39 Strategy Implementation in Multiple Markets

R. Swaranalatha

Introduction

Any firm can go global and serve multiple markets to gain competitive advantage and leverage, apart from serving their domestic markets.

Globalisation is the process by which the people are united into a single society.

This can be possible only with the favourable support of all business environment components like political, economic, social, technological, legal and ecological factors.

Globalisation encourages import and export and at the same time helps to attract financial investments into the country.

It promotes the firm to go for technological advancements and gives competitive advantage to the firms.

It enables the firms to enter into multiple markets and satisfy the needs of the consumers by offering their expected products and services.

Globalisation has offered opportunities to gain new customers overseas, to achieve lower costs through overseas operations and to achieve economies of scale.

Global business can be undertaken through exports, licensing products in favour of overseas partners, franchising, functional subsidiaries, and joint ventures.

The benefits of operating in multiple makets through globalisation are

1.  Lower labour cost

The labour costs are lower in underdeveloped and developing countries and the employees can be trained equally well for all the skills needed to perform the job.

Accordingly, the firms can plan for carrying out labour intensive operations, in these countries to take advantage of the cost.

2. Potential for high rate of return on investment

The firms resort to enter into multiple markets for the reason being, that it is able to corner more profits, when it performs its business operations in those countries , where the cost is low. Therefore, marketing the product in multiple market leads to higher rate of return on investment.

3. Expanded markets

Firm can have expanded market through offering its products and services both in domestic and foreign markets.

4.    Availability of capital resources

A firm can enjoy business advantage when it plans to enter in to multiple markets through strategic alliances, mergers, acquistions, take-overs or joint ventures.

5.Availability of natural resources

Entry into multiplemarkets can encourage the firms to have better access to raw materials, resources, technology and other support factors.

Risks involved in serving multiple markets

1. Higher chance for loss of assets in foreign markets

Political tussles, civil wars as in Syria and public unrest can set a severe disturbance to the smooth functioning of the business in a foreign country.

They may provide an insecure business environment for the firms to sustain their business in the trouble-torn country.

2. Change in political government

The change in the ruling government of the foreign country can lead to unfavourable business policy and stringent regulations, causing difficulty in operating and continuing the business.

3.  Difficulty in retrieving the earnings

Certain Countries have stringent foreign exchange laws and regulations and these are likely to change the international balance of payment status and foreign exchange reserves. The foreign market will not allow the firm to take the earnings back to the home country.

4. Poor facilities in the underdeveloped countries

Even though the advent of computers and the satellite communication has expanded the communication network, in most of the underdeveloped countries, the technological advancements are too poor.

This leads to the operational difficulty in communicating and coordinating with the home country.

Bottlenecks in operating with multiple markets

Multinational corporations and the host country should operate in win-win situation for both the countries. They should mutually benefit out of the relationship between the two countries.

When the multinational country looks for new markets in other countries for expansion, growth and profits, the host country also get the benefit through improvement in the standard of living of people, income generating power, employment potential, trained and skilled labour force, technology transfer and the development of the local resources.

On the other hand, the multinational companies also resort to inhumane practices and result into hardships for the host country,

1. Extract excessive profits because of their monopolistic advantages.
2. Dominate the local economy through influencing the price of the product
3. They can restrict their presence or avoid sometimes, can avoid markets, where they would find less financial advantage.
4. Appointment of key personnel in the foreign market by home based employees.
5. Interference with the local governments of the under developed countries for the benefit of seeking advantages like resources support, tax benefits, and so on

Strategic planning process in multiple markets

Strategic planning is a management tool to look at the future and see tomorrow’s opportunities or challenges to gain competitive position in multiple markets. It requires strategic thinking. Strategic thinking is the matching of opportunities with corporate resources in order to envision the future direction that leads to improved corporate performance and enhanced competitive advantage. This process involves the following systematic steps.

