In terms of management philosophies, companies can be categorized as ethnocentric (homemarket oriented), polycentric (oriented toward individual foreign markets), regioncentric or geocentric (oriented toward larger areas, even the global market place) (Czinkota, 1999, pp.
395). Nevertheless, the world economy is more and more characterised by an increased internationalisation in which companies see a chance to improve their long-term competitiveness, to increase their profitability as well as to balance the economic cycle of the home market by diversify the risk internationally. In addition, there are non-economic motives such as to obtain power and influence as well as to gain prestige. However, to internationalise successfully companies must create a strategy of internationalisation. Part of this strategy is for instance the choice of the target market and the timing of entering a market. In addition, a strategy can be created based on the control aspect, the capital employed as well as how much risk is involved in internationalising the operations. Referring to this,there are several modes a company can choose to internationalise its operation, which can be divided into equity and non-equity modes. In general, non-equity modes such as franchising, exporting, etc. are less
expensive and risky than equity modes. For companies with little international experience, non-equity modes provide a good start to begin their operations internationally. Equity modes such as Foreign Direct Investments provide the most control of the business and as the name already indicates there is a substantial equity participation involved. However, when creating an international strategy companies must consider risk aspects that can be categorised into political, economic, and legal risks. In addition, as companies operate internationally the more they deal with the diversity of languages as well as cultural differences which a company must give attention to.
This paper will identify the main reasons for and against internationalisation as well as present different types of entry modes. At the end, the internationalisation of Wal-Mart will be analysed mainly focusing on Wal-Mart entering Germany.
Table of Contents
- Introduction
- Reasons for Internationalisation
- Location
- Internationalisation
- Ownership
- Reasons against Internationalisation
- Modes of Entry
Objectives and Key Themes
This paper aims to compare and contrast the methods companies use for internationalizing their operations. It examines the reasons for and against internationalization, explores different entry modes, and analyzes the internationalization strategy of Wal-Mart, focusing on its entry into the German market.
- Reasons for and against internationalization
- Different modes of entry into foreign markets
- Advantages and disadvantages of multinational corporations (MNCs)
- Analysis of Wal-Mart's internationalization strategy (specifically in Germany)
- Risk mitigation strategies in international business
Chapter Summaries
Introduction: This introductory section lays the groundwork for the paper by defining key concepts like ethnocentric, polycentric, regioncentric, and geocentric management philosophies. It highlights the increasing importance of internationalization for companies seeking improved competitiveness, profitability, and risk diversification. The introduction also briefly touches upon the various strategic considerations involved in successful internationalization, including target market selection, timing, control aspects, capital employed, and risk assessment. It establishes that the paper will explore both equity and non-equity modes of internationalization, emphasizing that non-equity modes often offer a less risky entry point for companies with limited international experience. The introduction concludes by stating the paper's overall objective: to identify reasons for and against internationalization, present different entry modes, and analyze Wal-Mart's internationalization in Germany.
Reasons for Internationalisation: This section delves into the motivations behind companies' decisions to expand internationally. It categorizes these motivations into "pull" factors (market attractions) and "push" factors (domestic market limitations). The discussion expands on Dunning's three principal advantages for multinational companies: location-specific advantages (lower costs, resource access), internationalization advantages (economies of scale, risk diversification, brand enhancement), and ownership advantages (better coordination through global facilities). Specific examples are provided, such as oil companies seeking resources in resource-rich countries and the benefits of economies of scale for large-scale production. The section also underscores the importance of market saturation in the home country and the potential for higher growth rates in developing markets as key drivers of internationalization. The advantages of access to diverse financial markets and the sharing of managerial expertise are also explored.
Reasons against Internationalisation: This section balances the previous one by presenting the potential drawbacks of internationalization. It emphasizes the increased vulnerability to currency fluctuations (although risk mitigation strategies are mentioned), the complexities of navigating varying international regulations, and the potential barriers to trade. Political risks, particularly in unstable countries, are highlighted, as are the challenges posed by language and cultural differences in communication and market interactions. The overall message is that while internationalization offers substantial opportunities, companies must carefully weigh these against the potential difficulties.
Modes of Entry: This section focuses on the different methods companies can employ to enter foreign markets. It categorizes these into non-equity modes (licensing, franchising, exporting) and equity modes (wholly owned subsidiaries, joint ventures). The key differentiator is the degree of control a company maintains over its foreign operations. While the specific details of each mode are not elaborated upon, the section makes it clear that these various approaches provide companies with different levels of risk and control, allowing them to select a strategy that aligns with their resources and objectives.
Keywords
Internationalization, multinational corporations (MNCs), entry modes, foreign direct investment (FDI), risk diversification, economies of scale, location advantages, ownership advantages, internationalization advantages, Wal-Mart, Germany, market saturation, political risk, cultural differences, currency fluctuations.
Frequently Asked Questions: A Comprehensive Language Preview on Internationalization
What is the main topic of this document?
This document provides a comprehensive overview of internationalization strategies for companies. It examines the reasons for and against international expansion, explores various modes of entry into foreign markets, and analyzes a case study of Wal-Mart's internationalization in Germany.
What are the key themes explored in this document?
The key themes include: reasons for and against internationalization (pull and push factors), different modes of entry into foreign markets (equity and non-equity), advantages and disadvantages of multinational corporations (MNCs), Wal-Mart's internationalization strategy in Germany, and risk mitigation strategies in international business. The document also touches upon various management philosophies (ethnocentric, polycentric, regioncentric, and geocentric).
What are the reasons for internationalization discussed in this document?
The document categorizes reasons for internationalization into "pull" factors (market attractions) and "push" factors (domestic market limitations). Pull factors include market access, higher growth rates in developing markets, and access to diverse financial markets. Push factors include market saturation in the home country and the need for risk diversification. The document also highlights Dunning's three advantages for MNCs: location-specific, internationalization, and ownership advantages.
What are the reasons against internationalization?
The document acknowledges the potential drawbacks of internationalization, such as increased vulnerability to currency fluctuations, complex international regulations, trade barriers, political risks in unstable countries, and communication challenges due to language and cultural differences. It emphasizes the need to carefully weigh potential opportunities against difficulties.
What are the different modes of entry into foreign markets discussed?
The document categorizes entry modes into non-equity modes (licensing, franchising, exporting) and equity modes (wholly owned subsidiaries, joint ventures). The key difference lies in the degree of control a company maintains over its foreign operations. Each mode presents different levels of risk and control.
What is the case study analyzed in this document?
The document analyzes Wal-Mart's internationalization strategy, focusing specifically on its entry into the German market. This analysis serves as a practical example to illustrate the concepts and challenges discussed.
What are the key takeaways from the chapter summaries?
The introduction defines key concepts and sets the stage for the analysis. The section on reasons for internationalization explores the motivations behind expansion, while the section on reasons against highlights potential drawbacks. The section on modes of entry outlines the various methods companies use to enter foreign markets.
What are the keywords associated with this document?
Keywords include: Internationalization, multinational corporations (MNCs), entry modes, foreign direct investment (FDI), risk diversification, economies of scale, location advantages, ownership advantages, internationalization advantages, Wal-Mart, Germany, market saturation, political risk, cultural differences, and currency fluctuations.
- Arbeit zitieren
- Alexander Berger (Autor:in), 2011, Compare and contrast the means by which a company can internationalise its operations, München, GRIN Verlag, https://www.grin.com/document/173491
