The Strategy of

International Business

Jay Mark L. Jovita

TOC

The concept of the strategy

How firms can profit by expanding glo

bally

The pros and cons of using strategic all

iances to support global strategies
 The concept ot the strategy

International business strategy refers to plans

that guide commercial transactions taking place
between entities in different countries. Typically, it
refers to the plans of actions or policies designed to
achieve an overall goal of private companies rather
than governments; as such, one goal may be
increased profits. One reason for making
investments in international markets would be to
generate higher returns than firms would achieve on
investments made in their domestic markets.
 Strategies

Multidomestic strategy is a set of strategies used

by companies that operate in more than one country at
a time, or simply defined as a business that uses a
different approach in each of the markets it operates in.

This strategy can maximize local responsiveness by

distributing the decision-making authority to local
business groups in each country. Therefore they can
create products and services better developed to their
local markets. It also allows firms to compete more
effectively in the local market to increase their share in
that market
 Strategies

Global Strategy is when an organization treats

the world as one market and one source of supply
with little local variation, which they believe
maximizes global efficiency. Using this strategy,
products are more likely to be standardized rather
than tailored to local markets. Although pursuing a
global strategy decreases risk for the firm, the firm
may not be able to gain as high a market share in
local markets because the global strategy isn’t as
responsive to local markets.
 Strategies

Transnational Strategy is when a business

seeks a middle ground between a multidomestic
strategy and a global strategy. A business tries to
balance the desire for efficiency with the need to
adjust to local preferences within the various
countries they operate. One disadvantage is that it
is difficult to simultaneously execute the dual goals
of flexibility and coordination.
 The concept ot the strategy

Why It Matters
There are four primary benefits of using
international strategies:
● Increased market size
● Greater returns on major capital investments
or investments in new products and processes
● Greater economies of scale, scope, or learning
● A competitive advantage through location (for
example, access to low-cost labor or critical
resources)
Global Expansion and Profitability

Expanding the Market: Leveraging Products an

d Competencies

● Bedrock of a firm’s advantage

Global Expansion and Profitability

Location Economies

● Can lower the costs of value creation and help

the firm achieve a low-cost position
● Can enable a firm to differentiate its product
offering from those of competitors
● Caveats
○ Transportation costs and trade barriers
Global Expansion and Profitability

Location Economies

● Creating a global web

○ Should create a competitive advantage
vis-a-vis a firm that bases all of its value
creation activities at a single location
○ Should be able to differentiate its
product offering (thereby raising
perceived value) and lower its cost
structure that its single location
competitor
Global Expansion and Profitability

Experience Effects

● Experience curve
○ Costs decline by some quantity about
each time cumulative output doubles
● Learning effects
● Economies of scale
● Strategic significance
○ Moving down the experience curve
allows a firm to reduce its cost of
creating value and increase its
profitability.
Global Expansion and Profitability

Leveraging Subsidiary Skills

● Development of valuable skills can occur in

foreign subsidiaries.
● Leveraging the skills created within
subsidiaries and applying them to other
operations within the firm's global network
may create value.
Global Expansion and Profitability

Leveraging Subsidiary Skills

● Recognize that valuable skills that lead to

competencies can arise anywhere within the
firm's global network, not just at the
corporate center
● Establish an incentive system that encourages
local employees to acquire new skills
● Have a process for identifying when valuable
new skills have been created in a subsidiary
● Act as facilitators, helping transfer valuable
skills within the firm
The pros and cons of strategic alliances

The pros

Improved visibility of the brand

The visibility of the brand(s) of a company

expands along with the expansion of the market.
This increased visibility makes it easier for future
entrance into new markets and for negotiations
with distributors and other parties.
The pros and cons of strategic alliances

The pros

Increased revenue with more product exposure

Due to the increasing growth in technology,

especially the Internet and communication
channels, it is easier to bring onboard an
international sales force, thereby allowing
marketing to function at the local level better than
ever before. The improved localization fosters
greater relationships, increases customer loyalty,
and achieves overall growth in sales and increased
profits.
The pros and cons of strategic alliances

The pros

Increased revenue with more product exposure

To take advantage of increased product

exposure, business representatives can arrange to
visit countries that accommodate international
businesses, like Singapore. For easy processing of
visas to Singapore, Visa Express is a reliable agent
that offers great tips and advice for such trips.
The pros and cons of strategic alliances

The pros

Less vulnerability to changing trends

The business pattern keeps changing from

time to time, and mostly the customers act in
mobs rather than as individuals. In case an
unfavorable trend emerges in one market, there is
the benefit of having an escape in other markets,
where you can arrange to move inventories and
thus significantly reduce the risks.
The pros and cons of strategic alliances

The cons

Language barrier Business entry into new

markets faces one great challenge of having to
learn the local language for proper communication,
promotion, and other business tasks. Despite the
innovation of apps and software that translate one
language to another, this technology is not always
perfectly able to deliver the actual meaning. This
barrier slows down the success of the business.
The pros and cons of strategic alliances

The cons

Currency fluctuations can do away with profits

There is the risk of sudden elimination of

expected profits due to fluctuations in
international currencies, as American companies
experienced in 2015. The possibility of other costs
on foreign currency exchanges further dips into the
profit margins.
The pros and cons of strategic alliances

The cons

The politics of host countries affect the business

Politics in the international arena is quite

different from that of the home country. It is
possible for the governments of some countries to
seize a profitable foreign business operating in
their territory if doing so would be in their best
interest. Also, some countries put restrictions on
ownership or even on the areas or industries in
which foreign businesses can operate, which could
negatively affect a business.
The pros and cons of strategic alliances
Conclusion

These advantages and disadvantages of

operating a business globally show that there are
additional running expenses; however, with proper
planning and assessment on the absorption of the
costs, there are also chances of getting higher
returns.
Thank you!