Strategies in International Business

Venky Pony Class - Strategy in International Business

Rationalized manufacturing – It is based on rational thinking that to maintain profit, either increase selling price (not possible in today’s scenario) or reduce cost. To reduce cost, reduce process / manufacturing cost. Instead, one can go to a cheaper manufacturer also and buy raw material from him / her. Go back in the value chain, control all components manufacturing. Hence, high capital requirement is there. Also, subsidiaries should talk to each other on regular basis (bottleneck theory). It can’t become strategically independent as still I am not manufacturing all the components (but instead buying it from cheapest market). (High FDI with extensive coordination among subsidiaries – look at the strategy from the unit who is investing)

Marketing Satellite – Kellogs from US comes to Singapore and proposes to set up a packaging unit for corn flakes. No manufacturing takes place, only packaging, distribution and marketing happens (Hardly any value addition is done to the product. Value addition happens when manufacturing is done in host country which is Singapore here). Hence, there is FDI and Kellogs will control the management of packaging units in Singapore (no local partner, all are subsidiaries). Subsidiary handles the marketing in Singapore on its own. Marketing satellite can’t become strategically independent as the main product still comes from the parent company (US). (Export based strategy with decentralized marketing)

Miniature replica – Kellogs says it will set up a plant in Singapore. May buy corn from local market or foreign market. But will open a small unit for meeting domestic demand in Singapore. This is miniature replica. When the demand will increase in near future or when this setup starts exporting to nearby countries, the head office instructs the Singapore office to manage its own finances, HR, R&D. Then, the miniature replica becomes strategically independent. (Pure Local Strategy – because of demand in local market, miniature replica is set up)

Product specialist – Perrier is a brand of bottled mineral (water is taken from a spring in South France). It was bought out by Nestle in 1992. Uniqueness of this water – It is a carbonated spring water (water brushes the lime stone and hence, has natural bubbles). It is bottled at the source. Sell it as Bubbly spring water. Ordinary water is called packaged drinking water, whereas in mineral water, one plays around with the salts in water (to reduce high degree of Sodium, Potassium, Magnesium and make the water more healthy). Hence, mineral water is more expensive then packaged drinking water. Here, Perrier is product specialist for Nestle as no one can duplicate this kind of water. Perrier always looks at global market because only they have that sort of water. Product specialist can hence become strategically independent as it only owns the product. (Purest Global Strategy)

Strategically independent – Pure local – Miniature replica / Pure Global – Product specialist