International strategies are a kind of expansion strategies that need firms to market their products or services beyond the domestic market. For this purpose, a firm would have to assess the international business environment, assess its own capabilities, and develop strategies to enter foreign markets.
Some firms, when they face slower growth rates at home or a restricted domestic market open up new markets in other countries. This has been a major reason for Japanese expansion. Before exploring the international markets further, firms must identify and consider a critical mass of GNP, population growth, competitor activity in the market, ability to produce domestically or in the foreign market.
Sometimes firms can introduce new products sooner in a foreign market than at home. For instance, U.S.-based pharmaceutical firms do so.
Sometimes firms may find that producing in that location can be more beneficial than exporting to a given country. For example, a host government may restrict imports to the country if there is a given level of ‘domestic-content’ production in existence. Such protective policies serve as a trade barrier, accordingly, companies tend to establish manufacturing and marketing facilities in each major country in which they do business. However, some countries provide incentives to locate production facilities there. For the same reason, supplier will often locate new facilities in countries where their customers are located. Japanese car companies established manufacturing plants in US Supply of raw materials or technology may also be a reason for choosing to locate production facilities in another country. For example Canadian firms have invested in developing nations where new deposits of important ores or other resources have been found. It should be noted that movement toward international markets is frequently incremental. Most firms begin by exporting that involves relatively low investment and risk. Then a firm may engage in a joint marketing venture with a foreign local who will act as its agent. Once a foreign presence is obtained, the firm may decide to expand its activities. Expansion at this stage may take place in the development of specialized products, new investments in local manufacturing facilities or direct investment in the foreign market.
There are four types of internationalization strategies: international strategy, multi-domestic strategy, global strategy, and transnational strategy.
1. International strategy:
Companies pursue an international strategy to create value by transferring valuable skills and products to foreign markets where indigenous competitors falls short of those skills and products. Most international companies such a Coca Cola, McDonald, IBM, Kellogg, Proctor and Gamble, Microsoft and several others have created value by transferring differentiated products developed at home to new markets overseas. Such firms tend to centralize product development functions at home. An international strategy makes sense if a company has a valuable distinctive competency that indigenous competitors in foreign markets do not have and if the company faces relatively weak pressures for local responsiveness and cost reductions. In these conditions, an international strategy can be very profitable.
2. Multi-domestic strategy: Companies pursue a multi-domestic strategy when they make an effort to achieve maximum local responsiveness and extensive local customization by matching their products and services to different national conditions prevalent in the countries they operate in. They also tend to establish a complete set of value- creation activities such as production, marketing and R&D in each major national market in which they do business. They often have a high-cost structure because they are unable to realize value from experience curve effects and location economies and that makes this strategy inappropriate in industries where cost pressures are high.
3. Global Strategy: Companies pursuing a global strategy focus on a low-cost approach for increasing profitability by reaping the benefits of experience-curve effects and location economies. Their production, marketing, and R& D activities are concentrated in a few favorable locations. Global companies do not tend to customize their products and marketing strategy to local conditions but prefer to market a standardized product worldwide so that they can reap the maximum benefits of the experience curve.
4. Transnational strategy:
Firms follow a transnational strategy when they adopt a combined approach of low-cost and high local responsiveness at the same time for their products and services. In today’s environment, competitive conditions are so intense that in order to survive in the global marketplace companies must exploit experience- based cost and location economies, transfer distinctive competencies in the company, and simultaneously heed to pressures for local responsiveness. To achieve these two contradictory objectives is quite difficult. This calls for a creative approach to managing the production and marketing of products and services.
Adopting transnational strategy is possibly the only viable strategy in a competitive world. In the modern multinational companies, distinctive competencies do not dwell just in the home country but can develop in any of the company’s worldwide operation. The flow of skills and product offering should not be all one way, from transnational firm situated in a developed country to its subsidiaries in the developing countries. Rather, the flow should be a two way process from foreign subsidiary to transnational firm, and from foreign subsidiary to foreign subsidiary. This process is called ‘global learning’. Companies that pursue a transnational strategy are tying to simultaneously achieve low-cost and differentiation advantages.
