International Trade

BUILDING RESILIENCE THROUGH AN INTERNATIONAL BUSINESS STRATEGY

“Everyone has a plan until they get punched in the mouth” - Mike Tyson.

This article sets out how, by using a business strategy an internationalising company can create resilience through competitive advantage in an ever-changing global market where continuous macro social, economic and political change as well as increasing competitor rivalry is the order of the day. Firstly, a word about strategy - there is no agreed-upon definition of strategy that describes the field and limits its boundaries. Yet strategy remains the best word we have for expressing attempts to think about actions in advance in the light of our goals and capacities or even, more generally, as a way of doing something or dealing with something, for example, “follow this strategy for avoiding any mistakes”. It captures a process for which there are no obvious alternative word or words, although the meaning has become diluted through promiscuous and inappropriate use. So, in order to build a possible definition let’s start by understanding when a strategy is used or not used. An example of the latter may be in the context of describing the simplest of tasks, when ends are easily reached and when there is very little at stake – all of these barely count as strategy. By and large, strategy or strategic thinking comes into play where there is actual or potential conflict, when interests collide, and forms of resolution are required. In the commercial world, conflict will arise directly from the competitive arena or as a result of business environment factors affecting the firm e.g. political, economic, social, technological or legal factors that impact upon the organisation. A plan, on the other hand, supposes a sequence of events that allows one to move with confidence from one state of affairs to another - as the quote from Mike Tyson above illustrates, a well-aimed blow can thwart the cleverest plan. A strategy is required when others might frustrate one’s plans because they have different or opposing (or similar, in the case of commercial competition) interests and concerns. If this last statement is the case, then strategy must primarily be concerned with the ongoing creation or maintenance of power to prevent frustration of one’s own plans, aims, clashes of interests and objectives whether that is in the political, military or commercial world. In the commercial world, we might call power by another term – “competitive advantage”. As such, we can perhaps state that a business strategy seeks to create “competitive advantage” (power) in its chosen industry/market at the same time as maintaining a balance between ends, ways and means; identifying objectives; and the commercial resources and methods available for meeting such objectives. Sources of competitive advantage (measured against the market which it is seeking to supply) can be the firm’s core competences, intangible and/or tangible assets and derived from a number of sources from within the organisation, some examples might include: Marketing (business differentiation through strong brand development), Operations (lean manufacturing), Finance (low operational costs, strong cost control), R and D (new product development). From an international perspective, given that a company’s competitive advantage can decrease as it internationalises, due mainly to its size and a lack of financial resources (a reason many SMEs may often struggle to gain international traction and which can lead to a lessening of brand strength, increases in costs, dilution of market focus etc.), what might an appropriate strategy for an SME or medium-sized business use to achieve competitive advantage in its chosen international market? Michael Porter proposes two generic competitive strategies for outperforming competition in a particular industry: cost leadership and differentiation.

Cost Leadership: a low-cost strategy that aims at a broad mass market, but which requires aggressive construction of efficient scale facilities and benefits from scale, vigorous financial management, especially cost and overhead control. As a result, because of its lower costs, the cost leader can charge a lower price for its products than its competitors and still make a satisfactory profit (think Amazon).

Differentiation: aimed at the broad mass market and involves the creation of a unique product or service for which a premium is charged (think Apple).

This speciality can be associated with design or brand image, technology feature etc. Ability to provide unique or superior value to the buyer in terms of service quality, special features, or excellent pre- and after-sales service and may charge a premium as a result, this also creates buyer loyalty thereby increasing barriers to entry. Both the above strategies are aimed at a broad target – not always possible for SMEs in a global marketplace. However, use of a hybrid strategy, Differentiation Focus, might be appropriate. This strategy focuses on a buyer group or geographic market. By doing so, it creates competitive advantage by serving its narrow strategic market more effectively than the competition. To work most effectively, a differentiation focus strategy targeted at a chosen geography enables development of strong commercial relationships with its clients, detailed knowledge of routes to market and the actual market itself. This, in turn, requires investment in strong strategic marketing (not just marketing communications) to enable, for example, development of a strong local brand. This focus also provides the necessary insight for understanding international competitor and market activity in the chosen geography which in turn provides information for new product and/or service development (which can create further competitive advantage by offering the market new services/products etc.). A differentiation focus strategy for a specific international geography, that is, “getting under the skin” of a chosen market geography to the nth degree, creates strong competitive advantage (power) and makes most efficient use of the firm’s scarce resources.

SUMMARY

The meaning of strategy has become over-used, diluted, generic and has many definitions across many different spheres e.g. political, military, business or even just in the everyday usage. What we really mean by the term strategy in a business environment is the creation or maintenance of power or competitive advantage in a firm’s chosen industry/ market while at the same time maintaining a balance between ends, ways and means; identifying objectives; and the commercial resources and methods available for meeting such objectives.

A strategy is not a plan but underpins and or/ overlays any business plan and the strategy may have to be fluid and flexible to accommodate market, external business environment conditions as well as internal changes. There can be many operational plans but they all should align to the underpinning business strategy of achieving competitive advantage – those plans may also include HR, Operations and Manufacturing, Marketing and Finance – a strategy always underpins and directs a plan for the creation and maintenance of a company’s competitive advantage. It is about getting more out a situation then the starting balance of power would suggest. For existing or would be internationalising companies, particularly SMEs or medium-sized businesses, a way to work within existing scare resources and core competences to create competitive advantage is use of differentiation focus strategy where all of a firm’s efforts are aligned and focused, laser-like, on a narrow geographic target (or niche market) and the competitor advantage is derived by serving that narrow strategic target more effectively and efficiently than its competitors – being better, faster, closer (relationships) than the competition. Given that strategy is emergent and live and does not gather dust on a shelf, a robust international business strategy will create resilience in a firm by enabling it to constantly audit itself and the environment it operates within to align its core competences viz a viz its chosen market enabling it to create the competitive advantage it needs to achieve its stated financial objectives. For further advice and guidance on international business strategy, get in touch with the Chamber’s International Trade teams by contacting internationaltrade@hwchamber or visit the EU Exit Support Hub www.hwchamber. co.uk/eu-exit-hub for more information.

A strategy is not a plan but underpins and or/ overlays any business plan and the strategy may have to be fluid and flexible to accommodate market, external business environment conditions as well as internal changes.