Businesses exist to serve specific clientele depending on the offerings of the company. Strategies are formulated by businesses to reach their target clientele depending on their dispersion or concentration in a region or countries. It is this classification that gives rise to either a local or a global strategy for enterprises.
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Local strategy refers to the plan of actions adopted by organizations in their bid to reach out to their local markets (Donaldson & O’Toole 2007). The policies adopted by an organization are usually meant to position it competitively in the market, relative to its competitors. Local strategy for enterprises has been discussed in the light of the three generic strategies as suggested by Michael Porter.
The first strategy is cost leadership, where operational costs are kept low. This gives the organizations an advantage over their competitors in that they are capable of competing on price without having to operate at losses. The strategy is implemented through the application of technology in business, which eliminates costs such as labor costs and streamlines the production process.
Another strategy is that of differentiation; where enterprises set aside their products and services from those of their competitors through such aspects as unique product features, unique performance or exceptional skills (Dirisu & Ibidunni 2013). The third strategy is focus strategy, where firms concentrate their efforts towards an identified customer segment. (Dirisu & Ibidunni 2013).
Advantages of a local strategy
The local strategy has several advantages. To begin with, it leads to increased corporate profits. Making profits is the primary reason for doing business.
Profits are maximized when the expenses of the business are kept low. The local strategy ensures that the business avoids costs such as expatriate costs, import, and export duties as well as higher corporate tax rates charged by most countries to non-resident companies. In the process, business profits are maximized.
Secondly, local business strategy leads to customer retention. It involves trying to satisfy the needs of customers in a limited location as opposed to concentrating the marketing efforts on a vast customer base. This leads to a better understanding of the needs of customers and meeting them, which results to increase in sales and more profits for the company.
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Thirdly, the local strategy creates a positive image in the minds of the company’s customers. An organization operating only in the local market can concentrate its efforts towards the creation of satisfied customers.
The fact that the organization is not eyeing on international customers makes it use its revenue reserves in ways such as corporate social responsibility activities towards its stakeholders as opposed to funding expansion programs. This creates a positive image of the enterprise in the minds of its stakeholders, thus breeding their loyalty to the company.
Finally, the local strategy is instrumental in better understanding the wants of the customers and how to convert them into needs. The marketing concept requires that enterprises recognize the needs of customers first and then set out to satisfy them, as opposed to making products and then look for markets to sell the goods (Schmitt 2011).
Disadvantages of a local strategy
Despite the many cases for a local strategy, it has several disadvantages. First, the local strategy is risky compared to the global strategy.
The essence of going into global markets is to diversify the risk of the investment to different geographical segments so that in case the prevailing market conditions in the domestic country are not favorable, the favorable conditions in the foreign markets can compensate for those shortcomings. The local strategy thus raises the risk of the business that could force them into liquidation faster than those companies that employ a global strategy.
Secondly, sometimes there are business opportunities in the foreign markets, which are potentially profitable investments for the enterprise.
Adopting a local strategy for a business means that it cannot seize opportunities that come as a result of globalization. If competitor companies take advantage of these opportunities, it leaves the local companies vulnerable to adverse competitive strategies by the competitors which can drive the local company out of the market.
Thirdly, the local strategy could hinder innovation in businesses. This is because the business is limited to local expertise, hence no exposure to other ways of doing business from experts outside the country. Technology application by the business is in most cases done after other businesses adopt the technology, which makes the enterprise a market follower as opposed to being a market leader.
Enterprises adopt local strategies in order to seize opportunities in the domestic markets. This takes the form of strategies such as being the cost leaders, differentiating their products and focusing on particular customer segments.
This has the advantages of increasing profits, retaining customers, creating a positive corporate image as well as enabling the company to turn customer wants into needs that can trigger a purchase. Disadvantages are that it increases the business risks, inability to take up opportunities in the foreign markets and hindering the innovativeness of the business.
Dirisu, J & Ibidunni, O 2013, ‘Product Differentiation: A Tool of Competitive Advantage and Optimal Organizational Performance -A Study of Unilever Nigeria Plc’, European Scientific Journal, vol. 34, no. 9, pp. 1857-7881.
Donaldson, B & O’Toole, T 2007, Strategic market relationships : from strategy to implementation, 2nd edn. Wiley, Hoboken.
Schmitt, B 2011, Experience marketing : concepts, frameworks and consumer insights, Now, Hanover.