This strategy suffers from a number of disadvantages:
Some firms, when they face slower growth rates at home or a restricted domestic market open up new markets in other countries. This has been a major reason for Japanese expansion. Before exploring the international markets further, firms must identify and consider a critical mass of GNP, population growth, competitor activity in the market, ability to produce domestically or in the foreign market.
Sometimes firms can introduce new products sooner in a foreign market than at home. For instance, U.S.-based pharmaceutical firms do so.
Sometimes firms may find that producing in that location can be more beneficial than exporting to a given country. For example, a host government may restrict imports to the country if there is a given level of ‘domestic-content’ production in existence. Such protective policies serve as a trade barrier, accordingly, companies tend to establish manufacturing and marketing facilities in each major country in which they do business. However, some countries provide incentives to locate production facilities there. For the same reason, supplier will often locate new facilities in countries where their customers are located. Japanese car companies established manufacturing plants in US Supply of raw materials or technology may also be a reason for choosing to locate production facilities in another country. For example Canadian firms have invested in developing nations where new deposits of important ores or other resources have been found. It should be noted that movement toward international markets is frequently incremental. Most firms begin by exporting that involves relatively low investment and risk. Then a firm may engage in a joint marketing venture with a foreign local who will act as its agent. Once a foreign presence is obtained, the firm may decide to expand its activities. Expansion at this stage may take place in the development of specialized products, new investments in local manufacturing facilities or direct investment in the foreign market.
There are four types of internationalization strategies: international strategy, multi-domestic strategy, global strategy, and transnational strategy.
1. International strategy:
Companies pursue an international strategy to create value by transferring valuable skills and products to foreign markets where indigenous competitors falls short of those skills and products. Most international companies such a Coca Cola, McDonald, IBM, Kellogg, Proctor and Gamble, Microsoft and several others have created value by transferring differentiated products developed at home to new markets overseas. Such firms tend to centralize product development functions at home. An international strategy makes sense if a company has a valuable distinctive competency that indigenous competitors in foreign markets do not have and if the company faces relatively weak pressures for local responsiveness and cost reductions. In these conditions, an international strategy can be very profitable.
2. Multi-domestic strategy: Companies pursue a multi-domestic strategy when they make an effort to achieve maximum local responsiveness and extensive local customization by matching their products and services to different national conditions prevalent in the countries they operate in. They also tend to establish a complete set of value- creation activities such as production, marketing and R&D in each major national market in which they do business. They often have a high-cost structure because they are unable to realize value from experience curve effects and location economies and that makes this strategy inappropriate in industries where cost pressures are high.
3. Global Strategy: Companies pursuing a global strategy focus on a low-cost approach for increasing profitability by reaping the benefits of experience-curve effects and location economies. Their production, marketing, and R& D activities are concentrated in a few favorable locations. Global companies do not tend to customize their products and marketing strategy to local conditions but prefer to market a standardized product worldwide so that they can reap the maximum benefits of the experience curve.
4. Transnational strategy:
Firms follow a transnational strategy when they adopt a combined approach of low-cost and high local responsiveness at the same time for their products and services. In today’s environment, competitive conditions are so intense that in order to survive in the global marketplace companies must exploit experience- based cost and location economies, transfer distinctive competencies in the company, and simultaneously heed to pressures for local responsiveness. To achieve these two contradictory objectives is quite difficult. This calls for a creative approach to managing the production and marketing of products and services.
Adopting transnational strategy is possibly the only viable strategy in a competitive world. In the modern multinational companies, distinctive competencies do not dwell just in the home country but can develop in any of the company’s worldwide operation. The flow of skills and product offering should not be all one way, from transnational firm situated in a developed country to its subsidiaries in the developing countries. Rather, the flow should be a two way process from foreign subsidiary to transnational firm, and from foreign subsidiary to foreign subsidiary. This process is called ‘global learning’. Companies that pursue a transnational strategy are tying to simultaneously achieve low-cost and differentiation advantages.
This strategy suffers from a number of disadvantages:
- This strategy is not easy to pursue.
- Pressures for cost reductions and local responsiveness place conflicting demands on a company.
- Being locally responsive raises costs making cost- reductions difficult to achieve.
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