Platt Perspective on Business and Technology

Reexamining business school fundamentals – strategies for international expansion

Posted in reexamining the fundamentals, strategy and planning by Timothy Platt on July 25, 2010

Historically, the boundary between national and international waters along a country’s shoreline was set at three miles because this was the distance that military shore batteries could reliably fire, and as such this was the distance that a country could control without having to take to the sea to do so. I find myself thinking of this piece of admittedly historical trivia as I think about business and strategies for businesses to expand and develop in an international context.

This posting is going to delve a bit into the third of a set of what can be seen as business school issues as they are currently evolving to meet the changing terms of our increasingly interconnected global business ecosystem (see Reexamining the Fundamentals for earlier postings). In this, the issue is about the implications of moving past the conceptual model of business as fortress, or business as a separate sovereign nation with firm and isolating boundaries.

I find myself mentally reviewing some of the basic classic strategic models for international business expansion:

Trading and the importing and exporting of products and services.
Foreign direct investment, including development of joint ventures.
Licensing to one or more independent parties.

All three of these basic business models still apply in a more openly connected and interconnected value chain context but when a business can be expected to share basic business intelligence with and work coordinately with a wide range of suppliers, affiliates, channel partners and more and in an expanding number of ways, simple one model either/or relationships are less likely to predominate.

Company A may be supplying Company B with specific business intelligence and product design information under a licensing agreement, and working with one of their wholly owned subsidiaries or channel partners in a joint ventureship while A and B are simultaneously also entered into trading relationships for exchange of parts and preassembled components for still other parts of their businesses. I find myself thinking back to an earlier entry into this series on Reexamining the Fundamentals and:

Assumption 5 – Where are the true boundaries between a globally connected company and its supply chain and value chain context?

and a basic question I have at least touched on several times and certainly in my Macroeconomics and Business series. When businesses are connected and interconnected globally in value chains that form the basis for their ongoing performance, and when it is increasingly impossible to unequivocally state that any given product or service, or at least any complex product or service only comes from just one source or even just one country as a complete value proposition, what value can we find in the old business as fortress model? And stepping back to look at this from a macroeconomic perspective and looking at marketplaces and systems of value chains as a whole, how can we realistically partition value creation and the flow of money with simple all or nothing gross national product or balance of trade models? We live in a world where value created increasingly comes together from multiple directions and multiple countries and it no longer makes sense to assume that all of the value comes from the company that puts the brand name on the final product. It no longer makes sense to assign all of the cash flow from sales as going from purchasing nations to the nation where that final branding company happens to have its headquarters offices. And the business as fortress model increasingly lacks relevance, except as notable exception and for any business of significant scale and marketplace reach.

And with this I come back to the basic starting question of international business expansion, noting that it probably does not make sense to word it that way if the company “expanding” has to already be there and in complex interconnected ways as part of a global value chain to be able to competitively function at all anyway.

I admittedly present this as a somewhat extreme position, but it is a position that is becoming simple routine and in many industries. The next posting I will be adding to this series is going to look at some of the implications of our increasing globalization in marketing, and with a focus on customer relations management.

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