Business organizations often develop business strategies that define their mission, vision, objectives, and goals of the organizations; these strategies also include how firms will organize their activities to achieve their objectives and mission. To gain a competitive advantage, firms engage in strategic decision-making processes that define long-term activities and goals (Frynas & Mellahi, 2011, p.8). I do believe that similar strategies are more essential when a business organization extends its operations internationally. This paper provides my reflection on the concepts I have learned in this module, on developing proper business strategies to be applied by multinational corporations. My views on the various challenges faced by companies operating across several borders, as well as the possible strategies that the management of the organizations can adopt to manage these challenges are highlighted.
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Factors Necessitating global business operations
Globalization has accelerated due to interconnections between different countries resulting from advanced information technology, thus eroding the national boundaries (Steger, 2010, p.1). Globalization enables firms to expand their operations to different countries. I like the movie as it provides several benefits to the organizations. Firstly, firms extend their operations across national borders in search of better markets due to saturation and high levels of competition in the developed markets. The reduction in international trade barriers has promoted this move (Yip, 1989, p.29). Secondly, a firm’s decision to internationalize its operations stems from a combined analysis of its resources and market forces. The firms indeed internationalize their operations to fetch low production costs. They look for areas rich in the supply of resources and cheap labor.
I have also realized that several methods exist through which a firm can internationalize its operations. These methods include the establishment of various subsidiaries of the organization in different countries, with headquarter located in one country. An organization can also enter into a joint venture with a domestic firm in a given country. It could also be through patent/cross-licensing, research and development consortium, direct/indirect exports, wholly-owned subsidiaries, or franchising (Johnson & Turner, 2009, p.247). There are controversies on the most appropriate approaches. I believe that an approach will be appropriate to a given organization depending on the forces internal to the organization as well as the combined factors prevailing in the foreign countries.
Problems Experienced in International Business
In as much as the firms extend their operations to utilize the opportunities that emerge in the emerging markets, there are also challenges associated with globalization. Firms are then obliged to adjust to these changes to survive in their international operations. Firstly, globalization enables the firm to deal with teams that have diverse cultures (Keogh, N.d, p.1). They encounter different languages, customs, and beliefs across different countries. Multinational corporations operate across different cultures and languages in which there is a communication barrier and yet knowledge management is essential for their success (Brett et al, 2006, p.2).
Secondly, environmental, as well as technological, economic, and political systems, are different in different countries. This problem is serious in international joint ventures. International business organizations are faced with the diverse political and economic policies imposed by governments of different countries. Similarly, the organizations that collaborate with others find challenges in different organizational structures, policies, or objectives. A multinational enterprise may enter a partnership with a local firm to overcome diversity challenges. However, companies may have different policies or goals and objectives. It may be difficult to channel their operations towards a common objective, a problem that is mainly witnessed in international joint ventures.
How the Managers can Strategize for International Business
The challenges are many for organizations operating on the global scene. However, it is likely, and I do believe, that solutions exist for the respective challenges. Barriers like language and customs are managed through a partnership with the local organizations. An organization that wants to operate in a foreign company needs to collaborate with some local company through which it establishes its roots in the country. They should also develop an organizational culture that enables the employees to accommodate practically all cultures. Moreover, adaptation to the difference is a key solution to multicultural conflicts (Brett et al, 2006, p.5).
The other important note is that firms need to understand and follow political systems in the countries in which they intend to operate. The management should perform analyses at macro levels like PESTEL to identify the national differences that occur. They should follow the fiscal and monetary policies established in these countries as well as the international policies governing global trade. The PESTEL analysis enables a firm to identify the countries in which it can operate well. Modern MNEs focus on the potential regions in a given country rather than focusing on the whole country as a coherent market (Ohmae, 1993, p.81). They should also apply Porter’s Five Forces analysis to identify the forces like the competitors in the foreign markets in which to extend their operations, the bargaining powers of the suppliers, and those of the customers.
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Besides, international business is a competitive game that requires different tactics to emerge a winner. To win and gain a competitive advantage in this game, the players have to identify their core competencies. Thus, the firms that operate on the global scene should invest more in research and development to keep pace with the changing needs of the clients. They should also cooperate with other firms to learn new skills (Prahalad & Hamel, 1990, p.80). The whole scenario is fully illustrated by some common economic principle that I have found most interesting. Economists come to one common conclusion that a proper business strategy involves learning. This entails taking risks of trying new techniques and ideas to test their effectiveness in meeting the objectives of the firm. The firm should then take note of, and adopt, the procedures that seem to work well. With the changes that are often witnessed in the behavior patterns of the customers, the firms should then be flexible to absorb and accommodate the changes. I concur with the assertion by Levitt (1983) that companies that attempt to standardize their operations without change have often failed ( p.94). The management of the organizations has to be ready to alter the production or operation lines at any time as warranted by the prevailing circumstances.
