International Business Firms Can Profit

International Business

Firms can profit from global expansion in a number of different ways. Among these ways are growth, diversification, knowledge transfer and developing an operating hedge. Global expansion brings the company new markets and new revenue streams. This growth increases the firm's size. Not only does this give the firm the opportunity to increase shareholder wealth, but it can also increase efficiency by creating greater economies of scale. Global expansion provides for geographic diversification, which reduces overall firm risk and stabilizes revenue streams. Global expansion also provides opportunities for the firm to increase its knowledge base by adding different perspectives, and gaining experience in different operating environments. Skills and knowledge acquired in overseas markets can then be transferred back to the home market, providing the firm with added competitive advantage. Lastly, global expansion can provide an operating hedge if the firm has exposure to certain foreign currencies. By setting up subsidiaries in key markets, the firm reduces the impact of foreign exchange risk by providing a means to invest funds directly back into the market rather than exchanging them back into the home currency.

2. Standardized advertising refers to ad campaigns that are consistent across international markets. The targets, messages and tone do not vary, and are not tailored to each individual market. Standardized advertising has several advantages. One is that it builds a consistent image of the brand, no matter what the market. Another advantage is that standardized advertising can reduce costs and complexity. To tailor ad campaigns for each nation would require the assistance of local advertising firms, increasing both the cost and the complexity of the transaction. Lastly, standardized advertising leverages economies of scale. The firm is able to produce one set of ads and apply this to a wide range of nations, bringing the per unit cost of the ads down. However, there are also several disadvantages to standardized advertising. It does not address the unique market situation of each country. This means that standardized advertising can potentially be less effective. Moreover, advertising messages are not universally inoffensive - the equivalent message can be offensive in one nation, not in another. Lastly, standardized advertising may not be well-adapted to the most effective media used in different countries - a campaign heavily dependent on newspapers may fail when taken to a country with low literacy.

3. In the ethnocentric approach, the management style of the home country is used for international subsidiaries. Business culture, norms and sometimes even the majority of decision-making flows from the home country. In the polycentric approach, international subsidiaries are managed locally. The home office is assumed to not have sufficiently strong local knowledge to make decisions, so decision-making is delegated to local managers. In the geocentric approach, the company takes a more global approach. Management possesses a broad range of international experience. Decisions may be made at head office or at the subsidiary level, but in either case management is familiar with both outlooks.

The rationale behind the ethnocentric approach is that the home office will deliver consistent decisions that are always in line with core values and objectives. The local managers are directly and specifically oriented towards corporate-wide objectives. The polycentric approach reflects the belief that the local managers will do what is best for the local subsidiary, which in turn will be what is best for the head office. The geocentric approach believes that the best management teams will be able to fuse local and global perspectives and that the other two approaches to do not achieve this.

4. Management development programs are systems for developing managers with specific skills and traits that are consistent with the corporation's strategic objectives. Managers are bred to promote the organization's culture and goals. Management develop programs map out career paths and focus on skills development for prospective managers. International businesses can use management development programs as a strategic tool because they can bring managers up through the company with specific training that supports the company's international focus. The managers can receive posts internationally in order to give them a greater breadth and depth of experience than the managers of their competitors receive. Moreover, a strong management development program can attract top talent from around the world, something that is strategically valuable for international companies. Additionally, these programs can be designed so that prospective managers are learning the skills and tools that specifically support the organization's strategic objectives.