Companies need to be able to respond to strategic challenges

Companies need to be able to respond to strategic challenges that they are faced with. Discuss the strategic tasks associated with achieving worldwide competitive advantage. Be sure to identify the tasks and discuss each one of them.

Solution

Solution :

In order for the firms to be competitive in the world market , they need to offer added value for global customers by providing them with benefits that are significantly better than those provided by the competitors , particularly local competitors . Firms manage these by using strategies that are appropriate to their own situation and striking a balance between the various elements to achieve worldwide competitive advantage .

The firms can exploit advantage by using different strategies such as national country differences , scale economies and scope economies . To the extent that efficiency is desired the firms can use strategies to take advantage of the differences in input and output markets or expand potential scale activities within each country , or take advantage of the synergies or economies of scope that might be available because of the diversity of the activities and organization . An example is Toyota which was able to achieve cost efficiences through the strategy of global integration of its centralized production and decision making across different subsidiaries and plants around the world .

The firms face different types of risks when operating abroad . Some are macroorganizational risks , which are associated with events such as wars and natural disasters . Other extraneous effects such as changes in interest rates and exchange rates , fall into this category . A second set of risks are political risks , or adverse consequences arising from changing governmental policies . A third type of risk is competitive , arising from competitors actions and responses . Finally a firm also faces resource risks . The strategic task is to consider these different risks jointly in the context of specific decisions . Currency risks can be accomodated through portfolio diversification or through various hedging mechanisms . Political risks can be reduced by setting up facilities in different countries . The use of supply chains adds operational flexibility that can balance adverse changes in scale integration .