Strategy of International Business - Assignment Example

Strategy of International Business Q Ans. In the contemporary age, a lot of companies are expanding their business to the level that they have several branches in different parts of the world. Many companies start the business in a developed country and once the business has established, companies tend to look for opportunities of making money in the developing economies. This makes a company rise to the level of becoming an international company. Different international companies have different kinds of structures which can be broadly classified into two main types; the centralized organizational structure and the decentralized organizational structure, each having its own advantages and disadvantages. Centralization happens when a company focuses the centralization of authority from the whole towards a particular group, which usually happens to be the top management since top management assumes the decision making authority. On the other hand, decision-making authority in a decentralized organization is passed over to the lower tiers that may be the organization’s branches, subsidiaries, or divisions. Advantages of centralization include uniformity of standards, reduction in the cost of operation, and increased profitability of business while disadvantages of centralization include conflict between the internal organizational culture and external culture, and the need of a very efficient IT-based system. Advantages of decentralization include increased competition whereas the disadvantages of decentralization include increased need of training and customization of employees’ skills. One advantage of centralization is uniformity of standards. Since the company has a centralized system, the product or service generated by the company has the same quality wherever it is made in the world. Another advantage of a centralized organizational structure of an international company is that it reduces the cost of operation in three fundamental ways. Firstly, the company is able to exploit the economies of scale. The international company can benefit from its products’ or services’ special pricing in numerous ways that include but are not limited to bulk pricing, single orders or multiple orders, and volume discounts. Secondly, in a centralized system, an international company escapes the need to duplicate the procedures or efforts to address the needs of branches in different parts of the world. Thirdly, centralization of the system reduces the regulatory costs. In addition to that, centralization promotes a culture of more consistency and accountability which in turn improves the security of business. Last but not the least, centralization of the organizational structure makes things easier for the management. As a result of the induced simplicity in the organizational structure, the efficiency of the system increases and the company is able to make more profits. Disadvantages of centralization include difficulty of developing synchronization between the organizational culture of the branches and the macroculture of the region they operate in. In addition to that, the company needs to invest a lot in developing and implementing a proper IT system in all branches so that new decisions of the top management can be quickly conveyed to all branches. Decentralization encourages competition across branches. Branch managers engage in strategic planning in an attempt to obtain competitive advantage over other branches and show high productivity than them. Competition across branches is healthy. However, in a decentralized system, the international company has to bear higher regulatory costs because of the need to develop and implement customized laws considering the political and socioeconomic circumstances of the different regions in which the branches operate. Since decentralized international companies have a decentralized enforcement across all branches, it increases the regulatory costs associated with the development and implementation of rules and regulations and also increases the chances of regulatory arbitrage. In addition to that, employees transferred from one branch to another have to be trained in order to customize their skills according to the needs of the new working environment. This incurs the company cost of training and education of the employees. So the decentralized system overall proves costlier as compared to the centralized organizational structure. Concluding, the centralized organizational structure of an international company induces uniformity in the quality of the product or service it offers, reduces the cost of operation, and boosts the system’s efficiency thus increasing the profitability of the business, but in such a system, it is hard for a branch to adapt its culture to the external culture, and the company needs to maintain a highly efficient IT-based system all the time. The decentralized organizational structure promotes competition among different branches so that they struggle to outperform each other, thus improving the profitability of the parent organization, but decentralization calls for the need of constant training and customization of the employees’ skills according to the differing needs of branches operating at different locations. In the contemporary age where diversity has become a need of the organization, decentralization has a more positive influence on an international company not only because of the ease it provides the company’s branches to synchronize their culture with the culture of their location, but also because it encourages innovation. Q. 2. Answer Activities included in a value chain include but are not limited to procurement of raw materials, processing of raw materials so as to add value to them, and selling the finished product to the consumers. There are numerous activities within the value chain that can assist in the effective management of an international company and help develop an integrated business strategy. Three of such activities include outsourcing of vendors, lean manufacturing, and online advertising. These activities not only assist in the effective management, but also play a role in the development of integrated business strategy for an international company by cutting down the costs of operation, maximizing the profits, and hence improving the company’s financial performance. Outsourcing of vendors or services to process the raw materials helps both the centralized and decentralized international companies. Outsourcing provides the international company with services at a lower cost than what its personal staff would charge to do similar kind of work. This not only benefits the organization as it cuts down the cost of production of the product, but also helps boost the economy of the underdeveloped and the developing companies in which the branches of the international company operate. In addition to that, since the outsourced vendors are quite expert at delivering the service of a certain kind, this improves the quality of work and the same reflects in the finished product. Since the distribution of profits is centralized in a centralized international company, outsourcing does not cause the staff of the company any loss since their profits are synchronized with the profits of the company. For a decentralized company, outsourcing results in increased understanding between the organizational culture and the culture of the region the company operates in, so that the international company can develop an integrated business strategy. Since the company outsources the services, workers in the host country develop association with the brand which also increases the consumer base for the company. Outsourcing helps the development of integrated business strategy by improving the international company’s financial performance. Lean manufacturing helps effective management of an international company by reducing the amount of waste to be managed, as well as saving the cost of manufacturing as the companies produce only the things that are of value to the customers. Waste disposal is one of the main challenges that management of the international companies has to face particularly when the standards of health and safety have reached higher limits in the contemporary age. Lean manufacturing helps the international company understand the customer value and modify its processes to increase the value of its products for the customers, thus reducing expenditures and maximizing the profits that the management can utilize to upgrade the skills of the workforce and to solve different kinds of managerial issues. Lean manufacturing helps the development of an integrated business strategy by increasing the monetary resources for the management through increased savings, and reducing the expenditures on non-value production. In addition to that, lean manufacturing also reduces the cost of waste-disposal since lesser waste is produced than with traditional way of manufacturing. Furthermore, lean manufacturing requires the organization to be in closer contact with the consumers to establish the criteria and limits for value manufacturing. Online advertising is another activity of value chain that promotes effective management of an international company. The traditional mediums of advertising including paper advertising and advertising on media incurs the international company a lot of cost while the ads are not accessible to all the consumers all the time. Online advertising not only provides the management with a cost effective way of attracting the consumers’ attention, but also provides it with valuable criticism and commentary of the consumers, which helps in the customization of the product’s features as per the demands of the consumers. Like outsourcing and lean manufacturing, online advertising also reduces the cost by saving the expenditures on advertising, thus improving the financial performance of the international company and helping in the integration of its business strategy. Concluding, outsourcing the services assists in the effective management of both the centralized and the decentralized kind of international company. Lean manufacturing reduces waste and cost, thus helping effective management of the international company. Online advertising makes it easier and cost-effective for the management to advertise the product or service and reach the consumers, thus assisting the effective management of the international company. Outsourcing, lean manufacturing, and online advertising all improve the international company’s financial performance, thus assisting in the development of an integrated business strategy. Read More