GLOBAL CORPORATE STRATEGY

Global Corporate Strategy

Global Corporate Strategy

1. Demonstrate critical understanding and application of relevant theories associated with global corporate policies and strategies?

According to Michael Porter there are some factors which when developed correctly can help companies gain a competitive advantage which can not be easily broken by other companies. There are five forces which help develop this competitive advantage, these are: threat of new entrants, rivalry among existing competitors, bargaining power of suppliers, bargaining power of buyers and threat from substitute products. (John, R. & Gilles, G.L. 1996)Rivalry is a good thing as it helps the company stay on its toes and be proactive. The concentration of companies in an industry will have an affect on the level of rivalry that will exist. The ability for the company to differentiate its products from that of other companies will also enable it to keep a competitive edge. The car manufacturing industry has some barriers to entry in the form of high startup capital costs. This keeps many new entrants from entering the market(Alderfer, 1987,, 190).

Bargaining power of suppliers depends on the number of suppliers in the market. If there are few suppliers than the supplier can demand higher prices, but if there are many suppliers, those with the lowest prices will benefit. In the long run, it is beneficial to maintain a contract with one supplier, this helps build a relationship. The supplier will understand the type of material that is needed and will be willing to cater to the company's demands.

Bargaining power of buyers depends on the number of buyers that exist in the market for that particular product. In the case of car manufacturers this is not a problem because the number of buyers is many. The world population can be considered the potential buyers of cars. For example: Honda caters to the different buyers by manufacturing different vehicles which can be bought by people in different income groups.

The threat of substitutes will always exist in the global car industry. There will always be public transport which is a substitute to purchasing any type of vehicle. The car industry is closely linked to the oil prices and the sales tax. When both these things increase, the demand for cars decreases globally. On the other hand, when both things decrease, the demand for vehicles all over the world increases because it is cheaper to purchase the car and drive it around.

Companies are being pressurized to integrate globally due to many factors such as competition and costs. Producers are moving their operations to countries where their costs are the lowest; this has lead to companies locating their factories in third world countries where labor costs are low. In the same way many car manufacturers are locating their factories in the same country where they are selling them. This is because the transportation costs of transferring cars from one country to another are very high. For example Honda has factories in Pakistan, China and ...