**2.2 The strategic problems of firms within the new globalized era. Their strategic options and choices**

This way, passing to firms' behavior within this largely new context, we could remember that, since its appearing, the enlarging of economic competition across continents was generally recognized by firms as a fruitful opportunity to grow. Anyway, this immediate feeling maybe undervalued at first sight its problems, challenges, and in some cases threats.

Globalization imposes in fact to big firms (but gradually also to mid-sized ones and to firms in general) a continuously growing confrontation with new competitors, a fierce one in some cases, which makes them suffer from the hardest competitive challenges.

As a result, companies must achieve a set of entirely new competences, among them i) to learn to make use of global resources (capitals, raw materials, finance, technology, labor, and others), ii) to make global their own products, and iii) to expand their own "local" competitiveness connecting it to new economic spaces, at the same time defending it from the challenges of other globalized firms.

In substance, companies must implement a global competitive strategy, expanding their markets but protecting at the same time their previous ones in case they can be now offended, as competitors too can individuate some competitive weakness to attack them, in spite of the fact they are (were?) locally dominated.

So, as all international firms are trying to put into action overlapping strategies, marketing techniques, products, services to customers, and tactics, this exacerbates the problem as such and drives to the need of implementing a *differentiation strategy*, in to contrast others firms' competitive actions, with the hopeful goal to enlarge market shares first, and profits as a consequence.

Does this mean that it is difficult for a company to become global in this era, and in case to remain such? This question brings with itself a former, fundamental one: How does a company compete in an unstable, difficult environment, establishing itself in this globalized world?

As a matter of fact, the term *differentiation strategy* covers a set of different strategic options to realize it, which could be synthesized as follows: i) cost competitiveness, ii) economies of scale, and iii) technological and marketing primacy [15–23].

#### *2.2.1 Cost competitiveness*

The pure cost competition, once intended as pure labor or raw material costreduction, is generally speaking a dated choice, a no-longer adopted one, due to the higher complexity of products, markets, and consumer needs at present. This problem is anyway a twofold one.

From the point of view of old industrialized countries, firms tend to transplant, that is, to relocate in other countries (and continents in case) paying today attention to geo-politics, closeness to final demand, transportation costs. Cost reduction keeps its own role for sure, but either related to the newest technologies together with highly skilled personnel (e.g., at present, Pirelli Tyres largely producing in Rumania) or connected only to segments of the whole production-cycle (e.g., Brooks Brothers in Tunisia, China, or even Indonesia).

From the point of view of the so-called third world countries, on their turn, also cost competitiveness entered into a wholly new dimension with globalization. As a matter of fact, thanks to the same globalization, those countries are not compelled to duplicate step by step for every technological stage from the beginning to present (as Rostov presumed) [24], as they can land on (very) recent technological stages—and in some cases on the more recent ones—this way being able to join modern technologies together with relatively lower salaries. The very example of this strategy is China, which rapidly joined this way the most advanced countries of the world and then overcame them in most cases, and the same China in recent years invested (and relocating) in South-East Asia, Africa, and elsewhere to be permitted to go on the same way.

#### *2.2.2 Economies of scale*

During the '60ies of the twentieth century, the microeconomic literature (and technical one as well) firmly suggested for firms the pursuing of "economies of scale," these ones mainly intended as large-scale plants and very large in case. The underpinnings of the proposal were rooted in the less proportional growth of some costs (energy, warehouse, internal connections, and surveillance) at the growing of the plant. With respect to pure theory as well as contrary to reality in its general terms, those merely technical suggestions ignored the true firms' dynamics: ups and downs of sales, plant and equipment rigidity, transportation costs, large or even impressive depreciation, and last but not the least, the local gathering of thousands of workers in a unique plant as a socioeconomic (and urbanistic) problem.

On this point, it is relevant to leave once for all the optimizing principles of early marginalists of the Walras-type, today unfortunately still widespread in most microeconomics text and since then constraining empirical phenomena into anti-realistic mechanical models.

Some of the most important scholars in the same field of economics are in fact teaching us since the last century how to cancel the very bases of those models:


After some decades of understandable oblivion due to the abovementioned imperfections and risks, also economies of scale took a quite different meaning with globalization. They are now no longer intended from the merely plant-scale and/or manufacturing point of view, but from the standpoint of general firms' costs. The new goals of firms pursuing "economies of scale" regard now, better than ever, the general optimization of i) purchasing, ii) R&D, iii) advertising costs, and iv) transportation ones as well.

The relevance today of such optimizations needs not to be underlined here, due to the increase of raw materials costs in the last decades on one side and the larger and larger amount of expenses implied by technological advances (high R&D within electronics, informatics, aerospace, military appliances), modern marketing techniques (especially for luxury goods, fashion, jewels, food, and drink), and farer and farer world deliveries in addition to energy and labor costs.

