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Syllabus C. Strategy C5. Strategic Choices

C5b. International Expansion

Globalisation

This means huge numbers of suppliers exporting to, or trading in, a wide variety of places.

However, the existence of global markets should not be taken for granted in terms of all products and services, as:

  • Some services are still subject to trade restrictions

  • Immigration: There is a disparity in skills between different countries and restrictions on immigration

  • The market for some goods is much more globalised than for others.

    (i)  Upmarket luxury goods may not be required or afforded by people in developing nations. 
    (ii)  Other goods are needed almost everywhere e.g..Oil

Here are some types of global business:

  1. Exporting - Simply expands your current market and is relatively low risk

  2. Overseas branches - This is the next step, often, when turnover is large enough.

  3. Overseas production - maybe for cheaper labour and it reduces exporting costs.

  4. Multi-national Companies - fully functional organisations being set up overseas. This reduces exchange rate and political risk but economies of scale may be lost

So globalisation integrates learning, skills and competences to achieve global efficiencies while retaining local responsiveness.

International Expansion

Why expand abroad?

  1. Economies of scale can be achieved more easily

  2. Markets are converging - enabling a standard product to be sold in many markets

  3. Avoiding currency risk by setting up businesses abroad, thereby matching income and expenses in the same currency

  4. Using home countries natural competitive advantage (Porters Diamond) and transferring skills abroad

  5. To compete with other players following an international strategy

  6. To overcome import/export regulations

So these are some of the reasons why businesses should look to expand abroad, though of course this does not guarantee success.

A lot of thought has to go into how to expand.

Should you open up a direct subsidiary or go into a joint venture with a local business, should you license or franchise your goods etc

Equally thought needs to be given to the local market. What works well in one country may not in another and so a product/service may need to be altered in some way - though again not always, many standard products also sell well in many different countries and cultures

How to Expand Abroad

Strategy  
International Scale Operations Standard product made in selected countries. Thus getting economies of scale and minimising distribution costs. Head office probably in home country
International Diversity Value is added in the different countries. Therefore may be branded differently there. Local variations made. No attempt at global recognition
Globalisation Standard product and brand name, but produced in the various different countries. Nothing centralised

So, which is best?

Neither, probably a mix. The aim is to minimise the costs of variation, while maximizing the economies of scale

Multinationals v Global companies

  Multinational Global
Strategy For each foreign market separately Worldwide strategies
Products Adapted for each market Standard with minimal variations
Marketing Adapted to each culture Uniform with minimal variations
Locations Based on individual potential profitability Based on ability to contribute to global strategy
Culture Often that of the head office country Globalised. Management from different countries