International Business Expansion: Strategies & Market Entry
Understanding International Business Entities
International Company: An exclusively exporting or importing company typically does not have significant investments in other countries.
Multinational Company: Companies that operate in several countries, where each country has its own rules, but all are governed by a common overarching entity.
Transnational Company: Companies with headquarters in their country of origin and subsidiaries in several other countries, with these subsidiaries depending on the principal.
Global Company: A company with the capacity to operate in any country worldwide.
Key International Business Terms
Multinational Corporation (MNC): An entity operating in more than one country, characterized by international sales.
World Trade Organization (WTO): Responsible for monitoring global trade agreements and ensuring that countries benefit from the rules agreed upon in these treaties.
Methods of International Market Entry
Exporting
The company utilizes existing domestic capacity for production, distribution, and administration, allocating a portion of this home production to an international market.
- Advantages: The exporter avoids direct involvement in complex overseas operational issues; easier to identify market potential.
- Disadvantages: Challenges in maintaining market share; exposure to tariff barriers.
Licensing
A firm grants a foreign entity certain intangible rights, such as the right to use a process or technology.
- Advantages: The firm incurs lower costs and risks compared to direct overseas expansion.
- Disadvantages: Limits future profit opportunities associated with the licensed property.
Franchising
Franchising is similar to licensing, but involves granting a broader set of rights, often including a business model and brand.
- Advantages: Increased revenues and broader brand expansion.
- Disadvantages: Potential challenges in assuring quality control and consistent operating standards.
Strategic Alliances
Strategic alliances are business arrangements where two or more firms or entities collaborate.
- Advantages: Shared costs and risks.
- Disadvantages: Potential for conflicts or misalignment with overseas partners.
Joint Ventures
A joint venture involves two or more companies forming a new entity for a specific project or business.
- Advantages: Shared costs and risks.
- Disadvantages: Potential for conflicts and disputes over company control.
Global Strategic Approaches
Global strategic approaches involve achieving business objectives through international expansion. This helps companies expand into new markets and sell domestic products internationally.
Key Principles of Global Strategy
Develop a foundational local strategy, then internationalize it to achieve global reach.
International Strategy Formulation & Globalization
Broad Factors Influencing Globalization
- Free Trade: Characterized by declining tariffs and increased global trade knowledge.
- Global Financial Services and Capital Markets: Have significantly facilitated efforts for many businesses to integrate their activities globally.
Industry-Specific Pressures
- Universal Customer Needs: Technology has increased the information available to customers worldwide, leading to more universal needs.
- Global Customers: The emergence of a global customer base.
Characteristics of Global Strategies
Business focus on maximizing international efficiency, often by locating activities in low-cost countries. (Progression: Domestic → International → Multinational → Global).
Multidomestic Strategies
Multidomestic strategies have a strong marketing focus, are decentralized, and adapt products to local market preferences.
Regional Strategies
Regional strategies are based on the specific trading blocs and economic conditions of each region.
Pressures on International Strategy
- Global Competitors: Thousands of competitors operate worldwide.
- High Investment Intensity: Significant costs associated with product development.
- Pressures for Cost Reduction: Driven by the need to achieve economies of scale.