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Stages of Internalization • The stages of internationalization has been changing at a faster rate

after 1990s.• The factors that contributed to the changing scenario include:

• Globalization of various economies including the communist /socialist countries.

• Establishment of World trade organization in 1995.• IT revolution • Increase speed & efficiency of travel & reduction in travel cost.• Enlargement of European Union.• Higher growth rate & GDP of countries like China, India, Brazil, Mexico.• Spread of MNC .• Increased globalization of culture.• Increase in business alliances like mergers, takeovers, joint ventures.• Increase in educational opportunities, in developing economies.

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STAGES OF INTERNTIONALIZATION

Internationalization process – different stages

1. Domestic company

Mission – objectives

Features – Environment – Expansion – Diversification

Does not think globally

No international markets

2. International Company

Some domestic companies may think of internationalizing their operations.

Reasons:

Opportunities

Unutilized capacities

Diversification of Risk

Other reasons

But remain Ethnocentric

Product design, policies, strategies – done by domestic company

3

Formulates Strategy for foreign Markets

Focus: Domestic with branches at foreign countries

• Domestic product price and promotion to foreign markets

• Resources reqd. limited

• Gradually extends from one country to another country.

• Pattern of internationalization.

3. Multinational Company & Multidomestic Co.

• Limitations of International Company

• In the longrun – vulnerable

• Expansion difficult

Eg.: Toyata of Japan

Export of Toyapet cars (designed for Japan) to US

failed in ‘57 due to product design.

It did not meet the local requirements

Toyota later became MNE to respond to the local demand

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Multidomestic – Formulates different strategies for different markets

Shift of Focus Ethnocentric to Polycentric

Polycentric Approach. An MNC will work like a domestic company

in each country

(Subsidiary / Branch/ Office of MNC)

There are certain limitations of MNC with polycentrism too.

Eg.: Multidomestic Co. Philips of Netherlands (1960). Autonomy

for policy formulation but later failed when Matsushita of Japan

entered with global Focus – i.e.

Quality

Value RegioCentrism & Geocentrism Design

Low price

To meet the specific Mktg. Requirements, strategies need

to address the problems.

Hence later Philips changed its strategy/approach.

Production/Price R & D etc.

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4. Global Company

A global company is the one which has either Global Marketing strategy or a Global Production Strategy

Production Mktg.

Single Globally

Country

Globally Domestically

Eg.: Harley, USA, Heavy Motor Cycles designs & Produces at USA

Mktg. Globally

Dr. Reddy’s Lab: India

Mercedes – Germany

Procures products globally and markets in one country through retail network etc.

Focus (Understanding consumer + Competitive Advtg.)

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5. Transnational Company

TNC produces, markets, invests and operates across the world.

It is an integrated global enterprise which links global resources with global markets at profit.

No pure TNC.

Characteristics of a Transnational Co.

i) Geocentric Orientation

Thinks globally and acts locally.

Global strategy but allows value addition to customer

Allows adaptation to add value to its global offer.

Assets distributed throughout the world

Independent, specialized

R & D integrated.

Production spread but specialized and integrated.

Mfg. + Assembly in different countries

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Units of TNC create and develop knowledge in all functions and share among them.

Eg. Caterpillar : Mfg/ Assembly – many locationsii) Scanning or Information Acquisition:

Environmental Information, geographic scopeiii) Vision & Aspirations:

Global, Global markets, Global customers, ahead of global co/TNCsiv) Operating style: Key operations are globalised.

Eg.: Proctor & Gamble R & D Colgate Key human resources

v) Adaptation to suit local environmentMercedes Benz: Super luxury car in North America, Luxury automobile in Germany, Europe (Standard Taxi) – Marketing strategy

vi) Extension: Certain products require no change – universal.Hero pen of China, Casio Calculators (Japan)

vii) Purchasing – Best sourceviii) HR policies (Geocentric)

