Potential Rewards and Risks of Strategies for International Organisations - Essay Example

?Strategy Table of Contents Introduction 3 Reasons behind the International Businesses Usage of Strategies 4 Potential Rewards and Risks of Strategies for International Organisations 6 Potential Rewards and Risks of Strategies Involved With Different Entry Modes 8 Conclusion 13 References 14 Bibliography 17 Introduction Business organisations of present era are dealing with highly competitive environment. For the better implementation of business policies, vision and to attain the desired mission, management of every organisation comes up with sets of plan termed as strategies which further promises sustainable growth of the business. ‘Strategy’, in general words, can be stated as a plan or scheme made to deal with the situation which may occur in the future. However, the planning of strategies is not that simple as it sounds to be for the management of an organisation. Planning and preparation of strategies for an organisation become very crucial as those, at times, determine the fate of the organisation. Globalisation is the modern approach of business. Many organisations operate their business globally providing it with huge market to operate. In the present context, the strategies of an organisation are quite developed which mostly deal with the overall development of the business enterprise, generally focusing on the growth of the organisation, nationally and internationally. Strategies can be referred to the set of plans which are prepared and developed by the higher level of management of the organisation. This paper involves with the reasons behind the preparation and usage of strategies by the organisation. It also includes the means of strategies used by the organisations for their international operations (John & Gillies, 1996). Reasons behind the International Businesses Usage of Strategies Strategies are prepared by an organisation with an intention to deal with any unfavoured consequences, if occurred, in future context and so to grow the business in both future and present context. A well planned strategy helps to organise and to allocate the available resources of an organisation into a distinct and feasible position focusing on the internal competencies and drawbacks. Strategies prepared by the organisation are expected to anticipate changes in the environment and the moves taken by intelligent competitors (John & Gillies, 1996). Strategies are prepared by the organisations with various intentions. Quite a few strategies are prepared by the organisations which operate its business nationally and internationally. Strategies once prepared help an organisation to achieve a clear sense of direction for the business which also helps the organisation to take a forward view and establish a clear set of objectives and goals. Strategies prepared by the management have proved to be helpful for the better functioning of the business as they provide important integrating and co-ordinating function for the companies operating largely in context of economy. Strategies are prepared by the internationally functioning organisation to ascertain the marketing trends and to help the organisation by supporting it with sustainable growth. Strategies help the organisation through this role of co-ordination to minimize intra-organisational conflict including tensions in headquarters and relationships among subsidiaries. The higher level managers of organisation prepare strategies as it serves as a guide to action, providing a framework for the companies functioning and operating their business worldwide to take operational and administrative decisions. The strategies encourage the corporate performance by maximising strengths and opportunities, minimizing weaknesses and treats. Strategies enable an organisation to respond successfully to the uncertainty, complexity and competitiveness of the international business environment encountered by firms of increasing global scope (Mintzberg, 2003). Preparation of the strategies is done by the management with great attention. There are various required fields where managements need to focus their attention while preparing and planning for the strategies. Organisations which have an intention of spreading their business beyond the borders of their home country need to prepare strong and in-depth strategies. Local adaptation also plays a significant role in preparation of strategies with respect to organisation’s international business operations. This aspect is about the degree to which business is adapted to specific circumstances of entering in the foreign markets. For instance, it helps in determining the amount of product required to be adapted to satisfy the demands in the new entered market or the market to be entered. In this context, strategies prove to be helpful to determine the needed knowledge about the local market environment. Global integration deals with issues which compel the organisations to expand its operations and integrates its business between different markets locally and nationally. Generally, there is certain integration, since the international businesses do not have completely separate and localized activities. The options for this major strategic issue are the extent of global market participation, how much standardization of products and other marketing variables can be achieved, the location of various business activities, and how competitive moves are integrated between different nations’ markets (Jansson, 2008). Well prepared and organised global strategies can help an organisation to achieve a competitive advantage over its competition. Various strategies maintained by the management can contribute a lot in efficiency of the organisational operations enhancing in the productivity. Strategies are used by the organisations functioning in the international market with an intention to increase the number of customers and their operating markets. Strategies are crucial mostly for the companies which are planning to enter in the international markets because they need to gather knowledge about the different nations, and thus the management should have the proper strategy about the labour and raw materials among others. Global market is a great opportunity or risk depending on the strategies which have been implemented by the companies. Companies can prepare strategies for the purpose of innovation of new products or extend the product life cycle. For instance, older products can be introduced in lesser developed nations, extending the life span of the product which was in the edge of declination in parent nations. These various strategies adopted by the organisations allow operational flexibility, shift production as costs and gather knowledge about exchange rates. Strategies so prepared are generally maintained and changed over a period of time as required (Jansson, 2008). Potential Rewards and Risks of Strategies for International Organisations Operation of business in global scenario is highly