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.