[Solution] International and Global Strategies
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Author: Emily Carter
Developing an international strategy is complicated. Managers must consider multiple governments and political systems, legal systems, currencies, accounting systems, languages, and cultures. They also need to coordinate strategy and monitor performance across business units that are physically and culturally distant. Nonetheless, international diversification can bring many opportunities.
Why Managers Diversify Internationally
Diversifying to international businesses can result in a competitive advantage for the following reasons:
- Global efficiencies: Firms can choose the best locations anywhere in the world. Location efficiencies might be gained by choosing a site that has the lowest costs or is the closest to customers. Economies of scale are realized by using one facility to serve customers in more than one country. Economies of scope are achieved by broadening the product line in each country.
- Multimarket flexibility: The international environment is very challenging, but international businesses have an advantage over domestic businesses in that they can respond to a change in one country by altering their operations in another country. For example, if labor costs rise at a factory in China, the multinational corporation may be able to move that production to an existing factory in India, Malaysia, or Thailand.
- Worldwide learning: Organizations can learn different things in the different places they operate, and managers can then facilitate the transfer of this knowledge across the organization.
Managers of international organizations contend with an inherent tension between, on the one hand, the efficiencies gained by centralizing related operations in one country so that they can coordinate easily and, on the other hand, the enhanced ability to cater to different markets when decision making is shared with managers in different countries.
Advantages of International Diversification
Global Efficiencies
- Location advantages
- Economies of scale
- Economies of scope
Multimarket Flexibility
- Shift operations between countries
- Adapt to changing conditions
- Spread risks across markets
Worldwide Learning
- Gather diverse knowledge
- Transfer best practices
- Innovate through global insight
International Strategies
Organizations employ various strategies for international expansion, each with different approaches to balancing global integration and local responsiveness:
- Home replication strategy: Applying the same business model used in the home market to foreign markets
- Multidomestic strategy: Adapting products and approaches to match local preferences in each market
- Global strategy: Standardizing products and operations across all markets to maximize efficiency
- Transnational strategy: Balancing global efficiency with local responsiveness through flexible approaches
Select the term that best completes the following sentence about international diversification.
When managers in one country gain knowledge, occurs when the organization transfers that knowledge to managers in other countries.
View Explanation
International organizations have the opportunity to engage in worldwide learning, which is the transfer of knowledge from a business in one country to businesses in other countries.
Managers use various strategies to negotiate tradeoffs among global efficiencies, multimarket flexibility, and worldwide learning. Select the correct response for the following question about one of these strategies.
An organization is highly efficient in its home market, so it tries to operate the same way in foreign markets. Which strategy is it using?
- Multidomestic strategy
- Global strategy
- Home replication strategy
- Transnational strategy
View Explanation
With the home replication strategy, an organization tries to achieve success by identifying what it does well in its home market and doing the same things in foreign markets.
