International Business Strategy - Assignment Example

? International Business Strategy Table of Contents SECTION A 3 Question 3 SECTION B 6 Question-2 6 Question-3 10 Reference 14 Bibliography 14 14 SECTION A Question-1 In 2006, Anthony Salim wants his Group to operate flexibly “in order to capture whatever opportunities may arise ... on the axis between Australia, ASEAN and China” (case p. 2). Using module theory and evidence from the Salim Group case study, critically evaluate his chances of success. Indonesia’s one of the oldest and the largest conglomerate company, Salim Group has experienced a many ups and downs since its inception. In order to understand the basic culture of Salim Group, it is necessary to trace its history. The understating of internal culture of the Group is important for assessing its rapid success in the domestic and international markets. Soedono Salim, the founder of Salim started his own trading company that used to deal in commodities like cloves and coffee with the prevailing leading companies of Indonesia. Besides he also partnered Indonesian army by supplying goods. In this period, he got acquainted with the future President of Indonesia, Suharto who was then an ambry office. The key success factor for the rapid growth of Salim Group was his contacts and close relationship with ruling political party. Since its inception, Soedono Salim took opportunists’ approach for achieve organizational success and it tried to capture many new business having greater opportunities in term of profitability in long run. When, Soedono Salim handed over the business to his son Anthony Salim, he has also taken the similar approach like his father. After the Asian Financial Crisis of 1990s, the Salim Group was severely hit and most of holding companies were given to the Government in order to pay off its huge debt. This period of crisis was the toughest for the Salim Group since its inception, and the fall of President Suharto made the things worse for the Salim Group. During this span of time, Anthony Salim was not able to focus on opportunities available in the international as he was busy in overcoming the debt related issues. However, after such financial crisis, the Salim Group again focuses on the future growth and strategies by identifying the opportunities in the international markets. Capturing new business opportunities is highly challenging and it requires regaining the financial strengths for the Salim Group. Hence, the after the crisis period, Anthony Salim starts looking for the new business opportunities on the axis between Australia, ASEAN and China. The opportunities available in these areas are different from each other due to difference in macro-economic factors like political, economic, technology etc. In this respect, the primary objective for Anthony Salim is to understand the distinct feature of business opportunities in the different areas. Along with the identification of the opportunities, accurate understanding of prevailing challenges and threats are inevitable and vital for business success. A comprehensive marketing research is also helpful in understating the business opportunities by focusing on the four major macro-economic factors i.e. political, economic, socio-cultural and technology (Srinivasan, 2008, p.181). Among the Asian and other close economy to Indonesia, the Salim group finds the Australia, China and ASEAN economies as one of the most attractive markets in terms of new business opportunities. For entering into these new international markets, the business strategy must be unique and dedicated to the specific economy. International strategy should always be different from the domestic business. International markets contain a number industry and trade barriers that must be overcome, and simultaneously, it is necessary to cope up with the prevailing culture of the business and market (Segal-Hor and Faulkner, 1999, p.3). Salim Group also decides to take different strategic move for its target regions and countries i.e. Australia, China and ASEAN. In this regard, Salim Group has realized the need for changing its core and traditional business strategies. Prior to its international expansion, Salim Group used to focus on cost effective production by achieving higher economies of scale for a sustainable and effective competitive advantage over its key competitors. However, for new business opportunities in the foreign countries, Salim Group is supposed to follow the strategies of the western corporation that was different for its prevailing culture. Before accepting a new set of strategies, it is required to evaluate the viability and suitability of strategy with the prevailing organizational culture and in accordance of external environment. In this regard, the four major aspects must be critically evaluated, and these are strength and weaknesses of internal organization and external opportunities and threats. Strategy formulation based on these four areas is known as TOWS matrix (Gopinath and Siciliano, 2009, p.47). Anthony Salim is fully aware of its internal strength and hence, it does not try to compete with giant multinational corporations in China. Instead, it aims to cater the unexploited segment of the market. This move is justifiable and sound strategy for avoiding the unnecessary industry