By students, for students.

ISM crash course: the triad and international business

In Management, Marketing on January 17, 2013 at 7:28 pm

toys_r_us_4

The triad nations produce businesses which generate revenue comparable to countries themselves. How is this power affected and what are its limitations?

Businesses’ involvement in foreign markets through the internationalisation of operations peaks with direct financial investment (FDI).  When a company completes direct financial investment it achieves ownership and control over foreign assets. Mostly these assets are enterprises which will then operate under the investor as an acquisition.

Since the triad nations dominate international business, it is no surprise that the majority (approximately 80%) of FDI is between Japan, the US and the EU15. The recipients of remaining FDI tend to be found in clusters around triad members. The USA invests in Latin America.  The EU15 seek markets in Eastern Europe.  Japan invests in Singapore, China and Thailand. FDI clusters often share financial practices and trading agreements, examples being NAFTA and ASEAN. Shared consumer cultures and business customs reassures investing businesses that they will be able to negotiate and understand the foreign markets they have entered.

Hot Spot by Mona Hatoum

Hot Spot by Mona Hatoum

Example

Toys ‘R’ Us

Mass-produced toy and entertainment good retailer, Toys ‘R’ Us internationalised its business by entering European and Asian markets. The impact of national differences underlines that although products might be exported, strategies often cannot be transferred.

In its domestic market, Toys ‘R’ Us used North America’s abundant land, low minimum wage and mobile customers to compete on price, leveraging buying power and lowing costs with huge suburban retail outlets. Entering Germany, these country specific advantages were conspicuously absent. Instead the toy retailer struggled to overcome consumer resistance to self-service and legal barriers to large real estate developments.

Its joint venture in Japan was more successful. Toys ‘R’ Us entered strategic alliances with other western multinationals to pressure Japanese policymakers into freeing up market restrictions and took an experienced Japanese partner to negotiate local opposition more generally. Furthermore, at the time of entry, Japan’s economy was struggling raising the attractiveness of low-price goods. Nevertheless, Toys ‘R’ Us could not exist in Japan as it does in North America. The firm adapted its business model and opened smaller stores in train stations and shopping centres.

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