3.9.3 Aseesing Internalisation

Question 1

Incentives for business operating in international markets

Answer 1

Improvements in transportation
Improvements in communication
Opportunities to target larger population and enter new geographical markets
The need to counteract foreign competition

Question 2

Risk against businesses entering international market

Answer 2

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

Question 3

Methods of entering international markets

Answer 3

Exporting 
Direct investment 
Licensing 
Alliances 
Multinational companies (MNC’S)

Question 4

Exporting?

Answer 4

Produces domestically / ships abroad

Lowest risk strategy may have to deal protectionist measure imposed by foreign countries

Question 5

Direct investment?

Answer 5

Involves investing overseas into production facilities,retail and distribution facilities. Can be highly profitable it capital intensive (firms become multinationals)

Question 6

Licensing

Answer 6

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

Question 7

Alliances?

Answer 7

Partnership with a foreign form - risk is shared along with expertise of operating in foreign markets - profits shared with partner

Question 8

Multinational companies?

Answer 8

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

Question 9

Benefits of MNC’S

Answer 9

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

Question 10

Drawbacks of MNC’S

Answer 10

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

Question 11

What options may a business look at when trying to figure out what international market they wish to operate in

Answer 11

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

Question 12

What are the pressures to a business for expanding internationally

Answer 12

• 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

Question 13

What is outsourcing and reshoring

Answer 13

Where businesses move production overseas and reshoring is where production is moved back to a domestic country

Question 14

Reasons for outsourcing

Answer 14

Lower costs
Closer to resources
Lower distribution costs
Avoids barriers to trade

Question 15

Reasons for reshoring

Answer 15

Pressure to support local employment

Better quality can be achieved domestically

Question 16

What is the Bartlett and Ghoshal matrix and what two variables does it consider

Answer 16

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

Question 17

What may have a high global integration but a low national responsiveness

Answer 17

Global strategy - a standardised product sold around the world

Question 18

What may have a low global integration and a low national responsiveness

Answer 18

International strategy - products produced for domestic market with some slight alterations for international markets - perhaps to meet national standard

Question 19

What may have a high national responsiveness and high global integration

Answer 19

Transnational strategy - highly responsive to local market but business is highly integrated sharing knowledge and expertise

Question 20

What may have a low global integration and high national responsiveness

Answer 20

Multi-domestic strategy - products and services tailored for local markets; subsidies may operate independently or one another affiliated to the brand

Question 21

Issues of global strategies

Answer 21

Business maximises benefits of economies of scale but will struggle in markets where localised needs exist

Question 22

Issues with international strategies

Answer 22

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

Question 23

Issues with transnational strategies

Answer 23

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

Question 24

Issues of multi-domestic strategies

Answer 24

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

Question 25

What may be some risks of internalisation

Answer 25

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

Question 26

What impact does internalisation have on the marketing business function

Answer 26

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

Question 27

What impact does internalisation have on finance business function

Answer 27

Exporting may require limited financial investment, but becoming an MNC will require significant capital investment and long term finance

Question 28

What impact does internalisation have on operations business function

Answer 28

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

Question 29

What impact does internalisation have on human resource business function

Answer 29

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