barriers and competition from leading players of the industry. It has properly positioned itself in respect of in accordance to industry competition. Anthony Salim has shown his true entrepreneurial skills and clearly identified the specific opportunities available in the different countries. In Australia, he has identified the better production sources for their agro-industry business and its market in China and ASEAN countries was better. It aims to use the productive farming process of Australia, in the less developed Asian countries where low cost resources can be available and hence, it has started its dairy farm in Mongolia. Salim Group’s major target market was the consumers from China and ASEAN countries were more promising due to higher demand of the products. However, it also faced difficulty in Chinese market due to different culture in China. In this regard, Salim Group’s strategy was no considerable as it tried to introduce Indonesian management style in China. Salim Group must understand and accept the local culture for growth in foreign market and hence, it should follow the strategy of “Think Globally, Act Locally” (Stuart, Sarow and Stuart, 2007, p.278). Moreover, Anthony Salim also aimed to expand its business areas i.e. business units by entering different industries in which the probability of success was comparatively higher. The major strategy of Anthony Salim is to operate its business more flexibly in international market by transforming itself for better management of its resources and it makes the Salim Group more capable for operating different in different market. The overall strategy is quite viable to grab the opportunities available on the axis between Australia, ASEAN and China. Anthony Salim has properly positioned itself by realizing its internal capability and market competition. Moreover, it has also identified the specific business opportunities of different countries and utilizes it for optimum purpose However, the overall chances of Salim Group’s business success will become higher if it can slow down its pace for better knowledge of major threats and must accept the local culture for business sustainability. SECTION B Question-2 Identify the main environmental forces which have influenced the strategic development of the Salim Group since 1990, critically assessing the nature and strength of their impact. Explain how your learning from this analysis can be applied in your future career. Before focusing on the forces that influence the Salim Group since 1990, it is necessary to know what the business forces are, and their relevance in terms of business growth and sustainability. In the course of business operations, a company has to face a multiple forces from the internal and external areas. The internal forces are controllable and can be easily overcome by framing an effective set of counter strategies. The external forces can be divided into two major areas i.e. industrial forces and macro-environmental forces. Business, environment can also be defined in two broad terms i.e. micro-environment and macro-environment. The following figure represents the factors in these two types of environment. Figure 1: Macro and Micro Environment (Source: Bowie and Buttle, 2004, p.16) As per above figure, the factors under the macro and micro business environment are very much influential for the strategic movement and they also determine the business the growth and profitability of a business. The micro-environment can also be interpreted as the internal forces that can be easily controllable and business organization can changes these forces by the implementation of suitable and plausible strategies. On the other hand, macro-environmental forces are external and non-controllable which influences the entire economy. The macro-environmental forces are broader as it includes major aspect of an economy that determines its nature. Business organizations are able to escape or avoid the effect of political, economic, and cultural forces. At the most the business organization can do is that they can frame counter strategies to face these external forces. From the very early, Salim Group has faced the number of forces includes internal and external. However, the degree of influence of these forces started to be felt very significantly with increasing complexity and intensifying competition. Till 1993, the Salim Group was under the leadership of its founder, Soedono Salim, and then he handed over his responsibility to his son Anthony Salim. It is quite notable that under the leadership of Soedono Salim. Salim Group experienced a slow but steady success. As soon as Anthony Salim took over the responsibility of the Salim Group, it experienced a huge and rapid growth. Behind this rapid success two major, there were two major factors. Firstly, this period during Salim Group’s next generation was a booming era for the Southeast Asian countries. Secondly, Anthony Salim has enough entrepreneurial skill to identify the underlying opportunities and to cater the same with prompt attempt. One of the most positive factors during this booming era was the rise of conglomerates which were mainly run by the immigrants from China. In Indonesia, the most of larger business conglomerates were owned by the minority Chinese whose population was nearly 3.5% of