attractive by its nature. Strategies so prepared by the management of the organisations should control the consistency and scale of a global brand as well as the proximity of a local brand operating in the market in order to succeed. One of the advantages of global strategies is that it at times so happens that a company tends to get more success in foreign nations compared to parent nation. This can really prove to be one of the advantages of global strategies which contribute in the productivity of the organisation. There are various strategies that are provided with the strategic opportunities which can prove to be advantageous or rewarding for the organisation which is operated internationally. For instances, size of the market plays a very vital role in strategic decision and attracting the new organisations to operate in the market (Kawamoto, 1999). Commoditization has been one of the reasons for organisations operating internationally. It helps in displacing the competitors providing the organisations with the advantage in the same market. Strategies involved with globalization can prove to be very helpful in achieving economies of scale. Strategies are prepared by the management to protect current margins of the organisation in the market as well. Strategies related to globalization are prepared by the higher level of the management with an intention to capture share of the new market. Strategies are very important for the organisation to get into the newer market as it provides the management with the strategic tools which is helpful for sustainable growth. Strategies make the management aware about the market condition as well as business requirement which further drives the sense of innovation (Kawamoto, 1999). Today’s businesses demand global standardisation. And, it is because of the strategies, the management are enabled of achieving the global standardisation. It is very important for an organisation which is functioning globally to achieve global standardisation with respect to its operations, services and business environments. Well prepared strategies allow the organisations to adopt according the preferences of the customers in the market they are operating. Strategies involved with international business provide opportunities to use various markets of different nations to participate strategically with the competitors which operate only in one national market. In this context, the organisation enjoys greater competitive power as it has wider range of market with respect to size (Kawamoto, 1999). Strategies which are adopted by the management of the organisation and are dealing in the international market are transnational by nature. Preparations of strategies become vital as the businesses are going global. As the market being globally operated, its initial strategy comes to be penetrating into a new market. And, entering into a new market is not an easy task; it requires huge knowledge regarding the market and the preparation of adequate strategies by the management of the organisation (Robinson, 2005). However, strategies also do come with certain drawbacks and risks. Strategies demand the organisations to predict the future business environments in order to develop plans and schemes for the operations of the organisations. But, it can be said that predicting the future is not an easy task, moreover predicting the future of the markets which is changing constantly is also quite complex. Usually strategies are prepared keeping in context the future scenario, however due to the uncertainty in the future a well anticipated strategy can result in failure for the organisation. Preparation of strategies must be done with huge care and attention. The organisations need to be ready for any changes in the future and management must be ready for such changes. Planning and implementation of the strategies can demand huge cost, adding to the expenses. If an organisation thinks of hiring an outsider as a strategic consultant, it can cost huge amount for them. Huge companies demand intense strategic planning, moreover enterprises dealing in the multinational environment require strong strategic planning, management and approach which again demand great costing adding to the expense of the companies (Luo, 1999). Potential Rewards and Risks of Strategies Involved With Different Entry Modes An organisation involved with international operation chooses varieties of mode of entrance according their convenience and their adoption of strategies. There are different entry modes that companies can select as their strategy to enter different markets. For instances, exporting, licensing, franchising, joint ventures, wholly-owned and subsidiaries among others. Exporting is referred to the marketing and direct sale of domestically produced goods in other nations. This mode of entrance is traditional and well established approach to markets of various nations’. As exporting does not involve with manufacturing the product in the exported nation, it does not demand any extra amount in different nations’ production facilities provided. Here, the cost associated with exporting are usually for the marketing of the products in the new market. Exporting demands participation of exporter, importer, government and transporter (Australian Government, 2011). There are different advantages of export such as it helps in minimizing the risk as the goods are being exported to the demanded nations. It also incurs minimum investment as the productions of the products are being done in the parent nation, so there is no extra cost of setting up another segment and department. From the same plant the products are being manufactured and distributed. One of the advantages of exporting is that it is quite convenient way of entry into the international markets. Exporting also helps in maximising the economies of scale by using the existing available resources (United Nations Escap, 2011). However, along with advantages, exporting does have certain disadvantages. For instance, certain legal rules and regulations of the nations where the products are being exported can cause trade barriers and the tariffs acts as additional costs for the organisation. As it is being operated in the parent country, there always remain the chances of limitation of the access of local information. The relationship of the manufacturing company is generally maintained with only the importer. Again, the company which is involved in exporting usually operates in its own native country, therefore it is considered as outsider by the exported country which can act as an obstacle for the growth in that market. Licensing is a well known term of business environment. Licensing is known as the permission granted to an organisation i.e. licensee in the different nations which have been targeted by the organisation to utilise the property of the licensor. Properties involved are usually intangible in nature, for example, patent rights, production techniques, trademarks and copyrights (Fernandez & Neuenschwander, 2011). In