International Strategy Implementation
ISSN: 1555-1938 (Online)
This paper covers the various challenges facing new investments in the global area and how the challenges can be managed to ensure business survival. The report covers both the internal and external challenges that are a threat to any international investment. It covers the global scale and the global challenges of such investments. Global markets are essential for any country that wishes to strengthen its economy due to the fact that global business entails an expanded market for goods due to the wide range of customers, improved quality of products due to global competition for market share, better prices for global consumers and also a variety of goods and services which are all offered on a world scale.
In this paper, international investment has been denoted as a process whereby an individual or a company invests across the borders, meaning they invest in other countries across the globe (Alvarez et al. 2011). Most local businesses are becoming more international in nature than usual the challenges have been dealt with based on huge categories such as by considering the macro and the micro environment. In addressing the various challenges some legal clauses have been applied to protect the foreign firms. Later managerial implication is done to understand the overall concept and implementation process during international strategy implementation.
2.0 Macro Environmental Analysis
2.1 Political factors
Political factor is government interference with international investments by implementing high tax and short-run incentives (Blanchard 2009). Various laws like employment laws, consumer protection laws, taxation rules, trade restrictions and barriers may change according the government priorities due to the political situation of that particular country for foreign investments (FME, 2013). If an organization is looking to operate in middle-east or Asian countries, then companies should consider political aspects more seriously due the level of corruption, level of freedom to press and countries foreign investment policy (Ewelukwa, 2014). The creation of different governing bodies and global unions like EU, SAARC, Asia-Pacific allows the member countries to have impact on their organization through the legislation that they have agreed upon. For example, between 27 countries which are under EU, they have considerably few restriction to implement business due to their trade policies among those countries then rest in the Europe (Johnson, 2009).
2.2 Economic factors
Economic issues includes the various change in economy due to inflation, interest rates, taxes, trading regulations, custom duties charges, currency risk, exchange rates. While looking at the International companies and their investments, they have to consider the factors like skills level, wages patterns, labor cost, unemployment ratios thus the company may not afford the expansion of their investment (DeMestral and Lévesque, 2013). Different countries implies different economic system in favorable for them to attract foreign investment and enhance countries economy. Mixed economy is being popular in most of the developed countries as they let private ownership and free market mechanism with government planning and significant state ownership (Powell, 2007). Currently India has adopted to such type of economy. GDP, GNP are other economic indicators for the multinational companies for foreign investment and also low liquidity is another issue because international investors can’t diversify (Sornarajah, 2004).
2.3 Legal/social factors
As a multinational company operating across the world, they have to ensure that they follow national laws and regulations in order to operate in that country. As they have to make sure the resources they use should not affect the legal statutory and stability of the country (Hill, 2007). The legal structure of the country is very important to international business and their operation. Common law, civil law, theocratic law are the main legal systems which are in use all over the world (Fa, 2008). Those laws help to attract foreign investment and provides security to the companies who want to operate abiding laws and regulations thoroughly. There are significant number of regulatory bodies that monitor legislations in operation, consumer protection, waste management, employee welfare, trade restrictions and customs during foreign investment (Ranchhod & Marandi, 2007).
2.4 Environmental/Social factors
There are various environmental and social issues which affect foreign investment and its subsidiaries. As a multinational company extending abroad they should be aware of climate issues, industries, social activities. Nowadays, with a growing environmental issues about waste disposal, carbon footprints, energy consumption companies must address such kind of issues before decide to invest (Kachru, 2006). Zara as one of the leading fashion brand, while operating in Spain the cultural roots of the country made them flourish even more. Spanish cultural and social aspects contributed to the company in the field of art and design. Looking at different demographic variables companies should make right decision towards health, cross-cultural communication, career, social tradition and ethics looking at international business and global market (WordPress, 2015).
3.0 Micro-environmental Analysis
3.1 Effect of 4Ps on investment
The pricing strategy of the company depends upon cost of production and other related expenses with profit margin on top of that from the goods they produce. If we look at ALDI, the pricing strategy of the supermarket is able to sell their product in cheap price as compared to the other supermarkets (Howell, 2014). ALDI is able to keep bargaining power of supplier very low as they buy stocks in large quantity. Penetration pricing, skimming pricing, competition strategy, product line pricing are some pricing strategies that companies implement during implementation. For example, a cable operator or television company sets a low price strategy to enter the market and gain as much subscribers, then later they increase the price as number of customer’s increases (Ohnishi 2010).
It refers to the companies how they are distributing their product or services to the end users. An effective distribution strategy over different places only be able to meet company’s goal. While investment one has to consider a range of placing factors that could affect business. Consideration of the accessibility of roads, communication, technology, social environment should be well studied before investment. When all these have been considered and dealt with, then place cannot pose any challenge to international investment (Lalwani, 2002).
The product which to provide into the anticipated global market is another thing. Product qualities such as quality, quantity and price have to be matched with the international standards in play. To meet consumer quality in service provision and also of products is a challenge to the global market. As such, there is need to thoroughly analyze the product to produce and make sure it meets global standards (Baltag 2009).
The people to buy your product and also assist in the distribution process are also an important consideration when undertaking investment on a global scale. People are important in the supply chain and also form the customer base. Before setting any international investment, one has to consider whether the people are enough to form a strong customer base and whether they consume the product that is to be provided. All this analysis is important before undertaking any form of international business.
3.2 Competitor’s Analysis
Competition from the local companies in the country of the investment is another challenge. Competition on international markets ranks highest on the list of enterprises. Companies have the challenge to acquire customers. This acquisition is made possible through engaging in thorough marketing. Local businesses have greater advantages than the international companies because they are nearer to their consumers (Head & Frisch, 2007). Local firms can know the likes and dislikes of the community, and they can make enough commodities than the international companies. To cope with the challenge of competition, there is need that one conducts a preferences survey from the consumers to understand what the customers need and use that to produce very high-quality products that will attract consumers quickly (Heaney 2003).