The benefits of globalization of the operations of a business organization are evident. However, I have realized that there are controversies in the identification of an appropriate avenue for internationalizing the operations of the organization. As such, it would be more desirable to explore more about the benefits of each of the forms of internationalization like franchising, joint ventures, licensing, or direct exports before recommending any of the globalization strategies. The learning shall be developed through a comparative analysis of the firms that have applied each of these approaches and the extent to which they have succeeded or failed in their operations.
Brett, J. et al. 2006. Managing Multicultural Teams. Harvard Business Review, 84(11). (Online). Web.
Frynas, J., & Mellahi, K., 2011. Global Strategic Management. Oxford: Oxford University Press.
Johnson, D., & Turner, C., 2009. International Business: Themes and Issues in the Modern Global Economy. New York: Taylor & Francis.
Keogh, J., N.d. International Teams: Beyond Cultural Differences. (Online). Web.
Levitt, T., 1983. The Globalization of Markets. Harvard Business Review, 61(3); 92-102.
Ohmae, K., 1993. The Rise of the Foreign State. Foreign Affairs, 72(2); 78-87.
Prahalad, C.K., & Hamel, G., 1990. The Core Competence of the Corporation. Harvard Business Review, 68(3); 79-91.
Steger, M., 2010. Globalization. New York: Sterling Publishing Company.
Yip, G. S., 1989. Global Strategy…in a world of Nations? MIT Sloan Management Review, 31(1); 29-41.
Briefing paper 1
Yip, G. S., 1989. Global Strategy…in a world of Nations? MIT Sloan Management Review, 31(1); 29-41.
The reading involves deciding as to whether a firm should globalize its corporate strategies or not. Developing a global strategy as opposed to the multi-domestic strategy applied by most MNCs is discussed. The author focuses on the advantages and disadvantages of globalization of a firm’s corporate strategy and the steps involved in the process. The important idea in the article is that forms should perform an analysis of the internal and external environment before deciding to internationalize their operations. I like the suggestion of a balance between over globalization and under globalization. The difficulty encountered in the reading is the wide and complex array of drivers of globalization that have to be considered before an appropriate decision is made.
Globalization has indeed been on the increase in the recent past, and managers are faced with difficulties in making decisions on whether to globalize or not. Several forces prompt firms to globalize their operations. Stiff competition forces firms to seek markets in the emerging markets where there are also low production costs. The other factor that I consider very influential is the removal or reduction of international trade barriers. In effect, firms are increasingly adopting global strategies as opposed to the traditional domestic strategies applied by multinational companies with different subsidiaries.
Developing an integrated worldwide strategy involves developing the core strategy, internationalizing the core strategy, and globalizing the international strategy across several countries. However, it interests me to note that this last step is often ignored by most firms. The global strategy differs from the multi-domestic strategy in certain aspects. I do concur with the view that developing a global strategy involves standardization of products as opposed to a multi-domestic strategy that involves developing products that meet the needs of the local customers. Similarly, value chains are reproduced in every country in the case of multi-domestic strategy, whereas it is managed as a single entity in global strategy. Similar cases are witnessed in the development of the marketing approach and competitive advantage developed in the two different strategies.
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Globalization of corporate strategy has several benefits. These include a reduction in operating costs in several ways. This also enables the firms to concentrate on the production of quality products. Similarly, globalization increases a firm’s competitive advantage, as it provides several avenues to attack competitors. On the other hand, globalization may impede the effective operations of a firm in a given country. There are instances in which the costs of operation may be high due to the increased number of personnel. Nonetheless, I am sure the challenges can be managed through a proper balance between over-globalizing and under-globalizing according to the globalization potential of the industry.
Managers of large international organizations can enjoy the benefits of globalization if they can identify the globalization drivers that indicate that a global strategy is required. These drivers include market drivers, cost drivers, governmental drivers, and competitive drivers. The homogenous needs of customers in the global market and global channels as well the cost factors like the economy of scale and efficient supply chain are factors necessitating globalization. Similarly, favorable trade policies and competitors in a given market are other important considerations to be made.
It is also true that, after the drivers have been identified, it may be necessary to develop more than one strategy. Indeed, the success of globalization in a given industry may require more than one international strategy owing to the variation across different industries. This is also caused by the changing global effects, resource availability in the company, and the limitations within the organization.
Briefing paper 2
Prahalad, C.K, and Hamel, G., 1990. The Core Competence of the Corporation. Harvard Business Review. 68(3); 79-91.
This article focuses on the core competence that an international business organization needs to develop to survive in the international market. The interesting aspect of the article is a comparative analysis between two companies that started on a comparative scale but were later different in terms of their sales and revenue due to different management strategies that they applied.
