International business Strategy
- Explain the concept of business strategy
- Define how firms can profit with global expansion
- Compare and contrast strategies
- Explain cost reduction pressures and local responsiveness
- Describe foreign direct investment trends
- Explain foreign direct investment concept
- Define benefits of foreign direct investment
- What are the risks and costs of foreign direct investment
International business methodology alludes to plans that guide business transactions occurring between elements in various nations. Commonly, international business technique alludes to the plans and actions of privately owned businesses instead of governments; like this, the objective is expanded benefit. Any company can increase its rate of growth on the international level through foreign direct investment and expansion at the global level which thus increases revenue, business relationship, sales and thus profits.
International Business Strategy is a strategy in which a company or business can operate its business like selling goods or services to people outside the local country or market. Companies choose this strategy when they want to expand their business. Using this strategy company can reach to more number of markets. Because of this, companies can find more opportunities for getting profits. Companies who opt international business strategy have its company branches in different countries, which run the business as per the rules of the parent company. At some branches, companies can take some of the decisions according to the local conditions of the area in which branch is located. But the critical decisions like Research, Development, and Branding, etc. are taken by the parent company (Ghemawat, 2003).
A business strategy is simply a plan made by a company for achieving the desired goals or objectives. It’s the main factor on which the success of the company or business depends. Top level executives plan it. It the strategy planned by the company succeeds, then the company will grow and acquire profits and its reputation in the market increase. Otherwise, it fails then the top level executives or main owners of the company has to look into the strategy to find the causes of the failing of strategy, and by finding solutions to cases, top level executives has to either alter the strategy or to design a new strategy. If they don’t, they can go out of business. Therefore, whenever a strategy is made, the proper strategy should be made and strategy should also be unique so that business can differentiate itself from its competitors (Rakesh, 2013). These are based on whether the company is small or large. For large companies, different strategies are of following types:
Corporate strategy mainly designed to find out what should be a company in coming future. In other words, the business direction should be determined in this and for this plans are made to keep the business running in desired direction (Rakesh, 2013).
Business Strategy mainly deals with determining plans for how to compete its competitors and how to increase customer and their satisfaction.
Functional Strategy deals with determining strategies for different functional areas and how to expand and improve these functional areas.
For Small companies, different strategies are of following types:
- Growth Strategy
Growth Strategy includes introducing a new product or adding new features to existing products.
- Product Differentiation Strategy
Product Differentiation Strategy deals with creating or developing a new design for a product so that it can be differentiated from competitors’ products.
- Price Skimming Strategy
Price Skimming Strategy plans to charge high costs for products. But there must be some extra feature in the product for which customers don’t care for the price.
- Acquisition Strategy
Acquisition Strategy deals with acquiring a new product or new company to improve profits.
A complete Business Strategy defines how the company or firm can achieve its objectives in the effective and efficient way. It is based on priorities. Firstly, strategies should define plans for most prior objectives and then for prior and so on. Business strategy is planned for 4 or 5 years. These are also called long-term strategies (Ghoshal, 1987).
There are many companies who are successful all over the world because of the international business strategy like McDonald’s, Google, Haier, Wal-Mart, and Microsoft. Take an example of McDonald’s has the world’s leading quick-service restaurant brand today. According to facts, McDonald’s has more than 80% restaurants worldwide and 90% in the US. McDonald has 36,000 restaurants all over the globe, and these are operated by approximately. 5000 businessmen and women (Vukanović, 2016).
Enterprises that are included in the international business face two types of pressure:
Cost Reduction Pressure
here companies try to reduce costs of products by various ways like producing a product in large quantity, standardization of product, etc. Companies do these to increase profits and to remain to differentiate from their competitors.
Local responsiveness Pressure:
It forces the companies to sell different types of products in different markets in different countries based on customer’s taste, preference, culture, etc.
Foreign Direct Investment is an investment by a company, an individual and government of one country into another country due to the business interests. Investment is in the form of either to establish the same operations in other country or to acquire business assets (Vukanović, 2016). Foreign Direct Investment can be made by various ways:
- It can include opening an associate company in the foreign country.
- It can have an interest in some existing foreign company.
- It can do a partnership or merge with some other foreign company.
Firms can get various advantages or profits if they are indulged in international business expansion. All the below mentioned benefits could be achieved by the companies if they are involved in expanding business globally or internationally. Profits that can be achieved by firms include:
- Diversifying offerings.
- Can grow faster than they can in the local market.
- Revenue is increased.
- Increased Sales and profits.
- Long term and short term security.
- Increase innovation.
- International franchising.
- Expansion of business relationships.
- Division of work and thus a reduction in workload.
Foreign Direct Investment is an investment by a company, an individual and government of one country into another country due to the business interests. Investment is in the form of either to establish the same operations in other country or to acquire business assets (Vukanović, 2016).
Horizontal FDI here company perform the same operations in the global marketplace as it does in the local marketplace.
Vertical FDI Company performs different types of activities in the international market.
Conglomerate FDI – In this type of FDI, company performs unrelated business in abroad than in the local market.
Benefits of foreign direct investment
- It helps in economic growth of the country.
- It helps in creating the job opportunities.
- Increased Profits and therefore incomes.
- Easy availability of different products at different places.
- Increased workforce productivity.
- Helps in grabbing new skills and technologies to different people in different countries
- It can lead to a large number of Customers and therefore Increased revenues
- As Revenues and Profits are increased, taxes for governments are also increased, which helps in making a good standard for people in a country.
Risks and Costs of foreign direct investment
There are following risks and costs associated with FDIs.
- Higher Initial investment needed.
- Political Risks as government changes, it may change the rules for FDIs.
- Sometimes Government changes may lead to losing your property or investment as the government can control your property.
- Reduced Employment in Home country.
Hence we can conclude that both FDI and International Business Strategy helps us to settle our business outside our home country to get more profits and to learn new types of skills and also to expand the business to a large number of customers. But before getting involved with these, you must be capable of thinking properly, and you also need more capital to engage yourself or to promote your business in other countries.
Ghemawat, P (2003) “Semiglobalization and international business Strategy,” Journal of International Business Studies, Vol. 34, pp: 138-152.
Ghoshal, S (1987). “Global Strategy: An Organizing Framework,” Strategic Management Journal, Vol. 8, No. 5, 425-440.
Twarowska, K. and Kakol, M. “International Business Strategy-Reasons and forms of expansion into foreign markets,” International Conference, pp: 1005-1011.
Ellis, J., & Williams, D. (1999). International business strategy. Enskede: TPB.
Vukanović, Z. (2016). Foreign Direct Investment Inflows into the South East European Media Market: Towards a Hybrid Business Model.
Rakesh, M. (2013, January). School Assignments: Define and Explain International Business Strategy. Retrieved from http://homeworkl.blogspot.in/2013/01/define-and-explain-international.html
Mcdonald. (2017). McDonald’s Business Model and Strategy: McDonald. Retrieved from http://corporate.mcdonalds.com/mcd/our_company/business-model.html