U6 What International Strategies are Available? Flashcards
Wal-Mart Finds That Its Formula Doesn’t Fit Every Culture
Three days after Wal-Mart Stores announced that it would pull out of Germany, Roland Kögel was wandering through the aisles of a somewhat threadbare Wal-Mart in a strip mall in this western German city.
“Why are they giving up now?” he asked. “They have good prices and a good variety of products.”
Yet Mr. Kögel, 54, confessed that he never bought groceries at Wal-Mart. Food is cheaper at German discount chains.
He also does not visit this store often because it is on the edge of town and he does not own a car. His one purchase for the day was tucked under his arm: a neck pillow.
Shoppers like Roland Kögel help explain why Wal-Mart raised the white flag in Germany, the site of the company’s first foray into Europe.
After nearly a decade of trying, Wal-Mart never cracked the country – failing to become the all-in-one shopping destination for Germans that it is for so many millions of Americans.
Wal-Mart’s problems are not limited to Germany. The retail giant has struggled in countries like South Korea and Japan as it discovered that its formula for success – low prices,
zealous inventory control and a large array of merchandise – did not translate to markets with their own discount chains and shoppers with different habits.
Over all, Wal-Mart is still expanding outside the United States, particularly in markets where it entered by acquiring a strong retailer.
Still, given Wal-Mart’s formidable record at home, the company’s recent setbacks have exposed a rare vulnerability overseas.
Some of Wal-Mart’s problems stem from hubris, a uniquely powerful American enterprise trying to impose its values around the world. At Wal-Mart’s headquarters in Bentonville, Ark., however, the message from these missteps is now registering loud and clear.
In particular, Wal-Mart’s experience in Germany, where it has lost hundreds of millions of dollars since 1998, has become a sort of template for how not to expand into a country.
“It is a good, important lesson, a turning point,” an international spokeswoman for Wal-Mart, Beth Keck, said.
“Germany was a good example of that naïvete.”She added, “We literally bought the two chains and said, ‘Hey, we are in Germany, isn’t this great?’”
Among other things, she said, Wal-Mart now cares less whether its foreign stores carry the name derived from its founder, Sam Walton, as the German Wal-Marts do.
Seventy percent of Wal-Mart’s international sales come from outlets with names like Asda in Britain, Seiyu in Japan or Bompreço in Brazil.
Wal-Mart is also trying to integrate acquisitions with more sensitivity – a process that involves issues like deciding whether to consolidate
multiple foreign headquarters and how aggressively to impose Wal-Mart’s corporate culture on non-American employees.
In Germany, Wal-Mart stopped requiring sales clerks to smile at customers – a practice that some male shoppers interpreted as flirting – and scrapped the morning Wal-Mart chant by staff members.
“People found these things strange; Germans just don’t behave that way,” said Hans-Martin Poschmann, the secretary of the Verdi union, which represents 5,000 Wal-Mart employees here.
Wal-Mart’s changes came too late for Germany but they could help it crack other markets, like China, where it already has 60 stores and 30,000
employees. Far from being chastened by its setbacks, Wal-Mart is forging ahead with an aggressive program of foreign acquisitions.
In a single week last fall, Wal-Mart completed the purchase of the Sonae chain in Brazil, bought a controlling stake in Seiyu of Japan and became a
partner in the Carcho chain in Central America. The deals added 545 stores and 50,000 employees to Wal-Mart’s overseas empire.
“I’m hard pressed to name a US-based general merchandise retailer that is doing better than Wal-Mart International,” said Bill Dreher, who follows Wal-Mart for Deutsche Bank in New York.
Starting from scratch 14 years ago, Wal-Mart International has grown into a $63 billion business. It is the fastest-growing part of Wal-Mart, with nearly 30 percent sales growth in June,
compared with the same month last year. Even subtracting one-time gains from acquisitions, it grew at nearly 12 percent, about double the rate of Wal-Mart’s American stores.
