Globalization
Globalization transforms the world into a single global market for goods and services, erases all types of borders between consumers and producers. All existing companies compete on the international market a priori, in connection with this, a qualitatively new approach is needed to develop a competitive international company strategy in the current economic realities. Even though globalization is already a key provision of economic reality, the approach to developing international company strategies does not have effective algorithms for developing a strategy, and its implementation. The first thing one needs to start with is to distinguish between the concepts of company strategy and international company strategy. In this regard, the term “international company strategy” was proposed, expressed as a business concept for achieving the competitive advantage of a company in the international market in the context of globalization (Bekaert & Mehl, 2019). It is also proposed to introduce a new approach to achieving a competitive advantage in a global market by implementing a strategy of emotional involvement of stakeholders, which in itself will create a unique “out of competition” space for the development of the company. To develop an international company strategy, an algorithm is proposed for developing an international company strategy that takes into account the specific conditions of development at the supranational level.
There are three main international strategies that companies can undertake to achieve higher prosperity and profitability. These are exploiting differences through arbitraging, boosting market share by adapting, and aggregation, where a company utilizes its economies of scale. The latter two strategies were followed by Brasil Foods until 2011, where the company rapidly expanded to standardize its operation, thus reducing the costs of production and further increasing its size. The statement can be supported by Fay, stating that “We have the basis to grow. We know what to do” (Bell & Kindred, 2013, p. 1). However, the primary international strategy used by the company adhered to adaptation strategy, where it tried to expand its market share and attempt to merge is an indicator of widening the presence in the local market. It can be seen through the rapid expansion and growth of the corporation. For example, it is stated, “Exports were diversified beyond traditional tropical products to soybean, sugar, and meat” (Bell & Kindred, 2013, p. 2). It is important to note that although Brasil Foods was primarily solidifying its presence in Brazil, indicating the presence of adaptation strategy, there are some hallmarks of aggregation strategy of boosting the company’s market share both locally and internationally.
Brasil Foods
The ultimate goal and the overall approach of Brasil Foods were focused on having operations in nations other than Brazil. It is stated that these nations are Africa, Asia, the Middle East, and Latin America (Bell & Kindred, 2013). The mode of expansion is manifested in the fact that Brazil would be the main source of resources, which means that the company did not need foreign support. In the OLI paradigm, the state of the company was placed at the L section, where Brazil Foods was produced at home and exported. However, it is gradually going shift towards I or internalization, where the other nations with a shortage of food supply will be targeted. It is stated, “the target countries should face limits in their food supply” (Bell & Kindred, 2013, p. 10). Therefore, such an approach will allow the company to bypass the local limitation of growth by gaining additional revenue from outside. The main drawback is the fact that such nations, where there is a shortage of food supply, will inevitably have more competitors. New phenomena in the organizational forms of managing the international activity of the corporation arise, first of all, from their policy of reorienting from exporting goods from the parent country of the parent company to carrying out production activities at foreign-controlled manufacturing enterprises with the subsequent sale of products in foreign markets. This is dictated by the desire of the corporation to use the relative excess of capital to increase the rate of profit received in countries with lower wages, lower taxes, raw material costs, and transportation.
One of the most important advantages and conditions for the growth of foreign production activities was the tendency to the internationalization of economic life, which, in the conditions of the scientific and technological revolution, predetermined the growing need for specialization and cooperation in production. Corporations are increasingly using the specialization and cooperation of production as an important form to increase production profitability on a global scale. This was carried out, in particular, by delimiting production programs between foreign subsidiaries, increasing their competitiveness as a result of the introduction of advanced scientific and technical achievements obtained in the parent company at their enterprises. An important incentive to expand the overseas production activity of the corporation was also the increase in the objective demand of the huge production scale in large sales markets. Such a need reinforced their desire for foreign economic expansion, the desire to circumvent customs and other barriers and expand their positions in the markets of other countries by approaching the direct consumer to more fully take into account his requirements and demand. This necessitated the emergence and development of appropriate forms of international activity of the corporation.
