Diversification strategies in business and finance

Business

When companies decide to expand into international markets, there are three approaches (strategies) for competing internationally; multi-domestic, global, and transnational.

• Assess the advantages and disadvantages of each strategy and evaluate how to build a competitive advantage. (you may use notes on textbook)

¢Select a specific organization in a chosen industry or sector and provide examples.

When companies decide to expand into international markets, there are three approaches (strategies) for competing internationally; multi-domestic, global, and transnational.

Multi-domestic,

The firm views itself as operating within the context of numerous independent subsidiaries each of which concentrates on its own domestic locality and market.

The advantages are the following:

innovation from local R&D

Entrepreneurial spirit

Products tailored to individual countries

High quality due to backward integration

However, challenges include

High costs due to tailored products and duplication across countries

The innovation from the local R&D groups resulted in products that were R&D driven instead of market driven.

Decentralized control meant that national buy-in was required before introducing a product - time to market was slow.

Phillips is an example of a company that followed a multi-domestic strategy (Quick MBA Global Strategic Management).

Global,

The firm views the world as a single global marketplace. In turn, it focuses on developing a body of goals that will create standardized service and good that will meet the need of consumers worldwide.

The global strategy is effective when the differences between the countries are small and when the competition is global. The advantages are the following:

Economies of scale

Lower costs

Co-ordination of activities

Faster product development

The disadvantages, however, include the growing global standardization that discourages uniqueness and originality.

Instances of companies that pursue the global strategy are Sony and Panasonic (tutor2U)

Transnational

This approach uses the firm's domestically developed core competency or its specialized advantage as its main weapon when entering foreign markets. In other words, it creates its niche by focusing on its specialty and using that to differentiate itself.

The advantages and disadvantages of this approach depends on the situation that the business and the country that the business is in. On the one hand, certain resources and amenities will be cheaper to the business than others. The company that manufactures items in various countries will be able to capitalize on the cheaper sources of materials, labor, distribution, and so forth; on the other hand, some, or all of these aspects, may be more expensive resulting in a lower margin of profit for the company.

Evaluate how to build a competitive advantage

I would take the best of all the strategies, differentiating myself, developing goals that would standardize the goods according to the particular market and concentrating on the own domestic locality. I would also, if exclusively using the transnational strategy, structure the business by capitalizing on the opportunities of the various markets. For instance, I would procure materials from China, manufacture the goods in Mexico and sell in the U.S. where people would be more likely to buy in quantity (depending on the good). This would cause loss of jobs in American economy (therefore deficient on the production side), but would benefit from American economy in terms of profit. It would also benefit the consumer -- since there would be cheaper prices -- and the laborer -- since he would be receiving more for his time and effort. The company, certainly, would profit.

Select a specific organization in a chosen industry or sector and provide examples.

Aldi's faced the challenge of differentiating themselves. They adopted the global strategy by standardizing their items. They chose a smaller array of low-price, select assortment products as well as an in -- and out of store experience that they standardized amongst all their outlets. Customers had to come with their own bags, most of the service was do-it-yourself, there are few cashiers, and the shopping experience is mostly independent with no intrusive customer service and little presence of staff.

Given the huge competition that Aldi has, they have concentrated on making each and every one of their outlets follow the same pattern of structure and service.