Sustaining that pace is critical for Wal-Mart because high fuel prices have helped sap the buying power of Americans. In June, store traffic in its home market declined.
Wal-Mart estimated that its sales in the United States in stores open at least one year would increase only one percent to three percent in July.
Wal-Mart Germany, with 85 stores and $2.5 billion in sales, is almost a footnote for a company focused on Asia and Latin America. But the problems it encountered here have echoes elsewhere.
For example, it never established comfortable relations with its German labor unions.
“They didn’t understand that in Germany, companies and unions are closely connected,” Mr. Poschmann said.
“Bentonville didn’t want to have anything to do with unions. They thought we were communists.”
Ms. Keck said Wal-Mart did cultivate good relations with the leaders of the works’ council, which represents the unionized work force, and changed policies in response to employee concerns.
Wal-Mart will soon get another chance to deal with organized labor, albeit of a less independent sort.
In China, the state-controlled All-China Federation of Trade Unions is organizing workers in Wal-Mart’s stores.
Germany also provides a lesson in the perils of buying existing chains. Wal-Mart’s purchase of Wertkauf and Interspar saddled it with stores in undesirable locations.
The Wiesbaden outlet is worlds away from a squeaky-clean American Wal-Mart: nearby are a couple of sex shops.
“These were some of the least attractive of the big-box retailers out there,” said James Bacos, director of the retail and consumer goods practice at Mercer Management Consulting in Munich.
Compounding the problem, Wal-Mart shut down the headquarters of one of the chains, infuriating employees who opted to quit rather than move.
Such a decision would have been routine in the United States, where Ms. Keck said, “moving is a big part of the Wal-Mart culture.” In Germany, she said, it prompted an exodus of talented executives.
In South Korea, Wal-Mart had only 16 stores – a small presence that contributed to its decision in May to sell out to a Korean discount chain.
Many Koreans have never heard of Wal-Mart. In Seoul, a sprawling area of 10 million, there is only a single store.
This lack of scale causes another problem that has afflicted Wal-Mart in several countries: its inability to compete with established discounters, like the ALDI chain in Germany and E-Mart in Korea.
The obvious lesson is to try to bulk up. In Brazil, Wal-Mart opened only 25 stores in its first decade there and struggled to compete against bigger local rivals.
Then, in 2004, it bought Bompreço, giving it a presence in the country’s poor, but fast-growing, northeast.
Wal-Mart did not change the names of the stores, which range from neighborhood grocers to large American-style hypermarkets.
But with 295 stores in Brazil, Wal-Mart now ranks third in the market, after Carrefour of France and the market leader, Companhia Brasileira de Distribução.
Size has given Wal-Mart increased leverage with suppliers there, though analysts say the company needs even
more stores to be in a position to undercut local discounters on the prices it offers customers.
At a Wal-Mart store in suburban Rio de Janeiro the other day, Ana Paula Cunha de Almeida, a 26-year-old housewife, had loaded her shopping cart with rice,
beans, and flour. But she was also carrying a bag from a smaller grocery store, where she had bought meat, cheese, and cold cuts.
“These are always cheaper somewhere else,” she said.
The grocery business has proven the most difficult for Wal-Mart to crack. ALDI, with 4,100 stores in Germany, undercuts Wal-Mart on price, while still offering high-quality food.
Even in Canada, where Wal-Mart steamrolled local department store chains when it entered the country as a nonfood retailer in 1994, the grocery trade looms as a challenge.
Wal-Mart recently announced plans to build supercenters that will also sell groceries. But analysts predicted Wal-Mart would face stiff competition from Canada’s largest chain, Loblaw.
Bernie Skelding, a vacationer shopping at a Wal-Mart in Huntsville, Ontario, north of Toronto, said he liked going to the store when he had a varied shopping list. But he added, “If I’m looking for food, I go to Loblaw’s.”
