Internationalisation

The term globalisation was coined in the 1980s, where international integration became a significant element of corporate strategy. Advances in technology, infrastructure and communications have provided the scope for internationalised markets. Nike for instance, has manufacturing operations in 45 countries and products are sold to almost every country in the world. I will discuss the requirements for internationalisation and how it can increase competitive advantage, and then the different organisational forms influence the business level strategy of the firm.

Entering a foreign market has concerns. However, if a firm has established a significant cost advantage in the domestic market, it may have a competitive advantage over foreign incumbents. Secondly, well-differentiated products may enable the firm to extract market share with ease.

Comparative advantage illustrates how natural resource availability can be exploited to increase competitiveness through internationalisation. Michael Porter’s Diamond extended this theory by examining the dynamics in which particular industries develop resources and capabilities that infer competitive advantage. The four elements are factor conditions (created or natural resource specialisation - GM expanded into Brazil with old US designs, as the technology was available at zero marginal development cost due to how advanced it was over anything domestically produced); demand conditions (consumer preferences - German motorists’ love for quality engineering and corresponding firms like BMW & AUDI); related and supported industries (industrial clusters, i.e. Silicon Valley, develop); and firm strategy structure and rivalry.

Internationalisation itself can directly add to competitive advantage. Firms can generate greater economies of scale and expand market size. Buyers prefer low priced global brands to higher-priced local ones. Look at Coca-Cola and Ikea. Ikea’s typically Swedish production orientation has generated huge cost advantages globally. Firms can also enjoy greater access to raw materials and factor inputs, or perhaps a more advantageous regulatory environment. IBM & HP have set up production operations in most of the top ten indexed offshoring locations. Exploiting multi-market strategies can be beneficial. Cross-subsidisation of finance and human capital across markets can establish a strategically advantaged position in another market. For instance, GM used financial resources and production knowledge from Europe to establish a strategic position in the Tiger Economies.

After acquiring a...

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