Levels of International Strategy

The globalization of the economy, internationalization of businesses and emergence of new markets are all key themes in contemporary business. Whereas international business may once have been the province of organisations with sufficient scale and reach, these types of companies — typically multi-national corporations – no longer have a monopoly on this kind of business. Increasing numbers of firms, of varying scale, are confronted with compelling reasons for expanding their activities across multiple national boundaries. In some cases, such motivation includes the knowledge that success in international markets is a pre-requisite for survival; if competitor organisations succeed in international markets, they may achieve the scale and liquidity which affords them sustainable competitive advantage.

There are mainly three levels of international strategy. They are;

  • Corporate Strategy
  • Business Strategy
  • Functional Strategies

Short description of these three are given bellow,

1. Corporate Strategy:

Corporate strategy attempts to define the domain of businesses the firm intends to operate. Consider three Japanese electronics firms: Sony competes in the global market for consumer electronics and entertainment but has not broadened its scope into home and kitchen appliances. Corporation focuses only on electronic audio and video products. Each firm has answered quite differently the question of what constitutes its business domain. Their divergent answers reflect their differing corporate strengths and weaknesses, as well as their differing assessments of the opportunities and threats produced by the global economic and political environments.

  • The single- Business Strategy: The single-business strategy calls for a firm to rely on a single business, product, or service for all its revenue. The most significant advan ­tage of this strategy is that the fine can concentrate all its resources and expertise on that one product or service. However, this strategy also increases the firm’s vulnerability to its competition and to changes in the external environment. For example, for a firm producing only VCRs, a new innovation such as the DVD player makes the firm’s single product obso ­lete, and it may be unable to develop new products quickly enough to survive.
  • Related Diversification: Related diversification, the most common corporate strategy,, calls for the firm to operate in several different but fundamentally related busi ­nesses, industries, or markets at the same time. This strategy allows the firm to leverage a distinctive competence in one market in order to strengthen its competitiveness in others. The goal of related diversification and the basic relationship linking various operations are often defined in the firm’s mission statement. Related diversification has several advantages. First, the lien depends less on a single product or service, so it is so it is less vulnerable to competitive or economic threats. Second, related diversification may produce economic of sale of a firm. Third, related diversification may allow a firm to use technology or expertise developed in one market to enter a second market more cheaply and easily.
  • Unrelated Diversification: A third corporate strategy international business may use is unrelated diversification, whereby a firm operates in several unreleated industries and markets. For example, Casino Guichard-Perrachon, a Frenchfirm, owns ­businesses that compete in the financial services, image processing, supermarket, wine production, and convenience store industries. During the 1960s, unrelated diversification was the most popular investment strategy. Many large firms, such as ITF, Gulf and Western, and Textron became conglom ­erates, the term used for firms comprising unrelated businesses. Nonetheless, the creation of conglomerates through the unrelated diversification strategy is out of favor today primarily because of the lack of potential synergy across unrelated businesses. Since the businesses are unrelated, no one operation can regularly sustain or enhance the others.

2. Business Strategy

Whereas corporate strategy deals with the overall organization, business strategy focuses on specific businesses, subsidiaries, or operating units within the firm. Business strategy seeks to answer the question “How should we compete in each market we have chosen to enter ­”

Firms that pursue corporate strategies of related diversification or unrelated diversification tend to bundles sets of businesses together into strategic business units. In firms that follow the related diversification strategy, the products and services of each SBU are somewhat similar to each other.

  1. Differentiation: Differentiation strategy is a very commonly used business strategy. It attempts to establish and maintain the image that the SBU’s products or services are fundamentally unique from of other product and services in the same market.
  2. Overall Cost Leadership: The overall cost leadership strategy calls for a firm to focus on achieving highly efficient operating procedures so that its costs are lower than its competitors’. This allows it to sell its goods or services for lower prices. A successful over ­all cost leadership strategy may result in lower levels of unit profitability due to lower prices but higher total profitability due to increased sales volume.
  3. Focus: A focus strategy calls for a firm to target specific types of products for certain customer groups or regions. Doing this allows the firm to match the features of specific products to the needs of specific consumer groups.

3. Functional Strategies

Functional strategies attempt to answer the question “How will we manage the functions of finance, marketing, operations, human resources, and research and development (R&D) in ways consistent with our international corporate and business strategies?”

International financial strategy deals with such issues as the firm’s desired capital structure, investment policies, foreign-exchange holdings, risk-reduction techniques, debt policies, and working capital management. International operations strategy deals with the creation of the firm’s products or services. It guides decisions on such issues as sourcing, plant location, plant layout and design, technology, and inventory management.

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