IMPLEMENTING INTERNATIONAL STRATEGY
Executive Summary
The purpose of this paper is to analyze whether international strategy is as straightforward to implement as a domestic strategy. Various elements of both strategies that have been analyzed include the external environment, corporate strategy, SWOT analysis, political environment, economic environment, cultural environment, opportunities, and threats. The political environment for the international business was found to be risky for investors due to future uncertainties. Economically, international business may be faced with more challenges such movement of personnel from one country to another or high taxes that may be demanded in some countries. Also, the international strategy has to cater for cultural variations in order to satisfy the tastes and preferences of the international customers. This may call for differentiation of products and services which might also be costly for the company. Other factors that complicate the implementation of the international strategy include international trade barriers that are enforced by various countries. Implementation of the domestic strategy is not affected by international trade barriers since the host country tends to support the local companies. The paper concludes that the implementation of the international strategy is complex and not as straightforward as the domestic strategy.
Table of Contents
Implementing International Strategy
“Implementing an international strategy may be as straightforward as implementing a domestic strategy.”
Introduction
International strategy is used by the companies that expand their businesses in the international market in order to reach out to more customers. In most cases, companies expand into the international market after they have become successful in the domestic market and hence expand with an intention of distributing their business success in the global market. In order to remain competitive in the global market, such companies have to formulate a workable international strategy that addresses all the concerns in international trade. Unlike domestic strategy which is easy and straightforward to implement, international strategy has to involve more complex issues such as trade barriers, economic, cultural and political factors in the foreign markets. For this reason, I do not agree that implementing an international strategy may be as straightforward as implementing a domestic strategy.
Corporate Strategy
An organization implementing a domestic strategy is concerned with the domestic market where it will be operating. As such, the major competitors are mainly the local companies located in a given country. The implication for this is that organizations preparing the domestic strategy may require less marketing since the market segmentation only covers the local boundaries. Sometimes, the marketing plan for the domestic strategy is simple and may involve fewer personnel and other resources. Ideally, the marketing cost in the domestic strategy is less than in the international strategy.
It is however different with the international strategy because an organization has to consider a wider scope where it will be conducting its business. Having business operations in more than one country complicates the marketing process in the international strategy (Forster & Browne, 1996). The marketing strategy used must reach out to customers who are from diverse cultural backgrounds. In addition, the wider market for the international business may result in more business registrations in the different countries where an organization will have its business operations. In relation to this, Walmart has an international strategy that promotes a corporate level strategy. Through this strategy, Walmart has ventured into foreign markets and remained competitive due to its relationship with suppliers in the foreign countries (Das, 2011). In particular, Walmart has been successful in the international market due to its cost leadership and differentiation that enables it to sell its products at relatively low prices that discourage competitors.
Harding Larry, the founder and president of High Street Partners, an expert of implementing international strategy, argues that it is imperative for a business that has the intention of expanding its operations beyond the local boundaries to have a clear plan that will act as a road map in their expansion program (O’Berry, n.d). Expanding overseas is a challenging task that many companies experience. The senior management across the organization as well as those responsible for implementation and support of the expansion need to know the goals of the company and what is expected of them with regard to oversight and management.
Corporate Governance
Corporate governance is about the structures and systems that are involved with the direction and control of a company. This is mainly the relationships between managers, Board of Directors, shareholders, and other stakeholders. For the international strategy, the corporate governance has to consider management of an organization on a broader perspective (Ungson & Wong, 2008). For instance, there are countries that have regulations that require foreign companies to allow shareholding from those countries. This is likely to foster growth in the foreign markets. In the domestic strategy, the corporate governance for a local company may not be complicated since the management will be concentrated only in one country.
According to the Economist Intelligence Unit (2010), improved corporate governance is crucial in the realization of success in an organization. Corporate governance articulates to the managerial decisions and controls; thereby, good corporate governance should be performing its duties within the organization rather than outside. The Economist Intelligence Unit also purports that designing and implementing the corporate structures are crucial, but international and domestic bodies should not ignore the necessity of the cultural aspect (Economist Intelligence Unit, 2010).
SWOT Analysis
The SWOT analysis for the international strategy is very different from the domestic strategy. In the international strategy, there is a need for a company to analyze more firms that may be distributed in many countries around the globe (McSweeny, 2002). This will be very helpful for a company while analyzing the strengths and weaknesses since a company can only determine its strengths or weaknesses after comparing with competitors. In contrast, the domestic strategy only considers the local competing companies in determining its strengths or weaknesses.
Implementing a domestic marketing strategy is more straightforward than the international strategy because it focuses on tapping the local market and how to appeal to the local customers. For instance, a local beverage company in the UK may focus on packaging its products with an aim of appealing to the local consumers such as high school students. In addition, the packaging and the flavors for the international beverage company products should reflect the needs of the international audience.
