Managing differences: the central challenge of global strategy

Managing differences: the central challenge of global strategy

Ghemawat, P., Harvard Business Review, March, 2007, Vol. 85 No. 3

Purpose – To present a framework for the evaluation of international strategy. Design/methodology/approach – Argues that the major goal of any global strategy should be to manage the differences that arise at borders,however these may be defined. Observes that many companies assume that the principal tension in global strategy is between scale economies and local responsiveness, leading them to ignore arbitrage as another available functional response to the challenges of cross-border integration. Explores globalization options in terms of adaptation to local circumstances; aggregation to achieve scale and scope economies through international standardization; and arbitrage to achieve absolute economies of through international specialization. Refers to these broad strategies as the “AAA Triangle” framework for globalization. Compares the characteristics of these three strategies,identifying differences and tensions between them in terms of competitive advantage, configuration, coordination, controls, change blockers, corporate diplomacy and corporate strategy. Gives examples illustrating the ways in which companies can combine two of these strategies to achieve competitive advantage. Explains the need to deploy a broad range of integrative devices including“hard” elements like structures and systems and “soft”factors such as style and socialisation. Considers the constraints that make it more difficult to use all three elements of the framework simultaneously and describes how one diagnostic-imaging company used the AAA Triangle to create its globally competitive strategy. Concludes with a summary of the broader lessons about global strategy development that emerge from this approach.

Keywords: Corporate strategy, Globalization, International trade,Strategic choice