2 Student Responses – Unit 1 DB 2
How do you define a global strategy?
Global Strategy is the process of a company competing with their product or service in global markets. Expanding to just one country can be considered global. While Tiffany and I are researching global strategies it is safe to say that the different countries will have different cultures and what sells good domestically may not sell well globally. Another risk are the different laws in other countries. For instance, there are wars in other countries or if there is a natural disaster, these circumstances could affect our manufacturing of the furniture in that country. Some advantages of selling our furniture globally is the opportunity to order in bulk and we would be able to save money on getting all the materials at once to build the custom furniture (O’Farrell, 2017). Another benefit is we could circle through all the older designs in the new market since they haven’t seen the old designs.
Are there other international strategies, and how do they differ?
Part of global strategy focuses on three main areas that help companies achieve international expansion known as transnational, global and multidomestic strategies (Lynch, 2014). Transnational strategy involves customized products which would suit the needs of individuals in a given location. To follow transnational strategy, we would want to only sell our product in wealthier areas as our furniture is higher end and custom made. Global strategy is treating the world as one market with little variations (Lynch, 2014). This would be selling our furniture with the same designs that we use domestically to the global market thinking that everyone likes the same design. Multidomestic strategy has distinctive strategies for every market based on the customer demands. This strategy takes into account preferences, religious customs and any other characteristics to supply to that market.
Identify a minimum of 3 possible countries and location options for globalization. Research each of these locations in the furniture industry, and document both the pros and cons of using these in global strategy.
The three possible countries that come to mind for globalization are China, Brazil and Canada. China has an abundance of resources which include low cost lumber and extremely cheap labor. When people think of China their first instinct is to think stuff made cheap, but that is not the case at all with many resources. Chinas furniture industry has grown over the last 30 years and has become the largest exporter of furniture (Olivier, 2016). The Shunde furniture market is the largest on the planet and is approximately 32.3 million square feet of sales space (Olivier, 2016).
The second country for the best options for globalization is Brazil. Brazil is also filled with an abundance of resources and cheap labor which is in the best interest of the organization. Brazil’s furniture industry has had a steady growth of above 5% per year. In 2012 they started seeing the buying pattern change to a higher level (Brazil Furniture Industry, 2014). Brazil holds a high amount of exports along with consumers changing up their buying patterns to a higher level of furniture.
The third location I suggest potential expansion in is India. India has an up and coming market with a large population to support the manufacturing and sale of our furniture. Most importantly, India is up and coming and is said to be the 14th largest furniture market, which means there is still room for growth (Mumbai, 2017). For the last 4 years India’s furniture imports have a 20% year on year rise that pulled final numbers of $1.8 billion in 2017(Mumbai, 2017).
What country would you choose? What evidence can you provide in support of your choice?
The country that I believe we should go with is Brazil for a couple of important reasons. Brazil has an abundance of resources that can be used rather than imported from other locations. The low cost labor helps with keeping prices a bit lower since Brazil is not known for being wealthy. If a product can be produced cheaper than it can also be sold cheaper in that foreign country. This leads to higher profits which makes for a more successful business in that area.
What evidence might somebody else, who does not agree with you, provide to support his or her choice?
They may not agree with selling in Brazil for the fact that it is not a wealthy country, even with all the resources and cheap labor there is to offer. Also selling an item in Brazil for less money compared to selling the same product in the U.S. for more money is not going to give higher profits. For instance, selling a bedroom set in Brazil for $800 compared to selling the same bedroom set in the United States for $2000 would be making less dollars overall lowering profits.
What could you tell somebody else to show he or she is wrong?
I do understand your point of the argument, however, all of this really is based off of the profit margin. A profit margin is revenue from sales that exceeds any costs of the business (Fairfield & Yohn, 2001). With that in mind, Brazil will have much lower costs, so although the United States is selling the products for more money, the costs are also higher. Brazil has a larger profit margin with the revenue to cost ratio compared to the U.S. Essentially Brazil will have to sell less units than the U.S. but they will make more money per unit.
As we are planning to go global, we would have to adopt a global strategy to align our efforts and business activities with the requirements of the business in the international countries. From the perspective of our company, international expansion would be really feasible for us in terms of increased level of sales and profits. Many companies that face pressure in the domestic market because of increased competition and experience poor profitability levels turn towards global expansion using some form of global strategy to find current sales opportunities.
A global strategy means offering the same products to all geographical locations. For our company, a global strategy would be very suitable because furniture products do not need to be different in any aspect for any specific market. “The biggest advantage of a global strategy is that it enables a company to leverage economies of scale” (O’Farrell, n.d., para. 2). Some benefits a company can get by adopting a right global strategy include improved product efficiency, strong competitive advantage, high customer awareness, and high profit margins (Delaney, 2017). Had we been a food company, we would have to adopt multi-domestic strategy in order to meet the demands of different countries. But since we are a furniture products company, we do not have to face such issues in any international market. Thus, going global with a global strategy would be feasible for our company.
As for other international strategies, they include multi-domestic and transnational strategies. The multi-domestic approach, as we have explained earlier, is one in which products are tailored to meet the cultural, traditional, and social requirements of each international market because companies are required to do so to obtain an appropriate level of sales in those markets. On the other hand, a transnational approach is one in which a company makes minor changes to the product deals in accordance with the preferences of people of any particular country while maintaining specifications of the main products intact. This approach is termed as the mix of global and multi-domestic strategies.
If I talk about the three locations that would be suitable for our furniture export, they would be China, Pakistan, and Saudi Arabia. China is the largest consumer of furniture but there are no famous or well-established Chinese brands presently in the country that provides us with a good opportunity to establish our brand image in this location. However, many other companies are also trying to establish their brands in China considering its universal importance, which can pose a hurdle in getting to the top spots within a short span of time. Pakistan is also a growing economy with a major shift towards urbanization in the past couple of decades. This provides us with an opportunity to offer high-class economical furniture to the lower middle-class people who try to adopt a standard lifestyle in urban areas but have limited resources. However, limited buying capacity of people can pose a threat to high profit returns for the company. My third choice is Saudi Arabia considering the high buying power of people. We can get high profit returns by expanding our business to this country.
As for my choice, I would like to choose Saudi Arabia as the best location for global expansion considering the demand of furniture. The demand is estimated to increase by 9% till 2022 (Wood, 2016). One might disagree with me and say that China is a more attractive place for the global strategy considering its fast-growing economy and low labor rates. However, to me the point is that the lack of proper implementation of intellectual property laws can pose a threat to our company. Moreover, the high ratio of replicas in China can also affect our business growth in that location.