total Indonesian population. By the end of the 1995, Salim Group fully utilized this opportunities becoming the largest conglomerates in Southeast Asia. However, during this period, Salim Group also enjoyed higher political support from the President, Suharto, a close acquainted of Soedono Salim. The macro-economic factors consider that political and condition and its influence on the business environment are very crucial. However, in case of Salim Group, during 1990s, the political factors were highly favorable for the company and it also enjoyed personal favor from the prevailing political and ruling party led by the President, Suharto. Anthony Salim used the political favor for expanding its noodle business out of the Indonesia. However, Anthony Salim also had the full knowledge regarding the political changes, and prior to the fall of President Suharto; he took necessary measures by speculating the capital flight. The economic boom in Indonesia came to an end by 1997 as entire Asian economy suffered a financial crisis. The influence of economic condition on business is significant as economic factors include a number of elements like economic cycles, economic legislation and its policies and influence on global economic condition etc (Jain, Trehan and Trehan, 2010, p.28). As per the economic cycle theory, from the late 1997, the entire Asian economies became exposed to a number of risk like foreign exchange risk, interest rate risk etc. Salim Group faced a severe hit, when the Thai currency Rupiah declined drastically causing huge debt for Salim Group. In spite of this crisis, Salim Group’s condition was quite stable due to political support but this did not last until the fall of President, Suharto. The Indonesian publics were also annoyed with the unethical favor given to Salim Group by the President. The Suharto family along with the Salim Group and Chinese minority owners of conglomerates faced public anger and violence. The Salim Group’s businesses were mostly affected by macro-environmental factors rather than the micro-environmental factors. Salim Group was managed and controlled by the strong group of management led by Anthony Salim. Therefore, the micro-environmental or internal factors were not issues but strength. However, the influence of political, economic and demography (public) were very significant for Salim Group. In this regard, Salim Group experienced entire two opposite phases during 1990s. During the boom and with the help of political support, it became the most successful conglomerates of Southeast Asia, and on the other hand, it faced steep down turn with the fall of Suharto in the period of economic crisis. The external forces i.e. the forces relating to an economy is uncontrollable and unavoidable. As per above discussions, it can be observed that there is high correlation between the growth of business and common people with the economic and political factors. Stable political condition has always been effective growth purpose, and economic boom brings several opportunities relating to higher income. On the other hand, in case of negative environment, one should take necessary measures to cope up with the crisis. The analysis of environmental forces offers a real scenario of economy which is quite crucial in decision making process for business purposes as well as for other economic decision makings in daily activities. Question-3 Critically assess the view that the Salim Group had a distinctive capability in the management of external relationships in the 1980s and 1990s. What are the main issues and options facing the firm in 2006, as it tries to sustain and develop its resource strengths for the future? A rapid growth of business depends on multiple factors including the external and internal factors. The internal and external factors can be distinctly described with the help of SWOT analysis that assess the external threats and opportunities, and internal strength and weaknesses. A business can its success and long term sustainability by building on strengths and by overcoming the weakness for eliminating threat and for taking the advantage of available opportunity (Hayward, 2002, p.141). Among these four major factors in SWOT, the strength is the one of the most vital factor for an organization. Strength of a company denotes to its competencies or core competency that makes it a unique among its competitors and it is also helpful in achieving a sustainable competitive advantage. As strength is an internal factor, the competencies and capabilities can be built within the organization. In the process of building internal capabilities, the managements of an organization play the key role (Jeston and Nelis, 2008, p.201). Some of the examples of the core competencies are better supply chain, cost effective production method, higher technology, better consumer relationship, better market and distribution strategy etc. A company can achieve any type of special and distinct capabilities which mainly depends on management style, organizational culture & structure, the goal and aim of management and organization etc. In case of Salim Group’s rapid success in during 1980s and 1990s was also an outcome of effective management approach. In fact, the management team of Salim Group during 1980s and 1990s had distinct quality in