Today’s small and medium sized enterprises are experiencing extreme challenges in determining which and when to take the steps in effective planning towards achieving a stable competitive market advantage from the intense pressure of increasing its international trade and business linking tactics. One of the most strategic imperatives that SMEs are facing, is understanding and contemplating on how to react to the double impassive trade liberalization pressure and international competition increment (Dick, 2007). From this effect, economists have developed different applicable and effective international strategies that these growing businesses can apply in their transactions to boost their growth. This has happened despite the many challenges they face for example, the high costs incurred in the process of registering the business into international markets and the establishment of its transaction line internationally.
The types of strategies include the intensity of expansion. This strategy entails the process of determining the range of coverage that the business plans to extend further from its current position. In reliance to the international rules, the organization should base its expansions in line to the internally set standards to avoid bias in the long run. Many upcoming businesses find it quite hard to develop into the larger competitive world due to the frustration they get from trying to penetrate through the back door which in turn leaves them totally blocked down due to the inability to reach the set international standards not because of their incompetence in production but the simple act of undergoing the easy and fast legal process to identify their businesses (Chryssochoidis, 2006).
The speed of entry is one of the most effective strategies of entrance among those used in internationalization strategies. It is exclusively about the speed at which the business or the firm enters into the market. A firm may opt to either indulge in a fast speed into the international market or choose the parallel method of entrance whereby one slowly engages part of the business into the market as they evaluate how the business is fairing in the market. The speed method is always very risky and at the same is very successive. This happens in the manner that in case of a boom, the firm might make supernormal profits but in case of a recession, it is bound to massive loss. This option is not always advisable especially if the firm’s management has not familiarized with the market and its operation. Small and medium enterprises are the businesses that face great hardships as compared to all the other types of business since the upcoming producers have very little knowledge in regards to the skills and experience of the markets down-hills and loopholes (Dietrich, 2004).
The mode of entry is another strategy through which the firm indulges in the market. This step matters a lot because each mode and the other differ in the level or the percentage of degree taken, the mode of control, and the amount of resources to be committed into the project. The returns from the investments also highly matters in the determination of the type of strategy choose (Chryssochoidis, 2006). It is always advisable for the small and medium enterprises to opt to use the non-equity type of entry mode since it incorporates the expertise and a lot of contractual agreements that involve the international market unlike the equity entry method which is exclusively on the joint ventures and the fully owned subsidiaries.
Different firms aim at serving only a specific section of consumers in the market. These firms undertake the target market selection strategy. This type of strategy enhances the firm into a state of searching, evaluating and specializing in satisfying a specific group of consumers. Through this, the firm might be aiming to achieve a new set of consumers by ‘grabbing’ them from their previous suppliers through the introduction of better quality products or substituting their products with much economic ones. Also, the firm might be aiming at maintaining its old customers from shifting to other substitute products from the related competitors in the international market (Dietrich, 2004).
For example, the Coca-Cola Company might opt to reduce its Soda prices in one country to prevent its customers from being wooed by the enticing low prices of their competitors like Pepsi. On the other hand, the company can decide to increase its promotion services like increment in its advertisements and offering free additional services that add more value to their products.
This type of product strategy involves selection of production in terms of ranges. It is split into parts where the company can indulge into higher marketing intensity which is the option for the production of a wide range of products. On the other hand, the firm might opt to choose the less marketing intensity under which it will only work participate in the production of a very narrow product line. An example of this type of strategy application can be clearly noticed in one of the highest rated multinational computer producing corporation, Apple Inc. this company uses this strategy in targeting only the wealthiest individuals and those that have a taste of class. Apple’s products are presumed to very costly and on the same time have very high qualities. This gives a very huge margin of cost which makes it harder for middle and low income earners to acquire these products (Dick, 2007).
In the field of economics and the other main related disciplines, transaction cost are known as the costs that are incurred in the process of making an economic exchange in the market. The transaction cost entails the transaction as the basic economic unit of analysis that holds to the fact that understanding the exchange of process involving cost economizing is known supposed to be central to the organizational study. This process involves assessing and evaluation of the organization’s way of governance and how their structures serve the process of economizing the firm’s transaction cost (Dietrich, 2004).