In ricocheting Goldratt, Derek O’Neill (the CEO of Billabong International Limited) posited a business entity should understand its internal and external environment that affects the business entity; either domestic or international market (Goldratt, 1990). However, the domestic business strategy cannot be the same as the international business strategy due to the challenges in the international markets. As such, international marketing strategy is more involving and costly to implement than the domestic marketing strategy.
Culture & Economic Factors
Culture plays a significant role in the implementation of the international strategy. The variation in cultural backgrounds influences the customers to have different tastes and preferences and hence prompting international companies to employ marketing strategies that would reach out to all those consumers (Hofstede, 2001). Any company wishing to venture into the international market must initiate a strategy for dealing with culture shock due to consumers who belong to various cultural backgrounds. Such a strategy might address specific needs that are associated with different cultures. In line with this, some products may be popular in some cultures and unpopular with others. A good example is the Unilever Company that manufactures different brands of margarine to fit various international markets due to cultural affiliations.
Sir Martin Sorrell the Chief Executive of Wausau Paper Corp., during the launch of Barclays strategic objectives, argued that an organization’s structure and its historical background can be easily changed, but culture is quite difficult especially in a business entity operating in diverse cultural settings (Treanor, 2013). However, rebranding the products to meet the cultural requirements of a particular target population is essential.
Global Economy
Movement into the international market makes the competitive environment of an organization to be complicated. In this regard, international strategy has to consider various countries and determine where the fastest growth is likely to occur (Lussier & Achua, 2004). It is also critical for the international strategy to consider various economic barriers that may hinder business establishment. For the long term objectives, an organization has to expand its business in regions where there will be sustainable growth.
In an economic perspective, an international business strategy considers economic conditions from foreign countries where each country may have varying standards of taxation and currency. This calls for the international business strategy to adhere to many regulations from different countries which is more costly (Ungson & Wong, 2008). Different from this, is the domestic strategy that may deal with fewer regulations and taxation procedures from the host country (Forster & Browne, 1996). The operations in international business are therefore more costly due to the use of currencies that might not be stable. Additionally, international business may have to develop and implement international strategies that will foster strong relationships with the foreign governments. This is particularly important in acquiring licenses and other registration documents for such companies (Greiner, 1972). However, in a domestic strategy, dealing with government regulations may be easier to implement because the company does not go through rigorous registration procedures required from foreign companies.
Hardy Larry purports that businesses that want to head to European market should know about value added tax (VAT). Companies that have VAT registration place themselves at an advantage, because the rules of the region require all the businesses to be collecting and remitting VAT on applicable transactions. The failure to abide by the rules of the region could result to significant penalties that could result to financial problems to the company. Furthermore, the process of hiring employees poses a great challenge, because it becomes difficult to place employees on the same position bearing in mind that they come from different regions (O’Berry, n.d). It is important to integrate such expectations and responsibilities in the plan for this will help in avoiding problems that might arise in the future.
Resources
Implementation of an international business strategy requires more resources especially when the business is conducted in various countries. Specifically, a company may have to transfer some of its human resources from the local market to the international market to assist in establishing the new ventures (Barton, 2001). Moreover, the flow of resources in an international business requires extensive coordination within the company that is applying a global strategy (Abell, 1980). At times, this coordination becomes more complex if it has to cover different geographical regions. This may be costly since the company has to cater for all the expenses associated with such transfers. For the domestic business, a company does not have to formulate a strategy for outsourcing employees since it is easier to get them from the local market.
Global Strategic Alliances
Unlike domestic strategy, an international strategy should consider the possibility of a company engaging in global strategic alliances. A global strategic alliance, is usually established when a company plans to have a competitive advantage in a foreign market. Typically, alliances are formed with one or more companies particularly in countries where governments do not allow foreign companies as a policy to protect domestic industry (Baird, Post, & Mahon, 1993). Most international companies start by forming strategic global alliances with foreign companies before eventually acquiring the companies by buying majority shares. While implanting international strategies for strategic alliances, it is paramount for the strategy to consider the legal and financial implications of forming global alliances companies (Schoemaker, 1995). The services of a legal counsel, who has enough skills in international trade and joint ventures, may be sought to advise the company accordingly. For the maximum protection of the international company, a lawyer should be hired from the host country and the foreign country.
One of the companies that have included strategic alliances in their international strategy is McDonald’s. In China for instance, McDonald formed a strategic alliance with the Shenzhen Metro Group in 2010. This allowed McDonald to establish its restaurants in the subway and underground systems used by the Shenzhen Metro Group. This made McDonald to enjoy the vast transport from the group, which included more than 138 stations. Through the strategic alliance with the Chinese company, McDonald has been able to expand its network in the Chinese market and has more than 1100 restaurants (Manzella, 2012).