It is interesting to realize that most of the business organizations, some of which operate on the international scene, do not understand or apply effective management tools. I have noted that the management of several companies still employs traditional techniques that involve restructuring and reorganizing their corporations. I agree with the authors’ assertion that firms’ management should be able to identify and utilize their core competencies to enhance growth. GTE and NEC are two large organizations that began operating in the information technology industry several decades ago. In 1980, GTE was doing well in the international market and had sales of $9.98 billion compared to $3.8 billion for NEC. GTE was even in a position to perform better in the industry. However, eight years down the line, GTE had sales of $16.46 billion compared to $21.89 billion. Most of the GTE businesses lost fame in the global scene and NEC overtook the company in most operations in the industry.
It would be interesting to explore and learn the strategies that were employed by the two organizations that could contribute to a shift in the sales sizes. This occurred because, unlike GTE, NEC considered its core competencies rather than businesses. In earlier times, a company could identify and capture an end-product market. However, the situation has changed and customers can only be held temporarily. The market boundaries change swiftly with changes in consumer behavior patterns. As the authors observe, a firm that is to survive should be quick at inventing new markets and dictating the consumer patterns by developing new products. The firms need to be creative and innovative to develop products that take long before obsolescence or products that are useful to the consumers. NEC realized this and applied such strategies right from the 1970s.
The management of the organization understood the need to acquire the key competencies. It capitalized on the convergence of computing and communication. The company understood the changes that would occur in the industry and made appropriate adjustments. To build on competencies, the company entered into over a hundred myriad strategic alliances between 1980 and 1988. This was aimed at learning the skills and techniques applied by other companies. Such management strategies were not applied at GTE. Even though some efforts were put to identify the appropriate technologies, there was no proper coordination between the line managers. A similar scenario between NEC and GTE was also witnessed in other industries at the same time. The same happens even in the present market, especially those that involve a lot of research and innovations.
The authors identify certain aspects of competencies that the management has to understand. Competencies involve collective learning in the organization and communicating the ideas across the diversified business units. The core competencies often grow as they are applied. I also agree with the assertion that that cultivating core competencies need not involve a lot of spending as may be perceived by many managers. However, I consider it difficult or impossible to bar the competencies of the organization from being imitated by rival companies as the authors recommend. This is because core competencies involve collecting learning, the passage of information across the organization, and putting the inventive ideas into practice. Such information is likely to leak to the opponents.
Briefing paper 3
Beamish, P. W., & Lupton, N. C., 2009. Managing Joint Ventures’, Academy of Management Perspectives, 23(2); 75-94.
This paper focuses on joint ventures as one of the strategies that an organization can use to extend its operations globally. The paper is based on the available literature that discusses strategies to manage the challenges experienced in joint ventures. I concur with the observations of the authors that joint ventures have both benefits and challenges. Joint ventures can indeed enable an MNE to access new markets, knowledge, or resources. On the other hand, the partner companies may have different objectives and management styles that are difficult to channel towards a common direction. The interesting theme in the article is this comparative analysis provided on joint ventures and the other forms of internationalization of businesses. The benefits of joint ventures are highlighted in contrast to other strategies through which an organization can internationalize its operations.
Forming an International joint venture takes four phases. Firstly, the parent firms have to assess their need for forming a venture. Indeed, it would be useless to form a joint venture if there is no proper justification for the initiative. The firms should then go ahead to select a partner. This involves an analysis of the resources that the partner has, and its willingness to offer access to the resources. I consider this important because a firm may be having useful resources and yet it is not willing to share the resources. The firms then go-ahead to establish the terms and conditions for the joint venture. Finally, the business is implemented and its progress is monitored and evaluated. Competitive advantage will be gained if there is proper knowledge management. The MNEs collaborate with local companies to access the market and learn business practices in the local markets. They also bring in their expertise into the joint venture.
Before entering a joint venture, managers should focus on how the performance of the venture will be measured. This is aimed at examining whether the objectives of joint ventures are achieved. Both the partners have to agree on the measures of performance to be applied. This is indicated in the joint venture contract. The joint venture should serve the interest of both partners. Thus, one hint of its failure is when one partner is only concerned with his gains and disregards the interests of the other partner.
Proper governance and control can be challenging in IJVs. However, I do believe that making proper agreements on terms of operations at the beginning of the partnership can be useful in managing the challenges. The parent companies have to sign agreements that define aspects like ownership and the decision-making processes. It is asserted that shared control may be inappropriate for international joint ventures in certain cases. There should be a high level of trust, honesty, and commitment in the partners. Each partner has to focus on the objectives of joint ventures rather than individual interests. Similarly, each of the partners should be assigned responsibility depending on the level of expertise.
Even though they are associated with certain challenges, the authors prefer joint ventures to licensing, contracting, and other non-equity strategic alliances. Indeed, I l concur with the view that international joint venture can enable a firm to gain a competitive advantage over the others. It is observed that IJVs are characterized by commitment between the partners, ensuring high productivity as opposed to wholly-owned subsidiaries. However, I cannot recommend the strategy in preference to the others. My observation is that in all the partnerships, equity, or non-equity, there is a need for commitment and transparency in both the parties. Each of the parties should be committed to serving the interests of both and if this fails then even joint ventures will not work.