International Business26th May 2007Factors Influencing International BusinessMost of the times, for a company to survive in an international company, it has to combat numerous political, legal, cultural, market, trade, monetary, governmental, and institutional forces. These factors operate outside the boundary of business, but are a great influence for any business. In this chapter, we will look at how the managers devise strategies to make sure that their company is able to survive and boost profitability in the global environment. Industry, Strategy, and Firm PerformanceIn general, the forces in the MNE’s environment that routinely have the greatest impact on its strategy are in its immediate industry and competitive environment.
This thesis is covered by a prominent model of strategy known as JO model. The Idea of Industry Structure-Often managers anchor analysis of industry structure by modeling the strength and importance of the so-called ¡§five fundamental forces. This model develops a picture of the structure and competition in an industry that prepares managers to figure out what fundamental forces shape strategic conduct, how strong each force is, what forces are driving changes in the industry, what strategic moves rivals are likely to make next, and what the key factors are for future competitive success. Industry Change-The structure of industries is continually in flux.
Often these developments change a minor feature of the industry, thereby leaving industry members the option of continuing to operate as they had. Occasionally, though, a change redefines one or more of the five fundamental forces in an industry. Strategy and Value-For an international company, Strategy defines the efforts of managers to build and strengthen the company’s competitive position within its industry in order to create value.
Creating value-Operationally, companies create value either by making their products for a lower cost than any other firm in their industry (the strategy of low-cost leadership) or making those products that consumers are willing to pay a premium price for (the strategy of differentiation). The Firm As a Value Chain-A value chain has four organizing dimensions- primary activities, support activities, profit margins, upstream and downstream. Value chain of a company is multi-dimensional concept that encompasses many factors influencing the manager’s decisions and strategies. The important ones are Configuration, Cost factors, Cluster effects, Logistics, Economies of Scale, Customer Needs, Coordination, Operational obstacles, National cultures, and Subsidiary networks. Value chains and change- Once built, a firm’s value chain is not fixed in stone.
Because the features and functions of products that consumers judge most critical change over time-as we see in financial services, clothing, entertainment, electronics, and so on the basis of value creation in an industry evolves. Strategy Types-When defining their strategy, MNEs looks to international markets for growth opportunities, cost reductions, and risk diversification within a context of satisfying the competing demands of global integration and local responsiveness. International Strategy-Companies adopt the international strategy when they aim to leverage their core competencies by expanding opportunistically into foreign markets.
The international model relies on local subsidiaries in each country to administer business as instructed by headquarters. Multidomestic Strategy -A multidomestic company, sometimes called a locally responsive company, follows a strategy that allows each of its foreign-country operations to act fairly independently.