Strategies of the Internationalized Firm

Strategy in International Business

Learning Outcomes

• Describe strategy in international business.
• Understand building the global firm.
• Describe the global integration - local responsiveness framework.
• Learn to identify strategies based on the integration -responsiveness framework.

Strategy

• A planned set of actions that managers take to make the best use of the firm’s resources and core competences to gain a competitive advantage.
• When developing strategies, managers examine the firm’s strengths and weaknesses, and the opportunities and challenges facing the firm.
• They then decide which customers to target, what product lines to offer, how best to contend with competitors, and how generally to configure and coordinate the firm’s activities around the world.

International Strategy

• Strategy carried out in two or more countries.
• Managers develop International Strategies to:
  • Allocate scarce resources and configure value-adding activities on a worldwide scale.
  • Participate in major markets.
  • Implement valuable partnerships abroad.
  • Engage in competitive moves in response to foreign rivals.

Strategic Objectives

• Managers should aim to develop, at one and the same time, global scale in efficiency, multinational flexibility, and the ability to develop innovations and leverage knowledge on a worldwide basis.
• The firm that aspires to become a globally competitive enterprise should simultaneously strive for three strategic objectives:
  • Efficiency: Lower the cost of the firm’s operations and activities on a global scale.
  • Flexibility: The agility to manage diverse country-specific risks and opportunities by tapping resources in individual countries and exploiting local opportunities.
  • Learning: Develop the firm’s products, technologies, capabilities, and skills by internalizing knowledge gained from international ventures.
  • Often, even successful firms excel at only one or two of these objectives.

Essentials of the Successful Global Firm

• Strategy.
• Visionary Leadership.
• Organizational Structure.
• Organization Coordination.

Strategies of the Internationalized Firm

• Visionary Leadership.

Visionary Leadership

• A quality of senior management that provides superior strategic guidance for managing efficiency, flexibility, and learning.

• International mindset and cosmopolitan values, openness to, and awareness of, diversity across cultures.

• Willingness to commit resources (financial, human & other).

• Strategic vision: Articulating what the firm wants to be in the future and how it will get there.

• Willingness to invest in human assets: Emphasizing the use of foreign nationals, promoting multi-country careers, and training to develop international managers highly capable of functioning in diverse environments.

Examples of Visionary Leadership

• Paul Polman, CEO of Unilever, set the firm on a path for sustainable and socially responsible growth. Polman has positioned Unilever in products that support health and hygiene, including safe drinking water worldwide and cutting manufacturing waste and greenhouse gas emissions. He is working to improve the lives of more than 500,000 small farmers and distributors in Unilever’s supply chain. Such initiatives position Unilever for growth in emerging markets while reducing the firm’s environmental footprint and ensuring safe and fair work environments.

• To analyze international strategy, we need to understand whether the industry we operate in is multidomestic or global, and whether the multinational suffers pressures for global integration or local responsiveness.

Multidomestic Industry

• An industry in which competition takes place on a country-by-country basis.
  • Firms that specialize in such industries as processed food, consumer products, fashion, retailing, and publishing usually cater to specific conditions in each country where they do business.
  • In such industries, the firm must adapt its offerings to suit the language, culture, laws, income level, and other specific characteristics of each country.
  • Example: The British publisher Bloomsbury has translated each volume of its Harry Potter series into the local language in every country where the book is sold. Coca-Cola offers “Georgia Coffee” in Japan, “Café Zu” in Thailand, Inca Cola in Peru, and “Burn” energy drink in France.
  • Each country tends to have a unique set of domestic and internationalized competitors.

Global Industry

• An industry in which competition is on a regional or worldwide scale.
  • Firms that specialize in such industries as aerospace, cars, computers, chemicals, and industrial equipment typically cater to customers on a regional or global scale.
  • DuPont sells essentially the same chemicals around the world. American Standard sells similar bathroom fixtures worldwide, competing with Toto most major markets. Caterpillar and Komatsu compete in all major markets and offer similar tractors.
  • In such industries, customer needs vary little from country to country. Firms sell relatively standardized offerings across entire regions or throughout the world.
  • The industry usually has only a handful of the same competitors that compete regionally or worldwide.

Global Integration

• Coordination of the firm’s value-chain activities across multiple countries to achieve worldwide efficiency, synergy, and cross-fertilization, to take advantage of similarities between countries.
  • Firms that emphasize Global Integration:
    • Make and sell standardized products and services to capitalize on converging customer needs and tastes.
    • Compete on a regional or worldwide basis.
    • Minimize operating costs by centralizing value chain activities and emphasizing scale economies.

Local Responsiveness

• Meeting the specific needs of buyers in individual countries.
  • Local responsiveness requires the firm to adapt to customer needs and the competitive environment.
  • Local managers are free to adjust offerings, marketing, and practices to suit conditions in individual markets.
  • When operating internationally, firms try to strike the right balance between global integration and local responsiveness.

