Johnny Ch Lok

The Basic Of Global Management Strategy Johnny Ch Lok

I shall explain the reasons that why many firms need to make global management strategy decision as below:1. Cutting Costs Strategically ReasonThe business environment today has become extremely competitive. Companies are not only facing competition from their local competitors but also from global ones. Different economic and geopolitical factors make global supply chains necessary. The problem with having global supply chains is that operations become broad and complex. It is much easier to manage operations located in the same geography rather than those located in multiple countries. Rising costs and increasing competitiveness are making it mandatory for companies to cut costs. Corporations also agree that up to 25% of their expenditures are wasteful in nature and could be eliminated. The problem is that they do not know which 25%? Cutting the wrong kind of costs can lead to a decline in quality or customer service, both of which are sure to reflect as declining sales in the near future. In this article, we will understand the concept of strategic cost cutting and how it adds value, especially to global supply chains. What is the Problem with Cost Cutting ?Cost cutting can be very ugly if proper attention is not paid to how it is done. For instance, cost-cutting can lead to job losses. It can also lead to suppliers not being paid on time and so on. The common link in ugly cost cutting is that the company tries to benefit by undermining somebody else's interest. In the short-run, it might appear that every dollar saved will directly add to the bottom line. However, in the long-run, one will see the quality of products and services dropping drastically. Thus, cost cutting if done incorrectly can cause the revenue of the company to fall. The damage done could be severe if the company begins to lose loyal customers. Competency Based Approach Instead, cost cutting should follow a strategy. That means that every single cost reduction must be a step towards achieving a larger goal. The common goal that most successful companies pursue is when they decide to align with their competencies. Large multinational companies do a lot of things. For instance, consider a company like Nike. It is in the business of marketing sportswear. However, the company does not manufacture any of the products it sells. The company identifies itself as a marketing company. All the other functions which do not align with this competency are outsourced. The key thing to note is that Nike keeps its marketing department extremely well-funded. The core competencies are provided the resources to be the best in the global marketplace. Other less strategic tasks are outsourced to cut costs. This enables Nike to cut costs where things matter less and to redirect the financial muscle to future investments that will allow the business to thrive and to grow even faster.