Term Paper: International Business Competitive Strategy

Pages: 18 (6174 words)  ·  Bibliography Sources: 1+  ·  Level: College Senior  ·  Topic: Business  ·  Buy This Paper

SAMPLE EXCERPT:

[. . .] Porter cites the example of American firms choosing to have labor cost parity instead of exploiting their sources of competitive advantage in the seventies and eighties. On the other hand, Japanese firms accorded greater preference to automation over labor and they were able to achieve greater productivity and lower costs.

There was a stage when Japanese companies were successfully running assembly plants in America; barely years after the U.S. firms had found it unviable to do the same. (Porter, 1990) Different organizational structures and strategies work better in some industries and not so in other industries. For example Italian firms have shown that they are the best in select industries such as lighting, furniture, footwear and woolen fabrics, while German firms seem to have the best competitive strategies in technology based industries such as chemicals, pharmaceuticals and complex machinery. According to Porter, in the current international business scenario, ownership of companies and the place of the companies are not relevant anymore and it is how they leverage their sources of competitive advantages.

Firms within the same industry and of comparable operations can exhibit different capabilities in exploiting competitive advantages, especially in dynamic market conditions. In the early nineties, SC Johnson of the U.S.A. And Rothmans Cigarettes of the UK had plans to expand their markets into the East and Central European regions. Within few years, the former had a manufacturing plant in Ukraine, while Rothmans was still exporting and contemplating to set up a representative office in the same region. Despite the products and markets being same, the two companies adopted entirely different strategies. It is difficult to analyze the reasons for these decisions but a profiling of the two companies presented some interesting facts.

SC Johnson was twice as big as Rothmans in size and operated in as much as 71 countries compared to Rothman's 17. SC Johnson had 50 years of international experience, twice that of Rothmans. More than these statistical details, it is believed that SC Johnson's managerial expertise and approach to international operations was forward looking. It wanted to be a pioneer, venturing into new markets at the earliest opportunity to gain first mover advantage. Rothmans perceived itself more as a cautious company; contend to play the waiting game. This illustration highlights the fact that marketing strategy and risk bearing capacity are central to decision making in international operations of firms. (Bridgewater and Egan, 2002)

Firms on the verge of internationalization:

Perhaps no decision is as important as the ones that relate to a firm's entry into foreign markets. This is due to the fact that internationalization would have great impact on the firm's financial standing in the long run. A firm seeking to enter international markets has several options - exporting, use of agents and/or distributors, joint ventures with foreign firms, franchising, contract manufacturing, management contracts, establishing foreign subsidiaries. Companies also have the option to directly market their products to foreign countries via the internet. There is no single ideal method that would produce the desired results for firms as each method has its own cost, implications and risk. (Brooke, 1992) The criteria for selecting the mode of going international should relate to the firm's overall corporate strategy and the size and geographical coverage of the proposed foreign operations. (Kwon and Konopa, 1993) There are many criteria that need to be considered before selecting an option for entering foreign markets.

To start with, the firm should assess whether its current experience and expertise is sufficient for selling its products in foreign markets and assess the need for upgrading its sales and marketing teams. A basic step is to understand the various risks including economic and political that the firm will have to face in the target markets. This assessment will decide on the type of option that would be suitable for entering the foreign markets. For instance, in the middle-east countries, it is advisable to enter the market through partnership or joint venture with local companies, as it is almost impossible for foreign firms to operate in isolation. The firm should also assess the demand-supply situation, government policies in respect to foreign investment, foreign trade, taxation etc.

The firms may have to seek expert assistance to make such assessments before entering the foreign markets. It is very important that firms have a deep understanding of the competitive environment in the target countries and the strengths, weaknesses, opportunities and threats prevalent there. With the collected information and assessments, the firms should identify the competitive advantage it can provide to customers once they enter the foreign markets. It is in this context that firms on the verge of internationalization can apply Porter's model, which requires that firms in international business must be capable of acquiring at least one major competitive advantage.

For several years, German automobile manufacturer BMW confined its manufacturing activities within Germany except one small unit in South Africa. But in 1992, faced with rising competition, stagnant volumes and declining exports, BMW decided to evaluate the feasibility of opening a plant in South Carolina in the United States. With this facility, BMW would fall under the classification of 'local manufacturer' in the U.S. And hence qualify for substantial fiscal concessions and other benefits. BMW realized that it had to face the risk of possible high external tariffs but the benefits outweighed the risks. There was another compelling need for having the manufacturing unit in the U.S. The German currency, Deutsche Mark was strong against other European currencies and this meant that BMW had to keep the domestic prices of automobiles at high levels to maintain the revenues in domestic currency. Supply from the U.S. base would provide some insulation from the fluctuations in European currencies.

In addition, the labor costs in Carolina were lower compared to Germany. The South Carolina state government offered significant tax benefits and BMW could have ready access to low-cost inputs from Mexico. More than anything, Japanese companies such as Toyota, Nissan and Honda were already running U.S. assembly units successfully. BMW went ahead with the investment decision and it was so successful that it could make deep inroads into the American car market, forcing American competitor Ford to make major investments in promotion campaigns to counter BMW's growth. This is another classic example of the application of Porter's model which states that firms should be international in outlook and must develop the capability to relocate operations to derive maximum competitive advantage.

Concluding remarks:

International business provides significant opportunities for existing and new business firms to compete and reap rich dividends. In the globalized environment, where the demand drivers of traditional markets are on the decline, internationalization offers a golden chance for firms to sustain growth levels. Despite some criticism, Porter's model of international business has far-reaching implications for firms already in the international markets and also for those that are seeking to enter foreign markets. The key to success in international business is to gain competitive advantages more than competing firms and leverage them for the firm's benefit. In deciding to enter a foreign market, it is necessary to have as much understanding of the business conditions and the various risks involved. Factors such as production, labor, location and availability of resources would no longer be constraints, if firms are willing to implement steps that will help them acquire competitive advantages. In essence, international business would henceforth be boundary-less and only firms that are ready to accept the new realities would survive and flourish.

Part B

Porter's noteworthy contribution in the study of international business is the 'value chain analysis', which deals with the relationships between activities that create and add value along various input chains till the final output is delivered. (Porter, 1985) Value chain analysis provides clear indicators of how a firm utilizes its resources in producing the final output. In developing the criteria for value chain analysis, Porter distinguished between 'primary activities' and 'secondary activities'. The primary activities include inbound logistics, operations, outbound logistics, marketing and sales and service activities. Support activities are those that provide assistance for carrying out the primary activities and these are procurement, human resources, technology and infrastructure. Along the chain of activities, value may be added either directly or directly. In addition, firms have quality assurance systems to ensure that the final output meets certain minimum standards. Integration of all activities in the value chain is vital to the successful performance of firms in international markets.

In the value chain of a firm, marketing is the element that is most affected by international operations than other elements. Porter himself has acknowledged that firms are increasingly gaining the competence to operate in multiple countries and they are able to locate resources and identify methods to do so. But the same cannot be said of marketing as it is not just carrying out an internal activity, but sell the firm's outputs to international markets, which can vary greatly from one place to another. In international business, the marketing mix. viz., price, place,… [END OF PREVIEW]

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