Another company that uses international strategy is Coca Cola which operates in more than 200 countries globally. For the company to establish itself in the foreign markets it’s been forming strategic alliances with other companies and independent businessmen. For instance, the company engages in strategic alliances with the local bottling companies in the foreign countries where it sells its products (Das, 2011). These alliances have been beneficial to the company the local bottlers understand their markets better and can have access to the local materials. However, Coca Cola supplies the bottlers with the syrup from its international headquarter in the US. In addition, the company also forms strategic alliances with distributors situated in different countries. Although the strategic partners benefit from the alliances, Coca Cola still remains the main beneficiary of the strategic alliances due to the continued growth in sales.
In India, Coca Cola formulated an international strategy that enabled it to form a strategic alliance with Parle Exports. This Indian company manufactures its own soft drinks and has a distribution network of more than 50 bottling plants (Ungson & Wong, 2008). With this alliance, Coke developed its brand in the Indian market where the rapid population growth has seen its sales increase over the years.
BP Company has also been keen in its international strategy. In an effort to reach out to more foreign markets, the company has formed strategic alliances in various countries. For instance, in the Russian market BP announced a global strategic alliance with Rosneft Company. This alliance enabled BP to establish a technology center in Russia that acts as a research institute for developing skills required in the extraction of hydrocarbons in the Arctic region. As a result of this alliance, BP has been able to assess hydrocarbon deposits in Russia and hence increasing its international presence (Das, 2011).
Jean-Claude Viollier, Corporate Vice President of Capgemini, argued that global strategic alliances ensures that a global strategic plan is achieved with the foreign organization, and this will ease the realization of strategic goals for both the organizations. With the current competitive environment and dynamism in the business sector, developing an alliance would ensure that the risks are pulled together and the companies involved are able to maximize the resources available.
Organizational Structure
Implementation of organizational structure in an international strategy differs from the domestic strategy. While the domestic strategy seeks to have a simple organizational structure, a more complex organizational structure is enhanced in the international strategy. This strategy must define the type of organizational structure to be adopted considering the management of the functional units that are established in foreign countries. Coca-Cola Company, for instance, has an international strategy that supports International Division One organizational structure (Das, 2011). This structure includes specialized divisions for dealing with foreign markets and aims to address the needs of specific groups of consumers from specific regions. On the contrary, the organizational structure of the domestic market does not have to be complex as the international one since the market share is smaller and can be coordinated through simple organizational structures.
As a cost cutting measure, Walmart has an international strategy that allows a simple organizational structure that has only a few managers (Ungson & Wong, 2008). The company has to be keen when getting into the international market because all the details of the organizational structure have to be included in its international strategy. This has made Walmart stores to remain competitive in the international market despite the presence of other companies.
Intelligence Economists Unit (2010) provides that organization structure should be lean, especially in the domestic market, as the market share is smaller. However, in the implementation of organization structure in an international strategy should be narrowed, as this will facilitate transparency in the decision making process. Having a lean and manageable organizational structure, an organization would have intense scrutiny on the operations of each level of management.
External Environment
Another factor that makes international strategies to be more complex to implement than the domestic strategies include the external environment. The external environment for international business included trade barriers that have to be considered before a company establishes a business in a foreign market (Barton, 2001). Ordinarily, these trade barriers are enacted to regulate imports and exports in certain countries with other barriers targeting to block foreign companies from investing in some countries. Some other external factors that have to be considered in the international strategy include the cost of production which normally differs in different countries (Schoemaker, 1995).
Intelligence Economists Unit (2010) analyzes the implication that the external environment in realization of the international strategies. The Unit argues that it is quite expensive to implement international strategies than domestic strategies. The cost of production for an international company is not just determined by the cost of raw materials, but other factors such as energy, infrastructure, and technology are significant in controlling the cost of production. If these issues are not well elaborated during the implantation of an international business strategy, a company may end up running at a loss in the foreign markets.
Conclusion
International businesses have more strengths and opportunities than the domestic markets. Likewise, they are also exposed to more threats and risks due to the uncertainly of the foreign markets. In this regard, international business strategy must include these factors more elaborately than the domestic strategy. Cultural affiliations affect international business due to the various cultural backgrounds found in different countries. Economic factors that affect international business include foreign taxes and currently fluctuations. This may however not affect domestic business since registration of companies favors local companies in most countries. Unlike the domestic strategy, implementation of international strategy is affected by external factors such as the international trade barriers which complicate the implementation of the strategy. Undoubtedly, implementation of the international strategy is not as straightforward as the implementation of the domestic strategy.
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