International Management

by: Kathrin Hägele

Table of Contents

1 Introduction  1

2 Background Information  2

3 Global Strategies of Internationalization  7

3.1 Introduction  7
3.2 Identify International Opportunities  8
3.3 Types of International Strategies  11

3.3.1 International Strategy  12
3.3.2 Multidomestic Strategy  13
3.3.3 Global Strategy  13
3.3.4 Transnational Strategy 14
3.3.5 Summary 15

4 Entry Modes 16

5 Management Problems & Risks  32

6 Conclusion  33

1. Is your product or service already available?  XLIV
2. Is your product or service selling in the Canadian market? XLIV
3. Do you have the surplus production capacity or available specialists to meet increased demand for your product or service?  XLIV
4. Do you have the financing required to adapt your product or service to suit your target market and to promote it? .XLIV
5. Is your management committed to sustaining your export effort?  XLIV
6. Does your firm have a good track record of meeting deadlines?  XLIV
7. Does your management have experience in export markets? XLV
8. Does your product or service have a distinct competitive advantage (quality, price, uniqueness, innovation) over your competition?  XLV
9. Have you adapted your packaging (labelling and/or promotional materials) for your target market?  XLV
10. Do you have the capacity and resources to provide aftersales support and service in your target market?  XLV
11. Do you have a Free on Board (FOB) or Cost, Insurance and Freight (CIF) price list for your product, or a rate list for your service?  XLV
12. Have you undertaken any foreign market research?  XLV
13. Is your promotional material available in the language of your target markets? (Business cards, brochures, web sites)  XLV
14. Have you started marketing your product or service in your target market?  XLV
15. Have you engaged the services of a sales representative/distributor/agent, or partnered with a local firm?  XLVI
16. Have you hired a freight forwarder or customs broker?  XLVI

How did you score?  XLVI

1 Introduction

Modern companies are trying to gain an advantage over their competitors. Mo st of them are finding that a good way to gain such an advantage is through the complex process of going global. By doing so, enterprises can extend their product lines to other countries and cultures. They can also save money on labour costs by taking advantage of the lower standard of living in some countries. Global expansion enables a company to add value by transferring core skills overseas, using global volume to cover product development costs, realizing economies of scale from global volume, and configuring value-creation functions in locations where value added is maximized. Companies pursuing global strategies can gain cost economies by integrating manufacturing, marketing, and competitive strategies across national boundaries, but they must give up a certain degree of responsiveness to national conditions.

This study looks at the strategies companies adopt when they expand outside their domestic marketplace and start to compete on a global basis. The first chapter starts with a discussion how global expansion creates important values for companies. The second chapter examines different strategies which companies can pursue in the global arena. These four different strategies are reviewed in detail - the international strategy, the multidomestic strategy, the global strategy, and last but not least the transnational strategy. Furthermore the pros and cons of each of these strategies are debated. In addition the link between the appropriateness of different strategies and the pressures of cost reductions and local responsiveness is made. In the next section the various basic options a company has for entering a foreign market - exporting, licensing, strategic alliances, joint ventures, franchising, turnkey projects, foreign direct investment, acquisitions and the establishment of a wholly owned subsidiary as well as e-Commerce - are reviewed in detail. Finally, the last section gives a brief summary with important concluding remarks .

2 Background Information

1. Globalisation

There are a lot of definitions of globalisation. The IMF (International Monetary Fund) established under the Bretton Woods Strategy defined globalisation as follows: “the growing economic interdependence of countries worldwide through increasing volume and variety of cross-border transactions in goods and services, freer international capital flows, and more rapid and widespread diffusion of technology”. ¹ Another important institution, the World Bank, also established under the Bretton Woods System, defines globalisation as follows: "Freedom and ability of individuals and firms to initiate voluntary economic transactions with residents of other countries”.² Another definition of globalisation is: “Globalisation is a process of interaction and integration among the people, companies, and governments of different nations, a process driven by international trade and investment and aided by information technology.”³ This process has not only effects on the environment and on culture but also on political systems, on economic development and prosperity, and on human physical well-being in societies around the world.

2. The History of Globalization⁴

Globalisation is not a new phenomenon. For thousands of years, people - and, later, also corporations - have been buying from and selling to each other in lands at great distances.⁵ Globalisation is known since the 19th century. In the year 1961 „globalisation“ was mentioned for the first time in a dictionary. Since the 1980s it is a core term in political and economical discussions.⁶ The right picture shows the changes McDonalds made due to globalisation.⁷ The left picture was taken in Dubai International Airport, in the United Arab Emirates showing some of the characteristics of globalization. Here, the corporation McDonalds is marketing their "McArabia" meal, consisting of grilled kofta.⁸

3. Indicators of Globalization9

Indicators are signs for a growing globalisation. A growing indicator represents an increasing globalisation. The most important indicators of globalisation will be given in the following:

a) World trade¹⁰
From 1950-1998 the trade in goods increased over 17 times whereas production of goods rose just 6 times.¹¹ From 1970 to 1998 FDI increased from $21 to $27 Million.

b) People movement and transport
Since 1950 person flight kilometres went up 100 times, tourism enlarged and also legal migration.

c) Increasing communication processes¹²
Since 1960 telephone connections went up more than 10 times. The introduction of mobile phones, fax, VoIP, video-conferencing, Internet the so called new communication and information technologies are providing a global networking cooperation through an almost cost free permanent communication connection with high quality, too.

d) Internationalisation of culture¹³
Enlargement of west cultural moral concepts and life styles: scientists understand under this point especially that the western lifestyle and everything is quite dominant and extending. Development towards a global availability of elements of all cultures: but they also see the important aspect that from each culture certain elements are more important than others and that people are willing to accept those.

4. Why Globalization?^{14 15 16}

[...]

1 http://www.imf.org/external/np/exr/ib/2000/041200.htm 2000

2 http://www1.worldbank.org/economicpolicy/globalization/ 2001

3 http://www.globalization101.org/globalization/ 2002

4 L. Helfrich, Einführung in die Globalisierungsdebatte, p. 3 ff.

5 http://www.globalization101.org/globalization/ 2002

6 M. Kastl, B. Rödl, Going Global, p. 12 ff.

7 www.equilter.com/ ChineseMcDonalds.jpg 2003

8 omar.apirg.org/photos/ dubai/P9180043.jpg 2000

9 L. Helfrich, Einführung in die Globalisierungsdebatte, p. 8 ff

10 http://www.polity.co.uk/global/research.htm#environment 2000

11 http://www.globalization101.org/globalization/ 2002

12 http://www.globalization101.org/globalization/ 2002

13 http://www.polity.co.uk/global/research.htm#environment 2000

14 A. F. Alkhafaji: Competitive Global Management, 1995, p. 34 f. M. K. Welge: Globales Management, p. 2 f.

15 U. Teusch: Was ist Globalisierung, p. 37 ff

16 Yip: Die Globale Wettbewerbsstrategie, p. 143