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In this notes

  • Globalization and International Business
  • Global Economy and Regional Economy
  • National Differences in Socio-cultural Environment
  • National Differences in Political Environment
  • National Differences in Economic Environment
  • International Financial Environment
  • Strategies for IB
  • Functional Management and Operation of IB

Strategies for IB

Binayak Niraula | Thu Jan 15 2026

Table of Contents

  1. Concept of International Strategic Management
  2. Modes of Entry into a Foreign Market
  3. Strategic Alliances
  4. Foreign Direct Investment
  5. Key Differences Between FDI and Portfolio Investment

Concept of International Strategic Management

International Strategic Management (ISM) refers to the process by which a company formulates, implements, and evaluates strategies that help it achieve its objectives in the global marketplace. Unlike domestic strategic management, ISM deals with complexities arising from operating in multiple countries with different economic, political, social, and cultural environments.

Key Points about ISM:

1. Global Perspective: ISM focuses on leveraging opportunities and managing risks across international markets rather than a single domestic market.

2. Integration: It integrates internal resources and capabilities with external global opportunities and challenges.

3. Long-term Orientation: It emphasizes sustainable competitive advantage on a global scale.

4. Dynamic Decision-Making: Strategies must be adaptable to rapid changes in global markets, regulations, technology, and consumer behavior.

Core Elements of ISM:

  • Environmental Analysis: Studying international economic, political, social, cultural, and technological factors
  • Strategy Formulation: Defining global objectives, market entry modes (exporting, joint ventures, acquisitions, etc.), and competitive positioning
  • Strategy Implementation: Allocating resources, organizing operations, and coordinating across countries
  • Strategy Evaluation and Control: Measuring performance against international benchmarks and revising strategies as needed

Importance of International Strategic Management

1. Competitive Advantage Globally:

  • Helps firms identify and exploit global opportunities, giving them an edge over domestic and international competitors

2. Risk Management:

  • Enables companies to anticipate and mitigate risks related to currency fluctuations, political instability, regulatory changes, and cultural differences

3. Resource Optimization:

  • Ensures efficient allocation of global resources—capital, human, and technological—across different markets

4. Market Expansion:

  • Supports informed decisions about entering new markets, choosing the right entry strategy, and adapting products or services for local markets

5. Adaptation to Global Trends:

  • Helps companies stay responsive to international trends such as digitalization, sustainability, and global supply chain shifts

6. Sustainable Growth:

On this page

  • Concept of International Strategic Management
  • Modes of Entry into a Foreign Market
  • Strategic Alliances
  • Foreign Direct Investment
  • Key Differences Between FDI and Portfolio Investment
  • By managing international operations strategically, firms can achieve long-term profitability and resilience against global competition

7. Coordination Across Borders:

  • Provides a framework to harmonize operations, marketing, and production in multiple countries, ensuring consistency with corporate objectives

International Strategic Management is vital for any firm aiming to operate beyond its domestic market. It allows a company to systematically plan, execute, and control its global activities to achieve competitive advantage, growth, and sustainability in a complex, dynamic international environment.

Modes of Entry into a Foreign Market

When a company decides to enter a foreign market, it can do so through various modes depending on its resources, objectives, and risk appetite. The main modes are exporting and importing.

1. Exporting

Exporting is the process of producing goods or services in the home country and selling them in foreign markets. It is usually the first step for companies to enter international markets because it involves relatively low risk and investment.

Types of Exporting:

  • Direct Exporting: The company sells directly to customers or distributors in the foreign country
  • Indirect Exporting: The company sells to intermediaries (export agents or trading companies) who then sell in the foreign market

Advantages of Exporting:

  • Low investment and risk compared to setting up overseas operations
  • Quick entry into foreign markets
  • Opportunity to learn about foreign markets without major commitments

Disadvantages of Exporting:

  • Limited control over marketing and distribution in the foreign market
  • Vulnerability to trade barriers, tariffs, and transport costs
  • Dependence on foreign intermediaries if indirect exporting is used

2. Importing

Importing is the process of buying goods or services from a foreign country to sell in the home market. It allows a country or company to access products, raw materials, or technologies not available domestically.

Forms of Importing:

  • Direct Importing: Company imports goods directly from foreign suppliers
  • Indirect Importing: Company imports goods through intermediaries or trading companies

Advantages of Importing:

  • Access to high-quality or cheaper goods and raw materials
  • Helps meet domestic demand and expand product variety
  • Can be used to gain technology, know-how, or competitive products

Disadvantages of Importing:

  • Exposure to foreign exchange fluctuations
  • Risk of import restrictions, tariffs, or political issues in supplier countries
  • Dependence on foreign suppliers for critical inputs

Comparison: Export vs. Import

FeatureExportingImporting
DefinitionSelling home-produced goods abroadBuying foreign goods for home market
DirectionOutbound from home countryInbound to home country
ControlModerate to low (depends on method)Moderate (depends on supplier)
RiskLower than foreign productionRisks include currency and tariffs
InvestmentLowLow to moderate
PurposeExpand market and revenueAcquire goods, materials, or tech

In short, exporting and importing are fundamental and low-risk ways to participate in international trade, often serving as the first step before committing to more complex foreign market operations like joint ventures or wholly owned subsidiaries.

Strategic Alliances

A strategic alliance is a cooperative arrangement between two or more firms to achieve mutually beneficial objectives while remaining independent organizations. Firms form alliances to share resources, knowledge, risks, or market access in international markets.

