International Business Strategies - Challenges

Prior embarking on strategies, it is imperative to understand the 3 rules of consistencies and pressures for cost reduction and pressure for local responsiveness

Consistencies

It is important for companies to embark the 3 rules of consistencies

1)      Organisation structure must be consistent internally

2)      Structure must be consistent with strategy

3)      Strategy must be consistent with environment

In order to achieve consistencies, evaluate the environment first because no organisation structure or strategy can control environment. But, organisation structure can learn to be consistent with the environment and strategies can be devised to be consistent with the environment which is known as strategic fit.

There is no single company in this world that strategies can be parked. It is because of the 3 rules of consistencies which show that academic aspects of the discussions do not exists any more. For example is General Electric, it is impossible park them in any one of the strategies because they are highly diversified. When the environment dictates and companies are highly diversified, companies’ involvement is mostly controlled by the environment.

Pressures for cost reduction and pressure for local responsiveness needs to be connected with advantages, optimisation and maximisation profits to devise International Business strategies. When cost is kept minimum, local responsiveness is comprised and vice-versa. Thus, this two objectives need to be met from a theory point of view where these pressures place conflicting demands on the firm.

Pressure for cost reductions forces firm to lower unit costs and the pressure is the greatest in industries producing mass products, major competitors having low cost locations, affluent consumers and low switching costs and excess capacities.

Pressures for local responsiveness require a firm to adopt its product to meet local demands in each market which will raise cost eventually. The pressure for local responsiveness arise when there are differences in consumer tastes and preferences, traditional practices and infrastructure, distribution channels where the marketing strategies need to be responsive to the differences in distribution channels between countries. Lastly, when host government demands where the economic and political demands imposed by host country governments may necessitate a degree of local responsiveness

Multi domestic or localisation strategy

Although the multi domestic or localisation strategy is the weakest of all strategies, it is still heavily practiced by many industries where customisation is a crucial factor. For example is bank, where customisation is needed for individual customers in their wealth protection and portfolio. As a result, bank such as DBS rarely has a choice but to customise. Many service providers around the world do not have a choice but to customise and fragment their operations. Hotel industries such as Swisshotel cannot integrate on a global platform but to focus operation based on local differences and requirements. An important argument to this is that services cannot be exported and operations must be based on the country requirements. The food and beverage industries Coca Cola utilises dual strategies which is the integration on the global platform and licensing. As a result, once licensing takes place, localisation follows. For security reasons, logistics companies such as DHL are left with little choices but to local many of their operations.

All the above mentioned industries are profitable, acquired market growth and on the global platform. They operate on a highly fragmented perspective.

International strategy

In theory, international strategy did not address the pressure for cost and local responsiveness. But, in reality, McDonald’s is global company which is profitable and their brand is worth about US$ 50 billion. However, in this fast food industry, it is important to control the know-how and knowledge, they are under little pressure to customise and they profitable as well.

Companies must be consistently achieving profitability and growth.

But apparently, Global companies are using weaker strategies but they are profitable and acquired high market growth. In strategies, the rules of consistencies must be applied and any organisation that select any one of these strategies must position themselves consistently in that market. The pressure for cost reduction and pressure for local responsiveness is dictated by the environment. As a result, strategies are the outcome of the aspects of the environment that needs to be met.

Conclusion

Theories on strategies are merely descriptive but importantly it is the reality of the world where the companies are bounded by environment.

Globalisation - A key to the next higher echelon of economy?

Globalisation is the shift from isolation to integrated and interdependent world economy.

Two key drivers: Markets and Production

Markets

The globalisation of markets refers to the merging of historically distinct and separate national markets into one huge global marketplace. The declining trade barriers of free flow of goods, services and capital, and the role of technology such as the World Wide Web are the 2 important drivers supporting the markets. For example is CNN.

1) Opportunities

Markets have lead to globalisation the way it is on the basis over the last 70 years. The world has seen the biggest amount of wealth and countries around the world have the opportunities to re-direct attention, efforts, investment in information building. Many countries have been focusing on the developing of countries’ intellectual properties and developing people.

