Porter’s Model of International Strategy and Its Relevance

Subject: Strategy
Pages: 7
Words: 1748
Reading time:
6 min

The core of Porter’s international strategy is the value chain. Following M. Porter, the value chain is the sequence of activities, from start to finish, by which the product or service is transformed from an idea to a consumable form. For instance, if the product is multimedia equipment, the chain starts with the materials (electronics parts and plastics) and end with delivery to a customer such as a manufacturer of multimedia equipment. It is possible to say that if a firm is not fully integrated backwards, the value chain will commence with the receipt of raw materials, and if forward integration is incomplete, the chain could end with manufacture and warehousing. According to Porter, the main elements of the value chain are firm infrastructure, HRM, technology and procurement. Primary activities involve service, marketing and sales, outbound logistics, operation and inbound logistics.

Organizations that adopt the new structure receive additional costs in training and educating employees and need to develop new performance measurements. MIS (management information systems) play an important role in a firm’s infrastructure and its everyday activities. MIS help companies to connect global worksites and partners, improve communication and logistics. Strategic planning is used by companies to plan strategic direction and reduce possible risks. Strategic planning can be seen as a tool for making decisions and develop long-range plans. In the telecommunications industry, strategic situations are complex and involve uncertainty. In international companies, planning is directed toward the future and predictions of changes in the environment. In today’s quest for managers who are more leaders than conciliators, any interest in scenarios on the part of the strategist or executive is welcomed. The control function of management allows international companies to keep high standards, the superior quality of all products and improve productivity.

Porter’s structure for competitive strategy is one of the most commonly accepted business planning models. Porter argues that to be successful in running a business, the organization needs to implement one or more of three generic competitive strategies— cost leadership, differentiation, or market focus—and that the company’s strategic choice eventually determines its profitability and competitiveness. With a cost-based strategy, an organization can improve its competitive position by lowering its production and marketing costs. A lower-cost formation can progress profitability and market share. On the other hand, Porter demonstrates that a business may follow a strategic advantage by differentiating its products and services from those existing by competitors.

By offering exclusive and modern products and services with innovative marketing, an organization can build and nurture strong brand recognition and customer loyalty. Finally, a firm may gain a strategic advantage by selecting to become specific and focus on a marketplace instead of competing largely in the market. Porter’s model for competitive strategies offers a general framework for understanding how organizations gain and sustain competitive advantages. Although most empirical studies seem to have validated the process theory of internationalization, some results also contradict the generally accepted description of this process. Some reports indicate an increased tendency on the part of firms to leap-frog low-commitment modes or to jump immediately to psychically distant markets. Consequently, it is now and then asserted that the theory should be changed.

This model can be fully applied to the international strategy of Proctor and Gambler, a fully internationalized company. Firm infrastructure influences the operations and decision-making of the company. P&G consists of “cells of competencies” closely connected with technologies. This structure allows the company to plan, coordinate and control all activities. Following this, firms that remain in the traditional structure will be at a competitive disadvantage. The case of P&G suggests that the internationalization of firms is happening at an ever-growing pace. According to Porter’s model, P&G’s activities can be characterized as “purest global strategy”.

In the past 20 years, P&G has distorted their direction from domestic to international; P&G has shifted from multi-domestic marketing to international marketing. The appearance of the international market has been enthused by the speedy enlargement and mixing of Asia Pacific countries; the configuration of local trading blocs; the formation of market economies, mainly in Eastern Europe; and advances in manufacture and communications technologies.

A number of aspects of the internationalization method and entrance form research have been addressed in the literature. These comprise exporting; contractual planning, for instance, licensing and franchising; combined ventures; tactical alliances; and completely owned foreign direct investment (FDI), together with Greenfield investments and mergers and acquisitions. Present developments in the field point out that research has split out into three main paths with a view to internationalization and mode of entrance. The first research way is the application and execution of internationalization theory and entrance choice strategies to precise industries or precise countries, and it tests the generalizability and applicability of global growth theories.

