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Does Global Strategy Framework apply to the SMEs?

Does global strategy framework apply to the Small and Medium-Sized Enterprises or is it designed for large multinational and global enterprises? In a globalizing economy, regions and firms are competing on an international level. Internationalization contributes to the economic development of nations in developing national industries, improving productivity and creating employment.

However, much discussion has strongly focused on large multinational enterprises while SMEs are considered too busy dealing with operational problems and events on a day-to-day basis to devote time to strategic management. Small business managers do not value formal planning, strategic thinking and a long-term vision.

The competition in the global economy becomes fiercer day by day, and as technology advances, so does the competition. In order to survive, grow and compete in this competitive global climate, entrepreneurs of SMEs have to study market conditions and implement effective global strategies.

The four elements in the global strategy framework need to be modified to suit global strategies of the SMEs. The rationale on modification is that the internationalization process of SMEs differs from the internationalization of larger firms, because of resource limitations, the liability of foreignness and newness and the importance of the owner.

In addition, SMEs not only face more and different barriers than large firms, but these barriers are often harder to overcome, given the resource limitations and the limited financing options available to internationalizing SMEs.

Furthermore, SMEs have fewer options in terms of entry mode decisions.  For SMEs, globalization activities are rather reactive than anticipatory. They are more often latecomer than pioneers. Under global strategic ambition, the SMEs need to configure their operations relative to target market segment. A major concern is resource limitation.

However, a SME can enter into joint venture or collaborate with already established international firms, for instance a local SME may distribute products of the firm.

A global strategy is aimed at meeting a global challenge because without it, survival or success in the global business environment may be difficult. To be able to go to the implementation of the business strategy, clear choices have to be made among these options.

The entrepreneurs need to decide on how to position its business in the target market based on the potential opportunities. That means it has to take decisions on what products or services to offer, which group of customers to target and how sees this process of choosing the right strategic position as the essence of strategy. The entrepreneur can either position itself as a global differentiator or cost leader when entering the international business as its competitive strategy.

The entrepreneur requires identifying within its industry and integrating its business system within company by deploying necessary resources, assets and competencies in the specific value chain. 

However, due to resource limitation, the SME can only focus on specific activities of its value chain by spreading its activities in their target market (area of operation).  SMEs will hence organize its operations based on its ambition, positioning and business system in coordinating

A strong global organization gives an organization and its employees direction and provide stability to drive on global ambition, positioning and system of operation’s to achieve its sustainable competitive advantage.

Though many SMEs lack an explicit global strategy, and many more have no internationalization strategy due to their sole focus on the local market. In general SMEs need to embrace collaboration with other international firms as a crucial ingredient in achieving advantage or avoiding competition at foreign market while at the same have sustainable competitive advantages to compete in their local markets (or some markets). 

Therefore, more entrepreneurs should think about internationalization as a strategic option for their firm and internationalization should be integrated in the firm’s strategy. 

Last modified on Sunday, 03 January 2016 20:07
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