International business strategy
|International business strategy|
International business strategy is the long-term plan that an organization uses to guide its operations in the global marketplace. It involves analyzing the competitive environment, formulating competitive strategies, selecting target markets and developing marketing, operational and financial plans to achieve the organization’s objectives. It also involves managing resources, international investment and leveraging competitive advantages through alliances and joint ventures. International business strategy is a dynamic process, as it needs to be regularly reviewed and adjusted to respond to changing economic, political and cultural conditions.
Example of international business strategy
- Market entry strategy: A market entry strategy involves assessing and analyzing the target market, formulating competitive strategies, deciding on the form of market entry (e.g. direct export, licensing, franchising, joint venture or wholly owned subsidiary) and developing marketing, operational and financial plans accordingly. For example, a company may decide to enter a new market with a wholly owned subsidiary to control costs and ensure the highest quality of products and services.
- International pricing strategy: An international pricing strategy involves setting prices based on the target market’s economic and political conditions, the value of the product to the target market, the cost of production, the currency exchange rate, and government regulations. For example, a company may set a higher price for its product in a developed market with higher wages and a lower price in a developing market with lower wages.
- Global expansion strategy: A global expansion strategy involves expanding beyond a company’s home market by identifying and entering new markets. This may involve setting up a presence in the target market (e.g. a wholly owned subsidiary, joint venture or franchise) or entering into strategic alliances with local partners. For example, a company may enter a new market through a joint venture with a local partner to leverage the partner’s local knowledge and resources.
- International marketing strategy: An international marketing strategy involves developing marketing plans that take into account the target market’s culture, language, customs and regulations. It also involves developing an effective distribution network, pricing structure and promotional campaign tailored to the target market. For example, a company may develop a marketing campaign that is sensitive to religious or cultural beliefs in the target market.
When to use international business strategy
International business strategy should be used when an organization is looking to expand into new global markets, capitalize on global opportunities, and increase its competitive advantage. It is particularly relevant when an organization is looking to develop an international presence and expand its operations, as well as when it needs to create and maintain a competitive edge. The main applications of international business strategy include:
- Establishing an international presence: Developing an international presence requires a clear strategy for global expansion, including selecting target markets and identifying the best methods for entering those markets.
- Exploiting global opportunities: Utilizing international business strategy can help an organization identify and capitalize on global opportunities, such as new markets and sources of revenue.
- Sustaining competitive advantage: By leveraging competitive advantages, such as access to resources, cost advantages, and technology, international business strategy can help an organization create and maintain a competitive edge.
- Managing resources: International business strategy can be used to determine how to best manage resources, such as personnel, capital and technology, and how to allocate them to maximize their potential.
- Developing international investments: International business strategy can help an organization identify and develop international investments and alliances to gain access to new markets and resources.
Types of international business strategy
International business strategy can take many forms, ranging from a focus on exports to a more complex approach that involves joint ventures, alliances and other forms of cooperation. The following are some of the most common types of international business strategies:
- Global Strategy: A global strategy involves a company actively operating in multiple countries and markets, leveraging its resources to gain competitive advantages across the world. This strategy typically involves significant investments in production, marketing and research and development.
- Multidomestic Strategy: This involves a company adapting its operations to local markets, with decisions being made on a country-by-country basis. This strategy involves tailoring products and services to local tastes and preferences and leveraging local resources and networks.
- Transnational Strategy: This type of strategy involves a company attempting to balance global integration with local responsiveness. Companies with this strategy seek to identify and capitalize on regional and global opportunities, while still paying attention to the needs of individual local markets.
- International Strategy: This strategy involves a company operating relatively autonomously in each international market. Companies with this strategy focus on exports, often relying on local distributors to handle sales, marketing and distribution.
- Strategic Alliances: Strategic alliances involve two or more companies joining forces to leverage each other’s resources and capabilities. Companies with this strategy share risk, resources and rewards and benefit from economies of scale and increased market access.
Advantages of international business strategy
International business strategy offers a variety of advantages to organizations operating in the global marketplace. These include:
- Increased Market Access: By entering foreign markets, companies can tap into new sources of revenue and expand the size of their customer base.
- Cost Savings: Companies can often purchase inputs and services more cheaply in foreign markets and take advantage of lower production costs.
- Diversification: Companies can reduce risk by diversifying their operations across multiple markets and countries.
- Innovation: Companies can gain access to new technologies and ideas through collaboration with overseas partners.
- Competitive Advantage: Companies can leverage their international presence to gain a competitive edge over rivals.
- Brand Recognition: Companies can build a strong global presence and gain brand recognition by expanding into foreign markets.
Limitations of international business strategy
International business strategy can be complex and difficult to implement, and come with several limitations. These include:
- Uncertainty: It is difficult to accurately forecast the future, and this is especially true when it comes to international business strategy. Factors such as political instability, economic fluctuations, currency devaluation, and trade regulations can quickly cause a company’s plan to become obsolete.
- Complexity: The global marketplace is complex and constantly changing. Companies must be able to navigate different regulations, cultures, and markets in order to be successful. This requires an in-depth understanding of the local environment, as well as the ability to adjust quickly when needed.
- Cost: Implementing an international business strategy can be costly. Companies must pay for resources, personnel, and infrastructure, in addition to the costs associated with marketing, advertising, and research.
- Risk: Entering a new market carries risk. Companies must be prepared to deal with potential losses due to currency fluctuations, political instability, and other unforeseen events.
- Time: Developing and implementing an international business strategy can take time. Companies must be prepared to invest the resources and effort needed to ensure success.
In addition to international business strategy, there are several other related approaches that organizations use to guide their activities in the global marketplace:
- Globalization Strategy: This strategy focuses on adapting products and services to multiple markets and cultures in order to maximize the organization's global reach. It involves identifying and analyzing global market opportunities and evolving a business model to capitalize on them.
- International Trade Strategy: This strategy involves assessing the organization's export potential, identifying target markets and formulating plans to ensure successful export operations. It also involves developing cost-effective transportation and logistics solutions in order to reduce costs and maximize profits.
- Mergers and Acquisitions Strategy: This strategy involves identifying potential merger or acquisition targets and formulating plans to ensure successful integration. It involves analyzing the target company's operations, evaluating potential synergies and formulating strategies to ensure successful integration.
- Strategic Alliances: This strategy involves forming strategic alliances with other organizations in order to gain access to new markets, technologies or resources. It involves identifying potential partners, negotiating terms and developing plans to ensure successful implementation.
In summary, international business strategy is the long-term plan used to guide an organization's operations in the global marketplace. It involves analyzing the competitive environment, formulating competitive strategies and selecting target markets. Other related approaches include globalization strategy, international trade strategy, mergers and acquisitions strategy, and strategic alliances.
- Verbeke, A. (2013). International business strategy. Cambridge university press.
- Ghemawat, P. (2003). Semiglobalization and international business strategy. Journal of international business studies, 34, 138-152.