managing the external relationship. Managing the external relationship is a very important function of the management and the management of Salim Group was expert in this specific area. The process of external relationship management is known as business development by building relationship with the external parties. The external parties may include the partners, suppliers, business alliances, franchisees or other types of contacts. By managing the external relationships, business can develop its strong networking in the business world which is quite vital for acquiring favors of investors, attorneys, governing authorities, bankers, institutional clients etc. One of the primary reasons behind this specific feature of the management of Salim Group was its core business approach i.e. the mindset of opportunist. From very beginning, during the leadership of the founder, Soedono Salim, Salim Group was engaged in rapid expansion of its business through a number of diversification. However, during this period, Salim Group was not too much involved in external business relationship until it faced the necessity at the time of economy boom in 1990 to 1997 for grabbing the underlying opportunities. However, Soedono Salim laid the strong foundation of external relationship by getting acquainted with President Suharto who brought a number of business opportunities after coming into the power in 1966. With the help of the President Suharto, Soedono Salim got political contacts that created monopoly on cloves and ingredient of cigarettes. Besides, he also gained contacts of investors who were very crucial for Salim Group’s privately held businesses. During the leadership of Anthony Salim, along with him the other associates of the top managements also tried to make better external relational relationship as they realized the importance of contact for new business development. After the financial crisis, Salim Group decided to expand its market in international scenario. In this process, the Salim Group took an aggressive approach for acquiring the opportunities in its target countries i.e. Australia, China and ASEAN countries. The CEO, Anthony Salim devoted nearly 20% of his time and energy for making business relations and contacts. However, he used to spend more time in reviewing the business reports for assessing the business opportunities. In order to operate in a foreign market, development of business contacts by proper management of external relationship remained a vital function for Anthony Salim and other top management executives. Better external relationship management becomes highly required for the small and medium size business group. In case of Salim Group, it positioned itself against the giant competitors lie Unilever and GE by targeting on the small and unexploited areas of business. In such situation, the impotence of better external relationship became a key factor for implementing its future strategy. Therefore, it was quite challenging task for Salim Group to develop and manage its external relationship in the foreign nations as there was higher chance of intense competition from the giant multinational enterprises. Moreover, management of external relationship was also instrumental for its future strategy in the developing emerging markets. As a future strategy, Salim Group determined to manage its resources by transforming the assets. In this respect, Anthony Salim firmly believed that contacts remained the first priority for the success in different markets. Considering the distinct capability of management in managing the external relationship, Salim Group would be able to make necessary contact. However, in spite of this capability, Salim Group expected to face a number of issues in implementing its pre-defined future strategies. Firstly, the difference in work culture of Salim Group and local culture could be a major threat. Secondly, the competition giant multinational and local companies could create serious issue for Salim Group. Thirdly, the macro-economic forces of different countries might impact on its business. Fourthly, Salim decided to investment a number of new business and after the Asian Financial Crisis, the entire Asian market became vulnerable. Therefore, the overall business risks for Salim Group were comparatively higher. Reference Bowie, D. and Buttle, F. (2004). Hospitality marketing: an introduction. Butterworth-Heinemann. Gopinath, C. and Siciliano, J. L. (2009). Strategize. 3rd ed. Cengage Learning. Hayward, 2002). GCSE Leisure and Tourism for Edexcel. Jain,T. R. Trehan, M. and Trehan, R. (2010). Business Environment. FK Publications. Jeston, J. and Nelis, N. (2008). Management by process: a roadmap to sustainable business process management. Butterworth-Heinemann. Segal-Hor, S. and Faulkner, D. (1999). The dynamics of international strategy. Cengage Learning EMEA. Srinivasan, R. (2008). Case Studies in Marketing: The Indian Context. 4th ed. PHI Learning Pvt. Ltd. Stuart, B. E., Sarow, M. S. and Stuart, L. (2007). Integrated business communication in a global marketplace. John Wiley and Sons. Bibliography Harris, J. M. (2003). Rethinking Sustainability: Power, Knowledge, and Institutions. University of Michigan Press. Hope and Maeleng, (1998). Competition and trade policies: coherence or conflict. Routledge. Read More