China
China should become a nation in which Brasil Foods’ expansion should take place because there are several key factors. It is stated that China in 2010 bought 2.1 million tons of processed food, which indicates a great demand (Bell & Kindred, 2013). In addition, there are no major competitors due to high fragmentation in the market. Bell and Kindred (2013) also state, “China’s top 15 firms collectively held about 40% of the frozen processed foods market” (p. 22). Therefore, it is evident that China can be an outstanding choice for expanding for such an established and resourceful company. The only drawback can be seen in the fact that the cold chain infrastructure would require a substantial sum of investment, but Brasil Foods can afford to make such an investment due to natural limitations in the local market.
The solution to all these problems in a complex makes it necessary to strengthen the coordination of foreign economic activity with the activities of all other departments of an international company, both linear and functional. As a result, international activity is becoming an important part of Brasil Foods management. Moreover, it has a decisive influence on the strategy, policy, and operational activities of the entire company. This leads to the fact that the centralized management of the company is carried out on an international scale with a global approach to the issues of marketing, planning, financing, logistics, specialization, and cooperation of individual enterprises (Afsharian & Ahn, 2017). Hence the need to move management of international activities to the highest level of management in the parent company.
The entry mode
The entry mode should be within the range of low risk and low to medium ownership. The main reason is the fact that the overall expansion into China would require a significant investment, which cannot be risked. Therefore, the remaining options are exporting, contract, and alliance. The latter option is the most plausible one because it still allows the company to have a higher degree of ownership. The critical aspect of the given entry mode is the fact that China’s frozen processed foods market is highly fragmented (Bell & Kindred, 2013). Therefore, Brasil Foods can ally with a suitable local company by selectively choosing the right one. It will not be a challenging task because the sheer number of potential firms is high. Innovative technologies and unprecedented information volumes are rapidly changing the corporate climate. Innovative knowledge is becoming a source of competitive advantage in the struggle between states, individuals, and companies.
The global competition growing in connection with the huge modern market increases supply and forces companies to reconsider their attitude to the basics of organization and the logic of business development. Companies today compete in the global market a priori. The emerging domestic business, regardless of its desire, is faced with existing players in its domestic market in one form or another and to one degree or another. Even though globalization is already a key provision of economic reality, the approach to developing international company strategies does not have effective algorithms for developing a strategy, and its implementation.
The merger
The merger occurred without a clear plan due to Sadia’s urgency in needing a buyer. It is stated that Fay did not intend or plan to buy Sadia (Bell & Kindred, 2013). However, they merged despite CADE’s concerns regarding market domination and food inflation. The overall merging process between Perdigao and Sadia involved several intricacies and controversies, but it was still beneficial to both parties. Although two companies had disputes over the Russian market, the merging process seemed to have no integration issues due to both firms being in the same industry and using the same approach. The acquisition process was only hindered by CADE’s presence, which was deciding whether or not such a merging would lead to monopolization.
The increasing role of foreign production subsidiaries in the international activities of Brasil Foods, as well as companies of countries of interest, reflects the qualitative changes that are taking place in the process of internationalization, which requires adaptation of existing forms to new conditions. This is directly related to the change in the functions performed by sales companies, whose role in modern conditions is changing significantly. They are turning, in fact, into purely intermediary organizations selling the products of the parent company in the foreign market. In their activities, they are mainly focused on providing maintenance of machinery and equipment supplied by the parent company and sold on the domestic market of their host country. In this case, the main subject is those countries where firms do not have their own production companies that have direct relations with the market. In such countries, sales subsidiaries usually serve as strongholds for the subsequent creation of their production base of the parent company.
It is important to emphasize that since Brasil Foods organize their sales and production subsidiaries in the markets of other countries, these companies themselves already act as counterparties in the market. This circumstance is of fundamental importance since it reflects changes like the relationship between the manufacturer and the end-user. The essence of these changes is that the foreign sales and production subsidiaries of TNCs, which constitute an element of its ownership, enter into direct contact with the end consumer, both industrial and retail, in the market of the country of location and the markets of other countries. This means that not only is the role of direct commercial operations increasing, but their nature is changing. By creating their foreign sales and manufacturing enterprises and establishing direct intercompany relations, Brasil Foods not only causes a change in the ratio between traditional methods of conducting commercial operations but also contributes to a change in the very nature of the methods used.