For an organization or a firm to carry out the intended market research, it is always of great importance for the organization to understand their surrounding environment well. By this, it means that the organization should clearly evaluate the economic, business, social and cultural situation of the party it wishes to carry out transactions with. This process of economic exchange involves conduct of business negotiations that lead both parties to the bargaining stage and then the drawing up of the contract. This process involves stating down of the main terms and conditions that the two parties will have to strictly adhere to failure to which the diverting party suffers a punishment or fine set and applicable to both parties. This is the part where the witness is involved to ensure there is extremely little or no chances of a breach of the contract (Chryssochoidis, 2006).
In the global arena, companies are required to secure their places through planning, testing, implementing and evaluating internalization strategies. A number of researchers have developed several models and tools to make descriptions of internalization of enterprises. Various theories and tools that are considered useful for firms to cope with the dynamic conditions of the global market include the transaction costs and the resource based theories. The transaction cost theory is used in the transition context. The theory emphasis that trade-offs between benefits and costs are optimized to decide whether to internalize or cooperate. The approach is based on the risk of opportunistic and bounded rationalism. The opportunism concept depicts that there exists a risk of transferring knowledge beyond organizational boundaries since other firms might behave in their own interests other than the original intention. The transfer of knowledge beyond boundaries is influenced by the bounded rationality as it makes it impossible to understand the consequences of making decisions in the global arena.
Transaction cost theory is applicable in explaining the form of international relations; however, it has a less focus on the content of the relationship or the decision making process. Its strategic orientation is based on the way financial resources are the vital role players and paying less attention on the issues of social networks and culture. The theory is typically applicable to established firms like apples, which employ various strategies in marketing and transportation of their products , as they usually assume that multinational enterprises are in a position to successfully place value-adding activities in different parts of the world. This is usually because of market imperfections such as government uncertainty and interference whereby the size and structure of a company is determined at the margin by the transaction costs of internal versus market organization (Rugman, 2006).
The transaction cost theory depicts that those in business are both unsuccessful and successful in assessing the balance of transaction costs. Companies fail or succeed in part based on the effectiveness of how they make judgments. For instance, Apple made a discovery and implemented a thriving balance of giving power to smart personnel via decentralization while directing it via enlightened control. Apple is not lost in the business firmament as considering the achievement (Rugman, 2006).
Although the resource-based view has been in the rise as a substantial theory of strategic management, it has at times overlooked the importance of entrepreneurial capacities as a vital source of an enterprise’s competitive advantage. Currently many economic researches and consequently many management strategies take entrepreneurship as the main specter haunting economic models. Scholars have attempted to investigate on the mechanisms of sustainability of competitive advantage, which is a considerable mechanism in internationalizing a firm via the resource-based theory. The common strategies utilized by such scholars and firms include the original concepts like core competence and routine and skills (Wright, 2001). However, the utilization of entrepreneurship as a tool of competitive advantage has never been realized. Entrepreneurship is a critical resource that multinational companies like Apple are using today. Entrepreneurship is the driver of various moves that companies are utilizing to ensure that they are competing or disqualifying other companies. Coca Cola utilizes its resource base whereas Apple is utilizing its entrepreneurial skills and talents.
References
Chryssochoidis, G., Millar, C., & Clegg, J. (2006). Internationalization Strategies. New York: St. Martin's Press.
Dick, H., & Merrett, D. (2007). The Internationalization Strategies of Small-Country Firms: The Australian Experience of Globalization. Cheltenham, UK: Edward Elgar.
Dietrich, M., & Krafft, J. (2012). Handbook on the Economics and Theory of the Firm.
Vibert, C. (2004). Theories of macro organizational behavior: A handbook of ideas and explanations. Armonk, N.Y: M.E. Sharpe.
Rugman, A. M. (2006). NEW THEORIES OF THE MULTXNATIONAL ENTERPRISE: AN ASSESSMENT OF INTERNALIZATION THEORY. Bulletin of Economic Research, 38 (2), 101-118.
Wright, P. M., Dunford, B. B., & Snell, S. A. (2001). Human resources and the resource based view of the firm. Journal of management, 27 (6), 701-721.
