Types of International Strategies

In the modern era, it is not enough to operate a company in their own country only. Most of the large
companies today are already operating in more than one country and when that happens , it is now called
Multinational Corporation or MNC.

Multinational Corporation (MNC) – a firm that operates in more than one country.

Now, what is MNC?

These are firms that operate not only in one country but has different branches across the globe or from
different countries. Example of this is the Walmart. Even if they are an American retailer by origin, but
the 35% of their revenue is from outside the United States. They have different firms in Mexico, Brazil,
Japan, UK, Canada, Chile, Botswana and other countries. In China and India, they do not easily create
another branch or company but they use the joint venture which means they have a local partner to create
the branch and operate.

Now, you might say that only big companies have this big scale. But no. Even smaller companies like Kia
can be a multinational corporation. Imagine, if Kia is a country where their sales is $21 billion which
makes them enter in the top 100 economies worldwide.

Why is international strategy important?

If your company is already a multinational corporation therefore you cannot just open another branch
across different countries. You have to choose an international strategy fit for your company and it will
guide you on how your company will operate across different countries.

You also have to remember 2 things:

1. Cost efficiency – is the cost of the production rational and still logical?

2. Local responsiveness – how will the company adjust and adopt to the local needs and demands?

In simple words, Am I going to focus on cost and standardization of my product or Will I adjust to the
local preferences, culture and condition across different countries?

Four main international strategies

1. International Strategy - neither concerned about costs nor adapting to the local cultural
conditions. They attempt to sell their products internationally with little to no change.
Your company will export your existing product across various countries with minimal changes.
Your focus is to bring your locally successful product and apply it in international setting. It has
little to no adjustments of the product, marketing, or on their operations.
 There is no special version for each culture nor country. And they do not focus on cost-cutting
measures just to enter the market. They have low concern on cost efficiency and low concern in
local responsiveness.

Example:
Let’s say Harley-Davidson motorcycles for example. Even if you sell it anywhere like Japan,US,
or Germany where they have the same bike and same brand image, it will still be sold. Because
customers like the American Rebel vibe of it so there is no need to customize it.
***LEGO uses international strategy because most of their products are the same across different
countries. What they adjust is usually the language on the packaging but the product is still the
same. They do not need to localize it because building blocks has a universal appeal.

2. Multi-Domestic Strategy - does not focus on cost nor efficiency but emphasizes
responsiveness to local requirements within each of its markets.
In this strategy, a company will create different customized products for every country to fit their
culture and demand. The company focuses on local responsiveness. In short, in every
country there is a new face of the product that is different across different countries. It might be
the product that’s different, marketing or even the pricing.

Example:
McDonald’s here in the Philippines has Chicken McDo, India has McAloo Tikki, and Japan has
Ebi Filet-O shrimp burger. Food cannot be standardized because every country has a
different taste when it comes to food.
*** Nestlé adopts in the different markets. In the philippines we have Bear Brand and Milo, in
India they have spicy Maggi noodles and Japan has green tea KitKat. They change the product
according to the taste and culture of different countries in order to be effective in the local market.

3. Global Strategy - sacrifices responsiveness to local demands within each of its markets
in favor of emphasizing lower costs and better efficiency.
This is the complete opposite of multi-domestic. In global strategy, the target is maximum
efficiency through standardization. It means each country has the same product, design, and even
service approach.

They sacrifice the local responsiveness and do not take to consideration special taste, culture, or
buying behavior of the market across different countries. What they want is to maintain
economies of scale which means mass production = lower cost per unit.
 Yes, they could have little changes, like translate the language, adjust plug type but overall, same
product, same design, same quality.

Example:
Example is the Apple company, whether you buy an iPhone in the US, Europe, or Asia they will
still have the same model and same features. Why? Because the cost of production of an iPhone
is very high so they need to standardize the product for mass production.
*** IKEA has a global strategy because they have the same design and layout of stores globally.
Even though they have minor adjustments like the language on the instruction box but the product
still has the same design and quality like the rice cooker in Asia where they are overall the same
in style and quality. They can release products at lower prices due to their lower cost mass
production through standardization.

