Question

What are the four basic types of international strategies that a company may pursue? Explain how the selection of one of these strategies is largely dependent on the relative pressure on the firm to address cost reduction and adaptation to local markets.

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Answer 1

The four basic types of international strategies that companies may pursue are: international, global, multidomestic, and transnational. The selection of one of these four types of strategies is largely dependent on the relative pressure on the firm to address cost reduction and adaptation to local markets. The opposing pressures that managers face place conflicting demands on firms as they strive to be competitive. On the one hand, competitive pressures require that firms do what they can to lower unit costs so that consumers will not perceive their product and service offerings as too expensive. This may lead them to consider locating manufacturing facilities where labor costs are low and developing products that are highly standardized across multiple countries. In addition to responding to pressures to lower costs, managers must strive to be responsive to local pressures in order to tailor their products to the demand of the local market in which they do business. This requires differentiating their offerings and strategies from country to country to reflect consumer tastes and preferences and making changes to reflect differences in distribution channels, human resource practices, and governmental regulations. However, because the strategies and tactics to differentiate products and services to local markets can involve additional expenses, a firm's costs will tend to rise. The two opposing pressures result in four different basic strategies that companies can use to compete in the global marketplace: international, global, multidomestic, and transnational. The strategy that a firm selects depends on the degree of pressure that it is facing for cost reductions and the importance of adapting to local markets.