The economic subject of international business is usually either a single joint-stock company or the system of the parent and subsidiary (dependent) joint-stock companies. The product is a web-based travel aggregator and the country is Indonesia. The proposal is to implement international business strategies adjusted for the country of interest alongside two pricing strategies.
All elements of the international structure of the corporation function as a unique mechanism in accordance with its global strategy aimed at obtaining maximum profit from the functioning of the complex of enterprises being merged as a whole and not each of them individually. This requires clear guidance from the parent company of foreign affiliates, at the same time allowing them to make their own decisions taking into account the specifics of the local market and the laws of the host country.
International Business Models
The main reasons for product implementation are novelty and the lack of competitors. There are three international business models: polycentric, ethnocentric, and geocentric. The difference lies in the main focus of the given model. Polycentric companies follow the rules of host countries, whereas ethnocentric organizations apply the laws of the state of origin (Peric, Durkin, & Vitezic, 2017). The geocentric model is proposed because it does not involve the notion of race and ethnicity due to the fact that Indonesia’s strong customs and traditions.
Branches in each country are created taking into account local conditions and are to a certain extent independent of the strategic center, which formulates only the main goals of the company, taking into account which divisions, while maintaining autonomy in production, marketing, and operational management, solve their problems themselves. Many international organizations provide their foreign organizations with a maximum of independence, bringing their status closer to independent firms. The dependence of such structures on the parent company is determined by its shares in their capital.
At the same time, the parent company does not pay much attention to controlling the activities of a foreign branch as long as it functions profitably, but it can provide departments with technological, marketing, and financial support.
Strategy for Implementation
The best approach to use for the given country is a transnational strategy. The main reason behind it is that this method possesses high global integration and leads to higher local responsiveness. The peculiarity of the market economy, based on private initiative, is the desire of subjects of market relations to maximize profits (Anggriani, Ibrahim, Suryawati, & Shafie, 2014). This method is used by companies with several units located in different states.
Quite often, such groups may be in the form of entirely independent firms conducting independent, separate operations. Therefore, the transnational strategy will give a significant level of comparative advantage due to lower opportunity costs in the given nation. However, the ethnonational strategy will not be appropriate for Indonesia, because it is an Asian nation with strong and conservative values.
Two Pricing Strategies
There are important economic reasons for the emergence and development of the transfer pricing system, which is the first pricing strategy. The rationale for that is Indonesia’s rigid market for web products. It will allow to lure in more people through cheaper initial offers. The origins of its appearance are in the desire to appear in the twentieth century. Transnational companies transfer financial resources from foreign affiliates to the metropolis.
In multinational companies, more than 50% of all capital transfers from foreign subsidiaries and affiliates are made through dividend payments (Anggriani et al., 2014). The dividend transfer is the simplest, but with government restrictions in the form of establishing the upper limit of the dividends being transferred efficiently. The task is to consider the various international strategies of the company, which are used to form competitive advantages in global markets.
The second pricing strategy will adjust according to the multinational concept, which dictates the pricing by balancing the local and international market. The average pricing will cover both middle class and lower class of Indonesian people, who are not wealthy. This approach becomes an attractive competitive method as consumer demands and preferences become diverse and can no longer be satisfied with standard products (Bentley-Goode, Omer, & Twedt, 2017).
The modern economic environment is characterized by globalization processes and the increasing complexity of competitive conditions. The most pressing issue of the formation of a competitive strategy of the organization’s behavior becomes in the course of making a decision on the organization’s entry into the foreign market. The international economic environment determines the need to study and take into account these factors: the mission and goals of the company, the competitive environment, geopolitical conditions, company size, and industry. There are two concepts of international marketing: global and multinational. The universal concept of international marketing is based on offering standard products that are moderately adapted to local conditions if necessary.
The multinational concept is associated with the creation of an organization in other countries independently operating subsidiaries employing specific strategic approaches adapted to local cultural, economic, political conditions, tastes, and preferences of customers. In the theory of international marketing, managing an organization’s competitiveness includes choosing one of the following competitive strategies that determine the relevant principles of an organization’s market behavior: it is a corporate strategy, a business strategy, and a functional strategy.
Corporate strategy (portfolio strategy) determines the range of all activities of the company. There are three types of corporate strategy that a company may pursue: a strategy for targeting one line of business, a plan for related diversification, and a strategy for unrelated diversification.
All the strategies will allow the company to operate without a joint venture or strategic alliances. The main reason is that the company with correct pricing and implementation will outperform rivals; therefore, it will not lose the market share to partnerships (Zhu, 2015). The strategy of targeting one type of activity involves making profits from one business line, in other words, from launching a single product or providing a unique service.
When using this strategy, the company becomes more competitive, as the latter specializes in developing a specific product or group of products and tries to do it better than its competitors. While the corporate strategy affects the company’s activities as a whole, the business strategy covers the work of individual business areas, subsidiaries, and divisions that make up the company. A business strategy determines how to compete in each market that a company penetrates.
In conclusion, the high transfer price from the point of view of the buyer can be justified by the fact that the seller has provided a substantial delay in payment, undertakes to deliver the goods at his own expense, has provided an increased warranty period. In general, the analysis of legislation and judicial practice allows people to conclude that the use of transfer pricing is currently fairly free. The only thing that the taxpayer should take care of is the evidence of the reasonableness of the prices applied. At the same time, effective methods of such proof are already sufficiently developed by the existing practice.
Anggriani, Y., Ibrahim, M. I. M., Suryawati, S., & Shafie, A. A. (2014). The impact of Indonesian generic medicine pricing policy on medicine prices. Journal of Generic Medicines, 10(3-4), 219-229.
Bentley-Goode, K. A., Omer, T. C., & Twedt, B. J. (2017). Does business strategy impact a firm’s information environment? Journal of Accounting, Auditing & Finance, 1(1), 2-7.
Peric, M., Durkin, J., & Vitezic, V. (2017). The constructs of a business model redefined: A half-century journey. SAGE Open, 1(1), 3-9.
Zhu, P. (2015). Translation criteria: How they may affect international business. Journal of Technical Writing and Communication, 45(3), 285-298.