1.    Define the organisational vision and mission

A vital component to any strategic plan is the vision and mission of the company. Vision refers to the future direction of the company while mission represents the concept of the business.

They define the company’s purpose, provide direction for future growth and may indicate the strengths of the company.They form the basis for formulating the objectives and goals of the company.

2.  Assessing the strengths and weakness of the firm to operate in multiple markets

George Yip has identified four sets of ‘industry globalisation drivers’ that ensures success for the firms to operate in multiple markets.

These drivers are the strengths to the company in the form of market advantage, favourable economic policies, competitive advantage and the government policies. The primary purpose of this analysis is to match the company’s managerial, technical, material and financial resources with those required for successful global business in multiple markets.

Market advantage is in the form of standardised product to multiple markets, favourable customer support and strong distribution network to take the product to global consumers.

Economic drivers are lower costs of production when operated in multiple markets and efficient use of resources in an effective manner.

Competitive advantage might result from sharing of resources across multiple markets, common promotional program, better management and technical innovations.

Government drivers might be the favourable trade policies, technical standards, policies and regulations, technology transfer support and so on.

3. Analyse the home environment, host environment and the international environment

Before any strategy can be formulated, it is important and vital to analyse the environment in the home country, host country and the international environment for the country in which business is planned. The analysis of the international economic environment will reveal size of GNP per capita, their projected growth rates, inflation, employment, interest rates prevailing wage rates, foreign exchange position and demographic details.

Political environment will reveal the form and stability of the government, attitude of the government towards private and foreign investment, etc.

Social factor will reveal the customer preference, value systems, attitudes, belief patterns, religions, traditions, language, lifestyle and so on.

Technological environment will be the deciding factor for expansion of the business, as the firm’s survival will depend on its ability to adopt the cutting edge technology in the business.

Legal factors will help the firm to understand various legislations and procedural formalities in operating the global business.

Ecological factors will reveal about the availability of raw materials and other initiatives to protect the environment. After the environment appraisal is done, the firms resort to setting objectives to succeed in global business.

4. Set strategic objectives for expansion and benchmark

Strategic objectives are the desired results to be achieved, for the kind of efforts taken with the available capabilities.

Benchmarking is setting the standards for performance after making comparison with the competitors.

One of the objective for the firm is to be a successful market leader operating in multiple markets.

Multi market strategy adopted by the firm can be in various forms based on pressures for local responsiveness and cost pressures. They are

•  Multi-domestic strategy
• International strategy
• Global strategy
• Transnational strategy

Multi domestic strategy

It is aimed by global companies to give local responsiveness wherein the company establishes semi-autonomous national units in various countries in which it functions and produces customised products to serve local markets in different countries.

The structure preferred by companies that adopt multi domestic strategy is global area structure wherein all value creation activities are duplicated in different countries. Decision making authority is decentralised to each foreign division so that local needs could be catered to managers in foreign division.

This strategy is based on differentiation, which brings different products to different markets, to meet the customer’s requirement accordingly.

International strategy

Companies following an international strategy usually add one foreign operations department to their existing structure in the domestic country.

An international strategy is based on R & D, and marketing being centralised at home country and all other value creation functions being decentralised to national units.The international division has to coordinate with all other departments to satisfy the foreign market.

In this set up, there is no attempt at customisation of the product offering. International operations are managed as a separate division and the managers are given authority and responsibility for coordinating domestic product division and foreign market. The main drawback in this strategy is that firms cannot enjoy the cost advantage obtained through global presence and cannot customise products to suit local customers in global markets.

Global Strategy

A firm that has global strategy locates its manufacturing operations and all the other value creation activities in the lowest cost global location, to enhance the efficiency, quality and innovation. It offers standardised product to the global market, suited for all customers.

Global product group facilitates the transfer of resources and competencies among its divisions. It has a centralised control by the corporate headquarters. Within each product group, a headquarter is evolved in order to coordinate the domestic and foreign divisions.