The convenience of large-scale plants tends to remain for industries—or branches of them—where firms actuate the fully integrated cycle (oil refining, basic chemicals, basic iron, and steel), where the same output in large amounts favors the scale of operations, this way taking profit from the efficiency of processes together with the reduction of logistic costs1 .

This whole system, anyway, provided market demand is growing or constant, or taking the minimum possible variance at least [33], not to accumulate unsold stocks or even being compelled to slow or stop the production; those risks concur in explaining the large success in the last 50 years of the so-called *mini-mills* as iron and steel is regarded.

In other industrial sectors producing industrial goods, the most important problem is given on the contrary by the ratio *cost per ton*, giving plants a limited space of action: In the cement industry, for example, this space is limited to 150–200 kilometers per plant—special cements apart—which explains the obliged multi-plant structure of its firms (e.g., *Cement Lafarge* (F) climbing some decades ago to more than 500 industrial plants).

This basic difference was underlined by the same Alfred Marshall, to be true only *at the end* of his life, clearly describing it as far as in 1919 [34]:

"The central task of the heavy steel industries is the handling of great volumes of homogeneous fluid steel, ready to be worked up into an infinite variety of products large and small. There is no other group of industries, in which the forces making for the increase of the business unit are promoted in like degree by the magnitude of the aggregate volume of the homogeneous fluid material which has to be produced.

The textile industries on the other hand offer the best instances of the coexistence of numerous establishments repeating one another; because the full technical economies of large scale production (…) can be obtained by an establishment of moderate size" (p. 218)2 .

In every case, as a conclusion, the problems for firms in general, and for plant in particular, are to individuate their critical dimension in relation to i) industry, ii) served markets and market segments, and iii) competitors.

<sup>1</sup> Within the business the world of business, in the chemical basic industry the increase of costs is reported to be 1/6 of the increase of plant dimensions.

<sup>2</sup> The quote in the text refers to the 1927 edition.

### *2.2.3 Technological or marketing primacy, segmental dominance included*

The abovementioned cross-world competition brought with itself large changes also as regards both technological and marketing primacies.

The need to be able today to sell all over the world emphasized the role i) of brands-innovation-advertising-distribution for high segments from electronics to information, to fashion and jewels, to cars to food-liqueurs-champagnes, and to armaments and weapons, ii) of brand and distribution for mid-level ones, and iii) of cost control and distribution for lower ones.

Innovation, performances, and in some cases uniqueness became relevant for luxury goods, price-quality relation for mid-quality ones, and price for lower ones.

In every case anyway, and much more frequently than before due to world communications and the WEB, brand recognizing became relevant for every market (the so-called world brands), but nevertheless also for specialized or "minor" segments, as these too got transformed from local-national to continental to world ones in some cases.

In addition, the larger economic resources expanded all over the world due to economic advances, to public and private debts, and to printing of money by States and privates (crypto-currencies), and increased both the quantity of demanded goods and the quest for quality by every group of consumers. Within industrialized countries, we face in fact today a large tendency to high tastes in every market and field, not to speak of such presences as advertising addicts /glamor influences/till the reckless passions by the so-called fashion victims. These factors concur to explain the transition of many global firms to superior-upper segments of demand, and consequently to new product-portfolio strategies.

In addition, we must keep in mind that a further result is the fierce competition now in action, which implies a relevant increase of costs for every type of firm in particular as far as R&D, advertising, and distribution are concerned, the very local ones being the only ones excluded from these commitments.

A further problem is also represented by the insufficiency of i) mass production, ii) new design of products, and iii) price/quality levels conform to the new international standards, to guarantee the success of companies in the new era of globalization, or to make *per se* a company global. As a matter of fact, for most companies in the consumer goods industries, it is now necessary to be aware of getting new approaches regarding the following:


Testimonials (and moreover *influencers*) are equally important in mid-level segments, together with media advertising and, especially in the fashion industry, the opening of the so-called *sentinel point of sales* in cities where, right or wrong, be they San Francisco, Palm Beach, London, Paris, or others, and the individuation of styles /colors/fashion in general is forerunning the just subsequent mass tendencies.

Quite a different story, on their side, for producers of industrial goods, technical appliances and machinery in general, it is well known that in these fields the critical factors of success are quite different ones, mentioning here four of them just to remember the most important ones:


All the abovementioned factors contribute to explain the gigantic growth of M&A, mergers, and acquisition as a rapid tool to achieve, case by case, some special goals, or a multiple set of them as well [35]. According to the renewed company goals of today *multi-polar world*, divestment, acquisitions, and mergers in case can rapidly help in the following:

