Review Of International Business Strategies

Published Date: 02 Nov 2017

Introduction

International Management is an emerging but increasingly important area of study of transactions taking place across the national borders for full filling the requirements of organisational and individuals. These economic transactions made up of trade, both importing and exporting and foreign direct investment, as in the firms funding operations in other countries. Firms that is going sustain and achieve profitability and profit growth no doubt, would have to gain extra market sales, expand business aboard and profit in the result by using employee benefit of experience, learning and sharing effect, large scale economies and location. (Rugman & Collinson, 2006)

Moreover, it has been proven to many firms, foreign markets are not easy and risky. The firms will mostly likely to face problems such as cross border management coordination unions, local government regulation, local client preference and taste on product and services in different environment divergences of markets, culturally, economically and legally. An entry mode is a structure of arrangement that makes possible the entry of a firm’s technology, services, management, human skills, or other resources into a foreign country. (Chen, 2005)

Choosing not an appropriate entry mode can lead to negative consequences. Choosing entry mode is the most critical decision international institution. Selecting the entry mode is interpreted as an appropriate way for companies to enter foreign markets in order to operate its international business by exploiting its advantages. Regarding the entry strategy services companies, is one of the first to discuss about the choice of entry mode in service industries and indicates that the conduct of foreign market entry in the services sector is characterized by great diversity. (Wolf, 2005) The purpose of this individual assignment is to understand various entry modes and international business strategies to recommend the selection decision for international institution, SENTRAL College.

2.0 Review of Entry Modes

The question arises when once the firm decides to enter a foreign market as to the best mode of entry. There are six different modes to enter a foreign market which are exporting, turnkey projects, licensing, franchising, setting up joint ventures with a home country firm and establishing a new wholly owned subsidiary in the home country. There advantages and disadvantages in each modes whereby managers need to take in account when making decision which one to use. (Hill, 2005)

2.1 Exporting

Most manufacturing firms start their international expansion by exporting and then only later change to another mode to enter a foreign market. The advantages of exporting, avoids often-substantial costs of setting up manufacturing operation in the host country. Exporting also may help a firm to achieve location economies and experience curve. The firm may realise "substantial scale economies from its global sales volume by manufacturing the product in a centralized location and exporting it to global other national markets". The disadvantages of exporting arise when a firm pass on its service and marketing sales to a firm in another country where they do business with. This is a usually approach for manufacturing firm that just started to expand internationally. The treat of tariff barriers by the host-country government can also lead to uneconomical and risky exporting. Besides that, if there are lower-cost location economies for manufacturing the product aboard, exporting from the firm’s home base might not be suitable. (Hill, 2005)

2.2 Turnkey Projects

In turnkey projects, firms usually specialize in construction design and start up of turnkey plans are very common in some industries. Turnkey projects are most common in the pharmaceutical, chemical, metal refining industries and petroleum refining, of all which use expensive, complex production technologies. Advantages of turnkey project are to assemble and run a technologically complex process such as refining steel or petroleum is a valuable asset. To make a great economically return from that asset, turnkey project is the way to earn it. In country which has political and economical instability, a long-term investment may expose the firm to unacceptable political or economical risk. If that country consequently proves to be a main market for the output of the process that has been exported, this could be a disadvantages. Besides, the firm go into a turnkey project with foreign firm venture might unintentionally create a competitor. (Hill, 2005)

2.3 Licensing

In licensing, in order to exchange for royalty licensor offers some proprietary assets to a foreign company (licensee). Example some asset that can include in a licensing agreement which is patents, trademarks and production processes. The advantage of licensing for companies is to be profitable means for making a way through foreign markets. On the company’s resources, licensing is not demanding therefore it is appealing to small companies with lack of resources and the means to invest in foreign facilities. To reduce their exposure to political and economic instabilities in their foreign markets, some companies use licensing as their global expansion strategy. The disadvantage, when licensing agreement consists of trademark, there is a risk also that wrong moves made ​​by the licensee tarnish the trademark covered by the agreement. Other risk includes failure to produce in a timely manner, not getting paid and loss of control of the marketing of the products. (Ndubisi, 2008)

