Monday, July 7, 2008

Managing Differences across Borders in Global Business

Managing Differences.
By: Ghemawat, Pankaj,
Harvard Business Review,
March 2007, Vol. 85, Issue 3

The main goal of any global strategy must be to manage the large differences that arise at borders, whether those borders are defined geographically or otherwise.

In this article, I present a new framework for approaching global integration that gets around the problems outlined above. I call it the AAA Triangle. The three A's stand for the three distinct types of global strategy.

Adaptation seeks to boost revenues and market share by maximizing a firm's local relevance. One extreme example is simply creating local units in each national market that do a pretty good job of carrying out all the steps in the supply chain; many companies use this strategy as they start expanding beyond their home markets.

Aggregation attempts to deliver economies of scale by creating regional or sometimes global operations; it involves standardizing the product or service offering and grouping together the development and production processes.

Arbitrage is the exploitation of differences between national or regional markets, often by locating separate parts of the supply chain in different places - for instance, call centers in India, factories in China, and retail shops in Western Europe.

Pankaj Ghemawat is the Anselmo Rubiralta Professor of Global Strategy at IESE Business School in Barcelona, Spain, and the Jaime and Josefina Chua Tiampo Professor of Business Administration at Harvard Business School in Boston. He is the author of "Regional Strategies for Global Leadership" (HBR December 2005) and the forthcoming book Redefining Global Strategy: Crossing Borders in a World Where Differences Still Matter, which will be published in September 2007 by Harvard Business School Press.

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