Strategic Issues in International Business : Strategic Analysis and Choice

The Three major strategic issues businesses has to address are as follows:

  1. Strategic Issues in International Business
  2. Strategic Issues in Small and Entrepreneurial Ventures
  3. Strategic Issues in Not-For-Profit Organization

Here, in this post, we are discussing on 1st Issue related to International Business.

Issue One: Strategic Issue in International Business

There are two aspects/issues on International Business. They are:
1. Entry Strategy
2. Operating Strategy

Let’s discuss each of the Strategies as follows:

1. Entry Strategy

  1. Export: Natural/normal/easiest mode of entry. It may not be possible due to primary two reasons:

    1. Trade barriers: Trade barriers can be a) Tariff Barriers and b) Non Tariff barriers
      • Tariff: Government imposing tariff to reduce import and encourage internal production.  Again, there are two types of tariffs. Fixed Rate Tariff and Add Valorem Tariff
        • Fixed rate tariff: Per unit price
        • Add Valorem tariff: % of invoice, like automobile 220+%
      • Non-tariff: Non-tariff Barriers includes:
        • Subsidy: To domestic manufacturer, good, cash, kinds, discounts, etc. Subsidies is not good as it encourage inefficiencies
        • Quota: Importing countries places quota from exporting country to import certain goods on quantity
        • Voluntary Export Restraint: Just opposite of quota, exporting country imposes restriction up to certain quantity to export certain country  
        • Administrative Barriers: Exporter to Japan needed to fill form of 274 pages in Japanese language.
            
    2. Value-weight/volume ratio: If value-weight ratio is low, export is not possible. E.g. exporting mattress vs. gold ornaments. Mattress has weight more than 10 kg and covers large space in plane but has lower value. Gold covers less space and has high value. So, if the plane fare is to be paid on the basis of volume it covers. Then, it may be very expensive to export mattress.

  2. Licensing/Franchising: Only difference is in franchising, we have to pay higher royalty. franchise is regarded as the member of the organization but in licensing, only right to use intellectual property is granted and even royalties are lower. Here, the benefit is franchise is getting royalty without investing single penny. But, the strategy may not be possible due to fear of loosing trade secret. Franchising is higher form of licensing with closed cooperation and relationship and high royalties. E. g. First ever TV Screen manufacturer from USA licensed Sony. Later, Sony knew trade secret and manufacture on its own and start selling as separate brand. By this, the first company got out of the market. KFC is franchise, Bottlers Nepal is licensing.

  3. Joint Venture: Fear of loosing secret is still there, but relatively low because one is working as a partner of the company. Fuji and Xerox coming together to form Fuji-Xerox.

  4. Fully owned subsidiaries: Here, no fear of loosing secrecy but possible only if the law of the country requires. It can be of two types:
    1. Green field investment: Starting business from very beginning.
    2. Merger and acquisition: Business can be operated from day one. But along with business, its liabilities will also get acquired.

  5. Turnkey Project: Develop a new business, operate and earn for specific period and handover the key to the government or either institutions of the country.

2. Operating Strategy

  1. Localization/Multi-Domestic : Many factories operating in different parts of the world to address the local requirement. Operating the companies independently acting like they are domestic companies. Each of the plant acts like autonomous. Here, small group possesses high pressures for the product/manufacturer but cost reduction pressure is low as people are willing to spend. Too many Plants.

  2. Global Standardization : High pressure for cost reduction, but low pressure for local responsiveness. People don’t care about the customization but requires low priced products. Standardized product, cheaper price, mass production is only way out. Minimum no. of factories.

  3. International : Most Comfortable position. No pressure for cost reduction and local responsiveness. Not suitable for long term strategy. Only suitable for pioneer product. E.g. Rs. 12000 – 14000 for Nokia 1100 with torch light. Nobody asked for customization but as time advances, people asked for customization. Hence, International strategy is for temporary leading the market but not for long.

  4. Transnational : Most problematic Situation. Pressure for both price reduction and local responsiveness is high. Cannot go for volume production and not even proper customization. But, here, everyone want customized product at low price. No fixed model. We have to think of our own way out. E.g. Caterpillar in China produced most of its part in Home country as mass production and produced the key customization in China which helped them gaining business, Nestle has 10000+ brands, 270+ plants, all over the world, no duplication of products. Scattered products and plants. Europe Alone has 25-30 plants.

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