Chapter 8: International Strategy 2518-3b Regionalization
Regionalization is a second global environmental trend influencing a firm’s choice and
use of international strategies. This trend is becoming prominent largely because where
a firm chooses to compete can affect its strategic competitiveness.^55 As a result, the firm
considering using international strategies must decide if it should enter individual coun-
try markets or if it would be better served by competing in one or more regional markets.
Currently, the global strategy is used less frequently. It remains difficult to successfully
implement even when the firm uses Internet-based strategies, although country borders
matter less when e-commerce matters more.^56 In addition, the amount of competition vying
for a limited amount of resources and customers can limit a firm’s focus to a specific region
rather than on country-specific markets that are located in multiple parts of the world.
A regional focus allows a firm to marshal its resources to compete effectively rather than
spreading their limited resources across multiple country-specific international markets.^57
However, a firm that competes in industries where the international markets differ greatly
(in which it must employ a multidomestic strategy) may wish to narrow its focus to a particular
region of the world. In so doing, it can better understand the cultures, legal and social norms,
and other factors that are important for effective competition in those markets. For example,
a firm may focus on Asian markets only, rather than competing simultaneously in the Middle
East, Europe, and Asia or the firm may choose a region of the world where the markets
are more similar and coordination and sharing of resources would be possible. In this way,
the firm may be able to better understand the markets in which it competes, as well as achieve
some economies, even though it may have to employ a multidomestic strategy. Research sug-
gests that most large retailers are better at focusing on a particular region rather than being
truly global.^58 Firms commonly focus much of their international market entries on countries
adjacent to their home country, which might be referred to as their home region.^59
Countries that develop trade agreements to increase the economic power of their
regions may promote regional strategies. The European Union and South America’s
Organization of American States (OAS) are country associations that developed trade
agreements to promote the flow of trade across country boundaries within their respec-
tive regions.^60 Many European firms acquire and integrate their businesses in Europe
to better coordinate pan-European brands as the European Union tries to create unity
across the European markets. This process is likely to continue as new countries are
added to the agreement, some international firms may prefer to focus on regions rather
than multiple country markets when entering international markets.
The North American Free Trade Agreement (NAFTA), signed by the United States,
Canada, and Mexico in 1993, facilitates free trade across country borders in North
America. NAFTA loosens restrictions on international strategies within this region and
provides greater opportunity for regional international strategies.^61
Most firms enter regional markets sequentially, beginning in markets with which they
are more familiar. They also introduce their largest and strongest lines of business into
these markets first, followed by other product lines once the initial efforts are deemed
successful. The additional product lines typically are introduced in the original invest-
ment location.^62 However, research also suggests that the size of the market and industry
characteristics can influence this decision.^63
Regionalization is important to most multinational firms, even those competing in
many regions across the globe. For example, most large multinational firms have orga-
nizational structures that group operations within the same region (across countries) for
managing and coordination purposes. Managing businesses by regions helps multina-
tional enterprises (MNEs) deal with the complexities and challenges of operating in mul-
tiple international markets. As the Opening Case on Netflix suggests, managing across
regions creates more costs, notwithstanding the benefits.