Sources of Global Competitive Advantage
Globalization has brought about many changes in the competitive business environment. Organizations desirous of succeeding in this environment must be prepared to compete on distinctive business processes. Globalization provides many new opportunities for the expansion of organizations. If organizations exploit these opportunities, they can gain competitive advantage. The sources of global competitive advantages can be broadly classified as:
Comparative Advantages
The comparative advantage of a country can be defined as its ability to produce goods and services cheaper than other countries. Organizations generally globalize their operations to take advantage of opportunities provided by other economies or markets or for obtaining resources. That is, organizations establish their units where they can derive maximum comparative advantage. These comparative advantages may be in the form of low labor costs, availability of natural resources, availability of skilled manpower, etc. Many Asian countries provide cheap labor and skilled manpower, prompting many large corporations to establish manufacturing bases in Asia.
Economies of Scale
Globalization can also provide organizations competitive advantage in terms of economies of scale. By expanding their operations in different countries, organizations can obtain the benefits of economies of scale in their production and marketing activities. If there are economies of scale in production, organizations can achieve a cost advantage by centralizing production and catering to a large customer base. Organizations can achieve a cost advantage through the large scale production of goods when the market size is big (i.e. global market). Toyota's commanding position in the light-duty truck market worldwide can be attributed to their high volume of production. If products are sold worldwide, sales (in terms of volume) increase while the fixed cost incurred in their production decreases as it is spread across a larger volume. As a result, products can be priced competitively. Sony obtained this advantage by selling its Walkman across the globe after making minor changes in labeling for marketing the product in different markets.
Organizations operating globally can also obtain economies of scale in purchasing. For global productions, the purchasing requirements of organizations will be high and consequently their bargaining power will be high. When organizations place large orders, suppliers also benefit and are able to achieve economies of scale. As a result, they are also able to keep costs low and pass on the benefits to manufacturers in the form of low prices. Since the bargaining power of television manufacturers like Sony and Aiwa is high, they can get transistors and diodes at cheaper rates than other manufacturers. And because they order in bulk, their suppliers achieve economies of scale.
Organizations can also obtain economies of scale in their marketing function, but they often choose to customize their marketing activities on the basis of the requirements of specific national markets. Economies of scale in marketing are generally evident in industries such as heavy construction, and aircraft manufacturing. These industries use the same salespeople and promotion strategy for promoting their products in different markets.
The ability to take advantage of economies of scale is influenced by the needs of local requirements. If markets worldwide accept the same product without major modification, organizations can achieve economies of scale.
Proprietary Product Technology
Organizations that have spent a considerable amount in developing proprietary technology can take full advantage of the technology if they cater to the global market. Intel was able to dominate the microprocessor market for personal computers and servers through the development of proprietary product technology. Generally, the ability to derive benefits from proprietary technology is important for organizations operating in microprocessor, semiconductors, aircrafts, turbines, and pharmaceuticals industries. The costs of research and development for developing a new product and/or modifying a product are significant in these industries. Thus, these firms require a market that is spread across the world to recover the high cost of the research and development of products.
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