4. Transnational Strategy - A firm using a transnational strategy seeks a middle ground

between a multi-domestic strategy and a global strategy.
This is the most challenging strategy but the most balanced. The transnational strategy is both
globally efficient and locally responsive.
They have global core (which is the standard product or branding) but they still adjust to the
evolving market needs.

Example:
Unilever. They have the same formula but they change the scent, packaging or campaign ads.
Another one is in the philippines where we have a "sachet culture," that is why there is sachet-
sized Sunsilk but in US, most of their shampoo products are bottled.
*** Samsung uses a transnational strategy where they combine cost efficiency of global
operations and local adaptation. Example , they have released dual-SIM phones in Southeast Asia
and the ads are different globally to accommodate different cultures. They are flexible but are still
globally integrated. (organized and iisa pa din)

Drivers of Success and Failure When Competing in International Markets

So now, we will talk about why some other companies excel internationally while the others find it hard
to compete in global markets.

Porter’s Diamond Model – this model states the four factors that enable the other countries to
be successful in the international market.

Someone said “The world is flat," that is Thomas Friedman. His idea is driven because of the technology
and globalization where he thinks rich countries are equal with the developing ones. But according to the
other studies conducted is that this are not true. Actually, there are countries that has a natural advantage.
Diyan papasok yung tinatawag nating Porter’s Diamond Model ni Michael Porter.

Demand Conditions - refers to the nature of domestic customers

This is the level of demand of the local customers. Kung mataas ang standards ng mga tao sa isang bansa
ay mas napipilitan ang mga local companies na galingan. Example of this is Japan, they already have a
high expectation of the products when it comes to quality, design and reliability. That is why brands like
Toyota, Nissan and Honda is good in making high-quality cars.

Let’s compare it to France where the customers are not picky at all. That’s why car brands like Renault
and Peugeot are not globally competitive because they are not challenged to do the best from their local
markets.

Factor Conditions - refers to the nature of raw material and other inputs that firms need to
create goods and services

This includes the resources of the country like land, labor, capital and infrastructure. For instance, China
has a large workforce and cheap labor that is why they are one of the top manufactures. In India, they
have a lot of English-speaking engineers that is why they are established in IT industry. In US, they have
good capital markets and logistics systems that’s why they are easy to expand internationally.

But sometimes disadvantages can be used as an advantage. In Japan, they have small space so they
developed Just-in-Time inventory system that is super-efficient and now being used globally.

Related and Supporting Industries - refers to the extent to which firms’ domestic suppliers and
other complementary industries are developed and helpful

This means if the company has a strong industry that can support their growing business like supporting
production of goods. For example, an Italian shoemaker like Prada and Gucci excels because they have
top-quality Italian leather suppliers that are locally available. They do not need to import anymore and
this way they are more flexible in the production.
In South Korea, car companies like Hyundai and Kia are supported by big electronics companies like
Samsung and LG for their high-tech cars. In contrast, French automakers lack strong local electronics
industry that is why they are left behind in terms of tech features.

Firm Strategy, Structure, and Rivalry - refers to how challenging it is to survive domestic
competition. When domestic competition is fierce, the survivors are well prepared for the
international arena.

This is the competition within the country itself. If the competition in the local market is intense then
companies are forced to become innovative and competitive. It’s like a training ground. In Japan, the
competition is intense like Honda vs. Toyota vs. Nissan vs. Subaru and others. That’s why when they
enter the world market, they’re ready because they’re used to tough competition.

Same thing in Germany, where there are thousands of beer brands so it’s no wonder German beers are
world-class. In the US, the movie industry is extremely competitive which is why they dominate globally.
But if the competition inside the country is weak then companies don’t get trained for the world stage.
Like Peugeot, whose local competition is weak so they fell behind when it comes to innovation.

Options for Competing in International Markets

If you noticed earlier, after we learned the different strategies that can be used internationally like
international, global, multi-domestic, and transnational and now, the next question is how does a
company enter the international market? What is their mode of entry?

So, there are six major options that businesses can choose from when entering foreign markets and each
of them has its own level of risk, control, and profit potential. This means , as your control over the
business abroad increases therefore the risk and investment also increase.

