Strategy in International Business
International business strategy refers to plans that guide commercial transactions taking place between entities in different countries. Typically, it refers to the plans of actions or policies designed to achieve an overall goal of private companies rather than governments; as such, one goal may be increased profits. One reason for making investments in international markets would be to generate higher returns than firms would achieve on investments made in their domestic markets.
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Global Strategies
Multidomestic strategy is a set of strategies used bycompaniesthat operate in more than one country at a time. Or simply defined as a business that uses a different approach in each of the markets it operates in.
This strategy can maximize local responsiveness by distributing the decision-making authority to local business groups in each country. Therefore they can create products and services better developed to their local markets. It also allows firms to compete more effectively in the local market to increase their share in that market. One disadvantage of a multi-domestic strategy, however, is that the firm faces more uncertainty because of the tailored strategies in different countries. Also, because the firm is pursuing different strategies in different locations, it cannot take advantage of economies of scale that could help decrease costs for the firm overall.
For example: “YUM! Brands (KFC, Pizza Hut, Taco Bell, A&W, and Long John Silver’s) They have a strong incentive to compete internationally with its restaurant concepts. They pursue multi-domestic strategy by trying to localize as much as possible. The firm doesn’t open restaurants using only the US model.”(Williams, 2018)
Global Strategy is when an organization treats the world as one market and one source of supply with little local variation, which they believe maximizes global efficiency. Using this strategy, products are more likely to be standardized rather than tailored to local markets. Although pursuing a global strategy decreases risk for the firm, the firm may not be able to gain as high a market share in local markets because the global strategy isn’t as responsive to local markets.
Transnational Strategy is when a business seeks a middle ground between a multi-domestic strategy and a global strategy. A business tries to balance the desire for efficiency with the need to adjust to local preferences within the various countries they operate. One disadvantage is that it is difficult to simultaneously execute the dual goals of flexibility and coordination.
According to Beardsley (2012) ” Large fast-food chains such as McDonald’s and Kentucky Fried Chicken (KFC) rely on the same brand names and the same core menu items around the world. These firms make some concessions to local tastes too. In France, for example, wine can be purchased at McDonald’s. This approach makes sense for McDonald’s because wine is a central element of French diets.”
Why It Matters
There are four primary benefits of using international strategies:
- Increased market size
- Greater returns on major capital investments or investments in new products and processes
- Greater economies of scale, scope, or learning
- A competitive advantage through location (for example, access to low-cost labor or critical resources)
By choosing appropriate global strategies, a business firm can locate its different operations given the consumer market, low-cost labor supply and availability of raw materials and other productive resources. For example, a country like India may choose to count on software and R &D work because of easy availability of highly skilled techno-geeks for relatively lower salaries.
Finally, by entering the global marketplace, a business can learn how to compete against foreign companies and even learn to battle them for market share on their own territory.
Examples Here in Utah
Utah is one of the few states in the nation with a trade surplus of $4 billion, and it ranks ninth for export growth in the United States. These numbers show an impressive feat for a small, landlocked state.
So what does this all mean for Utah? According to Miller (2016) the state’s 2014 international goods exports generated $4.1 billion in earnings, supported more than 95,000 jobs and contributed almost $7.6 billion to the state’s gross domestic product. These impacts represented 4.8 percent of total earnings in the state, 5.3 percent of total employment and 5.4 percent of total GDP. It is hard to argue with those economic benefits.”
References
[Author removed at request of original publisher]. (2016, March 22). Mastering Strategic Management. Retrieved March 30, 2018, from http://open.lib.umn.edu/strategicmanagement/chapter/7-4-types-of-international-strategies/
Beardsley, E. (2012, January 24). Why McDonald’s In France Doesn’t Feel Like Fast Food. Retrieved from https://www.npr.org/sections/thesalt/2012/01/24/145698222/why-mcdonalds-in-france-doesnt-feel-like-fast-food
Chapter 10-International Strategy. (n.d.). Retrieved April 3, 2018, from https://elearn.uta.edu/bbcswebdav/users/jmcgee/Syllabus/Content/Syllabus and Course Content/pdf/Chapter 10.pdf
Global Connections: A snapshot of international business in Utah. (2016, July 08). Retrieved from https://utahbusiness.com/global-connections-a-snapshot-of-international-business-in-utah/
International and Global Strategy. (n.d.). Retrieved March 1, 2018, from http://www.Global-strategy.net/
Miller, D. B. (2016, July 08). Global Connections: A snapshot of international business in Utah. Retrieved from https://utahbusiness.com/global-connections-a-snapshot-of-international-business-in-utah/
Reader, C. (2016, October 26). The Definition of a Multidomestic Company. Retrieved April 4, 2018, from http://smallbusiness.chron.com/definition-multidomestic-company-22154.html
Robert P. Merges and Richard R. Nelson, On the Complex Economics of Patent Scope, 90 Colum. L. Rev. 839 (http://cyber.law.harvard.edu/ipcoop/90merg2.html).
What is global strategy? And why is it important? (n.d.). Retrieved March 30, 2018, from http://www.global-strategy.net/what-is-global-strategy/
Williams, L., & Learning, L. (n.d.). International Business. Retrieved from https://courses.lumenlearning.com/suny-internationalbusiness/chapter/10-3-international-strategy/
LICENSES AND ATTRIBUTIONS
International Business by Lumen Learning is licensed under CC BY-NC-SA 4.0 / A derivative from theORIGINAL WORK