This type of strategy offers cost advantage to the firm and adds to the competitive advantage

Transnational strategy

Firms which adopt transnational strategy tend to achieve both low costs and high local responsiveness in domestic market and global market.

Functions are centralised at the optimum global country and others are decentralised to achieve local responsiveness and competitive advantage in other host country markets.

Thus, it has an individual company in each of the foreign country.

This is characterised by local flexibility, sharing of knowledge and experience among geographic regions, divisions and regions and good contact between domestic and foreign managers.

It has a strong international culture to support communication and coordination among managers. It involves high establishment and bureaucratic cost, but yet it is the most profitable strategy to operate in multiple markets.

5. Strategies for Multiple market

The main purpose of any strategy, whether it is focussed on domestic operations or in international business, is dealing with competition and achieving the organisational goals.

The choice of strategy for international operations would depend on external and internal environment of the host country and may differ from one geographical area to another.

Some of the strategies available for the companies to enter into multiple markets are:

1. Import/Export

The easiest and simplest way to enter into multiple markets is through the imports and exports.

Importing is buying goods or services produced in a foreign country and exporting is selling goods or services to customers in a foreign country.

Since no country can survive on its own, almost every country is involved in import or export. The transactions are done through commercial banks and hence there is very little risk involved. The difference in value between a country’s total exports and its total imports is called the balance of trade. Ehen exports exceed imports, a favourable balance of trade results and vice versa.

2. Licensing agreement and franchising

In this type of agreement, a company in a host country may enter into a binding agreement with the a company in the home country, by which the host country organisation can produce and sell products under licensing which is the right to use brand name, product specifications, patents, copyrights and so on for a fee.

Franchising is a form of licensing in which a franchisee can operate a business much like the original firm, but retain its own profit, after the payment of a particular sum to the owner.

It has the advantage of enjoying common promotion, internal design, common brand name and products. It promises to grow rapidly within a short time with a minimum outlay of cash.

3. Management contracts

It involves simply providing managerial talents including talent expertise to the operating foreign company for a fee.

4. Joint ventures

Joint ventures involve collaborations with local organisations or even the government in a foreign country in order to establish operations for producing a product or service for mutual benefit.

This means sharing of management and manufacturing capabilities and expertise with foreign company.

This also means sharing of risks and rewards as well. When the resources are combined together, it results into a new entity which is quite different from its parents.

Each firm brings its own resources like finance, managerial talents, and technical advancements to share the benefits.

5. Turn-key projects

This means that an organisation in a home country provides all services to the organisation in the home country to start a project such as a power plant, cement plant, automobile unit and so on from the very beginning of the design stage to the operational level of the plant.

This includes designing, building, operating and training the workforce to take over the project completely. This is done for mutually agreed upon fee or royalty for the home country.

6. Wholly owned subsidiaries

These are wholly owned branches of a parent company operating in foreign countries.

The parent company has the sole managerial authority to operate the subsidiary with the laws of the country where it is located.

It makes the total investment and reaps the benefit to itself. The disadvantage of course is the possibility of political changes which can result in changes in laws that can be detrimental to the subsidiaries.

7. Acquisitions and takeovers

Under acquisition strategy, one firm takes the control of another firm, either as a whole or its significant part.

This is done through mutual agreement between the two companies. If it is against the wishes of the acquiring company, it is termed as hostile takeover.

It has become a significant growth strategy because of business restructuring of many firms in today’s business.

Acquiring existing organisation’s products or resources has a strong advantage of quick entry into the planned market and at the same time making it easy to get the licenses, patents, technological advancements, distribution intermediaries and so on.

8. Mergers or amalgamations

It is combining one company with another for certain business advantages like quick entry into the business, faster growth rate, easy diversification with established base, reduction in market competition, tax benefits and enjoying synergy in operating the business.

9. Strategic alliances

It is also the form of combining the efforts of two or more organisations to develop competitive advantage.

In this form, two or more firms join hands together for achieving certain specified objectives for a specific period of time. When these objectives are achieved, the firms terminate their alliance.

