Strategies for International Business: Entry, Adaptation & Growth

TAKEAWAYS:

• Firms use exporting, licensing, franchising, joint ventures, and FDI to enter foreign markets, each with trade-offs in control, risk, and cost.
• Competitive advantage (cost, differentiation, innovation) dictates whether a firm should standardize or adapt its products/services globally.
• Market entry strategies depend on market size, risk tolerance, and regulatory barriers (e.g., Daraz’s FDI in Nepal vs. eSewa’s licensing).
• Global integration vs. local responsiveness is the core tension in IB strategy, resolved via transnational, multinational, or global strategies.
• Portfolio matrix tools (e.g., BCG, GE-McKinsey) help allocate resources across markets and products.
• Emerging markets (like Nepal) require unique strategies (e.g., Ncell’s low-cost mobile plans) due to infrastructure gaps and cultural nuances.

1. Introduction to International Business Strategies

International Business (IB) strategies are planned actions firms take to compete, adapt, and grow across borders. Unlike domestic strategies, IB strategies must account for:

• Cultural differences (e.g., Nepali consumers prefer cash over digital payments like eSewa).
• Regulatory barriers (e.g., NEPSE’s strict foreign investment rules).
• Economic disparities (e.g., lower disposable income in rural Nepal vs. Kathmandu).
• Competitive intensity (e.g., Daraz vs. local retailers in Nepal).

A firm’s choice of strategy depends on:

1. Resource endowments (e.g., Nabil Bank’s strong brand in Nepal).
2. Market potential (e.g., Pathao’s rapid growth in Kathmandu).
3. Risk appetite (e.g., Google’s high-risk R&D vs. NTC’s cautious expansion).

1.1 Why Do Firms Go Global?

Firms expand internationally to:

• Access larger markets (e.g., Daraz selling to Indian consumers).
• Leverage cost advantages (e.g., Nepalese garment exports to the EU).
• Diversify risks (e.g., Ncell’s expansion beyond Nepal).
• Gain competitive edge (e.g., Himalayan Java’s global coffee brand).

Visual: Why Firms Go Global

2. Modes of Market Entry

Firms enter foreign markets using different strategies, each balancing control, risk, and cost. The choice depends on:

• Market familiarity (e.g., Nabil Bank’s experience in Nepal vs. a new market like Bhutan).
• Capital availability (e.g., Daraz’s FDI vs. a small retailer’s exporting).
• Regulatory ease (e.g., Nepal’s ease of doing business vs. India’s complex laws).

2.1 Classification of Entry Modes

Visual: Market Entry Modes Spectrum

flowchart TD
    A["Low Risk/Control"] -->|"Exporting"| B["Licensing"]
    B -->|"Franchising"| C["Medium Risk/Control"]
    C -->|"Joint Venture"| D["High Risk/Control"]
    D -->|"FDI"| E["Very High Risk/Control"]

2.2 Worked Example: Daraz’s Entry into Nepal

Scenario: Daraz (owned by Alibaba) enters Nepal’s e-commerce market. Strategy: FDI (Wholly-Owned Subsidiary) Why?

• High market potential: Nepal’s online shopping is growing (post-COVID).
• Regulatory ease: Nepal allows 100% FDI in e-commerce.
• Competitive edge: Daraz’s logistics and payment infrastructure outpace local players.

Steps Taken:

1. Acquired local e-commerce firms (e.g., ShopNepal).
2. Built local warehouses (e.g., in Kathmandu, Pokhara).
3. Partnered with Ncell for mobile payments.

Outcome:

• Market share: ~50% of Nepal’s e-commerce (2023).
• Challenges: Logistics delays in rural areas, cash-on-delivery preference.

Key Takeaway: Daraz used FDI for full control but had to adapt to local payment habits (cash dominance).

3. Competitive Advantage and Global Strategy

Firms must decide whether to standardize (global strategy) or adapt (local strategy) products/services. The choice depends on:

• Product type (e.g., Coca-Cola vs. Himalayan Java).
• Market needs (e.g., Pathao’s app vs. local taxi services).
• Cost structure (e.g., Ncell’s low-cost plans vs. NTC’s premium services).

3.1 Types of Competitive Advantage

Visual: Competitive Advantage Matrix

3.2 Global vs. Local Strategy: The Transnational Dilemma

Firms face a trade-off between:

1. Global standardization (e.g., McDonald’s uniform menu).
2. Local adaptation (e.g., Daraz’s Nepali-language customer service).

Solution: Transnational strategy—balancing both.

Visual: Global vs. Local Strategy Spectrum

flowchart TD
    A["Global Standardization"] -->|"High Control"| B["Transnational Strategy"]
    B -->|"Local Adaptation"| C["Localization"]
    A -->|"Low Flexibility"| D["Global Strategy"]
    C -->|"High Flexibility"| E["Local Strategy"]

Worked Example: Nabil Bank’s Strategy

• Global standardization: Uses ATM networks (like HSBC) for consistency.
• Local adaptation:
  • Offers low-interest loans for small businesses (unlike foreign banks).
  • Provides cash-based services (due to Nepali consumer preference).

4. Portfolio Matrix Tools for IB Strategy

Firms use portfolio matrices to allocate resources across markets/products. Two key tools:

4.1 BCG Matrix (Boston Consulting Group)

Classifies businesses based on:

• Market growth rate (high/low).
• Market share (relative to competitors).