2) Literacy and affluence rates

This developing of people has lead to a greatest level of literacy and affluence rates. With greater literacy and affluence rates, it increases greater levels of purchasing power. Globalisation nurtures global learning and albeit tacit knowledge and greater learning curve through MNC. People have becomes more skilled as a result of knowledge imparted by MNC, this increases countries’ literacy rates and affluence rates. For example is Hewlett Packard Company in Singapore where the knowledge, research and development of HP printers is parked in Singapore and make Singapore the HQ.

3) Global pressures

With high levels of literacy and affluence rates, many companies which are under great amount of pressures in the domestic markets have realised that global market has given them greater opportunities. For example, the top 5000 companies reported that of 80% of their markets share or profitability comes from outside their countries.

4) Single market

Markets are no longer limited to domestic markets. For companies, market is now on worldwide basis. The global platform has become a single market opportunity because of education levels and affluence rates have integrated to an extent to the people. As a result, people are now more willingly to spend and buy. Importantly, people are willingly to consume many of this products or service in a more standardised manner.

5) Role of technology

Market has inevitably created opportunities for companies to expand their operation around the world and technology especially the World Wide Web has played a supporting role. The Internet has created a huge role in integrating their operation to support their global markets. That explain companies globalising, that extends to organisation globalising their products or services on the global platform. As a result, many organisations no longer domestic orientated and moving towards globally orientated.

Production

The globalisation of production refers to the sourcing of goods and services from locations around the globe to take advantage of national differences in the cost and quality of factors of production. For example is Dell.

1) Opportunities and emergences of new companies

With the increasing market opportunities, greater market potential and market shares for companies to capture. This means that there are greater market competitions where stability has lead to many companies to emerge from many different countries as well. Until the 1970’s, companies were primarily from the triad nations which are US, Europe and Japan. Today, it is no longer being limited to triad nations, companies have emerged and competition from all over the world.

2) Competition

The level of competition is intensive. 30 years ago, there are a total of estimated 40,000 multi-national companies in the world.  From the latest report, now there are total of estimated 88,000 multi-national companies in the world. This figures means that the level of competition is intensive.

3) Pressure to reduce cost

When the level of competition is intensive, the profitability is severely affected. As a result, companies are under huge pressure to reduce their cost not just in their domestic market and also on the global platform. In order to reduce their cost, they have to find a way to position or move their operations around the world where their cost of economies greatest to their advantage. Companies cannot depend on a single country for operation but they have to internalise their location economies in which they could reduce their cost. As a result companies have already begun to breaking up their value chain into smaller components, matching these components to the other countries’ benefits where they can reduce their costs of value chain activities on a global platform. For example is China which is renowned for its low cost production. In essence, this expansion of production and investment which is foreign direct investment on a global platform has begun to integrate countries’ economies and played a big role in globalisation.

Production and Markets

Eventually, the production and markets began to integrate through major players in the world. Countries’ economies and companies operation began to integrate. This level of presence in the global platform is supported by technology such as telecommunication and transportation have allows companies to cope and fulfil their objectives of profitability and growth

Future outlook? - Sustainable competitive advantage

Companies and countries gain sustainable competitive advantage through expanding their strengths, exploring new opportunities, reducing their weakness and avoiding threats. For example is the automotive industry in India was opened to the global platform which saw major automotive manufacturers and suppliers in the world to park their investments in India. Thus, the countries saw an increase in employment rates and consumer purchasing power. While companies saw an increase in profitability and cost maximisation through effectiveness and efficiency respectively.

