Complex nature of internationalisation based systems


The internal environment of the market is to focus on our company standards by checking our company needs and requirements and also things to improve on funds we required for the market ,labour ,machine ,management and as it is very important to focus for opening a new market

2.1 External Environment of The market

External environment deals with the outer part of the organisation to be concentrated as external environments is has been divided into two things they are

2.1a Macro environment

2.1b Micro environment

2.1a Macro environment deals with the data a organisation should concentrate is on the place were they are opening an organisation they mainly focus on the social and culture other country and also check about local politics even the environmental effects. So an organisation should concentrate on macro environment before they entire the new market.

2.1b Micro environment deals with the local place were u enter the market we must focus on the competitors as well as the public and the most we should concentrate on the customers looking for

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So the organisation should concentre more to enter into a new market as it is very complex to known about the new market. So the organisation should concentrate more on their internal environment as well as the external environment

Source :Strategic Management Competitiveness and Globalisation 2nd Edition

By (Michael A. Hitt, R. Duane Ireland Robert E. Hoskisson) pp 38 to 45

3. Why Internationalisation is so challenging

Making an entry into the international market is very challenging as we have to concentrate on many issues that follows

3.0a Communication, which includes sales and market

3.1b Technology

3.2c Logistics and distribution

3.3d Legal and financial

3.0a Communication: Communication is the bane of expansion efforts by most companies. Often companies forget that folks in other countries speak a different language , have a different culture and often have issues with foreign owned and foreign directed management .Communication issues are anything that involved with getting the message out about a company or product like public relations, advertising, marketing, product positioning. This is very common with many companies today like many companies in Europe and Asia .Most have local management in countries where they have operations, but the senior executive team is from the parent company and the communication is often difficult

Sales and Market: it doesn’t matter whether companies are selling a product or service the issues are the same .You need to first identify your target market, then tailor the marketing to that local market .As an example in 1991 Master Card wanted to expand their brand globally , so they chose to sponsor major soccer events. They were leery since soccer in US (where they achieved significant gain) is not so popular as in Europe or UK .So they decided to market their product through Olympics as the only sporting event that has world appeal.

3.1b. Technology: Technology is mandatory for successful expansion and to effectively control the flow of products and information in the countries. Does one use a centralized technological model or distributed processing? So companies should hire a Chief Technology Officers so that every report can be updated to C.E.O of company

3.2c. Logistics and Distribution : It deals with how the products get distributed to other countries , as it may be easy to manufacture product locally, but here the complex part is how are this products get distributed to another countries.Even the laws that govern selling in a country also effects logistics.

Distribution : Distribution of product may be possible from one country where products are shipped by the containers load customers .But that won’t work if you are selling to independent retailers(which represents 70% of US and European market) who don’t have the capacity to accept a container load. Successful companies establish long term relationship with suppliers and business partners. Manufacturers need to know the countries where they plan to expand to learn how products are distributed. Example we can take Wal Mart , ASDA always concentrate on distribution as to maintain the stock as it may be effected the customers if the mall gets out of stock

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3.3 d Legal and Financial : Many countries have restrictions on ownership of a business in that country ,with many requiring local ownership. This means global corporations need to partner with locals if they are going to operate .Often they will create joint ventures (JV’s) with local companies to expand in a particular country. JVs need to structured very carefully and needs legal representation in the local country .In many countries companies need to address the moral or ethical or religious issues within that country .

Financial : Even companies should concentrate more on financial part as it is the main challenging aspect since Internationalisation of the firm should check with labour cost, manufacturing units , export import of goods

Source : Global Marketing Management By George Matyjewicz

4. The Uppsala Approach Of Internationalisation

The Uppsala-model rests on the assumption that firms are facing high uncertainly when stating operations outside the domestic market . They are consequently reluctant to make large capital investments. One way to overcome this uncertainty is to build the internationalisation of the firm gradually. Initial, small capital investments will increase the knowledge of the foreign market, and of overseas operations per se , through incremental investment in foreign market .

The internationalisation is seen as a process where firms gain knowledge about the foreign business environment gradually, which results in gradually increased investments. The idea of incremental investments has been exemplified by an establishment chain. This chain of sequentially increased investments abroad starts when a firm initiates foreign operation through exports from domestic factories. The firm then gradually increases efforts to internationalise its activities and contact a local sales agent. As long as the experience is successful, this evolution continue, which may results in opening a local sales subsidiary and eventually a manufacturing subsidiary..The Internationalisation process as having several distinct stages. These stages are linked in a continuously evolving process without clear distinctions between them they are initation, expansion and consolidation

Source : Internationalisation Strategies Edited by (George Chryssoshoidis Carla Millar Jeremy Clegg) p: 72 & 73

5. The Internationalisation Advantage

a Comparative Advantage & Competitive Advantage :

Trade between two countries can make each other country better off

The classical argument for fare trade is based on the principal of comparative advantage .Assume that US workers are better at producing computer software than workers in china & that Chinese workers are better at producing shoes than workers in the USA. Comparative advantage states that trade between the two countries the USA exporting software & china exporting shoes can boost living standards in both

This is because USA has comparative advantage in producing software while china has competitive advantage in producing shoes .Trade allows countries to specialize in what they do best & to enjoy a greater variety of goods & services . As the same time companies earn profits from trade because most trade is caused out by individual companies.

5.1 b Location, Ownership & Internationalisation Advantage

The advantage of internationalisation influence companies to invest directly in foreign countries .These advantages depends on ther factors location, ownership & internationalisation

Ex: Exxon Mobil has ownership advantage such as technology, marketing expertise capital & brand names .Venezuela has location advantage such as crude oil abundant labour & low taxes .Thus Exxon Mobil has build oil refines in Venezuela. These factories magnify both wages of workers in Venezuela & profits of Exxon Mobil from use of Technology & capital. These magnified portion of location advantage & ownership advantage are called internationalisation advantage .

Source: Global Co Operate Finance (Sixth Edition)

By Suk H kim, Seung Hee Kim

6.Drawbacks Of Internationalisation

Internationalisation of business involves many types of risks not all can be avoided but all can, to an extent, be managed . The same is true of crises, whether these afflicts the company from external forces or whether they originate from problems with in the company. In this the first and foremost is political risk, because this affects the long term viability of investments and assets overseas, that this is common in most countries since they discourage any FDI(Foreign Direct Investment).This can be included as

Confiscation : this is the process of a government taking ownership of a property without compensation

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Expropriation: here there is generally some compensation, through not necessarily fair compensation. Frequently, a company whose property is being expropriated agrees to sell its operations not through choice but rather because of some explicit or implied coercion

Nationalisation: A variant of this drawback is domestication, where foreign companies relinquish control and ownership to the nationals . The result here is private entities are allowed to operate the confiscated or expropriated property.

Source: International Business Strategy and Operations (Edgar P.Hibbert) pp245 to 246

6.0 a Competitive draw backs

This are significant drawbacks with a cooperative strategy this drawback include such actions or outcomes

Poor contract development

Misrepresentation resources of partner firms Competencies

Failure of partners to make complementary resources available

Misunderstanding of a partners strategic intent

Source : Strategic Management Competitiveness and Globalisation

By (Michael A. Hitt, R. Duane Ireland, Robert E.Hoskisson) p 299