There is no contribution of finance from the partners. It mutually supports the operation of each other’s business and benefit together.

It can be to seek support in the use of technology, production operations, logistics, joint advertisement, customer services and so on.

10. Foreign Direct Investment

Export and import of products invite additional costs such as tax and transportation costs.

Instead, locating a manufacturing centre directly in the overseas market, can help to carry on business in a foreign market and gain cost advantage over a period of time.

6.Strategy implementation in multiple markets:

The implementation process of formulated strategy requires putting strategies into actions. Successful strategy formulation alone does not yield success. If the strategy cannot be translated into action, then the resources and efforts used are wasted. Strategy implementation refers to the way a company structures itself in order to execute its strategic plan efficiently and achieve its objectives.

Strategy implementation is achieved through organisational design and structure. It is the way in which the firm selects its arrangements and design that will help it to achieve the formulated strategy efficiently and effectively. It is concerned with assigning tasks and responsibilities to the concerned individuals, responsible for implementing the strategies.

Organisational design deals with the selection of organisational structures and control systems that will assure the application of the company’s strategy effectively and create the competitive advantage.

The organisation should adopt a combination of structure and control systems that improve quality, create value, reduce cost and improve communication.

Management should find out how to encourage the employees and provide them with incentives to achieve efficiency, quality, innovation and customer satisfaction.

They should learn to coordinate employee activities so that they work effectively together to implement strategy that increases the company’s competitive position.

Organisational design and control shape the way people behave and determine how they will act in the organisational setting.

Strategy implementation is the action that converts the strategic plan into action. Creating a favourable environment and support system is the most important requisite for successful strategy implementation.

Boseman et al. suggested that strategy implementation should focus on four critical factors. These elements are the organisational structure, corporate culture, human resources and organisational rewards. The relationship between these factors and the organisation strategy has a great impact on the outcome of strategy implementation.

Benefits of strategy implementation in multiple markets

The political, economic, social, technological, legal and ecological factors have encouraged the firms to go for multiple markets following international, multi national, trans national and global strategy.

It has created a favourable climate for the firms to enter into multiple markets with the minimum risks of losing their investments.

Hence, implementing the choice of the strategy in multiple markets can make the firm profitable, help to exploit economies of scale, utilise the strengths of the foreign country, diversify the business, lengthen the product life cycle, attract financial investments and so on.

References:

1. NitishSengupta and Chandan.J.S. (2003). Strategic Management-Contemporary Concepts and Cases, First Edition, Vision Books, New Delhi, p. 19-28.
2. AbassF.Alkhafaji, (2008), Strategic Management-Formulation, Implementation and Control in a dynamic environment , First Edition, JaicoPublishing House, Mumbai.
3. Prasad.L.M, (2008), “Strategic Management”, Fifth edition, Sultan Chand & Sons, NewDelhi.
4. Jeyarathnam, M. (2012), “Strategic Management”, fourth edition, Himalaya Publishing House, New Delhi.
5. RyszardBarnat, Strategic Management: Formulation and Implementation.
6. Vipin Gupta, Kamala Gollakota, Srinivasan, (2005), Business Policy and Strategic Management, Prentice hall of India Pvt.Ltd., New Delhi.
7.  Ghosh.P.K., (2010), “Strategic Planning and management”, Sultan Chand & Sons, NewDelhi.
8.  Boseman, G., Phatak, A., and Schellenberger, R.E. (1986). Strategic Management: Text and Cases. New York: John Wiley and Sons.
9. Yip, George, S., Total global strategy: Managing for worldwide competitive advantage, Prentice Hall, 1955.
10. Joe G. Thomas, ‘Strategic Management”, New York: Harper & Row, 1992.

Web links

• https://www.researchgate.net/…/241034935_Effective_Global_Strategy_Implementati.
• https://link.springer.com/article/10.1007/s11575-011-0071-6