3.9.3 Aseesing Internalisation Flashcards
Incentives for business operating in international markets
Improvements in transportation
Improvements in communication
Opportunities to target larger population and enter new geographical markets
The need to counteract foreign competition
Risk against businesses entering international market
Reliability when dealing with some international businesses and shipping companies
Existence of trade barriers such as quotas and tariffs between some countries
Issues of dealing with local trends and customs
Language barriers
Methods of entering international markets
Exporting Direct investment Licensing Alliances Multinational companies (MNC’S)
Exporting?
Produces domestically / ships abroad
Lowest risk strategy may have to deal protectionist measure imposed by foreign countries
Direct investment?
Involves investing overseas into production facilities,retail and distribution facilities. Can be highly profitable it capital intensive (firms become multinationals)
Licensing
Giving the rights to a foreign country to produce goods / services for a foreign market
Gain an insight into new markets as a yes but responsibility for sales passes to another business
Alliances?
Partnership with a foreign form - risk is shared along with expertise of operating in foreign markets - profits shared with partner
Multinational companies?
A business with production in more than one company - often welcomed by governments as they provide jobs, bringing investment into the country and increased tax revenue
Benefits of MNC’S
Better access to local market
May receive tax incentives from local government
Costs o production (labour costs) can be lower
Operating in multiple countries spreads risk
Drawbacks of MNC’S
Harder to manage (time zones, legislations and consistency)
Attention taken away from home markets
Some multinationals are criticised for damagin local traditions and taking trade away from local businesses
What options may a business look at when trying to figure out what international market they wish to operate in
Size and growth potential
Alignment with the businesses corporate strategy
Competitive rivalry within the market
PEST-C factors
Similarities to / difference from home market
Barriers to entry
What are the pressures to a business for expanding internationally
- the pressure for growth / growth leads to greater profitability, a key driver of shareholder value
- the pressure to lower costs / manufacturing abroad can be cheaper, mainly due to lower labour costs
- Location / businesses may need to have close proximity to resources and skilled labour. This can speed up transportation and lower transport costs
- Declining domestic markets - to continue growth businesses may seek opportunities in international markets
What is outsourcing and reshoring
Where businesses move production overseas and reshoring is where production is moved back to a domestic country
Reasons for outsourcing
Lower costs
Closer to resources
Lower distribution costs
Avoids barriers to trade
Reasons for reshoring
Pressure to support local employment
Better quality can be achieved domestically
What is the Bartlett and Ghoshal matrix and what two variables does it consider
Considers the different approaches a business may take to internalisation
The matrix considers two variables:
- the level of responsiveness to local markets
- the drive for a standardised global product
What may have a high global integration but a low national responsiveness
Global strategy - a standardised product sold around the world
What may have a low global integration and a low national responsiveness
International strategy - products produced for domestic market with some slight alterations for international markets - perhaps to meet national standard
What may have a high national responsiveness and high global integration
Transnational strategy - highly responsive to local market but business is highly integrated sharing knowledge and expertise
What may have a low global integration and high national responsiveness
Multi-domestic strategy - products and services tailored for local markets; subsidies may operate independently or one another affiliated to the brand
Issues of global strategies
Business maximises benefits of economies of scale but will struggle in markets where localised needs exist
Issues with international strategies
Business focusses on domestic markets but through slight modification with product to export. Gains benefit of economies but makes slight tweaks to satisfy localised needs
Issues with transnational strategies
Business operates as one entity and there is lots of sharing and learning together, very hard to implement effectively, but successful transnational businesses benefit from economises of scale but remain responsive to demands of local markets
Issues of multi-domestic strategies
A true MNC - the business is completely focused on meeting local needs through decentralisation. Highly adaptive but difficult to manage and control strategic direction of a business
What may be some risks of internalisation
Anti globalisation - anti global pressure groups and growing distaste for international firms in some industries can draw negative publicity for MNC’S
Ethical standards - moral codes in business are not the same across countries. Neither are legal systems to protect businesses and consumers
Differing styles of business - often linked to cultural norms, nations negotiate and make decisions differently. This can make partnerships and trade mor complicated
Culturally differences - often very subtle and form of barriers to entry. Marketin can be very difficult in foreign markets
What impact does internalisation have on the marketing business function
Must be able to understand cultural differences and communicate effectively with customers in foreign markets. Understanding needs of foreign customer can be very challenging and may require localised expertise
What impact does internalisation have on finance business function
Exporting may require limited financial investment, but becoming an MNC will require significant capital investment and long term finance
What impact does internalisation have on operations business function
Distribution and transportation will become a significant operational issue. Business may have to learn to manage multiple product varieties to meet local needs. Maintaining Economies of scale will be a key challenge
What impact does internalisation have on human resource business function
Localised skills may be required to recruit and train staff. May be necessary for managers and specialists tp relocate in order to establish international production