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Stage and Company/Att

ributes

Domestic International Multi domestic Global TN

Strategy Model

Domestic NA International Co-ordinated federation

Multidomestic decentralised federation

Global centralized hub

Global integrated network

View of World Home Country Extension Markets

National Markets Global Markets or Resources

Global Mkts & Resources

Orientation Ethnocentric Ethnocentric Polycentric Mixed Geocentric

Key Assets Located in Home Country

Core centralized, others dispersed

Decentralised self sufficient

All in Home country Except Mktg or sourcing

Dispersed Interdependent & specialised

Role of country units

Single country Adapting and leveraging competencies

Exploiting local opportunities

Mktg. Or sourcing

Contributions to company world wide

Knowledge Home country Created at center and transferred

Retained with in operating units

Mktg. developed jointly and shared

All functions developed jointly and shared

Source: Warren Keegen

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International Business Approaches (IBA)

According to Douglas Wind & Pelmutter there are four IBPs

1. Ethnocentric Approach

2. Polycentric Approach

3. Regiocentric Approach

4. Geocentric Approach

The stages in the international Business are based

on the aforesaid approaches to International Business

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Managing Director

Manager R & D

Manager

FinanceManager Prodn.

Manager Human

ResourceManager

Mktg.

Asst. Manager

North India

Asst. Manager

South India

Asst. Manager Exports

Features: (1) Exports (2) Foreign Mkt. Extn. of Domestic Markets (3) Domestic co. formulate strategies (4) Export Dept. Product Design, Operations

1. Ethnocentric ApproachOrganization . Structure of Ethnocentric MNE

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2. Polycentric Approach

Orgn. Structure of polycentric approach.

Managing Director

Manager R & D

Manager

FinanceManager Prodn. Manager

HRManager

Mktg.

Features:

1. Later stage of Ethnocentric Approach for domestic cos.

2. Foreign subsidiary with CEO Decentralization of operations Delegation of Decision Making (Including major decisions) Appointments from home countries (key personnel) Sub. Co. formulates policies, strategies, designing the product etc.

based on prevailing environment at Host country.

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Focus: On the conditions of the host country in policy formulation, strategy implementation & operation.

3. Regiocentric Approach

Orgn. Structure Managing Director

Manager R & D

Manager

FinanceManager Prodn. Manager

HRManager

Mktg.

CEO Subsidiary Southern Africa

Mktg Lesotho

Mktg Kenya

Mktg Namibia

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Features:

1. Extension from single country to many countries.

2. Foreign Subsidiaries considers regional Environment.

Eg. Africa, Asia or South East Asia

3. Policies and strategies are based on regional Environment

4. Production design could be same but Mktg. Strategies invariably varies.

4. Geocentric Approach:

Entire world is treated like a country

Select Employees from Entire globe

Operate with no. of subsidiaries

Coordination of activities at Head quarters

Each sub. co. is autonomous in formulating policies, strategies, product design, HR Policies, operations etc.

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Managing Director

Subsidiary India

Subsidiary Namibia

Subsidiary Kenya Subsidiary

LesothoSubsidiary

South Africa

Eg.: AircraftDefence Techonology

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Evolution of strategy in the Internationalization Process:

There are variations among cos. IBM, Nestle/Toyota

However there are overall pattern in internationalization process

Focus Risk Minimization behaviour

Domestic Foreign Mktg.

Less risky Greater risk is attached to FM

Pattern of Expansion.

Strategies for heavy International commitments usually evolve gradually from:

Passive to active pursuit of opportunities

External to Internal handling of Business

Limited to Extensive modes of operations

Few to many foreign Locations

Similar to dissimilar environments

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The usual pattern of internationalization.

The farther out a company moves from the center of the diagram along any of the axes (A, B, C, D, E), the deeper its commitment internationally. The speed of the move may vary along each axis.

Mode of operations

Domestic Business

Low

Other firms handle

external contracts

Company handles foreign

Internal versus external handling of foreign operations

Impetus for Intl. Business

Medium

High

Pass

ive

resp

onse

to

prop

osals

Activ

e se

arch

for

oppo

rtuni

ties

Quite similarModerately similar

Very dissimilar

A B

CExtensive prodn. Abroad with DDI and all other functions

Ltd foreign products

and multiple functions

EDegree of similarity

between foreign and domestic countries

One

Several

Many