The second research way involves the incentive behind and ensuing presentation of a company’s global thrust and its alternative of entry policy. Outside and inside factors, for example, economic, financial, and directorial behaviour; nationality; and industry, has been cited and investigated in stipulations of their belongings on internationalization efforts and successes. Third, recent studies have projected new models and approaches that supplement obtainable theories and have recognized matching issues under more lively conditions. Discussions have emerged about the theory of actual options, which has been cited and functional to accessible internationalization and FDI theories.

Tesco is used as an example of a company in the early stages of internationalization. In Central Europe, retailers have to react swiftly to competitors’ moves because consumers quickly become aware of any differences. When Tesco first entered Hungary in 1994, there were no ‘high street’ retailers as such, no other hypermarkets and no ‘category killers’. Its current strategy position can be characterized as a “country-cantered strategy”. This provides cause to re-examine the Tesco offer. Should they – and can they – continue to be successful? Since Electro world opened next door to Tesco, sales of electrical goods in the store have dropped sharply. However, Tesco continues to stock the core ranges, utilizing their strength in consumables.

When Tesco entered Slovakia, it instantly became the country’s largest retailer since it had acquired five department stores from Kmart. Since then, competition has greatly increased, and Slovakia now has similar levels of competition to Hungary. Carrefour (the world’s largest hypermarket retailer) has a store directly opposite Tesco’s main Bratislava store, open from 8 a.m.–11 p.m. (Tesco is open 24 hours). They now have two stores in Bratislava and two outside the capital. Hypernova (Ahold Group, Dutch) entered Slovakia in 2002. They have opened a store in Bratislava, and in several other towns, with plans for four or five more stores this year.

They too are open ‘limited hours’ – from 8 a.m.–10 pm. In conclusion, Hungary is closer to being a fully developed market economy, which may partly explain why Tesco has performed better there than in Slovakia. The other explanation may be to do with differing market orientation levels. When Tesco originally entered Slovakia, there was very little competition, making the firm an instant market leader. They entered Hungary at a similar time to other Western retailers and so faced fiercer competition. The fact that Tesco is now more successful in Hungary suggests that greater market orientation has been exercised in this market.

This complete framework will help better clarify why many firms diverge from the expected route of internationalization. From the above two theories, we can say the first theory of internationalization has been implemented by international companies and got huge success. Under such a framework, firms that have taken on an international approach can best understand and monitor their efforts with more arrangement and focus. In addition, local firms that are new to the global market or are planning international entry can benefit from a structure that is a guide for planned growth and completion. From a research perspective, we have synthesized hypothetical strands into a significant logical structure whilst contributing research propositions on the moderating influences.

The proposed integrated arrangement of the internationalization procedure and entry modes serves as a useful theoretical repertoire that together researchers and practitioners can significantly draw on for future progression. The future holds many different scenarios for Tesco. The company has already grown into an international business. One of the possible future strategies could be dedicated to meeting outstanding customer service, as they have already grown enough. Another possible strategy Tesco could take would be to continue their current campaign in growth. Eventually, the company could establish a global control and monopoly over food and household items distribution.

This would make it an unstoppable force as by this time they would have bought out competing threats such as Sainsbury’s or other supermarkets, and there would not be any other stores that would be able to compete, especially since Tesco has an online shopping feature available to anybody with an Internet connection. However, we believe the most likely strategy that Tesco will take is to keep their current plans for development in the business maintaining a suitable level of customer loyalty whilst at the same time making sure that the business continues to grow and keep its level on the market share figure at the top. The current official strategies are outlined in this diagram. If the firm continues these strategies, it will be able to maintain a steady and stable business.

In sum, to compete with its direct competitors, the international company should establish effective connections with parts of the external environment–suppliers and customers being two of the more important elements to attract this sort of effort-the teams will perforce be not just on an inter-activity and interdepartmental basis but also inside the company. The value vision has to transcend both internal and external barriers. Internal barriers to horizontal value exchanges can be reduced through the use of value teams, job rotation, broader training, etc. External barriers need to be separately tackled. It is not uncommon for firms to assume a stance of confrontation or hostility, particularly toward suppliers. The argument is typically made that competition among suppliers will bring out the best in them and hence the best for the firm. These markets typically form discount buying groups and provide auction services with a focus on low-cost or best-cost pricing.