Platt Perspective on Business and Technology

Reexamining business school fundamentals (reconsidered) 5: strategies for international expansion

Posted in book recommendations, reexamining the fundamentals by Timothy Platt on February 17, 2017

This is my fifth installment to a series of brief, single issue sketches in which I reconsider each of a set of core issues that I first addressed in this format in a 2010 series. See Section II of my directory: Reexamining the Fundamentals for that earlier related series, and in particular see my earlier same-name counterpart posting to this one as included there: Reexamining Business School Fundamentals – strategies for international expansion.

I offered that posting in 2010, as a means of adding increased global interconnectedness to the mix of issues under consideration there, as it plays out within individual businesses as they reach out for new sources of value, and for stability. And one of the basic, if not explicitly stated assumptions underlying that posting was that businesses that seek to be more than just locally constrained in the face of wider ranging opportunity, essentially always decide how and even if to proceed in this on the basis of risk and benefits calculations – however defined by them and carried out.

I cited three basic strategies for international expansion in my 2010 posting, that a business can pursue:

• 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.

And when cost-effective creation of value and of value creating competitive strength are the goals pursued, and when effort is made to achieve them by taking advantage of still existing wrinkles and depressions in the still non-flat but flattening world that Friedman writes of in his books, I can add at least three more mechanisms to that list – that by their very nature can contribute to the potential for instability and push back against global flattening, and implementations of it such as free trade zones. (See earlier installments to this series for relevant book references.) And those three mechanisms are:

• Outsourcing labor intensive production to countries and regions where labor costs are reduced, allowing businesses that pursue this approach to offer their products more competitively, at lower price points to their markets,
Corporate inversions, where corporations relocate their legal domiciles to countries with lower tax rates and that offer tax haven protections, and once again to reduce operating and related costs faced, and
• Automation: reducing the employee headcount and all associated personnel costs as a means of reducing per-item production costs, and to increase reliable profitability.

There is a measure of overlap between the three mechanism lists of my 2010 posting and my new three mechanism list of this one. And none of the now six options listed are intrinsically either all positive or negative in their wider impact. Foreign direct investment, for example, can be pursued to reduce personnel (or other) costs of production or of distribution and they can be entered into in order to capture the value of tax haven opportunity when a host nation for such an agreement offers encouraging benefits of that type, to outside corporate participation. And both foreign direct investment, and building wholly-owned manufacturing facilities in less economically developed countries can also be pursued as a strategy for capturing new markets in them, if those counties’ economies and their citizens’ standards of living are improving and their citizen consumers are developing markets that that manufacturer would want to build for – and with a local face there if possible. But the three new mechanisms added to my now list of six here, can all be significantly characterized as seeking to create and leverage competitive value opportunity in ways that directly and even negatively impact upon at least one class of critically involved stakeholder: employees who might lose their jobs if and as the work that they have done is taken from their hands. And this also impacts more widely on the communities that these workers live in and that their income and their spending of it supports – all of the businesses that they and their families have been doing business with, that are indirectly but significantly supported by a manufacturing plant in danger of closing.

I have been writing in this 2017 series about current (at least as of this writing) resistance to free trade, and certainly as it can enable and standardize the shipping of work out of the country (for example) as a means of increasing corporate profitability. And that and the perhaps red herring of immigration taking jobs, have become rallying cries as the voices of discontent have risen and particularly in developed world countries over the issues that I have been touching upon here. I add in automation, noting that it has been less recognized as a destabilizing factor in this wave of pushback that we are all experiencing and globally, right now. I fully expect that to become the most loudly and widely voiced source of discontent in coming years, even if it is a largely still unrecognized cause of employment and employability disruption now, already.

And this leads me to a basic question that I will end this posting with. There are positive reasons as to why the world is flattening and becoming more universally ubiquitously connected and interconnected, and they are not going to go way. Neither will the flood of new enabling technologies that we all want and for so many reasons that are positive to us, even as they enable all six of the mechanisms listed above here too.

• How can we capture the positive value of all of this, while at the same time limiting and buffering the down-side disruptions that this change brings with it?

We are going through an intensively impactful period of disruptive change and in a fundamental sense it is still just beginning as I write this. How can we capture the positive potential of that flow of change while limiting the negative impact of it brings with it, and particularly for the more vulnerable of our overall societies who need explicit help of they are to successful pass through this transition period too? I write this as the wave of change that I write of here rises and rises. My goal for the remaining installments of this series is to at least attempt to shed some light on a few possible pieces to a more positive resolution to this challenge. And as a part of that initiative, I am going to continue this series in a next installment by reconsidering the issues of marketing and CRM in an interconnected global context. In anticipation of discussion to come, market facing and involving communications cannot resolve any of this on their own – but nothing else can either, without them.

Meanwhile, you can find this and other related postings and series at Reexamining the Fundamentals, as a new Section VII in that directory. And see in particular, my 2010 posting: Reexamining Business School Fundamentals – marketing and CRM in an interconnected global context as a background reference for the next installment in this series to come.

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