INTERNATIONAL EXPANSION

INTERNATIONAL EXPANSION

 

An organization can “go international” by crossing domestic borders as it employs any of the strategies discussed above. International expansion involves establishing significant market interests and operations outside a company’s home country. Foreign markets provide additional sales opportunities for a firm that may be constrained by the relatively small size of its domestic market and also reduces the firm’s dependence on a single national market. Firms expand globally to seek opportunity to earn a return on large investments such as plant and capital equipment or research and development, or enhance market share and achieve scale economies, and also to enjoy advantages of locations. Other motives for international expansion include extending the product life cycle, securing key resources and using low-cost labour. However, to mold their firms into truly global companies, managers must develop global mind-sets. Traditional means of operating with little cultural diversity and without global competition are no longer effective firms (Kedia and Mukherji, 1999).

 

International expansion is fraught with various risks such as, political risks (e.g. instability of host nations) and economic risks (e.g. fluctuations in the value of the country’s currency). International expansions increases coordination and distribution costs, and managing a global enterprise entails problems of overcoming trade barriers, logistics costs, cultural diversity, etc.

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EXPANSION STRATEGIES

EXPANSION STRATEGIES

 

Every enterprise seeks growth as its long-term goal to avoid annihilation in a relentless and ruthless competitive environment. Growth offers ample opportunities to everyone in the organization and is crucial for the survival of the enterprise. However, this is possible only when fundamental conditions of expansion have been met. Expansion strategies are designed to allow enterprises to maintain their competitive position in rapidly growing national and international markets. Hence to successfully compete, survive and flourish, an enterprise has to pursue an expansion strategy. Expansion strategy is an important strategic option, which enterprises follow to fulfil their long-term growth objectives. They pursue it to gain significant growth as opposed to incremental growth envisaged in stability strategy. Expansion strategy is adopted to accelerate the rate of growth of sales, profits and market share faster by entering new markets, acquiring new resources, developing new technologies and creating new managerial capabilities. 

 

Expansion strategy provides a blueprint for business enterprises to achieve their long term growth objectives. It allows them to maintain their competitive advantage even in the advanced stages of product and market evolution. Growth offers economies of scale and scope to an organization, which reduce operating costs and improve earnings. Apart from these advantages the organization gains a greater control over the immediate environment because of its size. This influence is crucial for survival in mature markets where competitors aggressively defend their market shares.
 

Conditions for Opting for Expansion Strategy 

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STABILITY STRATEGY

STABILITY OR CONSOLIDATION STRATEGY

 

Nature Of Stability Strategy

 

A firm following stability strategy maintains its current business and product portfolios; maintains the existing level of effort; and is satisfied with incremental growth. It focuses on fine-tuning its business operations and improving functional efficiencies through better deployment of resources. In other words, a firm is said to follow stability/ consolidation strategy if:

 

1. It decides to serve the same markets with the same products;
2. It continues to pursue the same objectives with a strategic thrust on incremental improvement of functional performances; and
3. It concentrates its resources in a narrow product-market sphere for developing a meaningful competitive advantage. 

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CORPORATE STRATEGIES

CORPORATE STRATEGIES

 

Growth is essential for an organization. Organizations go through an inevitable progression from growth through maturity, revival, and eventually decline. The broad corporate strategy alternatives, sometimes referred to as grand strategies, are: stability/consolidation, expansion/growth, divestment/ retrenchment and combination strategies. During the organizational life cycle, managements choose between growth, stability, or retrenchment strategies to overcome deteriorating trends in performance.

 

Just as every product or business unit must follow a business strategy to improve its competitive position, every corporation must decide its orientation towards growth by asking the following three questions: 

v  Should we expand, cut back, or continue our operations unchanged?

v  Should we concentrate our activities within our current industry or should we diversify into other industries?

v  If we want to grow and expand nationally and/or globally, should we do so through internal development or through external acquisitions, mergers, or strategic alliances?

 

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MANAGEMENT STRATEGIES

MANAGEMENT STRATEGIES AT DIFFERENT BUSINESS LEVEL

 

Management Strategies deals with the issues, concepts, theories approaches and action choices related to an organization’s interaction with the external environment. Strategy, in general, refers to how a given objective will be achieved. Strategy, therefore, is mainly concerned with the relationships between ends and means, that is, between the results we seek and the resources at our disposal. For the most part, strategy is concerned with deploying the resources at your disposal whereas tactics is concerned with employing them. Together, strategy and tactics bridge the gap between ends and means.

 

Some organizations are groups of different business and functional units, each of them must be having its own set of goals, which may not necessarily be same as the goals of the corporate headquarters looking after the interests of the entire organization. Since the goals are different and the means to achieve them are different, strategies are likely to be different. This understanding has led to the hierarchical division of strategy at two levels: a business-level (competitive) strategy and a company-wide strategy (corporate strategy) (Porter, 1987). In addition to these strategies, many authors also mention functional strategies, practiced by the functional units of a business unit, as another level of strategy.

 

Corporate Strategies: These are concerned with the broad, long-term questions of “what businesses are we in, and what do we want to do with these businesses?” The corporate strategy sets the overall direction the organization will follow. It matters whether a firm is engaged in one or several businesses. This will influence the overall strategic direction, what corporate strategy is followed, and how that strategy is implemented and managed. Corporate strategies vary from drastic retrenchment through aggressive growth. Top management need to carefully assess the environment before choosing the fundamental strategies the organization will use to achieve the corporate objectives.

 

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