2.4 Franchising

In the global marketplace, franchising is used by service industry companies to capture opportunities. Franchising is related to licensing. In an agreement of franchising, the "franchisor gives the franchisee the right to use franchisors’ trademarks and trade names". The advantage of franchising is clear. With a minimum of investment, companies can take advantages on a winning business strategy by expanding overseas. Political risk for the rights-owner a very slim just as with licensing. Franchisees are highly motivated because profits are tied to their efforts. By capitalising on the local franchisees’ knowledge of the local market place, the franchisor will have more understanding of laws and local customs than the foreign firm. The disadvantage of franchising is firm with no recognition will face a big challenge finding partners that are interested in the foreign market. Finding suitable franchisees can be a problem in many markets. In some countries, franchising as a business model is not understood. This is because there is lack of control over the franchisees process. (Ndubisi, 2008)

2.5 Joint Ventures

In the host country, foreign companies agree to share equity and other resources with other partners to set up a new entity. These partners are local companies whereby there also can be local government, a blend of local and foreign companies or a foreign company. (Hill, 2005) The advantage of joint venture compared to licensing is the return potential. Joint venture has more control over operations than any other modes. In much country, the local government forbid wholly owner ventures in particular industries. Under such situation, joint ventures are the temporary solution. These inputs, combined resources and foreign partners’ skill are the key to successful market entry. Conflicts can occur in resources allocation, strategies, transfer pricing, brand names and ownership of technologies. In many cases, the conflicts begin in the beginning of the joint venture. When trouble weakens the joint venture, partners can try to solve the conflicts through mechanisms built the agreement. The joint venture will be dissolved or scaled back if equal acceptable resolution has not been achieved. (Ndubisi, 2008)

2.6 Wholly Owned Subsidiaries

The firm owns 100 percent of the stock in wholly owned subsidiaries. The firm can establish a new operation in foreign country. It can get hold of establish firm in host country and use that particular firm to promote its products or the firm can establish a new establish a new operation in that country. Fully owned enterprises allow the foreign investor to control and manage its tasks and process in production, marketing, sourcing decision and logistics. It send strong commitment signal to the local market by establishing fully owned subsidiaries also. With local companies that will takes years of negotiations before their final takeoff in some markets, wholly owned subsidiaries can be constructed much faster than joint ventures. The disadvantages of wholly owned subsidiaries, the risk of complete ownership cannot easily to be reduced because full ownership meaning that the parent firm will have to carry the possible losses and burden. On the firm’s resources, developing a foreign firm without the help of third party is very demanding. (Ndubisi, 2008)

3.0 Review of International Business Strategies

Facing the companies with foreign market orientation are two seemingly contradictory objectives subsequently central production at optimal location in the world, to lower down the cost by product standardization and meet to local demands for with customization by making the product different, localised marketing mix and so on which unquestionably tend to raise cost. In order to go through two opposing ends, four international business strategies have been worked out theoretically, which is global strategy, multidomestic strategy, transnational strategy, international strategy. (Liu, 2010)

3.1 International Strategies

 International strategy also known as home replication strategy of home based competencies like distribution, production sales and brand power. In international strategy the firm in its home country usually centralized product development function. Firm sees international business as its domestic business and opportunity to generate sales for domestic product lines. When a firm purses an international strategy, it replaces competencies it enjoys in the host country in its expansion into foreign market. The advantages of international strategies is firm could reduce the production cost beginning of the investment subject to the R & D and centralization of product. Firms often connect to international strategy as it firstly expands into foreign markets subject to its easy implementation and low cost. The disadvantage of this strategy within the international strategy, a firm most likely alter its structure to add international division which separate from exporting, franchising, and licensing which can cause critical problems. (Hoang, 2013)

3.2 Multidomestic Strategies

In mutlidomestic strategies firm develops to produce and sell products in different market. This strategy is an expansion of the home replication strategy. This strategy is useful when low pressure for cost reduction and unclear differences among regional and national markets and low pressures. By giving decentralize decision making authority to local business in each country, multidomestic strategy maximize local responsiveness in order for them to create services and products for their local markets. The firm can alter their products to meet specific preference and need of the local client using multidomestic strategy. As a result the firm can increase its local market share and compete more effectively in the local market. The disadvantage of multidomestic strategy is that due to vary of production, distribution and marketing, the economies scale is very low. The firm’s foreign manager may widen strategic vision, process and culture that are different than the headquarters. It also can lead reducing of economies of scale and duplication because manager will have little experience and knowledge to share with firms in other countries. (Hoang, 2013)