this context, the process of licensing is followed as licensee pays demanded fees by the licensor, in return for the rights which can be used by the license holder or licensee for using the intangible property or the technical support and guidance. Licensors are usually paid with royalty for the usage of the rights by the licensees. As it is mentioned above, with every mode of entrance it involves advantages and disadvantages as well. Licensing is one of the easiest means of entrance into an international market involving minimum investment, initially proving to be one of the advantages. It usually provides high rate of return in investments. It’s one of the advantages is that it is capable of nullifying trade barrier unlike exporting. But, licensing usually tends to reduce control over the utilisation of the assets of the licensor, according to the agreement signed by both the licensee and the licensor. Generally, licensing agreement comes with certain specified period. To be precise, every licensing agreement specifies the time period till when the licensee holds the right of the property. One of the risks of licensing is that after the completion of the specified period, licensee at times turns out to the competitor as it become much aware about the production techniques of licensor. There lies the risk of knowledge handover. The licensee becomes aware about the techniques and methods involved (Sherman, 2004). Joint venture is known as a strategic alliance done between two or more organisations which are to be engaged in a particular project or venture. Joint ventures are not separate legal entity. It is collaboration of two or more companies only for a particular purpose or project. One of the advantages of joint venture is that it provides the companies with the opportunities of gaining new abilities and expertises. It proves to be very useful for the companies which are willing to enter in international markets, as it allows companies to enter in interested businesses or new markets and also helps in gaining new technological knowledge. Joint venture involves partnership of one company with other companies which further encourages sharing risks along with specialised staff and technology as well. Joint ventures are usually flexible in nature. It is worth mentioning that joint ventures are usually operated within a limited time span and accommodates only a part of the business functioning and restricting the exposure of the organisation to the fellow organisations (RP Emery and Associates, 2011). However, joint venture requires enormous time and effort to develop the right relationship and partnership with another organisation which turns out to be one of the challenges of joint ventures. At times, because of the involvement of two or more different organisations, the motive behind the joint venture does not become clear for all of the members involved which may result in failure of the venture. There are imbalances of expertises as the experts belong to different organisations dealing in different fields which further may raise the sense of conflict. Managements from different organisations with their different styles of leadership raise confusion resulting in less co-operation and poor integration. One of the significant risks involved with joint venture is that success of the venture depends on the intense research and analysis of the objectives and if the research fails to accommodate even minor information, it can have a huge adverse impact on the results (RP Emery and Associates, 2011). A turnkey project is known as the method adopted by a company that wants to export its processes and technologies to other nations by establishing a plant in that particular country (Hill, 2005). One of the main advantages of a turnkey project is that it allows an organisation to earn huge amount of economic profits. It is particularly beneficial in those nations where foreign direct investment is limited and also it is less risk oriented. There are certain disadvantages of a turnkey project, such as the organisations entering into a turnkey project do not possess much interest in that particular country for long-term basis. This is stated as disadvantageous because if the country tends to be one of the major markets for the products being exported, then it can lose one of its profitable markets. And, another risk of turnkey project is that if the organisation requires using some of their proprietary information with an intention to create their turnkey project, then they are mostly handing over the secrets away to another company (Evans, 2005). Franchising is another mode of entrance usually adopted by the international organisations. Reward of franchising is that it provides a sense of ownership to the franchisee. Franchising enables the franchisee the convenience of dealing with the business according to the desire of the holder unlike licensing (Holmes, 2008). Franchising enables an organisation to gain large amount of royalty. Franchising helps an organisation to penetrate regional and national markets, with the help of establishment of dominant market share. However, it too has certain disadvantages. Franchising deals with critical and complex legal formalities, which causes the organisation to incur higher amount of legal cost adding to the expenses (Holmes, 2008). Conclusion Strategies are a crucial part of the management as it helps and directs the organisations towards a sustainable growth and prosperity. Every organisation has sets of strategies related to functioning of the organisation. Globalisation is a modern approach of business. To operate in the various nations, the organisations have to come up with different and strong strategies which would provide them with the facility of development and growth. Organisations prepare strategies according to the functioning of their business i.e. whether their business is operated nationally or internationally. International approach of business strategies vary from the strategies prepared for organisations operating nationally. International businesses are involved with global standardisation whereas local or nationally operating businesses deal with localisation. There are various modes of entry in the international market and are chosen by the organisation according to their strategies prepared. References Australian Government, 2011. Export Strategy. Developing A Sound Business Plan For Export. [Online] Available at: http://www.austrade.gov.au/Export-strategy/default.aspx [Accessed November 01, 2011]. Evans, R. E., 2005. Entry Strategies. Report On A Turnkey Project For Apple’s IPod In Nigeria. [Online] Available at: http://globalitek.homestead.com/Rachael_-_Turnkey_projects_Nigeria_and_iPod.pdf [Accessed November 01, 2011]. Fernandez, D. & Neuenschwander, C. R., 2011. Strategic Licensing in the New Economy. Strategic Licensing. [Online] Available at: http://www.iploft.com/Strategic(Tx).pdf [Accessed November 01, 2011]. Hill, C. W. L., 2005. 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