Globalisation and Corporate Strategy: International Expansion

Introduction: Globalisation and Corporate Strategy

The impact of international expansion and the continued globalisation of industries and markets continues to change the conditions faced by today's organisations and the corporate strategies they employ to remain competitive in an increasingly challenging marketplace. There are several factors, centering on these two forces, that affect 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 an organisation's national borders for certain stages of the product life cycle — such as outsourcing.

Effects of Foreign Competition 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 from foreign competitors entering what was once a purely domestic marketplace. Not long ago, organisations had to worry only about competing with businesses down the street or across town. Improvements in transportation and communication technologies expanded this circle of competition to include rivals from other states and even other parts of the same country.

Today, globalisation means that an organisation must compete not only with businesses operating under similar cost conditions — such as labour and materials — within its own geographic region, but also with businesses operating 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 on offering a good-quality product at a fair price with good customer service — a formula used to build brand loyalty for decades. In today's world, with the entry of so many new foreign competitors, organisations are no longer able to remain competitive with this outdated strategy. Competing on price alone is often unachievable for organisations in developed, Western countries when competing against firms from developing nations, where the cost of doing business is a fraction of the price. Instead, today's organisations must pursue strategies that find a competitive advantage elsewhere — often by differentiating their product through superior quality or enhanced functionality, or by offering a level of customer service that surpasses what an international competitor can provide.

International Expansion: Strategies and Challenges

With these new threats, globalisation has also opened up the opportunity for international expansion. There are several benefits to international expansion that make it an attractive corporate strategy, now that globalisation has facilitated the process. One such benefit is enhancing an organisation's long-term survival. By expanding into international markets, companies lessen their dependence on a single economy. Leandri (2000) argues that this primary benefit applies whether the company expands physically or virtually. In an increasingly challenging economic environment — such as that faced by the United States — diversifying into countries that have rebounded more quickly from recent economic turmoil, such as China, can offer a buffer should the company's primary country of operation experience further economic decline.

When expanding internationally, certain strategies have been shown to work across a variety of industries and destination countries. First, consistent operating practices, values, and principles must be established (Leandri, 2000). A shared understanding of the "right way" to get things done is also important within a newly expanded organisation, supported by training, mentoring, and knowledge-sharing. Local operations must be held accountable for their results to the parent company; however, they must also retain enough autonomy to make the decisions necessary for their success. Local cultures must be embraced, respected, and blended with the corporate identity in that region, while still maintaining a consistent overall corporate identity. Partnering with already-established local businesses has also been an important factor in the success of many organisations, from McDonald's to Walmart. With this approach, organisations must recognise the unique challenges that come with each geographic region.

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

Conclusion

Globalisation and international expansion are two driving forces in organisational change in today's world, and they will likely continue to grow in importance as global competition intensifies. As such, corporate strategies must be developed that effectively utilise the opportunities arising from these forces while also safeguarding against emerging threats. Increasing competition from foreign competitors represents one such threat, while international expansion itself offers significant opportunities. Product diversification is a corporate strategy that must be undertaken to meet the needs of consumers in different geographic regions. In addition, to remain competitive, organisations can use outsourcing as a byproduct of increased globalisation — leveraging lower costs and higher efficiencies available in global markets to strengthen their overall strategic position.

References

Hill, C. W. (2007). Global Business Today. New York: McGraw-Hill/Irwin.

Hitt, M., Hoskisson, R., & Kim, H. (1997). International diversification: Effects of innovation and firm performance in product-diversified firms. Academy of Management Journal, 40(4), 767–798.

Kennedy, R. (May 2009). The tough game you have to play. Financial Executive, 25(4), 23–26.

Leandri, S. (1 May 2000). Proven strategies for international expansion. Expansion Management. [Online].

Tallman, S., & Li, J. (1996). Effects of international diversity and product diversity on the performance of multinational firms. Academy of Management Journal, 39(1), 179–196.