Expatriation Failure

Expatriation failure is the premature return of an expatriate manager to his or her home country. Research has shown that the Multi-national companies experienced a minimum failure in expatriation at estimated 32% and the maximum failure in expatriation at estimated 40%. Expatriation failure can be costly and the direct cost of monetary and indirect cost of efficiency and effectiveness are greatly affected

The reasons for expatriate failure are:

One of the reasons is the inability of manager’s spouse to adjust to a new environment. The presence of culture shock was not tackled promptly, emotional problems, family-related reasons and spouses can not adjust to the environment. Thus, render inefficiency to managers and eventually leave prematurely

The inability to cope with larger overseas responsibilities is also one the reasons cited. Managers who are technically incapable and less competence find themselves unable to cope or handle tasks on a much wider scale and complexities. At the end, they leave prematurely

Overseas managers in the world have identified that performance appraisal was against them, many of them was appraised unfairly as the appraisal have not taken account that they are in another country.

The repatriation was not made clear to the managers. Many managers have no clue to what is going to happen at the end of the contract such as a position back home or forced to leave the company as there were no available positions. These uncertainties arise and stir demotivation which causes manager to leave prematurely.

Solutions

Firms can reduce expatriate failure through improved selection procedures of managers

It has been cited that successful managers possessed all 4 key attributes

1)      Self-orientation

It refers to the expatriate self confidence, self esteem and mental well-being.

Managers with high level of confidence and self esteem will not lose their confidence in the face of trouble and challenges as they are able to handle their emotions well. However, the problems of egotism may arise which will lead to ethnocentrism.

2)      Others-orientation

It is the ability to interact effectively with host-country nationals. The willingness to communicate increases the level of tolerance and adaptation of a manager.

      3)      Perpetual ability

It refers to the ability to understand the behaviour of people from other country. Managers go beyond the willingness to understand have higher levels of tolerance and acquired greater adaptability to new situation. Managers equipped with empathiness achieves efficiencies and effectiveness.

4)      Cultural toughness

It refers to the ability to adjust to the posting. This where managers can manage greater diversification in culture and adapt well

While the selection of manager procedures is important, it is also important to instill global mindset to global managers. This fundamental attribute can be acquired early from the culture exposed or the foreign languages.

Training and management development

The continuous training and management development play important key roles. Training focuses upon preparing the manager for a specific job. The management development is concerned with developing the right skills of the manager over their career with the firm. But training will place more emphasize than management development as training create awareness of culture and language. The cultural training seeks to foster an appreciation for host country’s culture, the language training renders managers the ability to communication with host country nationals and practical training helps manager and family members ease themselves to understand and experience the countries culture. Also, firms have also sent managers to the country first to let them adapt prior to station them for long years.

Also, the development managers' competence and technical capability are important because managers with greater technical capability and competences can cope wider and biggest complexities

Another area to reduce repatriation is that the performance appraisal needs to be done in a less bias manner. Firms should be impartial and take consideration that expatriates are at a different country. Comparisons should be avoided and ensure that fair level grounds of appraisals are present. This could greatly reduced frustration and de-motivation of expatriates. In order to reduce bias, firms can place more weight on site managers’ appraisal than off site managers’ appraisals. Firms can seek information from former expatriate to reduce bias. Firms can take in consideration of foreign on site managers’ evaluation of the expatriate manager. All these will constitute a 360 degree approach to appraisal a manager.

Lastly, the repatriation programs should be clearly prepared and developed for expatriate managers to re-enter into their home country. The well developed programs for re-integrating expatriates back into work life within home country organisation clarifies uncertainty of roles and increases the level of transparency of repatriation. Companies who do not plan repatriation loses knowledgeable workers and increases competition as the expatriate manager leaves the company and join competitors

Conclusion

In order to reduce expatriation rates, firms should understand expatriates better from many different perspectives. “Penny wise, pound foolish” solutions are short term of reducing cost but the long term benefits are the primarily important aspects that a firm should examine and it outweighs the short term. Also, understanding how expatriates go through in a foreign country is important. The elation when expatriates leave home country to undertake higher roles, the honeymoon experienced when expatriate steps into a foreign country, the depression experience to stay or leave, the adaptation of the country culture and the elation felt when the expatriate has served the contract. At different junctures, firms can devise strategies to assist expatriate cope with internal and external factors of foreign countries better. As a result, the expatriates gains and firm gain even more which is tacit knowledge and learning curve.