When a company is expanding operations into a new country, it needs to carefully consider which strategies it should employ. One such approach is a regional strategy, which starts when the company gains a foothold in one country, and then it leverages its strengths across borders to expand into the region as a whole. But when is it appropriate to employ this strategy?
Toyah Miller, a University of Texas at Dallas associate professor of organizations, strategy and international management at the Naveen Jindal School of Management, spoke with Business News Daily to shed light on the regional approach and talk about the contexts in which it should be deployed and how it works.
Miller studied nearly 700 Japanese multinational companies and found that the pursuit of a regional strategy often depends on what she called "regional institutional complexity." [See Related Story: Tips for Taking Your E-Commerce Business Global]
"Regional institutional complexity is the number of countries [in a region] and the diversity," Miller said. "Not just demographic diversity, but aspects of cultural and institutional diversity; so we include the economic environment, the political environment and the regulatory environment within the region."
Her findings suggest that a regional strategy benefits expanding companies when institutional diversity in a region is neither homogenous nor extremely diversified. Instead, companies benefit from a regional strategy most when there is a happy medium; when companies can apply the lessons that they have learned from their country of origin to a new region, adapt them accordingly and then expand throughout the region as a whole.
"[Companies] want there to be some difference between the countries they already operate in versus where they're going. But they do not want so much diversity that their skill set and capabilities are not fungible in other countries," Miller said.
Along with a moderate level of diversity, the number of individual countries themselves is a major factor. Naturally, a regional approach demands that several countries be included, but if there are too many, it can become difficult and overly burdensome for those companies to navigate a variety of regulatory codes. Again, companies benefit most from a happy medium.
Which strategy a company chooses to pursue, Miller said, should be determined by a thorough examination of both the region a company is considering moving into, as well as the company's experience, knowledge and current operations. A careful study of each of these factors — as well as global economic considerations and political climates — is key in choosing which strategy to pursue. And which strategy a company adopts could very well make the difference between a successful international expansion and a disastrous misstep.