There are several strategies for a company that has decided to expand its activities beyond the national market and enter into transnational or global competition [15 pp.217-222].
1. Creation of a production base in one country and export of goods abroad both through its own distribution channels and through channels controlled by foreign companies. A manufacturer can limit its operations in foreign markets to entering into contracts with foreign wholesale firms with experience in import operations, transferring to them the functions of distribution and marketing in their countries or regions. If the company wants to maintain control over these functions, then it is better to create its own distribution and sales offices in the target foreign markets. Such strategies are often used by Chinese, Korean and Italian companies: products are designed and manufactured in their own country and distributed through domestic channels; activities abroad are reduced mainly to the creation of a network of distributors and dealers, sometimes to assistance in promoting and strengthening the brand. The export strategy can be successfully applied for a long time due to the competitive level of costs that ensures production in its own country. The export strategy is not suitable if the production costs in their own country are much higher than in foreign ones, where competitors’ enterprises are located, or in the case of high transportation costs.
2. Issuance of licenses to foreign firms for the use of the company’s technologies or for the production and distribution of the company’s products. It is reasonable to apply the licensing strategy in cases where a company with valuable technical know-how or a unique patented product does not have the organizational capabilities or resources to enter the foreign market. The advantage of licensing is to avoid the risks that arise when a company enters unfamiliar markets with high economic uncertainty or political instability (receiving income in the form of royalties). The main disadvantage of licensing is the risk associated with the transfer of valuable know-how to foreign companies, as a result of which control over its use is reduced; controlling licensees and protecting company-owned know-how is in some cases very difficult.
3. Franchising. Licensing is applied mainly by industrial companies, and franchising is more often used for global expansion by service and retail companies. McDonald’s, Tricon Global Restaurants (the parent company of Pizza Hut, Kentucky Fried Chicken and Taso Bell) and Hilton Hotels are using franchising to expand their presence in foreign markets. The benefits of franchising are similar to those of licensing. The franchisee is primarily responsible for the costs and risks associated with the placement of enterprises in foreign markets; the franchisor company bears only the costs associated with hiring and training employees and supporting franchisees. The main problem faced by the franchisor is quality control; foreign franchisees do not always strictly adhere to uniform standards and methods, sometimes due to the fact that the cultures of different countries do not always treat or attach the same importance to quality issues.
4. Multinational strategy with the use of specific strategic approaches in different countries, adapted to local conditions, tastes and preferences of buyers. Competitive advantages over local companies are provided by lower costs in some countries, differentiation of goods – in others and the optimal ratio of price and quality – in others. The target market segment is wide in some countries and very narrow in others. Strategic actions in one country are carried out independently of initiatives taken in another country; adapting the strategy to market conditions and the competitive environment in each individual country is more important than ensuring a unified strategy in the markets of different countries.
5. A global strategy using a single model of competition in the markets of all countries where the company operates. Any of the standard strategy options can be used here, for example, a cost leadership strategy on a global scale, when the company tries to bypass both global and local competitors in terms of costs; or a global differentiation strategy, where a company gives its products properties different from those of competing products in all countries to create a single global image of the product and ensure a stable position in the market; or a global best-value-added strategy, where a company offers customers a better price in many or all of the world’s largest markets. A company can also choose a global directional strategy, serving the same market segment of all strategically important countries, striving for a competitive advantage at a price or through differentiation. For coherence, strategic actions are coordinated on a global scale.
6. Strategic alliances or joint ventures with the participation of foreign companies as a first step towards foreign markets; they can then evolve into long-term, temporary strategic agreements aimed at maintaining or strengthening the company’s competitiveness. Currently, companies around the world are forming strategic alliances and entering into partnership agreements to strengthen their positions in global markets. Japanese and American companies are entering into alliances with European companies to strengthen their competitiveness in the European Union and gain maximum advantages in the opening Eastern European markets. American and European companies are joining forces with Asian ones to explore the markets of China, India and other Asian countries together. Recently, the number of alliances, joint ventures and other forms of cooperation has increased significantly and included joint R&D and technological developments, joint use of production facilities, joint marketing, joint production of components and assembly of finished products. Alliances and joint ventures have not only advantages but also disadvantages. It is not easy to achieve effective cooperation between independent companies, each of which has its own motives and goals, perhaps even opposite. It is necessary to discuss in advance which resources will be transferred for general use, and which will remain the property of the participating companies, to develop the principles of a partnership agreement. It is often difficult for allies to cooperate effectively in volatile markets, so questions arise about mutual trust and the exchange of information and experience. Interpersonal conflicts and incompatibility of corporate cultures are not excluded. Joint cooperation can turn into a long-term dependence on a partner for a company to gain competitively significant experience and opportunities. To seriously compete in the market, a company must develop internal capabilities that contribute to strengthening its competitive position and creating a sustainable competitive advantage. If allies provide a company with only insignificant experience and knowledge (protecting their most valuable skills and experience), it should consider acquiring or merging with a company with the necessary know-how and resources. For a company seeking global leadership, merging or acquiring companies from a neighboring country is preferable to forming a union or creating a joint venture.
Consequently, the effectiveness of strategic alliances and partnerships with foreign enterprises depends on a number of conditions [28 ch.4-8]: the reliability of the partner, taking into account cultural differences, the mutual benefit of the alliance, the fulfillment of obligations by both parties, the effectiveness of the decision-making process to ensure speed, the organization of mutual learning and the adaptation of the initial terms of the agreement to changing circumstances.
Most of the international commercial alliances created to exchange technology or provide market access are temporary, as companies either quickly achieve their goals or realize the benefits of mutual learning, after which each of the participants can go their own way. Long-term alliances are sometimes mutually beneficial: 1. aimed at cooperation with suppliers or distributors; 2. if new opportunities for the exchange of experience are constantly emerging, or further cooperation allows each partner to expand their market faster than with independent activities; however, most partners cease to cooperate and move to independent activities if the advantages of the union are exhausted.