Wal-Mart’s most successful markets, like Mexico, are those in which it started big. There, the company bought the country’s largest and best-run retail chain, Cifra, and has never looked back.
This year, Wal-Mart is spending more than $1 billion in Mexico to open 120 new stores.
Taking over Cifra “gave them a critical mass to build from,” said Tufic Salem, an analyst at Credit Suisse First Boston in Mexico City. “The management stayed, and they knew the market very well.”
Perhaps the most striking example of a Wal-Mart success is Asda, which was Britain’s No. 1 discount chain when Wal-Mart acquired it in 1999.
With sales of $26.8 billion, Asda now accounts for 43 percent of Wal-Mart’s international revenue.
Wal-Mart’s German experience also taught it to use local management. The company initially installed American executives, who had little feel for what German consumers wanted.
“They tried to sell packaged meat when Germans like to buy meat from the butcher,” Mr. Poschmann said.
Some of Wal-Mart’s missteps – selling golf clubs in Brazil, where the game is unfamiliar, or ice skates in Mexico – are so frequently mentioned,
they have become the stuff of urban legend. But even more subtle differences in shopping habits have tripped up the company.
In Korea, Wal-Mart’s stores originally had taller racks than those of local rivals, forcing shoppers to use ladders or stretch for items on high
shelves. Wal-Mart’s utilitarian design – ceilings with exposed pipes – put off shoppers used to the decorated ceilings in E-Mart stores.
Beyond the ambience, Wal-Mart’s shoes-to-sausage product line does not suit the shopping habits of many non-American shoppers.
They prefer daily outings to a variety of local stores that specialize in groceries, drugs, or household goods, rather than shopping once a week at Wal-Mart.
“They have stacks of goods in boxes,” said Lee Jin Sook, 46, a housewife sitting on a subway in Seoul.
“That may be good for some American housewives who drive out in their own cars.” But Koreans, she said, prefer smaller packages: “Why would you buy a box of shampoo bottles?”
“I heard Wal-Mart later tried to change their style,” Ms. Lee added, “but I guess it was too late.”
Why Do Companies Go International?
The world has grown closer together thanks to improvements in infrastructure and the widespread growth of internet use. Even small organizations now have the opportunity to go international.
Going international and being successful requires ?
a global strategy, which defines where and in which form the company expands internationally from its home country origins.
The international expansion needs to be considered carefully and planned in great depth as it requires?
a strong commitment to undertaking coordination tasks.
Coordination
This is the organization of human resources as well as economic and technical tasks in an organization.
Increasingly, a greater number of companies are entering the international arena. The reasons for the increase in this international exposure of companies are manifold and include the following:
=trade agreements
=unification
=economies of scale
=infrastructure
=local differences
=the world growing closer together
=standardization
=global marketing
Trade Agreements
An increasing number of international trade agreements have made it easier for companies to?
do business in other countries and across regions.
For example,
after many years of poor economic relations, China and Taiwan agreed on an historic trade agreement in 2010. The agreement eliminates customs duties for more than 800 products. This will accelerate the trade between mainland China and Taiwan.
Unification
There has been an increase in the formation of?
free trade zones between various countries.
These unifications, such as the EU (European Union) or the NAFTA (North American Free Trade Agreement) that allow free trade between the countries within the union, lead to?
the standardization of trade regulations.
This in turn lowers the costs for organizations, for example,
the common quality standards in the EU allow companies to offer one product for all countries in the union.
Patents, brand names, etc. do not have to be registered in each individual country but can be?
registered for the entire union.
Economies of Scale
The possibility of offering one product to various countries without major adaptations for each single market allows?
companies to benefit from economies of scale and increases efficiency.
In particular, companies that have high investment or development costs for their products or services benefit from?
the opportunity to sell the product in many countries.
The case study clearly illustrates how economies of scale work for—————————————. When they entered the market as a big chain with many stores, they were immediately able to compete with local supermarkets due to the ————————————.