Strategic alliances are broadly classified into equity-based and contractual-based alliances.

1. Equity-Based Strategic Alliances

In equity-based alliances, firms invest capital in a foreign partner or a joint entity, often taking ownership stakes. These require significant investment but offer greater control and long-term collaboration.

Types:

1. Wholly Owned Subsidiaries (WOS):

  • The parent company owns 100% of the foreign operation
  • Offers complete control over operations, strategy, and profits
  • Example: Toyota owning a plant in the USA

2. Acquisition:

  • Buying an existing foreign company to gain instant market access, assets, or technology
  • Reduces market entry time but can be costly and involve integration risks
  • Example: Walmart acquiring Flipkart in India

3. Greenfield Venture:

  • Establishing a new facility or operation from scratch in the foreign market
  • High control and customization but requires significant time and investment
  • Example: BMW building a new plant in Mexico

4. Equity Alliances:

  • Partners take minority or majority stakes in each other's companies without full ownership
  • Promotes cooperation while sharing risk
  • Example: Sony and Ericsson forming a mobile handset alliance

5. Joint Venture (JV):

  • Two or more firms create a separate legal entity in which they share ownership, control, and profits
  • Combines local knowledge with foreign expertise
  • Example: Starbucks JV with Tata in India

2. Contractual-Based Strategic Alliances

In contractual alliances, firms collaborate through legally binding agreements without equity ownership. These arrangements usually involve less risk and investment but also offer less control.

Types:

1. Licensing:

  • A firm allows a foreign company to produce and sell its product in exchange for royalties or fees
  • Example: Disney licensing its characters to local toy manufacturers

2. Franchising:

  • A firm grants a foreign entity the right to operate under its brand, following its business model, for a fee
  • Example: McDonald's franchises worldwide

3. Turnkey Operations:

  • A company designs, constructs, and equips a facility for a foreign client and hands it over ready for operation
  • Example: Engineering firms constructing power plants for foreign governments

4. Build-Operate-Transfer (BOT):

  • The firm builds and operates a facility for a set period before transferring ownership to the local client or government
  • Example: Infrastructure projects like toll roads or airports

5. Management Contract:

  • A firm provides managerial expertise and services for a fee without owning assets
  • Example: Hotel chains managing resorts in foreign countries without owning the property

Summary of Strategic Alliances

TypeExamplesOwnership/ControlInvestment & Risk
Equity-BasedWOS, Acquisition, Greenfield, JVFull or partial ownershipHigh
Contractual-BasedLicensing, Franchising, Turnkey, BOT, Management ContractNo ownership, contractual rightsLow to moderate

Key Takeaways:

  • Equity-based alliances → high investment, high control, long-term strategic goals
  • Contractual-based alliances → lower investment, less control, flexible and faster market entry
  • Both types allow firms to expand globally, share risk, and leverage complementary strengths

Foreign Direct Investment

FDI occurs when a company or individual from one country invests in a business or acquires a substantial ownership (usually ≥10%) in a company in another country, giving them control or significant influence over operations.

Forms of FDI:

  • Greenfield Investment: Building new facilities in a foreign country
  • Acquisition/Merger: Buying or merging with an existing foreign company
  • Joint Ventures: Investing in partnership with a foreign firm

Benefits of FDI:

  1. Economic Growth: Brings capital, technology, and infrastructure to the host country
  2. Employment Opportunities: Creates jobs locally
  3. Access to New Markets: Enables firms to expand their customer base internationally
  4. Transfer of Technology and Skills: Brings advanced technology and managerial expertise
  5. Long-term Commitment: FDI represents stable, long-term investment

Drawbacks of FDI:

  1. Profit Repatriation: Profits are often sent back to the investor's home country
  2. Market Domination: Can lead to foreign firms dominating local markets, harming domestic competition
  3. Political and Cultural Risks: Changes in laws, regulations, or political instability can affect investments
  4. Loss of Control: Host country may lose some control over key industries

Portfolio Investment

Portfolio investment refers to the purchase of financial assets such as stocks, bonds, or other securities in a foreign country without seeking control over the companies. Ownership is usually less than 10%, meaning investors have no significant influence over management.

Benefits of Portfolio Investment:

  1. Liquidity: Easier to buy and sell assets in foreign markets
  2. Diversification: Reduces risk by investing in multiple countries or sectors
  3. Quick Returns: Investors can earn returns through capital gains and dividends
  4. Lower Commitment: Requires less capital and has fewer regulatory requirements than FDI

Drawbacks of Portfolio Investment:

  1. Short-term Focus: Can lead to volatile capital flows and market instability
  2. Limited Influence: Investors cannot influence company decisions
  3. Exchange Rate Risk: Returns are affected by currency fluctuations
  4. Speculative Risk: Portfolio investment can be speculative and prone to sudden withdrawal during crises

Key Differences Between FDI and Portfolio Investment

FeatureFDIPortfolio Investment
ControlSignificant control over operationsNo control, passive investment
Investment HorizonLong-termShort-term or medium-term
RiskHigher (capital-intensive, political risk)Moderate (market and currency risk)
ReturnsProfit, dividends, long-term growthDividends, capital gains
Impact on HostEconomic development, jobs, tech transferLimited direct impact

Summary:

  • FDI is strategic, long-term, and provides control but involves higher risk and capital
  • Portfolio investment is flexible, short-term, and liquid but provides limited influence and can be volatile