Unidad Teaching

Fourth 1 / Escenario
Unit2/ Seventh Learning environment
Lectura Fundamental
Essential reading

International
Etapas de un plan
strategic
de comunicación
business
estratégica
models

Content

1 International business model

2 Business and global competitiveness

3 Small local companies

4 Conclusions

Keywords: transnational, multinational, competitiveness, business model, international strategy.

1. International business model
Globalization is a phenomenon that has influenced life in many senses. One of them is the way
managers think about competitiveness and international business. The development of technology
and the elimination of geographical borders make it easier for companies to think and develop
business globally. According to Bhattacharya, Reeves, Lang, & Augustinraj (2017) these models rely
less on the physical movement of goods, and more in leveraging digital connectivity and ecosystems
to expand across borders.

Cross - border
servitization

Developing multiple Asset - light

national identities market entry

Multilocal Adding value

manufacturing throught software

Global digital
Global personalization
ecosystems

Figure 1. Seven new international business models

Source: designed by the author

The cross-border servitization is changing the idea of traditional sales of products to the idea of selling
services. Customers are now willing to pay more for a product´s performance rather than for its
physical features.

The asset-light market entry business model consists on having a local partnership that can provide
your company with distribution, logistics or even marketing support, which reduces the risk of
entering new markets.

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Companies are now adding value to their products through the use of technology. Tesla, for example,
designed an electrical car that has the ultimate technological developments to offer a better product
to their customers.

The global digital ecosystems make it easier for business to sale a product or service due to the
fact that a customer can make online payments. Uber is a perfect example of a company using this
business model.

Have you noticed the service personalization of Netflix? This Company uses the global
personalization strategy to attract customers and make an unforgettable experience. Technology
and big data are tools that this company uses to know which are the favorite movies or shows of
their users.

Multilocal manufacturing is a business model adopted by companies like Adidas and consists in
operating a larger number of smaller, flexible production facilities located near to the end markets.
So, instead of having the core operations in low-cost countries, Adidas builds smaller technological
factories in developed countries.

Did you know that…?

Adidas is using multilocal manufacturing in developed countries such as
Germany and the USA.

Finally, the business model of developing multiple national identities involves investment in job
creation and adapting the company’s operations to local workforce abilities.

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Figure 2. Companies with international business model
Source: Politécnico Grancolombiano

This new business models is successful thanks to the compliance of many factors, like labor costs,
government regulations, trade rules, and consumers demands, as well as other technological variables
that contribute to the rise of these international business models.

Connectivity
Developments that contribute

Data analytics and

artificial intelligence
new business models

Digital platforms

Industry 4.0

Protectionism and
state capitalism

Connected and
mobile consumers

Figure 3. Developments that contribute to new business models

Source: designed by the author

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 1.1. Multinational strategy

A multinational company is an enterprise with operations and subsidiaries in several countries but
managed from one home country (Business Dictionary, 2018).

Home country: Home country:

United States Liechtenstein
of America
Mc Donalds Hilti

Roche Telefónica
Home country: Home country:
Switzterland Spain

Figure 4. Examples of multinational companies

Source: designed by the author

An important aspect of choosing multinational strategies is to analyze the advantages and

disadvantages of this international business model.

Advantages Disadvantages

Cheaper labor Potential abuse of workers

Border market base Threath to local business

Lower taxes Loss of jobs

Job creation Negative impact on

the the environment

Figure 5. Advantages and disadvantages of multinational strategy

Source: designed by the author

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As you can notice, the advantages of this strategy are very interesting for companies and
governments, specially the one that deals with lower taxes and job creation. These two factors are
complementary. If a company has lower taxes to pay, the opportunity creating job grows.

The multinationals companies, however, must be aware of the environmental impact of their
businesses, since many of them have negative impacts on the ecosystem.

Did you know that…?

The international clothing store H&M is a multinational company and
Nestlé is a transnational company.

1.2. Transnational strategy

Multinational companies are often confused with transnational companies. There is a big difference
between these two international business models. Although transnational companies have also
operations in different countries, they don’t have a centralized management. This means each
subsidiary is independent from the home country. So, it can be said that a transnational company
uses a multinational strategy because they have operations worldwide, but each one is free to make
their own business decisions.

Headquarter: Headquarter:
United States Japan
of America
General Toyota
Electrics

Nestlé Volkswagen
Headquarter: Headquarter:
Switzterland Germany

Figure 6. Examples of transnational companies

Source: designed by the author

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Transnational corporations have in common some characteristics. For example, most of them are
the result of merger or acquisitions. In an acquisition process one company buys the majority of the
shares of another, but doesn’t change its structure. In a merger process, the acquired company stops
existing and becomes part of the buyer.

In Colombia, one clear example of a merger is Carulla-Vivero and Éxito Group, Vivero no longer
exists. Another is Helm Bank and Itaú, where Helm was absorbed by Itaú.

This international business strategy, just like the multinational strategy, have advantages and
disadvantages that should be analyzed before investing money and effort in its implementation.

Advantages Disadvantages

Improves living standars Tax avoidance

Brings economic Unemployment since

stability for the country local labor is not used

Environmental degradation
Technological transfer in some aspects due to
gass emisions

Increases environmental Increases wealth

awareness due to corporate for company owners
image

Figure 7. Advantages and disadvantages of transnational corporations

Source: designed by the author

Transnational companies have more awareness of the environment, due to their corporate
international image. These types of companies are very useful to the economy because they have
technological transfer and bring stability to the country’s economy.

