What are International Strategies?

International strategies are formulated to set directions for businesses in two or more countries. To take a business international entails the managers developing global marketing strategies that work within a tightly allocated budget while engaging in activities to add value on a global level. These strategies should allow an organization to operate in the expansive international markets by forging meaningful partnerships with global allies and compete with foreign players. Managers will have to develop efficiency and flexibility at a multinational level. At the same time, they need to be innovative and build knowledge on a worldwide stage. The strategic objectives that drive an international firm are efficiency to reduce operational costs on a global level, flexibility to handle country-specific challenges using local resources & opportunities, learning to develop the organization’s skills, capabilities, technologies, and products from the knowledge acquired through global experiences.

Types of International Strategies

Globalization has led to organizations crossing over national borders to conduct business on international shores. These companies are often referred to as multinationals, transactional companies, global businesses, or international firms. As per the Barlett & Ghoshal Matrix (1989), these businesses can be clustered as per global integration and local responsiveness. Globally integrated businesses offer a standardized product worldwide. This objective can be achieved by the organization by cutting costs through economies of scale. Locally responsive businesses have to adapt the product offering as per local sensibilities. Though these strategies are mutually exclusive, there are companies that have incorporated global integration and local responsiveness as a part of their business strategy. Combining these two differentiations, businesses with international operations can further choose to be Global, multi-domestic, international, or transnational.

(Ghoshal, 2017)

Multi domestic – Low Integration and High Responsiveness

A company uses a multi-domestic strategy to meet the needs of the local market by adapting and customizing its products & services according to the local sensitivities. Such multi-domestic companies usually have a decentralized structure, where global subsidiaries operate autonomously, without taking directives from headquarter.  

For example – Nestlé uses a multi-domestic strategy to adopt a unique sales and marketing approach for different markets. It also customizes its products as per the local tastes.

Global – High Integration and Low Responsiveness

Companies following a global environment integration offer a standardized product globally and strive to maximize efficiencies to reduce costs. Such companies are centralized, and the subsidiaries operate directly under headquarter.

Example – Pharmaceutical Company Pfizer follows a global strategy.

Transnational – High Integration and High Responsiveness

A company with a cros-border transnational strategy incorporates both global and multi-domestic characteristics. Such firms strive to maximize local responsiveness along with reaping the benefits of foreign direct investment. The transnational strategy uses economies of scale to reduce costs in the upstream value chain like the manufacturing process. The downstream activities like sales and marketing mix are flexible and adapted to the local standards. Transnational companies follow an integrated subsidiary network worldwide.

Example – Unilever is a classic example of a transnational company that fulfills both strategic objectives.

International – Low Integration and Low Responsiveness

International strategy is also known as an exporting strategy. Multinational companies following the international strategy do not need global integration or local adaptation. The majority of activities in the value chain are under headquarters’ control. Products are manufactured in the host country, and subsidiaries function as local channels to sell to the consumers.

Example – Wine giants from Italy and France produce wine in their home country and are exported worldwide.

Multinational Enterprises Archetype of Administrative Heritage

Companies operating internationally can be distinguished into four main archetypes based on their administrative heritage.

Centralized Exporter

A centralized exporter is a firm that operates in the home country and trades internationally. The manufacturing process takes place in the home country, and international subsidiaries act as facilitators to support efficient production in the home country and sales in the host country.

International Projector

The MNCs transfer their proprietary knowledge from the home country to the foreign host country worldwide. These international subsidiaries are clones of the home set-up as the business model is simply followed in the new international markets. For example, the very successful business model of Disneyland has been copied and followed the world over.

International Coordinator

Unlike the above two archetypes, the international coordinator manages and controls all upstream and downstream activities in the value chain. An international coordinator taps into advantages from various countries to structure an efficient vertical value chain overseas. Such establishments source raw materials and manufacture parts in multiple countries, and assemble the product in a country that offers cheap labor. For example, the components for iPhone, Apple’s flagship product, are bought from various worldwide suppliers, but the phone is assembled in China. Designing and marketing of the phone remain in control of Apple’s headquarter in California.

Multicentered MNE

The multicentered MNE or MNC is based on the foundation of local responsiveness. It consists of global entrepreneurial subsidiaries, and only the financial governance and the interests of the founding company are shared. Multicentered MNEs are essentially autonomous businesses. For example, Philips used the multicentered approach in the initial years of its operations.

CAGE Distance Framework

Developed by management strategist Pankaj Ghemawat, CAGE Distance Framework helps companies evaluate the diversity between countries while developing international strategies. According to Ghemawat, the distance between countries is defined by the varying factors between the countries and not just the physical distance. The framework throws light on the risks and the opportunities involved in global expansion. The factors are grouped as per the acronym CAGE - cultural, administrative, geographic, and economical.

Cultural Distance

Cultural distance is defined by the beliefs, values, and social systems that drive the sensibilities of the consumers and businesses in a country. Language, religion, ethnicity, and race can define the behavioral patterns of an individual or a business organization. Cultural attitudes might result in resistance shown towards big businesses and halt expansion plans. 

Administrative Distance

Administrative distance includes political & historical ties and the presence of free trade agreements or the absence of it. The corruption level present in any international government is also a part of the administrative distance.

Geographic Distance

Geographic distance is the actual physical distance between the host country and the home market. Climatic differences and the capacity of the transportation network also refer to geographic distance.

Economic Distance

Consumer wealth and his/her level of disposable income measure the economic distance between countries. The consumer’s capability to afford a product launched by the expanding MNC, the available infrastructure, the presence of trade unions, and labor costs are factors that decide the strategy of the expanding company. For example, companies take advantage of the economic disparity and outsource the labor market in China to reduce costs.

Why is International Strategy important?

An international strategy helps firms and MNCs to search for new international markets to diversify and expand business operations. International strategies help put down a plan of action to effectively channelize organizational resources and gain a competitive advantage in the market.

Summarizing International Strategies Quiz-let

Strategic Management

The ongoing process of planning, analyzing, monitoring, and assessing the needs of an organization to meet objectives is called strategic management. Each company has to assess its strategy constantly to keep up with the business environment changes successfully.

Foreign Markets

Markets outside the home country are called foreign markets. Expanding business operations to a foreign market involves adapting to varied cultures, languages, rules & regulations, laws, and requirements. Companies should carefully study the opportunities and risks before creating an entry strategy before entering a new market.

International Joint Venture

An international joint venture facilitates an organization to establish either manufacturing or marketing operations in an overseas country with the help of a local partner from the host country. The local partner will help with sharing knowledge of governmental laws, internal markets, regulations, and the local distribution system.

Common Mistake

The demarcation of a local business from a global business can sometimes get convoluted. The value chain can be used as a tool to mark out the geographical or physical boundaries of competition. A local business operates with a separate value chain in various local areas. In contrast, a global business has all the important value chain activities shared across countries.

Context and Applications

This topic is significant in the professional exams for both undergraduate and graduate courses –

• Bachelor of Commerce
• Masters of Commerce
• BBA
• MBA

Related Courses

• Strategic Operations Management
• Advanced Operations Management
• Foreign Trade
• International Economics
•  International Relations

Reference

Ghoshal, B. a. (2017, January 27). International Business Strategy. Retrieved March 20, 2021, from https://www.business-to-you.com: https://www.business-to-you.com/international-business-strategy/