Integration-Responsiveness Framework

• Summarizes the balance that firms seek to achieve between two basic strategic needs:
  • To integrate value chain activities globally and to create products and practices responsive to local market needs.
  • The main goal of firms that emphasize Global Integration is to maximize the efficiency of their value chain activities on a worldwide scale.
  • The main goal of firms that emphasize Local Responsiveness is to maximize sales and market share by being highly responsive to local needs.

Pressures for Global Integration

• Seek cost reduction through economies of scale. Concentrating manufacturing in a few advantageous locations achieves economies of mass production.
• Capitalize on converging consumer trends and universal needs. Companies like Nike, Dell, ING, and Coca-Cola offer products that appeal to customers everywhere.
• Provide uniform service to global customers. Services are easiest to standardize when firms centralize their creation and delivery.
• Conduct global sourcing of raw materials, components, energy, and labor. Sourcing inputs from large-scale, centralized suppliers provides economies of scale and consistent performance.
• Monitor and respond to global competitors. Globally coordinating the firm’s response to competitive threats is more efficient and effective.
• Take advantage of global media. Firms leverage the Internet, cross-national TV, and other global media to advertise in many countries simultaneously.

Pressures for Local Responsiveness

• Leverage natural endowments available to the firm. Each country has specific national resources and other endowments that the foreign firm should access.
• Cater to local customer needs. Businesses in multidomestic industries should adapt products, services, and marketing to suit local customer needs.
• Accommodate differences in distribution channels. For example, Japan’s distribution system for consumer goods is characterized mainly by small retailers.
• Respond to local competition. To out-compete local rivals, successful firms devise offerings and practices that best meet local demand.
• Adjust to cultural differences. For those products where cultural differences are important, the firm should adapt the product and marketing, especially where local competitors are numerous.
• Meet host government requirements and regulations. The firm must always comply with local legal and regulatory requirements, which can vary substantially from country to country.

Four Strategies Emerging from the Global Integration Local Responsiveness Framework

• Multidomestic Strategy: More likely in Multidomestic Industries.
• Home Replication Strategy: More likely in Multidomestic Industries.
• Transnational Strategy: More likely in Global Industries.
• Global Strategy: More likely in Global Industries.

Home Replication Strategy

• The firm views international business as separate from, and secondary to, its domestic business.
• Expansion abroad is an opportunity to generate incremental sales for domestic product lines.
• Products are designed for domestic customers, and international business is pursued mainly to extend the life of domestic products and replicating home market success.
• Management holds little interest in foreign markets and expects little knowledge to flow from foreign operations.

Multidomestic Strategy

• The firm develops subsidiaries or affiliates in each of its foreign markets and appoints local managers to operate independently and be locally responsive.
• Products and services are adapted to suit the needs and wants of buyers in each country.
• Because headquarters acknowledges differences between national markets, subsidiaries are allowed to vary product and practices by country.
• Country managers are often nationals of the host country and generally don’t share knowledge and experience with managers in other countries.

Global Strategy

• Headquarters seeks substantial control over all country operations in order to minimize redundancy and achieve maximum efficiency, learning, and integration worldwide.
• Global strategy asks “why not make the same thing, the same way, everywhere?”
• Products, marketing, and company practices are relatively standardized.
• R&D, manufacturing, marketing, and other activities tend to be concentrated at headquarters, where they can be centrally coordinated and controlled.
• Management views the world as one large marketplace.

Transnational Strategy

• A coordinated approach to internationalization in which the firm strives to be more responsive to local needs while retaining sufficient central control of operations to ensure efficiency and learning.
• The firm seeks to combine the major advantages of multidomestic and global strategies while minimizing their disadvantages.
• It’s a flexible approach: standardize where feasible; adapt where appropriate.
• Most firms find implementing transnational strategy very challenging.
• Transnational Strategy requires the firm to:
  • Exploit scale economies by sourcing from a reduced set of global suppliers and concentrating production in relatively few locations where competitive advantages can be maximized.
  • Organize production, marketing, and other value-chain activities on a global scale.
  • Optimize local responsiveness and flexibility.
  • Facilitate global learning and knowledge transfer.
  • Coordinate global competitive moves - that is, deal with competitors on a global, integrated basis.

IKEA's Transnational Strategy

• Some 90% of the product line is identical across more than two dozen countries.
• IKEA modifies some furniture offerings to suit tastes in individual countries.
• An overall, standardized marketing plan is centrally developed at the firm’s headquarters in Sweden, but it is implemented with local adjustments.
• Management decentralizes some decision-making to local stores, such as product displays and language to use in advertising.