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Articles

International Business Strategies in a Globalizing World

International Starbucks

Globalization continues to influence world economies, as reduced tariffs, enhanced communications, and increased capital mobility have allowed companies to connect to global financial markets and expand their businesses internationally. However, successful expansion into new foreign markets demands that companies adopt international business strategies that best fit their needs and capabilities. International business involves dealing with foreign stakeholders, employees, consumers and governments, and therefore, business managers need to consider many factors when conducting business in global markets, such as competition, supply chain management and pricing strategy. In order to successfully expand their consumer base and increase profitability through internationalization, companies need to spend the necessary time and resources to understand global market opportunities and choose the proper international business strategies.

Four Types of International Business Strategies

International

Using an international strategy means focusing on exporting products and services to foreign markets, or conversely, importing goods and resources from other countries for domestic use. Companies that employ such strategy are often headquartered exclusively in their country of origin, allowing them to circumvent the need to invest in staff and facilities overseas. Businesses that follow these strategies often include small local manufacturers that export key resources to larger companies in neighboring countries. However, this model is not without significant business challenges, like legally establishing local sales and administrative offices in major cities internationally; managing global logistics involving the import, export, and manufacture of products; and ensuring compliance with foreign manufacturing and trade regulations.

Despite its relative challenges, the international strategy may be the most common, because on average, it requires the least amount of overhead. Companies striving to expand internationally may try a combination of strategies to see which works the best for them in terms of logistics and profits. For example, a company may start off using the international strategy—exporting its products overseas as a way to test the international market—and gauge how successfully its products sell. Subsequently, the company may need to adjust its strategy and create a multi-domestic platform through which it can manufacture and sell its goods more efficiently.

Multi-domestic

In order for a business to adopt a multi-domestic business strategy, it must invest in establishing its presence in a foreign market and tailor its products or services to the local customer base. As opposed to marketing foreign products to customers who may not initially recognize or understand them, companies modify their offerings and reposition their marketing strategies to engage with foreign customs, cultural traits and traditions. Multi-domestic businesses often keep their company headquarters in their country of origin, but they usually establish overseas headquarters, called subsidiaries, which are better equipped to offer foreign consumers region-specific versions of their products and services. These companies also frequently lease buildings abroad to serve as sales offices, manufacturing facilities or storage for housing service operations.

Multi-domestic strategies are largely adopted by food and beverage companies. For example, the Kraft Heinz Company makes a specialized version of its ketchup for customers in India—featuring a different blend of spices—to help match the nation’s culinary preferences. However, these adjustments are often expensive and can incur a certain level of financial risk when launching unproven products in a new market. As such, companies usually only utilize this expansion strategy in a limited number of countries.

Global

In an effort to expand their customer base and sell products in more foreign markets, companies following a global strategy leverage economies of scale as much as possible to boost their reach and revenue. Global companies attempt to homogenize their products and services in order to minimize costs and reach as broad an international audience as possible. These companies tend to maintain a central office or headquarters, usually in their country of origin, while also establishing dozens of operations in countries all over the world.

Even when keeping essential aspects of their goods and services intact, companies adhering to the global strategy typically have to make some practical small-scale adjustments in order to break into international markets. For example, software companies need to adjust the language used in their products, while fast-food companies may add, remove or change the name of certain menu items in order to better suit local markets, while keeping their core items and global message intact.

Transnational

The transnational business strategy is one of the most intricate methods that businesses can employ when expanding internationally, and can be seen as a combination of the global and multi-domestic strategies. While this strategy keeps a business’s headquarters and core technologies in its country of origin, it also allows a company to establish full-scale operations in foreign markets. The decision-making, production and sales responsibilities are evenly distributed to individual facilities in these different markets, allowing companies to have separate marketing, research and development departments aimed at responding to the needs of the local consumers.

A company that employs this strategy has the challenge of identifying the best management tactics for achieving positive economies of scale and increased efficiency.
Having many inter-organizational entities collaborating in dozens of foreign markets requires a significant startup investment. Costs are driven by foreign legal and regulatory concerns, hiring new employees and buying or renting offices and production spaces. Therefore, this strategy is more complex than others because pressures to reduce costs are combined with establishing value-added activities to optimize adjustments that are necessary to gain leverage and be competitive in each local market. Given these challenges, larger corporations—such as General Electric and Toyota—typically employ a transnational strategy as they are able to invest in research and development in foreign markets, as well as establish production, manufacturing, sales and marketing divisions in these regions.

How an MBA Prepares Managers for International Business

The challenges of managing a company, whether domestic or international, can be more efficiently controlled by those who have an understanding of core business concepts and a comprehensive repertoire of analytical skills. Earning a Master of Business Administration (MBA) degree can equip professionals with the skills necessary for handling the rigors and complexities of today’s global economy. MBA coursework helps provide a framework for understanding theories and concepts on the globalization of business, along with the tools needed for leading organizational strategies in international markets.

Trends in globalization continue to have an impact on businesses in every region of the world. As organizations see more opportunities to gain foreign customers, they must be familiar with different types of international business strategies. By evaluating their organizations’ respective capabilities and the foreign markets they wish to enter, business managers can adopt strategies to help increase profits and take their organization to the next level.

Learn More

As the nation’s oldest private military college, Norwich University has been a leader in innovative education since 1819. Through its online programs, Norwich delivers relevant and applicable curricula that allow its students to make a positive impact on their places of work and their communities.

Norwich University’s online Master of Business Administration (MBA) program helps create strong leaders well-versed in business management practices. Students can customize their MBA by choosing a concentration in construction management, finance, organizational leadership, project management, supply chain management & logistics, or energy management.

Sources

https://hbr.org/1982/09/how-global-companies-win-out

http://www.cbsnews.com/news/get-your-international-business-terms-right/

https://hbr.org/1990/03/the-competitive-advantage-of-nations

https://www.economist.com/blogs/graphicdetail/2012/07/focus-1

https://www.forbes.com/sites/85broads/2011/07/01/international-business-strategy-a-journey-of-its-own/#7b9c46c9777d

https://www.economist.com/news/special-report/21707836-foreign-direct-investment-mostly-welcome-large-short-term-flows-spell-trouble

Sept 2017