- What incentives influence firms to use international strategies? What are the three basic benefits firms can gain by successfully implementing an international strategy? Why?
- Determine why, given the advantages of international diversification, some firms choose not to expand internationally. Provide specific examples to support your response.
- As firms attempt to internationalize, they may be tempted to locate their facilities where business regulation laws are lax. Discuss the advantages and potential risks of such an approach, using specific examples to support your response.
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A firm would use an international strategy to sell its goods and services within the global market. Usually the company produces the goods within their country and then sells the products to other countries. The strategy involves producing the product within an advanced economy and then once it thrives within that economy, the demand rises as other countries develop interest. Therefore firms would want to use international strategies for several reasons; international markets are sources of new opportunities where they can explore maximum possibilities to improve their business performance. The company has the ability to increase their product life cycle since once the products are produced in the home country; they have a chance to explore the global market which allows their product to receive more visibility. They can easily access more customers especially in economies that are just developing. Once they move to foreign markets it is easy to have access to economies of scale whereby they are able to reduce costs of labor and produce standardized products across the borders, they can increase their scope and can learn how different markets operate giving them a competitive advantage.
Through this strategy, the company is able to explore evolving technology which is a trend for all companies seeking to gain competitive advantage in recent times. International markets offer companies a chance to increase their market size and to generate a return on investment that is above average. Other basic strategies include corporate level strategies that involve multidomestic, global and transnational strategies that companies engage in so as to penetrate the international markets. The corporate level strategies are used when a company operates in many industries and in many countries and for the success of these strategies it is imperative that they use products and capabilities that are difficult to imitate. A multinational strategy allows for the company to secure need resources and a global demand for branded products.
There are three basic benefits that firms can gain by successfully implementing an international strategy; they gain the advantage of increasing the market size since they may lack the necessary support of the domestic market, they are able to receive returns on investment in that large investment projects would need to thrive in global markets so as to justify their capital expenditures and lastly they are able to expand their economies of scale in terms of manufacturing, research and development and distribution. Having economies of scale allows the companies to spread their costs over a large area thus gaining much returns in terms of profits earned.
Despite the advantages of international diversification, some firms choose to not expand internationally due to political risks, flow of capital between countries may face restrictions, countries have different laws in regards to trading different from the home country and the exchange risk which involves a danger that the exchange rate may not favor the company (Bogdan et al., 2016). An example of a successful company that was unable to succeed in the international front is ebay china. It was not as successful as other companies like TaoBao because it did not have a certain function on instant messaging and was not able to succeed in china despite its popularity in ecommerce (Ofili, 2016). It was also unable to take off in Japan since they did not adjust to the local preferences and so their strategies and purchasing methods did not work properly in that market. In order to complete a purchase, the clients had to input their credit card details and this had not yet been a popular thing in Japan hence ebay was unable to successfully take off.
Business regulation in different countries has become a subject of controversy as it is not understood how it impacts the growth of the economy of that country. Another aspect on business regulation is whether the presence of lax laws may lead the hosting country to be a ‘pollution haven’ (Dechezleprêtre & Sato, 2017). The presence of strict laws and regulations may cause a company to rethink investing in that country. This causes higher chances of corruption or bribery that may contribute to the poor performance of the company in that specific country. Strict regulations hinder liquidity within the country and thus foreign investment finds it difficult to sustain the companies within that country. Therefore leading to high production costs on the company investing there (Hassaballa, 2014). A company therefore would want to invest in a country that has lax regulation since the production costs are reduced and there is a chance of receiving cheap labor while creating comparative advantage that improves the performance of the company.
Last Updated on May 16, 2020 by Essay Pro