Expanding your business globally is a pivotal decision for any company looking to reach new heights. As you embark on this journey, it’s crucial to have a well-defined plan in place. One of the most effective approaches to leverage your competitive advantage and ensure success in foreign markets is through an international strategy.
In this comprehensive guide, we will explore the concept of an international strategy, its benefits, and how it differs from other global expansion strategies. We will delve into its intricacies, examine real-world examples, and provide best practices for implementation.
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What is an International Strategy?
An international strategy is a long-term plan adopted by multinational corporations (MNCs) to navigate and achieve their goals in the global marketplace. It serves as a blueprint for companies operating in multiple markets, enabling them to effectively manage the complexities of global expansion.
When devising an international strategy, various factors come into play, including available resources, industry dynamics, target markets, and more. As noted by Prahalad and Doz, MNCs face a range of pressures, both global and local, which shape their strategic choices.
Let’s explore these pressures in detail:
Global Pressures for Global Integration of Activities
- Pressure for cost reduction
- Importance of global clients
- Presence of global competitors
- Consumers’ universal needs
- Technological intensity and investment demands
Local Pressures for Local Reactivity to Different Markets
- Variation in consumer needs across countries
- Differences in distribution channels
- Availability of substitutes
- Host government regulations and requirements
- Structure of local markets
While it may seem straightforward to respond to global pressures through global integration and local pressures through product adaptation, the reality is more nuanced. For instance, consider a company in the wine industry that benefits from keeping production within its home country due to access to skilled talent and superior raw materials. Moreover, if the tastes of wine consumers align across local markets, exporting standardized products can be a viable international strategy.
An international strategy strikes a balance between low levels of global integration and local reactivity. The company centralizes information, authority, and decision-making for international markets at its headquarters, with dedicated departments overseeing international operations. Key functions, including production, remain in the home country, while standardized products and services are exported to foreign markets without customization. This approach is often referred to as the “exporting strategy.”
How an International Strategy Differs from Other Global Expansion Strategies
According to Bartlett and Ghoshal, there are four distinct global expansion strategy types based on the degree of global integration and responsiveness to local markets:
- Global Strategy — global companies coordinate operations across foreign markets, capitalizing on each country’s advantages while centralizing decision-making at the headquarters. Apple exemplifies this strategy, offering the same phones and laptops worldwide under a unified brand while manufacturing them in multiple countries.
- Multidomestic Strategy — multidomestic companies focus on adapting their products and services to local markets through foreign subsidiaries with a high degree of independence from the headquarters. This strategy allows them to tailor offerings to local tastes, providing a competitive edge over international competitors. Procter & Gamble is a prominent example, employing this strategy in the food industry.
- Transnational Strategy — a blend of global and multidomestic strategies, the transnational approach involves joint decision-making between headquarters and interconnected foreign subsidiaries, while products and services are tailored to local markets. L’Oréal is an excellent illustration of this strategy, offering strong brands from the United States and France, customized for respective markets.
In contrast to other multinational corporations, companies adopting an international strategy treat foreign subsidiaries as resellers of products exported from the headquarters. Additionally, an international strategy places greater emphasis on revenue from the domestic market compared to foreign markets. Consequently, foreign activities generate additional revenue, while other global expansion strategies consider foreign and domestic activities equally significant.
This distinction contributes to the appeal of an international strategy during the initial stages of global expansion. As international operations mature, transitioning to another strategy type often becomes crucial for long-term global success. A notable example is Orange, the telecommunications group, which transformed from France Télécom into the Orange Group, establishing relatively independent local subsidiaries like Orange Poland and Orange Morocco.
Benefits of an International Strategy
Venturing into the global market requires substantial investment, but when executed correctly, it offers significant long-term advantages. Here are some key benefits of adopting an international strategy:
Competitive Advantage by Location
Expanding to foreign markets enables companies to gain a competitive edge in the global landscape. In fact, 56% of middle market companies incorporate international expansion in their growth strategies. By entering local markets, businesses can attract new customers worldwide, compete with global rivals, and enhance their products.
Economies of Scale in Development and Production
Focusing on product development and production exclusively in the home country allows international companies to achieve economies of scale. This efficiency wouldn’t be attainable if operations were scattered across different countries.
Greater Return on Investment (ROI)
Obtaining a higher return on investment in foreign markets compared to the domestic market serves as a compelling incentive for global expansion. However, it is crucial to conduct thorough research on the potential costs and revenues associated with each global expansion strategy before making a decision.
Global Brand Recognition
Promoting products under a unified global brand across all countries fosters instant recognition in the global market. By leveraging a consistent brand identity, including logo and name, companies can establish a strong global presence.
Global Customer Satisfaction
Imagine purchasing a perfect car in your home country—reliable and comfortable. Later, when you move abroad and need to buy a new car, finding the exact same model from the same manufacturer would likely lead to an immediate purchase. An international strategy enables companies to satisfy global customers by offering identical products and services worldwide.
Top 5 International Strategy Examples
To gain a deeper understanding of successful international companies, let’s explore five notable examples of effective international strategies:
Starbucks
With its humble beginnings in Seattle in 1971, Starbucks has expanded to 80 countries, boasting 32,000 coffee houses worldwide. The company’s success lies in a standardized product offering and consistent store decoration, making their coffees highly appreciated and their siren logo instantly recognizable globally.
Rolex
For over a century, all Rolex watches have been exclusively manufactured in Switzerland, with “Swiss made” emblazoned on each timepiece, regardless of the market. This association with Switzerland’s renowned watchmaking excellence has solidified the brand’s reputation. Key activities, such as research and development, design, and sales, remain centralized at the headquarters in Geneva.
Porsche
In 2021, Porsche delivered over 300,000 vehicles worldwide, all assembled in Germany. The company’s international strategy focuses on centralizing key operations, including research and development and after-sales, in their home country. This approach has positioned Porsche as a prime example of successful international strategy implementation.
Hermès
Founded in Paris in the 19th century, Hermès remains under the control of the founder’s descendants. The majority of their products are manufactured in France, with the headquarters exclusively located in Paris. Boasting over 300 stores worldwide, Hermès has established a strong international presence, with more than 90% of their turnover generated outside France. Each Hermès store offers the same iconic bags, scarves, and perfumes.
Harley-Davidson
Harley-Davidson, an American motorcycle manufacturer, presents a consistent product line across all countries. Given the nature of their products, no significant adaptations are required for customers in foreign markets. This strategy has garnered global customer satisfaction and worldwide recognition for the brand. Harley-Davidson’s corporate headquarters remains in Milwaukee, where the first factory was established, and product development occurs exclusively in the United States.
An International Strategy: A Direct Path to Global Expansion
When seeking global expansion, an international strategy offers a straightforward approach for companies that require low global coordination of operations and can succeed in foreign markets without significant local adaptation.
It serves as an ideal market entry approach during the initial stages of global expansion, as exporting standardized products from headquarters is relatively uncomplicated. Once an international strategy proves successful, transitioning to another global expansion strategy can bring cost reduction and tailored products specifically designed for local markets.
Furthermore, an international strategy offers economies of scale in production, as well as global recognition and customer appreciation. This explains why companies such as Rolex and Porsche continue to embrace an international strategy decades after their first foreign subsidiaries were established.
