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Article - When You Shouldn't Go Global.doc

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Wilfrid Laurier University
Pat Lemieux

Article – When You Shouldn’t Go Global • Many companies seem to share unquestioned assumptions about the need to go global and are lulled by apparent safety in numbers as they move toward potential disaster Avoiding Ill-Fated Strategies • Truly global corporations began appearing early in the last century, and their number has growth – with both successes and failures along the way – ever since • The accelerated removal of political and regulatory barriers to cross-border trading and investment over the past 15 years, along with the advent of technology that enables companies to conduct business around the world • Foreign direct investments are at records, cross-border partnerships and acquisitions are burgeoning, worldwide sourcing continues to increase  fuelling globalization • Many companies have begun to see fallout, sometimes firm have failed because their global strategies were deeply misguided • Many failures could have been prevented and avoided in the future if companies addressed three questions: o Are there potential benefits for our company?  Just because a move makes sense for a rival or for companies in other industries doesn’t mean it makes sense for your own company or industry  Race to globalize sometimes leads people to overestimate the size of the prize o Do we have the necessary management skills?  Even if potential benefits do exist for your company, you may not be in a position to realize them  Theoretical advantages of globalizing – economies of scale – are devilishly difficult to achieve in practice, and companies often lack the management key needed to unlock the coffer holding the prize o Will the costs outweigh the benefits?  Unanticipated collateral damage to your business may make the endeavor counterproductive  Often, companies fail to see what the full costs of going global may dwarf even a sizable prize Globalization’s Siren Song • Companies neglect to ask themselves these seemingly obvious questions because of their complacent assumptions about the virtues of going global – assumptions reinforced by the stock market • Deregulated Industries o Many businesses in formerly state-owned industries have responded to deregulation with aggressive global moves o Faced with limited growth opportunities and often increasing competition in their home markets, companies have accepted that geographic expansion in the best way to exercise their new strategic freedom o Will enjoy significant savings by sharing resources across their international operations while “sticking to their knitting” o The importance of focusing on what they know how to do – is a key part of the argument, since unrelated diversification has been largely discredited o Logic has turned out in many cases to be oversold by investment bankers or to be just plain flimsy o Companies frequently pay far too much to enter foreign markets o Many of the deregulated industries are “glocal” – that is, customer expectations, operating environments, and management practices for what seem to be globally standard services can vary greatly depending on location • Service Industries o Companies in traditionally national and fragmented service industries have viewed
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