Ghemawat believes that this strategy is wrong. Instead of attempting to import pre-existing business models into areas where a company is expanding, Ghemawat believes that companies need to embrace what he refers to as arbitrage, the ability to exploit differences rather than similarities. Ghemawat believes that there are four dimensions of difference: cultural, administrative, economic, and geographic. Furthermore, he suggests that arbitrage, alone is not a sufficient global strategy; he understands that replication will remain an important global strategy for companies seeking an international market. However, he suggests that companies must be able to find ways to combine replication with an emphasis on arbitrage, so that differences are not seen as obstacles to the replication process, and the need to replicate is not seen as undermining local practices.
Article Summary: "Managing Differences: The Central Challenge of Global Strategy" by Pankaj Ghemawat
In "Managing Differences: The Central Challenge of Global Strategy," Pankaj Ghemawat examines globalization and how companies can grow their businesses in foreign markets. Ghemawat's premise is that an international strategy has to be comprehensive and cannot be simply a generic approach to international strategy. By adapting generic strategies, companies often overlook differences between markets, or, worse, look at those differences as disadvantages rather than advantages. He believes this means that they are not exploiting some of their most valuable assets.
He suggests...
He establishes something he refers to as an AAA Triangle framework for globalization. He examines the three basic strategies from different angles: competitive advantage, configuration, coordination, controls, change blockers, corporate diplomacy, and corporate strategy. By examining the strategies from each of these angles, a manager can chose the strategy most likely to be successful in a global venture. Determining which strategy is appropriate to use requires a company to prioritize goals because each strategy will have associated strengths and weaknesses. Adaptation refers to how companies can make their products or services more applicable to local environments. Aggregation refers to companies attempting to create large operations using economies of scale. Arbitrage, which Ghemawat has investigated in other articles, focuses on how companies can exploit the differences between the various markets. Ghemawat fleshes out some of what arbitrage means by focusing on how companies place different parts of their supply chain in different locales depending on local differences.
References
Ghemawat, Pankaj. 2001. Distance still matters: The hard reality of global expansion. Harvard Business Review, 79(8): 137-147.
Ghemawat, Pankaj. 2003. The forgotten strategy. Harvard Business Review, 81(11): 76-84.
Ghemawat, Pankaj. 2007. Managing differences: The central challenge of global strategy.
Harvard Business Review, 85(3): 56-68.
