The Necessity of Added Value as Prerequisite of International Trade (2)

The need for added value to be present so that products can be provided to international customers originates in the triumvirate combination of customer requirement, firm capability, and growth ambition. Customer requirement drives the firm’s response. Capable, growth-minded firms will seek markets for product sales. When it identifies a consumer requirement that is unmet or underserved in the local market, the responsive, capable firm manoeuvres to supply that market with the product or service that it demands. International firms look internationally for such opportunities but, in order to serve foreign markets, their supply chain and logistics competences must be high. Given the cost and complexity of international supply, the profit of the venture must justify the investment. Since the cost of overseas sales is likely to be high (particularly if sourcing and manufacturing cannot be done close to market), the need for sales-attracting value addition is correspondingly high. Perceived value encourages sales.

Depending on the product offering, an internationalization strategy will be applied: global (centrally standardized, one size fits all), multinational (centrally customized and centrally managed for local sales), international (split management, i.e. two essential regions of operation and class of product: domestic and foreign/export – popular with Japanese electronics makers), or multi-domestic (locally customized, marketed, and managed). If sales forecasts are sufficient to merit initiation of an overseas product push, logistics and supply factors will be taken into account, as these will vary hugely depending on which internationalization strategy is adopted. Alternatively, logistics and supply factors can be the determinative factors of internationalization strategy choice. Each strategy represents added value, but the nature of that added value will be product- and consumer-specific. For example, companies in less developed countries will benefit from the adoption of internationally standardized components. For their suppliers therefore, a global strategy delivers value to both them and their customer (ideally, both buyer and seller derive added value from the internationalization strategy). Another example: consumers buying PCs will need localized functions (local language keyboards, locally-capable power supplies etc). To serve them optimally, the manufacturer/seller will adopt a multi-domestic strategy – if sales volume forecasts justify the investment (if they do not, a simpler strategy will suffice, e.g. central localization and export).