INTERNATIONAL BUSINESS STRATEGY OF PARENT COMPANY
When a firm decides to go international with their business they must face many competitive decisions. Two of the most important decisions a company will face are the pressures for cost reduction and pressures for local responsiveness. The pressure of cost reduction forces a firm to lower their value of the cost of creation. Firms can outsource to places where costs of their products are much cheaper or they can mass-produce a standardized product in one location. A firm must have the feeling of local representation. Every country has its own way of life. If a company does not adhere to each country’s differences in traditional business practices, distribution channels, and the demands from the host government, there will be no reason going international. Customers in different countries all hold to their own ways of doings things. It is important for a multinational firm to become aware of all traditions and rules in the countries of entry.
There are four different strategies an international corporation can choose from. They are global standardization, localization, transnational and international. Each strategy leads to the deciding factor that firms will use to determine the amount of pressures for cost reduction and local responsiveness. Global standardization is used to increase profitability by obtaining cost reductions through economies of scale. A firm whom wants to pursue a low-cost strategy on a global scale will normally offer a product that can be mass-produced at a low cost. A localization strategy offers a product that is custom to the host country. The product satisfies the countries preferences and taste. The third strategy is transnational. It is used when the firm is faced with strong pressures for both reduction and localization. This strategy is hardly used when competitors are in the market because it is hard for a firm to please the local tastes and preferences of its customers at a...
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