The noted qualitative changes in the organizational forms and methods of carrying out the international activity of firms are the result of the shifts that are taking place in the production sphere, where dominant positions belong to corporations. These changes reflect the fact that the problem of reproduction is becoming more and more a market problem, and to carry out production on an expanding basis, companies are increasingly penetrating the sphere of international circulation by creating their overseas network. At the same time, this penetration means that the very nature and content of international activities are undergoing significant changes. As already noted, international trade increasingly reflects the results of industrial cooperation and production relations, both between large corporations and within them.
The compete in the global market
Companies today compete in the global market a priori. The emerging domestic business, regardless of its desire, is faced with existing players in its domestic market in one form or another and to one degree or another. Even though globalization is already a key provision of economic reality, the approach to developing international company strategies has effective algorithms for developing a strategy and its implementation. The recommended action will be categorized into two major parts, which are knowledge and organization. The former part needs to involve the scope of resource combination to properly face challenges of operation. In addition, the overall scope of resource divestiture needs to be evaluated. There is a need to set up an integration process timeline, where the key operation functions are considered as a part of the implementation process. The second part is related to employee motivation and retention. The main goal is to identify key personnel of operation, which will act as a backbone for the challenges during merging. It is also important to be able to retain key people and help them to integrate into a new environment. The latter factor is critical for a successful merging process.
Production overseas branches and subsidiaries are created either in the form of assembly enterprises or enterprises with a full production cycle. Assembly enterprises assemble machines and equipment from the supplied parts, assemblies, and parts from the enterprises of the main company and sell them to foreign customers often through local intermediaries. Assembly enterprises are created mainly in industries manufacturing mass production, mainly in the automotive industry, in the production of tractors, motorcycles, bicycles, household appliances, radio equipment, and agricultural equipment. Foreign assembly enterprises are a convenient means for organizing a sales network and maintenance of machinery and equipment in importing countries. Using them as a base, corporations get the opportunity not only to sell assembled machines and equipment in a given country, to establish maintenance, but also to study the features and needs of local markets in other types of engineering products, establish closer contacts with local government officials, and importing firms. At these enterprises, the share of parts and parts of local production increases over time, and the share of imported parts accordingly decreases to a minimum that includes only those parts that cannot be manufactured locally.
The creation of own production enterprises abroad provides companies with additional profits as a result of lower production costs in the countries where these enterprises are created. This is due to the following circumstances. First of all, as a rule, the parent company chooses for its assembly and other production subsidiaries countries where the wages of workers are lower than in their home country. Of great importance is the level of taxation in the country where a subsidiary production enterprise is organized, compared with its level in the country of the parent company (Dunning, 2015). When delivering machines and equipment in disassembled form, that is, in the form of assemblies, parts, and parts, for subsequent assembly at an overseas enterprise, a reduction in transport costs is of some importance due to the more compact packaging of components and parts and, as a result, more rational use of transportation means. Saving on freight when exporting unassembled equipment is a large part of the price of the goods. Disassembled transportation of equipment provides better safety during long-distance transportation, facilitates its storage.
References
Afsharian, M., & Ahn, H. (2017). Multi-period productivity measurement under centralized management with an empirical illustration to German saving banks. OR Spectrum, 39, 881–911.
Bekaert, G., & Mehl, A. (2019). On the global financial market integration “swoosh” and the trilemma. Journal of International Money and Finance, 94, 227–245.
Bell, D. E., & Kindred, N. (2013). Brasil Foods, Harvard Business School, 1-27.
Dunning, J. H. (2015). The eclectic paradigm of international production: A restatement and some possible extensions. In J. Cantwell (Eds.), The eclectic paradigm (pp. 50-84). Palgrave Macmillan.