What are the four basic strategies that firms use to compete in international markets?

The four basic strategies that firms use to compete in international markets are the international strategy, the globalstandardization strategy, the localization strategy, and the transnational strategy. The international strategy is most appropriate when there is lowpressure for local responsiveness and low pressure for cost reduction. When there is high pressure for cost reduction, but low pressure for localresponsiveness the global standardization strategy makes sense. A localization strategy is appropriate when pressure for local responsivenessis high, but pressure for cost reduction is low. Finally, when pressure for both cost reduction and local responsiveness is high, the transnationalstrategy is best.101.(p. 419-420)Firms that pursue a global standardization strategy focus on increasing profitability and profit growth by reaping the costreductions that come from economies of scale, learning effects, and location economies. The strategic goal of firms following a globalstandardization strategy is to pursue a low cost strategy and a global scale. This strategy makes most sense in those cases where there are strongpressures for cost reductions, and where demands for local responsiveness are minimal.MTV is an example of a company that has successfully expanded internationally using a localization strategy. Localization was imperative forMTV if the company was to gain market share from local competitors. However, the firm also had to be aware of the costs involved in developinglocal programming.102.(p. 420-421)A localization strategy focuses on increasing profitability by customizing the firm's goods or services so that they provide a goodmatch to tastes and preferences in different national markets. This strategy is most appropriate when there are substantial differences across nationswith regard to consumer tastes and preferences.103.(p. 421-422)Firms that are pursuing a transnational strategy are trying to simultaneously achieve low costs through location economies,economies of scale, and learning effects; differentiate their product offering across geographic markets to account for local differences; and fostera multidirectional flow of skills between different subsidiaries in the firm's global network of operations. Because this strategy puts conflictingdemands on the company, it is difficult to achieve. Building an organization that is capable of supporting a transnational strategic posture iscomplex and difficult. In essence, a transnational strategy requires a firm to simultaneously achieve cost efficiencies, global learning, and localresponsiveness. This strategy makes sense when a firm faces high pressures for cost reductions and high pressures for local responsiveness.104.(p. 422)When a firm is facing low cost pressures and low pressures for local responsiveness, an international strategy whereby the firm takesproducts initially developed for the domestic market and sells them internationally with only minimal local customization, may be appropriate.

Do you have big hopes and dreams for your business? Can you see yourself thriving in an international market? If you’re excited by the idea of taking your business global, then you’ll need to know all about the different internationalization strategies and the challenges they pose.

Our globalized world has made it easier than ever to cross national borders and do business abroad, expand your audience, and grow your revenue. So what different approaches are international businesses taking to going global?

In today’s article, we’re going to discuss the four international business strategies used by companies to boost their businesses globally. 

First of all, let’s answer some key questions before we dive into the strategies.

What is internationalization in business?

It’s exactly what it sounds like! It’s about taking your business to the next level, expanding your horizons, grabbing the bull by the horns… and so on. 

When you decide to internationalize your business you’re not undertaking an easy task. It requires planning, resources, and plenty of energy. So where do you even begin? 

Coming up with a strategy is a great place to start. 

What is an internationalization strategy?

By definition, an international strategy is a strategy through which the firm sells its goods or services outside its domestic market. International markets yield plenty of new opportunities for your business to grow. With an internationalization strategy your business could see:

• Increase in market size and emergence of new markets
• Greater ROI
• Competitive advantage by location 
• Global brand recognition
• Global customer satisfaction

Business internationalization can have huge benefits, but that doesn’t mean it’s risk-free. You’ll have to consider some risks when adopting an internationalization strategy, including increased costs, barriers to trade, and lack of sensitivity to local demand.

But let’s focus this article on all the great opportunities business internationalization can bring! 

Choosing the right strategy

Now, let’s take a look at the four international strategies and what they could mean for your business. Some strategies share similar aspects, but they each represent a unique approach to business internationalization. First up:

International Strategy

The international strategy is arguably the most common of the four. 

Often called an exporting strategy, it focuses on exporting products and services to foreign markets while maintaining production headquarters at home. This means companies avoid the need to invest in staff and facilities overseas. Business objectives are mainly towards the home market, but with some relating to the international market. 

There are some challenges that come with adopting the international strategy, such as initiating sales offices abroad, managing global logistics, and making sure that your company complies with foreign trade regulations.

Key features of the international strategy:

• Business objectives and competitive advantage relate primarily to the home market
• Products are produced in the company’s home country then sent to customers all over the world
• Often referred to as an exporting strategy

This strategy is often followed by small local businesses that are seeking to export resources to foreign markets. Some good examples are wine

Multi-domestic

The multi-domestic business strategy invests in establishing a presence in a foreign market and tailoring its products to the local market. Companies adapt their products and offerings and reposition their marketing strategies to engage with a foreign audience. This includes taking into account foreign customs, traditions, and cultural traits. 

With a multi-domestic business strategy, company headquarters are often maintained in the country of origin. However, the company may establish localized headquarters overseas from which they can more easily manage relations with foreign customers. 

Key features of the multi-domestic strategy 

• Focus on establishing a presence and tailoring products to suit new markets
• Competitive advantage determined separately for each country
• Multi-domestic strategies are largely used by food and beverage companies. 

Nestle is a great example of a country using a multi-domestic strategy. It takes a different marketing and sales approach in each of its markets and adapts its products to local tastes.

Global

When companies adopt a global business strategy they treat the world as one market and leverage economies of scale to boost reach and revenue. 

Global companies have little local variation, as products and services are homogenized to reduce costs while reaching as many people as possible. Usually, these companies have a central office or headquarters in their country of origin, while also establishing operations in foreign markets.

Although most aspects of the goods and services are homogenized, small changes might need to be made. For example, fast food companies like McDonald’s or Burger King might have to alter, add, or remove certain menus from their menus to suit the needs of local markets. Pharmaceutical companies are a great example of a global strategy in use.

Key features of the global strategy

• An integrated approach across different countries
• Homogenized products to minimize costs and reach a broad audience
• Small adjustments needed to break into international markets

Although global and international strategies sound similar, there’s actually a big difference! Where international strategy maintains a domestic policy and adapts it to international markets, the global strategy involves companies treating each foreign market differently and adapting their products or services to a foreign market.

Transnational 

Now things get a bit more intricate. The transnational business strategy combines elements of global and multi-domestic strategies. This means that the business is still operating from its headquarters in its country of origin, however, it also allows the company to expand with full-scale operations in foreign markets. 

Transnational companies sell their products and services in multiple countries across the globe. The difference lies in how the product is marketed in each country. A transnational product is the same regardless of the country in which it is sold. It doesn’t change to suit a new market - the product is the same everywhere and isn’t modified to appeal to local customs or preferences.

The challenges of the transnational strategy include identifying effective management tactics and large investment costs.

Key features of the transnational strategy

• Combination of global and multi-domestic strategies
• Allows the establishment of full-scale operations in foreign markets
• Companies have separate marketing, research, and development departments to respond to local customers
• Product or service is the same for different markets

A great example of a brand that has employed a transnational strategy is everyone’s favorite soft-drink Coca-Cola. Coca-Cola is the same everywhere, it has the same logo and marketing approach, the same taste and formula all over the world - the only thing that changes is the language on the packaging. 

Next steps in business internationalization

Now you know all about the four internationalization strategies, you might be wondering how to go about choosing one that’s right for you. 

You’ll need to think about your growth objectives and the resources you have on hand. If you have a deep understanding of these business internationalization strategies and are ready to put your analytical and management skills to work, then you’re ready to begin expanding your business. 

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