For the new investment, the companies must know their competitors. It can be known through the sales and profits, cost structure, market share, distribution system. It can be done through the SWOT analysis to analyze the competitor’s during new investment or expanding the business in new market (Head, J & Frisch, 2007).
Strength: This analysis helps the companies to analyze the market condition of new market or an emerging market. Markets advantages or disadvantages helps in strategic decision making which would be the focal point of any organization during strategy implementation whether nationally or internationally. If we look those companies who have strength in manufacturing and marketing themselves, they categorize themselves as a high quality brands. This helps the company to find out their strength ahead of their competitors (Ferrell & Hartline, 2014).
Weakness: During strategic implementation, assessing the weakness of the company and its competitor’s leads in understanding of those weaknesses easily and make the proper strategy to deal with it. It helps in either to improve the strategy and address the problems or eliminate those tasks or objectives which might restrict the firm to implement in new market. Either, the company takes its weakness as a platform which manager might use it as a marketing tool as part of the overall business strategy (Fine, 2009).
Opportunities: This part of analysis helps to identify the company’s way to identify the right strategy for improvement and growth of business. Frequently reviewing the market condition, new markets and emerging markets helps the company to take advantage over such places and use their strength to occupy the market share. Company fail to identify such opportunities might miss out the market share and their possibility to acquire new business (Pahl & Richter, 2009).
Threats: Evaluating the possible threats of the company, it helps to prepare them and respond in terms of strategic point of view so that company can decide and take reasonable decision in such cases. Looking at both internal and external factors, regulations and trends of the current market or the new market, they can make the strategic decision of possible therats in present and future (Kokemuller, 2007).
3.3 Porter’s Five Forces
3.3.1 Industrial Forces
The industrial forces denote the kind of competition that exists between the businesses operating in a given industry. The industry here is the global one involving a subsidiary. For example competition between a soda manufacturer and other soda manufacturers is industrial competition and poses a major challenge to investment in subsidiaries.
3.3.2 Bargaining Power of Suppliers
The suppliers of the raw materials form a major challenge to investment activities in a subsidiary. First the subsidiary is a small unit and enjoys economies of scale to a lesser extent. This means that it is going to produce at a higher cost compared to its competitors. This challenge can easily face off a new subsidiary from the market. There is need therefore for one to understand the bargaining effort of his suppliers to avoid quitting the market.
3.3.3 Bargaining Power of Buyers
The buyers are the people who are to purchase the product. The purchasing power of the buyers forms a greater challenge to the investment at the subsidiary. The more the bargaining powers of the customers the more the challenge.
3.3.4 Threat of New Entrants
There is a high possibility that more investors having the same idea coming up. There is need therefore to understand all the strategies to employ so as to fully deal with any such threat of newcomers outdoing your investment in a subsidiary.
3.3.5 Substitute Products
Finally the existence of substitute products to a product is a big challenge to the survival and success of any business. The alternative products trigger research into the quality of what to produce, the price of what to produce and the quantities to give customers to prevent them from seeking substitute products.
Through this competitor analysis, company can make the strategic decisions and actions to implement their strategic moves. With the help of identifying the strength of the company linking those strengths to opportunities help to outperform their competitors through effective marketing strategy by evaluating competitors’ strength and operate in order to take advantage from them. Looking at the competitive environment and competitors’ weaknesses company should respond in a way that they could capture the market with strong marketing strategies concentrating on the successful strategies by avoiding possible threats.
4.0 Managerial Implication and how to manage it
The various challenges discussed above pose a great challenge to the survival of any business in the global scale. There is a need to employ strong managerial efforts so as to overcome the threat of failure that is the worst occurrence in business. Problems caused by political influence such as government interference pose a top challenge in the success of my business. As a top manager, the duty to work with other top MNCs so as to create a strong body to air grievances. Further, corruption scandals in most governments are a big threat to the existence as an investor in those countries. It should be dealt with reporting any corruption to the bodies concerned.
Challenges like economic downturn and low liquidity are also another threat. As a manager they need to carry out a thorough analysis of the business as they have to undertake and as such decide on the best medium of exchange and goods to provide so as to prevent liquidity problems. Market fluctuations and changes are another economic threat that has to be considered carefully to avoid situations of financial distress that may negatively affect my business.
The environmental challenges similarly can be dealt with by engaging environmental research panels to assist in identifying specific environmental problems. This will be good in deciding the best policies to implement as a manager.
Cultural problems that are likely to face investment crisis can be addressed by engaging the locals and mixing with them freely. This gives room for interaction and understanding each other’s cultures and as such the problems of cultural disjoint are bridged.
They should analysis the internal factors as well. These are like the five forces of Porter which denote competition. It has to overcome competition by checking my product quality, pricing and quantities.
Finally the analysis of the 4Ps is very crucial for any business and investments. The price as one of the factors has to be considered and be set to meet the needs of possible customers. The location of business as denoted by place has to be strategic also. The people who are customers have to be listened to and information shared so as to meet their needs in products.
In conclusion, international investments face a lot of challenges. The challenges affect the way any MNC operates. The various challenges identified to be affecting the global MNCs include political, social, economic and environmental among the external challenges while internal challenges include the analysis of porters forces and also the 4Ps. In dealing with the strategic challenges in global investments, managers need to determine and design policies to protect them. These policies include forming groups to enhance their bargaining power, engaging in research to meet the needs of their customers and finally working on quality, price and quantity so as to retain and attract new customers. Succeeding in global business demands understanding of trends that are existing as at the time one is planning to invest.
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