3.3 Global Strategies

There are many advantages and disadvantages when large and small multinational firms turning into a global business. With the era of technology, it allows business to be global operation. For example, even a small business can have consumers in every different part of the world. With different country and different culture that have difference tastes and preferences what are selling in one part of the world might not be selling in another part or the world. But still there are some firms who pursuing a global strategy selling the same product all around the world. Example for the firm is Coca Cola. The advantage of global strategy is that it allows firms to leverage economics of scale. When the firm sells the products all around the world, they can buy the product’s raw materials in bulk and potentially they are saving large sum of money. Global strategy is also useful in the matter of product life cycle. A firm can eliminate the release of products with the introduction of older products saving the launch of the latest version of a product for well developed markets. Disadvantage of using global strategy is that markets that have certain tastes or preferences are more sensitive to pricing. If the firm estimates wrongly the mistake could make the firm to lost large sum of money. (O'Farrell, 2013)

3.4 Transnational Strategies

Transnational strategy sometimes claims that this strategy has the advantages that both the global strategies and multidomestic have. It also happen to be that transnational strategy is a mixture of other strategies and firm only use it for activities where the global strategy makes the most sense. The advantage of transnational strategy is increase in the market share when transnational firms present local products over standardized products. Next, is overcoming the local competitor. By introducing the product that is not available in the local market gives the advantage overcoming local competitors. But there also disadvantage for this strategy for example if a firm has high fixed cost then replication is expensive. Transnational strategy has to bear the cost of replication if the transnational strategy involves in each market. Increase of the cost of the firm by producing locally adapted products is also one of the disadvantages. Therefore, the managers of the firms have to discover balance in the trade off between cost structure and localisation. (brainmass, 2013)

4.0 Recommendation

In order to find the right entry modes for SENTRAL College, several theories and strategies have to be analyzed. The characteristic of education institution is that offer product which is knowledge through service. The business strategy can be adopted by SENTRAL College is Transnational Strategy where the institution can provides their educational information and curricula in different. For example, syllabus, lecturer to the student. (Aarntzen, 2010)

Besides that, according to "Code of Good Practice", the "Council/UNESCO" of Europe transnational education defines as "all modes and types of delivery of higher education programmes which includes those of distance education in which learners are from different country from the country where the awarding institution is’’. (Hussain, 2007) In Cross-border Higher Education" in the "Guidelines for Quality Provision by the OECD (2005), the term is being define as "cross border higher education that takes place in where the program, teacher, student, institution or course materials cross national jurisdictional borders." (Hussain, 2007)

This type of higher education can include both types public and private and for-profit providers or non-profit. OECD also stated that it includes a large spec of modalities, varying from face to face learning to distance learning. Exchange programs for students between different educational institutions are common. With this concept it is make possible for students to study in national campus sites and foreign campus sites of SENTRAL College. (Aarntzen, 2010)

SENTRAL College also can facilitate and absorb large students’ body distributing knowledge beyond the country or state border. It makes tertiary education programs available for learners in country which different form the awarding institutions. Transnational higher education serves different purposes in different countries. The advantage of transnational educational delivery includes broader student choice in education systems facing resource limits, domestic capacity building, reducing the resources that flowing out of the country, and improving competitiveness and innovation in the sector. (Hussain, 2007)

5.0 Conclusion

This assignment reviews some key problem relating international management. It provides a helpful insight into the benefit of this aspect of the international business strategy and entry modes. The international business strategy must be take in account seriously if firm are aiming to expand to international market. Firms are to finely position their international business strategy which is international strategy, global strategy, multidomestic strategy or transnational strategy after scaling the local responsiveness and pressures for cost reduction. Other than that, with growing market in emerging countries like opportunity is everywhere. (Liu, 2010)

https://new.edu/resources/international-strategy--2