In this article, Hari Sripathi asks if growing globally is the right move for your business.
Companies, in particular, those headquartered in large domestic markets such as the US, China and India, often tend to wonder out loud why, if at all, it is necessary to grow globally? While it is definitely appealing to build a global brand, many bottomline focused companies prefer taking the safe route of competing only at home. The various complexities of growing internationally further convince executives to play it safe and stick to their well-known turfs.
In his seminal book, Defining Global Strategy, Pankaj Ghemawat lies out a few critical reasons why companies should consider global expansion. Below is a modified list of strategic imperatives based on my own experiences:
Building a larger customer base: Probably the most obvious rationale for going global is to build a larger customer base. Simply put, the more markets you play in, the larger your addressable customers will be
Reducing per unit costs with scale: More customers result in higher utilization of fixed assets thus reducing costs overall. These costs could include technology systems, go to market expenditure including marketing and product development costs including R&D
Improving pricing power with a global presence: Ensuing from a broader customer base and an ability to deliver at scale is the increased pricing power that emanates from being a global brand. With the pervasiveness of social media, the best global brand develop local relevance around the world
Improved buying power with global scale: A presence in multiple countries helps greatly improve the ability to negotiate with suppliers, distributors and other network partners such as technology providers
Mitigating risk by smoothing out demand: This is particularly true for companies with heavily centralized assets that need to be deployed at scale. A presence in multiple countries helps mitigate seasonalities and operational risks by balancing these across different markets. That said, risk mitigation is often not achieved to the extent envisioned particularly when countries a company operates in are fairly similar and exposed to the same risks.
Key points include:
- A larger customer base
Supply chain issues
Read the full article, Why Grow Globally At All?, on Linkedin.