International strategy
International strategy
International strategy - To learn more about this author, visit Rahul Jain's Website.
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During the last half of the twentieth century, many barriers to international trade fell and a wave of firms began pursuing international strategies to gain a competitive advantage. Strategies are the means by which long-term objectives will be achieved. Business strategies may include geographic expansion, diversification, acquisition, product development, market penetration, retrenchment, divestiture, liquidation, and joint venture. Strategic management enables organizations to recognize and adapt to change more readily; successfully adapting to change is the key to survival and prosperity. Strategic-management concepts provide an objective basis for allocating resources and for reducing internal conflicts that can arise when subjectivity alone is the basis for major decisions. In the current context there can be two broad kind of international strategies: 1. A global strategy: Treat the world as a single market. It is applied where forces for global integration are strong and force for national responsiveness is weak. For example this is true of consumer electronics market. 2. A multinational strategy It treats the world as a portfolio of national opportunities. It is applied where forces for global integration are weak and force for national responsiveness is strong. For example this is true of branded packaged goods business for example strategy pursued by Unilever. Global Strategy Marketing Power.com defines it as: “A strategy that seeks competitive advantage with strategic moves that are highly interdependent across countries. These moves include most or all of the following: a standardized core product that exploits or creates homogenous tastes or performance requirements, significant participation in all major country markets to build volume, a concentration of value-creating activities such as R&D and manufacturing in a few countries, and a coherent competitive strategy that pits the worldwide capabilities of the business against the competition.” Multinational or multidomestic strategy It treats the world as a portfolio of national opportunities. It is applied where forces for global integration are weak and force for national responsiveness is strong. Critical factors determining strategy are: Global Strategy Multi Domestic Industry Structure WorldWide Uniform Huge Differences Competition Globally Regional Economies of Scale requirement High Low Nature of Cost Curve Flat Relatively less flat Customer needs Homogeneous Heterogeneous Nature of Customer Global Size Small sized Regional Culture Little Impact High Impact Local Responsiveness Low High Thus Multi-domestic Strategy is suitable for: * Product customized for each market * Decentralized control - local decision making * Effective when large differences exist between countries * Advantages: product differentiation, local responsiveness, minimized political risk, minimized exchange rate risk Global Strategy is suitable for: * Product is the same in all countries. * Centralized control - little decision-making authority on the local level * Effective when differences between countries are small * Advantages: cost, coordinated activities, faster product development Case of McDonalds McDonalds is a good example of a company that followed a multidomestic strategy. This strategy resulted in: 1. Local need is taken utmost care. Here the customer of each nation will get according to their needs. 2. More autonomy to the subsidiary It enables individual subsidiaries of a multinational firm to compete independently in different domestic markets. 3. Act as SBU Each subsidiary behaves like a strategic business unit that is expected to contribute earnings and growth proportionate to the market opportunity. 4. Innovation from local R&D For Example McDonald's put in eight years in India before its first restaurant came up in 1996. At that point, the odds were heavily loaded against it. For, it had already decided not to launch its beef-based core product - the hamburger - in India so that it didn't hurt religious sentiments of the Hindus. The company knew that the key to its survival here lay in acceptance by the government and the customer. It meant figuring out the right menu -- substituting mutton for beef, something it has never done in any other market, choosing names like McAloo or Maharaja Mac, adding variations and dishes that don't appear in any other McDonald's chain anywhere in the world. Finally, it meant getting the pricing just right. The Maharaja Mac ensured that McDonald's main offering was competitively priced. No wonder "McDonald's has established itself as the family's favorite quick-service restaurant. Finally, it meant getting the pricing just right. The Maharaja Mac ensured that McDonald's main offering was competitively priced. No wonder "McDonald's has established itself as the family's favorite quick-service restaurant," beams Amit Jatia, managing director of Hardcastle Restaurants, the Mumbai Franchisee of McDonald's. The KFC experience couldn't have been more different. It paid enough attention to its main raw material supplies -- by working with Venkateshwara Hatcheries for the right chicken. It also got its cold chain in place. But then it slipped up by not paying enough attention to the cultural context in which Indians consume food. It offered too few choices -- with less than a dozen items on the menu to start with compared with 35 at McDonald's. Larger proportions of Indians are vegetarians, which meant a smaller market. A smaller menu simply cut out a lot of potential consumers.
International strategy - To learn more about this author, visit Rahul Jain's Website.
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