Impact of international expansion and globalisation on corporate strategy

¶ … International Expansion and Globalisation on Corporate Strategy

The impact of international expansion and continued globalisation of industries and markets continues to change the conditions faced by today's organisations and the corporate strategies employed in order to remain competitive in an increasingly challenging marketplace. There are several factors centering on these two facets affecting corporate strategy. These include: increasing competition from foreign competitors and the benefits of international. expansion, the need for product diversification to meet an increasingly diverse market, and new opportunities to improve efficiencies by looking outside the organization's national borders, for certain stages of the product's life cycle, such as outsourcing.

The Effects of Increasing Foreign Competition Due to International Expansion and Globalisation on Corporate Strategy:

Leandri (2000) notes that the Internet has been a driving force in globalisation as it now allows users to effortlessly cross borders and tap into previously hard to reach customers. As the world becomes more globalised with each passing day, new threats and opportunities emerge for organisations all over the world. One primary threat is increased competition with the entry of foreign competitors into what once was a purely domestic controlled marketplace. Once upon a time, organisations had to simply worry about competing with businesses down the street or across town. Improvements in transportation and communication technologies expanded this circle of competition to include competitors from other states and even across the country. Today, globalisation has meant an organisation not only has to compete with businesses operating with similar costs such as labor and materials within their own geographic region, but also they must now compete with businesses halfway around the globe, often with significant advantages such as lower costs of doing business. This has forced many organisations to completely rethink their tried and true corporate strategies.

Not so long ago, organisational competitiveness was built by offering a good quality product, at a fair price, with good customer service. This was used to build brand loyalty for decades. In today's world, with the entry of so many new foreign competitors, organisations aren't able to be competitive with this archaic strategy. Competing on price point alone is often not achievable for organisations, especially those in developed, Western countries when competing against developing nations, where the cost of doing business is a fraction of the price. Instead, today's organisation must use a strategy that finds a competitive advantage elsewhere. Often this is by differentiating the product such that the quality is far superior or there is enhanced functionality, or by offering customer service that goes above and beyond that which can be offered by an international competitor.

With these new threats, globalisation has also opened up the opportunity of international expansion as well. There are several benefits to international expansion that make it an attractive corporate strategy for many organisations, now that globalisation has facilitated the process. One such benefit is enhancing an organisation's long-term survival. By expanding into international markets, companies lesson their dependence on company's economy. Leandri (2000) surmises that this primary benefit is garnered whether the company expands physically or virtually. In today's increasingly challenging economy in places like the United States, diversifying to countries who have rebounded more quickly to the economic turmoil recently experienced, like China, could offer a buffer should the company's primary country of operation decline economically further.

When expanding internationally, certain strategies have been shown to work for a variety of different industries and expansion countries. First, consistent operating practices, values and principles must be put into place, according to Leandri (2000). A common mindset of the "right way" to get things done is important in a newly expanded organisation as well, with training, mentoring, and knowledge-sharing methods of facilitating this. Local operations must be held accountable for their results, to the parent company; however, these local operations must have enough autonomy to make the decisions needed for their success. Local cultures must be embraced, honored, and blended with the corporate identity in that region, while still maintaining a consistent corporate identity. Partnering with already established local businesses too has been an important facet of success for many organisations from McDonald's to WalMart. With this, organisations must realize the unique challenges that come with each geographic region.

Hill (2007) discusses WalMart's rocky entry into Mexico, because of their failed understanding about what the region would entail. A lack of infrastructure in the country and the need for new supplier relations were two significant reasons why WalMart's expansion into Mexico almost failed completely. Although processes and procedures may work well in one country, WalMart quickly learned that they did not necessarily directly translate to another. Leandri (2000) concludes that a successful corporate strategy for international expansion will be balanced between "global and local, centralized and decentralized, and of one mindset, yet many."

Product Diversification in Response to International Expansion and Globalisation:

Hitt, Hoskisson, and Kim (1997) surmise that international and product diversification are critical to the strategic behavior of large organisations. As organisations expand across borders and into different geographic locations, they will encounter different markets offering the new opportunity for product diversification. In this way, organisations can exploit foreign markets. Tallman and Li (1996) explain the logic behind diversification as one that improves profitability. This is accomplished through a corporate strategy that uses internal capabilities of the organisation, to produce products using the existing resources of the organisation. This generates economies of scale that the company can directly profit from. However, to be successful, these organisations must have products that are going to be well-received in the newly entered foreign market. The examples of this are numerous.

Hill (2007) explains how WalMart's lack of product diversification was another reason why their entry into Mexico was so difficult. The company was offering products that simply were not desirable to the Mexican consumer -- such as snow boots. The company quickly learned that it had to fit their products to the new geographic area. Leandri (2000) uses the example of McDonald's as a means of showing how a well-established and successful company will diversify their products to meet the specific needs of a new geographic demographic. For instance, in Norway, the company offers the "McLaks." This is a salmon burger made from fillets of Norwegian salmon. McDonald's has even expanded into India, where cows are sacred. Here they have diversified their product line to include the "Maharaja Mac" which uses lamb instead of beef. Just as with other facets of international expansion require a cultural sensitivity, product diversification too demands an entry strategy that is sensitive to the unique needs and wants of the consumers in the area. Although gloablisation has, in many ways, lowered State borders between countries, this does not mean that cultural borders don't still exist.

New Opportunities to Improve Efficiencies through Outsourcing:

Lastly, another corporate strategy that has come into play due to international expansion and increased globalisation is to take advantage of increasing efficiencies through offshore outsourcing. Just as globalisation has opened borders for organisations to reach new customers around the globe, it has also allowed the company to reach out to suppliers around the globe as well. In an evolution of resource sourcing, offshore outsourcing has become evermore popular over the last decade, with traditionally handled in house tasks now being sourced to companies in other countries where the costs of doing business are considerably lower. There are several benefits to this type of corporate strategy.