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International Business Strategy
Written by
Kamila
1. Explain the ‘strategy tripod’ framework for analysing business strategy. How does this
framework help to understand strategic choices facing a firm wishing to enter foreign markets?
INTRODUCTION:
The ‘strategy tripod’ is segmented into resource -, industrial -, and institutional - based
perspectives of strategic actions that could be undertaken in order to enhance the performance
and hence output of a firm. In order to execute towards a successful outcome in foreign
markets it is important for multinational corporations to evaluate its strategic position to
further gain a competitive advantage. Exporting, in relation to other methods of foreign
market entry, is the quickest and most cost efficient method. However, as globalisation and
international trade exponentially increased over time multinational corporations have further
expanded their operations by investing directly into emerging economies ranging from
outsourcing production to operating offices within those regions.
The industry-based view was initially propelled in the 1980s where Porters five forces
provided an analysis of industrial competition. This viewpoint contributes to understanding
INTERNATIONAL BUSINESS STRATEGY 1
the characteristics of the market that the firm can analyse and implement strategic decisions
based off in a foreign market. In the 1990s the resource based view emerged by Barney J
suggesting that the highest priority of a firm when making strategic choices should be its
equity (Peng et al., 2009). Many foreign markets consist of local resources that may be
optimised by firms however in some cases they are not able to due to the domestic industry
optimising those sources. Therefore, firms must consider strategic options in order to
effectively produce their output and optimise the resources to its highest ability. Considering
the view points of the strategic tripod the institutional based views helps a firm understand its
strategic choices as “institutions directly determine what arrows a firm has in its quiver as it
struggles to formulate and implement strategy.” (Peng et al., 2009) The ‘strategic tripod’
framework allows foreign firms to strategise on how to maximise its heterogenous resources
and at the same time manage the institutional distance between the host and their home
country that has a moderate impact on the firms resources and its strategic positioning in the
market.
LITERATURE REVIEW
Institutions are defined as “the humanly devised constraints that structure human
interaction” (Peng et al., 2009). Firms entering foreign markets should highly prioritise the factor
of complying with the rules and regulations of the host country as their stability is dependent on
it. “In international trade, the single-minded pursuit of cost leadership strategy that ignores host
country trade laws and regulations can easily attract legal action centred on antidumping.” (Peng
et al., 2009) Most firms expanding into foreign markets have the incentive to maximise at higher
economies of scale while also optimising the cost leadership strategy. It is important for firms to
consider the institutional based views regarding formal and informal rules to be able to strategise
with cost leadership and higher economies of scale to its highest ability as in various set
institutional conditions the cost leadership strategy has been considered unethical. For example,
Walmart faced high criticism for its “everyday low price” strategy . On the other hand, a cost
leadership strategy is also found to be illegal in Japan where price fixing is acceptable however
price competition is against the law in the book selling industry (Peng et al., 2009). It is therefore
vital for firms to take formal and informal rules into account. This is because, their strategic
choices are bound to a certain limit and in order to maximise their objectives they must strategise
within those boundaries. “Managers and firms rationally pursue their interests and make strategic
choices within the formal and informal constraints in a given institutional framework.” (Peng et
al., 2009) The institutional framework in developed economies and emerging economies differ
in terms of their ability in being authoritative. In the latter, it is “more salient because rules are
being changed fundamentally and comprehensively.” (Gao et al., 2009) In a constantly changing
