products with worldwide
acceptance, such as Nikon cameras and German engineering services, has
facilitated worldwide integration.

Development of cheaper, more reliable transportation and worldwide

communication networks has also encouraged globalization. Observers of
today’s international competition refer to a ‘global village’ in which we all live
in the same neighbourhood and trade in the same shop. MNCs are now
learning how to build global strategies in the ‘local’ format for catering to the
specific need of its territories.

Combining global and domestic outlooks:

As each strategy has its advantages, the best approach is usually neither
purely domestic nor purely global but a combination of both. This becomes
most apparent when we see the shortcomings of single-mindedly pursuing
an international strategy based on either global integration alone or
domestic adaptation alone.

Convergence of global and domestic strategies:

Reacting to the forces and counter-forces driving them to adopt elements of

both global and domestic strategies, many of the most successful MNCs
have converged these two strands. Industries that were once cited as
example of pure domestic operations are becoming globalized and vice versa.
The consumer electronics industry and the laundry detergent industry
provide classic examples of each trend.