Visual: BCG Matrix for Nepali Firms

mindmap
  root((BCG Matrix for Nepal))
    Star
      High growth, high share
      Example: Daraz
    Cash Cow
      Low growth, high share
      Example: Ncell’s 3G
    Question Mark
      High growth, low share
      Example: Pathao’s rural expansion
    Dog
      Low growth, low share
      Example: NTC’s landline

4.2 GE-McKinsey Matrix

Extends BCG by adding industry attractiveness and business strength.

Example: Nabil Bank’s digital banking (high strength, high industry attractiveness) vs. old branch networks (low strength, low attractiveness).

5. Strategies for Emerging Markets

Emerging markets (e.g., Nepal) have unique challenges:

• Infrastructure gaps (e.g., poor internet in rural Nepal).
• Regulatory uncertainty (e.g., NEPSE’s policies).
• Low disposable income (e.g., 60% of Nepal’s population earns <$3/day).

Strategies for Emerging Markets:

1. Low-cost adaptation (e.g., Ncell’s affordable mobile plans).
2. Partnerships (e.g., Daraz’s local logistics deals).
3. Gradual entry (e.g., eSewa’s phased expansion).

Visual: Emerging Market Strategy Framework

6. Case Study: Nabil Bank’s Global Strategy

Background:

• Nabil Bank is Nepal’s largest private bank by assets.
• Global strategy: Uses standardized banking products (ATMs, online banking) but adapts to local needs.

Strategies:

1. Standardization:
   • ATM network: 1,200+ ATMs (like global banks).
   • Digital banking: Mobile app for transactions.
2. Adaptation:
   • Cash-based loans: Most Nepali businesses prefer cash.
   • Low-interest rates: Unlike foreign banks, Nabil offers competitive rates.
3. Market Entry:
   • Franchising: Partnered with local agents for rural banking.
   • FDI: Expanded to Bhutan (2020).

Outcome:

• Market share: ~20% of Nepal’s banking sector.
• Profitability: High ROA (Return on Assets) due to cost efficiency.

Key Lesson: Nabil Bank’s transnational strategy (standardization + adaptation) worked because it balanced global best practices with local needs.

In the Real World

1. Daraz (Nepal):

   • Uses: FDI + local adaptation.
   • How: Acquired local e-commerce firms, built Nepali-language customer service, and partnered with Ncell for mobile payments.
   • Real Example: Daraz’s "Cash on Delivery" option (to match Nepali consumer behavior) while using Alibaba’s global logistics.

2. Nabil Bank (Nepal):

   • Uses: Transnational strategy (standardization + adaptation).
   • How: Uses global ATM networks but offers cash-based loans and low-interest rates for local businesses.
   • Real Example: Nabil’s "Digital Banking for Rural Nepal" initiative, where agents collect deposits in villages (adaptation) while using global fintech tools (standardization).

3. Pathao (Nepal):

   • Uses: Franchising + local market entry.
   • How: Started in Kathmandu, then expanded to Pokhara and rural areas via local partners.
   • Real Example: Pathao’s "Rider Training Program" (to adapt to Nepali traffic conditions) while using Uber’s global ride-hailing tech.

Exam Tip

This unit is highly analytical and tests:

1. Conceptual understanding (e.g., define "transnational strategy").
2. Application (e.g., "Why did Daraz choose FDI in Nepal?").
3. Comparison (e.g., "Compare exporting and FDI").
4. Case analysis (e.g., "How would Nabil Bank enter India?").

How to Score Full Marks:

• Use real examples (e.g., Daraz, Nabil Bank) to explain theories.
• Draw diagrams (BCG matrix, entry mode spectrum) for visual clarity.
• Link strategies to market conditions (e.g., "Nepal’s low income → low-cost adaptation").
• Avoid vague answers—always specify why a strategy works (e.g., "FDI gives full control but requires high capital").

Common Pitfalls:

• ❌ Saying "FDI is always best" without discussing risks.
• ❌ Ignoring local adaptation (e.g., assuming global strategies work in Nepal).
• ❌ Not using portfolio matrices (BCG/GE-McKinsey) for resource allocation questions.

Sample Question: "Critically analyze why Daraz chose FDI over licensing for its entry into Nepal. Support your answer with at least two real-world examples."

How to Answer:

1. Define FDI vs. Licensing (control, risk, capital).
2. Daraz’s goals: Market dominance, full control over operations.
3. Nepal’s context: High growth potential, regulatory ease for FDI.
4. Examples:
   • Full control: Daraz built its own warehouses (vs. licensing a local player).
   • Local adaptation: Cash-on-delivery option (to match Nepali behavior).
5. Conclusion: FDI was ideal because Daraz needed full control to compete with local players like ShopNepal.

Final Visual: IB Strategy Decision Tree

flowchart TD
    A["Enter New Market?"] --> B{"Market Familiarity?"}
    B -->|"Yes"| C["Low Risk: Exporting/Licensing"]
    B -->|"No"| D{"Capital Available?"}
    D -->|"Yes"| E["High Risk: FDI/Joint Venture"]
    D -->|"No"| F["Medium Risk: Franchising"]
    E --> G{"Regulatory Ease?"}
    G -->|"Yes"| H["Proceed with FDI"]
    G -->|"No"| I["Joint Venture with Local Partner"]