However, in many cases, these companies are a threat to local employers, because they usually get
foreigners to occupy jobs.

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2. Business and global competitiveness
Global competitiveness is related to a country’s productivity and business development. Governments
must guarantee the necessary conditions for small companies to survive the global competitors, as
well as promote their internationalization processes.

In Colombia the government created an entity called Procolombia, that responsible of promoting
Colombian small companies regarding exports, foreign direct investment and tourism. The main
objective is to promote nontraditional products like textiles, agricultural and technological services.

3. Small local companies

The big challenge for small local companies is to stay competitive in the globalized world.

Support local
business

Figure 8. Government strategy for small local business

Source: Haniff (s.f.)

Multinational and transnational strategies seem to be a great ally for big companies willing to expand
their markets. But what happens with the small local companies? Are they destined to die in the
attempt of internationalization? Small local companies need more government support, since they
have to compete with big global companies.

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One of the big challenges of small local business in globalization is to stay competitive despite the
price wars they will find on the way. Multinational and transnational companies are capable of offering
low prices and this becomes a problem for small local companies.

So, for small local companies to be competitive in the globalized world they have to adopt methods
of automation and connectivity, creating online presence and strategies that allow them to offer low
prices to their customers, as well as online customer service and technical support.

Technology is the weapon of small businesses for generating global competitiveness by designing
online sales strategies that allow them to save costs. However, not all small companies have the
financial resources to invest in new technology and change their processes.

Industry
4.0

Figure 9. Small business suggested strategies

Source: Politécnico Grancolombiano

Another strategy for small local companies is to create strategic alliances among themselves to
increase their production capacity or their distribution. In Colombia, many small companies of the
shoe sector decided to create a cluster, which is a group of independent and similar companies
interconnected through a common objective.

Clusters must focus on innovative development, which is understood as a continuous improvement

of the competitive advantages (Mazur, Barmuta, Demin, Tikhomirov, & Bykovskiy, 2016).

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Clusters also have many advantages for small companies. Some of these advantages are:

High specialization in servicing a particular business niche

Creation of a sustaintable distribution system of new

technologies and knowledge

Quicker respond to customer’s needs

Inter - firm cooperation between suppliers and consumers

Higher levels of competitiviness

Figure 10. Advantages of the clusters

Source: designed by the author

Globalization has had positive effects for the small companies. Governments are now supporting
small local companies to become more competitive because they are the ones creating new Jobs and
improving the economy.

However, small companies also have important challenges due to the impact of globalization in their
internationalization process, especially the ones concerning tariffs and taxes. Logistics costs are also
a great challenge for small companies, since they are not used to scale economies which help big
companies to lower costs.

In this sense, the use of information technology is an important tool for small companies to increase
their levels of competitiveness, because they can use it to create online business model.

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 Possitive effects Challenges

Access to global markets Tariff and taxes

Remote staffing Shipping, logistics

and costs

Constricted flow
Worldwide competition
of resources

Business equalizer Forex and fund transfer

Figure 11. Effects of globalization on small companies

Source: designed by the author

4. Conclusions
Globalization brought many changes within the companies, especially in the design of international
business models. Multinational companies and transnational companies are the result of international
business models applied by big companies. These two business models are very similar because
both of them have operations in different countries, but the difference is that multinational
companies have a “home country”, while the transnational companies have independence in
their decision-making.

Another important strategy that can be use by the small local companies is the creation of clusters.
A group of independent companies with a common objective creates clusters. The main objective is
to increase their competitive advantage.

This business models brings advantages to small companies such as the inter-firm cooperation
between suppliers and consumers, the specialization of the small company and the creation of a
sustainable distribution system of technology and knowledge.

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However, all these strategies can’t be done without government’s support for small local companies,
which are the ones who suffer the price war and the innovative processes of the multinationals and
transnational companies.

Small businesses have to be aware of the importance of technology in creating competitive

advantage, so they need to adopt automation and connectivity to improve their productivity and, in
that way, become more competitive.

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References
Bhattacharya, A., Reeves, M., Lang, N., & Augustinraj, R. (2017). New Business Models for a New
Global Landscape. The Boston Consulting Group. Retrieved fromhttp://www.iberglobal.com/
files/2017-2/BCG-New-Business-Models-for-a-New-Global-Landscape.pdf

Business Dictionary. (2018). Multinational Corporation. Business Dictionary. Retrieved from http://
www.businessdictionary.com/definition/multinational-corporation-MNC.html

Mazur, V. V., Barmuta, K. A., Demin, S. S., Tikhomirov, E. A., & Bykovskiy, M. A. (2016). Innovation
Clusters: Advantages and Disadvantages. International Journal of Economics and Financial Issues,
6(15) 1-5.

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 TECHNICAL INFORMATION

Module: Globalization and Competitiveness

Fourth Teaching Unit: Competitiveness of international
companies
Seventh Learning environment: International strategic
business model

Author: Sandra Milena Chicas Sierra

Academic advisor: Claudia Rocío Puentes Mendoza

Graphic designer: Brandon Steven Ramírez Carrero
Assistant: Eveling Patricia Peñaranda Izquierdo

This material belongs to the Politécnico Grancolombiano.

Total or partial reproduction is prohibited.

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