International business strategies after the GFC

Author Stuart Orr Published 26 October 2009

With economies around the world on the mend following a tumultuous year, it's time to examine the state of international business in a range of economic contexts.

Importantly, not all economies went into recession in 2009: the Chinese and Indian economies suffered downturns in international business activity, but it was nothing on the recessions besetting advanced Western economies. The US and Iceland, in particular, plumbed new depths of financial woe.

So how has the global financial crisis affected international businesses? Well, it depends on the severity of the recession in an organisation's home country. For international businesses based in the economies hardest hit by the global financial crisis – particularly in the US and Iceland – the effects have been profound, with companies there continuing to display all-time low levels of internationalisation. But international businesses based in China and India, for example, experienced only a downturn in international business activity.

And the impact of the global financial crisis on international businesses based in economies that experienced only a shallow recession is different again. For these economies, where recessions were caused by increased cost of capital and the collapse of international trade, the impact has been milder. The aggressive response of governments, greater inherent comparative advantages, larger central bank and commodity reserves and more robust financial and capital markets in these countries led to their economies returning rapidly to near-normal trading conditions. As a result, the impact of these international businesses was much less. In some cases, the reduction in international competition allowed these businesses to increase their global market share to levels higher than they reached before the onset of the global financial crisis. Following Australia's return to economic growth, for example, all four major Australian banks moved into the top 20 largest global banks.

Economies such as Australia's and Singapore's experienced only technical recessions of two succeeding quarters of negative growth before returning to positive growth on the back of strong domestic financial and capital markets and aggressive, government-sanctioned economic stimulus packages. International businesses based here have been able to return quickly to internationalisation activities and maintain an international strategy – albeit with some changes. In these countries, government intervention has made its domestic market particularly attractive – encouraging some international businesses to invest locally rather than in foreign markets.

International businesses with home markets in Australia still tended to internalise – predominately because of Australia's proximity to Asia, which continues to enjoy strong economic growth. Here we can apply Porter's Five Forces theory and predict a return to internationalisation activities in strong foreign markets because a) the threat of other new entrants (from other close developed countries) is reduced and b) internal rivalry in these countries is lower because a company's success is tied to the country's economic growth rate and not yet to its market share.

Not surprisingly, countries with high economic growth rates preceding the global financial crisis that did not experience a recession maintained strong levels of internationalisation activity. The reduction in some of their foreign markets (particularly markets in countries that did enter a recession) meant that some international businesses were unable to maintain the same rate of internationalisation. Some companies were not able to survive at all because they were dependent on foreign markets heading for a deep recession. Conversely, some international businesses took advantage of overseas competitors' declining share prices – acquiring as many share as possible as part of their internalisation strategy.

The global financial crisis has affected all international businesses. Internationalisation rates have declined dramatically in countries that experienced a deep recession. For countries that experienced shallow recessions, internationalisation behaviour has reduced and become highly focused. Companies based in economies that experienced no recession at all took advantage of a decimated playing field and internationalised more aggressively. From this we can learn two principal factors that determine international strategy during times of financial crisis: home country market conditions and the level of domestic industry protection introduced by foreign country governments in response to the economic downturn. Other factors including the variability in relative exchange rates may also influence international strategy during financial crises.