Types of international strategies
Operating in diverse geographical markets is one of the major challenges faced by most organisations today. Traditional multinational entities are increasingly considering venturing into emerging economies. Similarly, small and medium sized enterprises are appreciating the need to develop international relationships in order to increase their profitability.
In order to develop their competitive advantage, both large and small enterprises have to make decisions regarding various issues such as collaboration, competition, and outsourcing from the international market.
Consequently, there is a need to formulate and implement international strategy effectively. International strategy is very broad in scope; therefore, firms have wide range strategic choices to select from in the attempt to come up with the most appropriate strategy.
However, it is fundamental for firms to take into account four main themes, which include internationalisation drivers, geographical advantages, modes of entry, and market selection (Johnson et al. 2011). There are four main approaches that organisations can take into account in their internationalisation efforts. Some of these core strategies include global strategy, multi-domestic, complex export, and simple export.
Simple export
With regard to simple export, firms undertake the production process in a particular country, and more specifically their domestic country but market the product into the international market through loosely coordinated channels such as using independent sales agents.
The majority of the marketing activities such as product pricing, packaging, formulation of branding policies, and decision on distribution channels are made in the domestic market. Decision to adopt simple exportation strategy should be made if an organisation has a strong locational advantage in the international market.
Alternatively, such a strategy may also be adapted if an organisation does not have sufficient managerial resources and capabilities to undertake effective marketing in the international market.
Multi-domestic strategy
Firms may adopt a multi-domestic strategy, which entails undertaking product development and production processes in the respective foreign country that a firm has ventured.
In a bid to penetrate the foreign market effectively, multi-domestic strategy provides the management team of every team with the autonomy of operation. Thus, subsidiary firms can localise their production processes effectively in order to enhance the competitiveness of their products in the host country (Johnson et al. 2011).
Complex export
Unlike the simple export strategy, the complex export strategy entails designing and implementing more coordinated marketing activities. Marketing activities such as research and development, manufacturing, branding and pricing are more systematic and coordinated.
However, one of the major challenges of adopting complex exportation strategies is that the coordination process is demanding. The complex exportation strategy is mostly common amongst firms in emerging economies that intend to develop a strong network and brand in the international market in order to attain organisational maturity.
Global strategy
This strategy is considered as the most established internationalisation strategy that a firm can adopt. For a firm to adopt this strategy, it is imperative for the management team to ensure that its activities are globally dispersed.
In the process of implementing the global strategy, it is imperative for a firm to select the most optimal location of operation, which is attainable by evaluating the locational advantage of each location.
By implementing the global strategy, firms intend to benefit from developing a high economies and operational scale (Jabri 2012). One of the unique aspects of global strategy is that the firm’s operation is heavily centralised. Direction and control of the firm mainly originate from the headquarters.
In their internationalisation efforts, firm’s management teams may decide to oscillate within the four main strategies. The strategic choices made will be subject to the aforementioned internationalisation drivers.
However, one of the major strategies associated with using multi-strategy is the high cost of implementing the necessary strategies. Additionally, adopting multi-strategy would result in poor control. Therefore, the author reinforces the importance of effective selection and implementation of the various strategic choices.
Factors to consider when ranking markets for entry
The attractiveness of a particular market can be assessed by evaluating a number of aspects. For example, firms intending to venture into the international market may evaluate the prevailing macro-economic environment by analysing the economic, political, social-cultural, technological, and legal environments.
The decision to enter a particular country consequently hinges on the relative attractiveness of the identified country. However, the attractiveness of a particular country compared with others is not sufficient. Entrepreneurs should assess the country’s compatibility with the firm’s operation.
A match between the firm and country should be established for firms originating from a particular country may be mismatched compared to others; therefore, it is of utmost importance for firms to assess the degree of closeness of match.
In the process of ranking markets for entry, it is imperative for the involved parties to take into account a number of aspects. Some of the elements that should be integrated include the prevailing cultural distance, political and administrative distance, geographical, and economic distance. However, investors mainly ignore these aspects.
Cultural distance
Different countries are characterised by unique cultural dimensions, which are established based on various issues such as social norms, ethnicity, language, and religion.
The prevailing cultural dimension does not only affect the extent to which the firm’s products are compatible to customers, but also affects the nature of managerial behaviour that should be developed. It is essential for internationalising firms to conduct a comprehensive cross-cultural comparison.
Administrative and political distance
This distance emanates from incompatible political, legal, and administrative traditions. The existence of colonial ties may result in such difference being diminished, hence leading to the development of a strong understanding of the other party. Additionally, the political environment may enhance elimination of political distances for example by opening up a country to foreign investors.
Geographical distance
When assessing the foreign market to enter, it is important for a firm to evaluate the geographical distance, which is attainable by evaluating the target country’s size and quality of infrastructure. The prevailing physical distance between countries limits a country’s attractiveness to foreign investors.
Economic distance
On the other hand, economic distance takes into account the difference in poverty levels across countries. In most cases, multinational companies prefer venturing into markets characterised by relatively high living standards.
However, such a decision makes them to lose an enormous opportunity presented in such countries. In their internationalisation strategy, it is imperative for multinational companies to consider the possibility of developing new capabilities that will aid them in exploiting the huge market in the less developed countries.
Assessing the competitor retaliation threats
The attractiveness of a particular country can also be assessed based on its intensity of competition. One of the models that firms should consider using is the Michael Porter’s five forces. Effective implementation of this framework can assist firms to understand the intensity of competition between countries.
This knowledge is critical in designing and deciding on the entry criteria to be used coupled with coming up with competitive advantage over the different competitors.
In addition to market attractiveness, other criterions that might be used in determining the country to venture into relate to the competitor retaliation such as the defenders reactiveness and the defender’s influence. The defender’s retaliation may be influenced by the degree to which the competitor perceives the market to be attractive.
It may also be subject to the extent to which the competitor has integrated a global strategy relatively to a multi-domestic strategy. A competitor firm is more likely to be reactive if it has developed sufficient managerial capabilities to enable the firm coordinate its activities (Jabri 2012).
On the other hand, the defender’s influence entails the power that the competitor can gather in order to counter the new market entrant. The competitor may derive such power from various sources such as connections to local players and the government.
Assessing the degree of market attractiveness and competitor retaliation forms a strong basis upon which a firm can make decisions regarding market entry (Johnson et al. 2011). Taking into account that the competitor’s move is critical in evaluating and ranking potential investment destinations, a firm can implement aggressive expansion strategies effectively.
The analysis has shown that mere consideration of market attractiveness based on cultural distance, political, administrative, geographic, and economic distance cannot be sufficient in ranking the market to venture.
However, evaluating the competitors’ retaliation threats can significantly influence the decision to enter a particular market. By taking into account the above factors, the probability of a firm succeeding in the international market increases significantly.
Reference List
Jabri, M 2012, Managing Organizational Change: Process, social construction and dialogue, Palgrave Macmillan, Hampshire.
Johnson, G, Whittington, R & Scholes, K 2011, Exploring Strategy: Text & Cases, 9th edn, Prentice Hall, Upper Saddle River.