Exporting – involves creating goods at home and then shipping them to another country

Exporting is the most basic and lowest-risk mode. Here, the company just produces the products in its
home country then simply exports them to another country. They don’t need to build their own store or
manufacturing plant in the foreign country. The only downside is that they have very little control
because once the product arrives in the foreign country then all operations are on the hands of the local
distributor.
Example: Think about Samsung in its early years. Before they had factories abroad where they first
exported electronics to the U.S. The local distributor was the one responsible for selling. But of course, if
they made a mistake in customer service or brand handling then Samsung would be the one affected.

That’s why many companies start with exporting to test the waters but if the market response is good then
they shift to a deeper entry mode later.

Licensing - involves granting a foreign company the right to create a company’s product in
exchange for a fee

Licensing is one step deeper than exporting. You give a foreign company the right to produce your
product in their country and usually for a fee. This is common in manufacturing. Its advantage is low
investment but your earnings are also lower and you only have limited control.

Example: Coca-Cola licenses its bottling to local companies. Coke itself provides the concentrate or
formula but the bottling and distribution in the other country are handled by the licensee.

The risk here is if the licensee fails to maintain the quality, then your brand also suffers. That’s why a
company needs to be careful in choosing partners.

Franchising - involves “renting” a firm’s brand name and business processes to local
entrepreneurs

This one is usually in the service industry. Franchising is like renting out your brand and your business
model. The local entrepreneur is the one who will run the store but using your brand.

Example: Think about Jollibee, McDonald’s, or 7-Eleven. Many of their branches abroad are franchised.
In fact, many Jollibee branches in the Middle East are owned by Filipino franchisees.

The advantage could be expansion will be fast and the main company’s investment is small. But just like
licensing where control is also limited. The franchisee might come up with their own approach that
doesn’t match the franchisor’s standards.
Joint Venture and Strategic alliance - In a joint venture, two or more organizations each
contribute to the creation of a new entity. In a strategic alliance, firms work together
cooperatively without forming a new organization

In a joint venture, two companies (usually one local and one foreign) come together to create a new
business entity. They share the risk, decision-making, and profits. In a strategic alliance, there’s no need
to create a new company but there is formal cooperation between two firms.

Example: KFC in China. KFC partnered with three Chinese companies to launch their first stores. KFC
had a 51% share while the local partners like a chicken supplier, a bank and a tourist bureau held the
remaining 49%. Why is this effective? Because it’s easier to enter the market if you have a local partner
who knows the laws, culture, and consumer behavior.

What’s good about this is you gain access to local knowledge. The downside is potential conflict with
partners.

Acquisition/Wholly owned Subsidiary – it is when a firm acquires a business operation in a

foreign country. The firm fully owns the acquired company.

This one is when you buy an existing business in a foreign country. It’s high risk but also high reward. If
you’re the full owner then you have control over everything like operations, brand, marketing and profits.

Example: Intel in Ireland. They bought a company and turned it into their R&D hub. Another example is
when Chinese firm WH Group acquired Smithfield Foods in the U.S. (the world’s largest pork producer)
full control went to them.

Greenfield/Wholly owned subsidiary – it is when a company enters a foreign country and buys
property and constructs their business.
Greenfield, on the other hand, is when you literally start fromscratch like
buying land, building a plant, hiring people and setting everything up. This has the highest risk
and capital requirement but the control and profit are all yours.
Example: BMW building a manufacturing plant in SouthCarolina, USA. They did everything
themselves so they had full control over production, hiring, and operations.
This suits companies that have long-term plans and large capital.
So how do you choose an entry mode?
There are three things you need to consider:
1. How much risk can you handle?
2. Do you want full control or are you okay with a partnership?
3. How much profit are you expecting from that market?

If you prefer low-risk and low-cost then start with exportingor franchising. When you're read
y for deeper investment then that’s when you go for Greenfield or Acquisition.

Conclusion

This chapter explains competition in international markets. Executives must consider the benefits
and risks of competing internationally when making decisions about whether to expand overseas.
Using the CAGE framework helps firms decide the distance between the home country and
target country. It also needs to determine the likelihood that their firms will succeed when they
compete in international markets. When a firm venture overseas, a decision must be made about
whether what its international strategy will be. Finally, when leading a firm to enter a new
market, executives can choose the method on how they will manage the operation.