Wal-Mart in Mexico
large volumes being sold
Infrastructure
The infrastructure of worldwide trade has improved tremendously over?
the past decades.
The international container shipping business has profited from?
an enormous boom in international trade.
Container shipping is fairly cost efficient due to?
new technologies speeding up the loading and unloading process.
This has reduced the time and costs for the —————————–. The efficiency of the shipping business has greatly reduced the costs for ——————————.
ships in the port
transporting goods
Differences
Improvements in the infrastructure allow organizations to ?
transport goods cheaply across the globe.
They can thus decide where they want certain processes performed. Most textiles today are made in?
Asia as the costs of production are much lower.
However, the design and marketing are still carried out and coordinated in?
the original home countries.
The World is Growing Closer Together
The Internet revolution of the——– brought the world even closer together. Today, consumers can———————————– products and services worldwide.
1990s
access and compare
Trade coordinators such as eBay make it possible, for example,
for a German resident to acquire a product from a French designer via the US website from a seller in Belgium. The buyer should not be surprised if the product is shipped from a location in Bulgaria.
eBay
This is the world’s largest Internet auction house.
Standardization
Uniform quality standards and quality systems enable companies to save costs. For example
, a Japanese car manufacturer can purchase a standardized component from an Italian manufacturer and have it delivered to all its manufacturing plants worldwide for assembly.
The opportunity to purchase products worldwide is called ——————–. The benefit for companies is that they can purchase at the ——————— prices and take advantage of location advantages, i.e.,———————————–or—————————————-.
global sourcing
lowest
low-wage countries or local specializations
Global Marketing
Globalization makes ——————————-possible.
standardized marketing
McDonald’s and Coca-Cola are global brands that are as easily recognized in?
Taiwan as they are in Turkey or Tunisia.
However, most companies expanding into international markets will encounter?
the global–local dilemma.
Companies have to decide what can be standardized and what has to be adapted to?
local standards, as the case study with Wal-Mart’s entry into the German market illustrates.
However, most companies expanding into international markets will encounter?
the global–local dilemma.
Companies have to decide what can be standardized and what has to be adapted to?
local standards, as the case study with Wal-Mart’s entry into the German market illustrates.
Global organizations have to “think —————–, act ——————” (i.e., have a global strategy but adapt it to local conditions).
global
local
For example, McDonald’s could design a global advertising campaign featuring soccer, which is popular in?
almost all countries.
From this global theme it could then show local players in the advertisements for?
the respective country.
However, international companies also face risks such as?
dependencies and global competition.
Global Marketing
==Dependencies
==Global competition
Dependencies
International companies are interlinked and therefore affected by?
fluctuations in remote regions.
In March 2011, when Japan was hit by an earthquake, a tsunami, and a nuclear disaster, there were problems with?
the delivery of products from Japan.
Toyota stopped production in factories in ———————————————————– from April to May 2011 due to delivery shortages from Japan.
England, France, and Turkey
Global competition
The pressure from international companies is enormous because?
they have large financial resources.
However, the case study with Wal-Mart’s attempt to enter the German market showed that even these large companies could fail due to?
the established and strong local competition.
What Factors Contribute to the Decision About Which Country to Invest In?
General Factors
-Political situation
-Legal situation
-Economic situation
-Social situation
General Factors
The answer to the question “Which markets would be interesting for companies?” depends on a variety of factors. Just like the analysis of the—————————————————————————–of the organization, companies have to research the international environment in order to make ————————————-decisions.
micro- and macroenvironment
informed strategic
Political situation
When companies make decisions on where to expand internationally, they need to look at ?
the political situation.
There are many countries in which the political environment changes quickly and governments rapidly alter?
the investment situation for foreign companies.
Companies that operate internationally need to be aware of ?
the risks and weigh their chance of success against that of failure.
Legal situation
Similar to the political situation, the legal situation plays an important role in?
the decision to go international.
There are large differences in the legal system of different countries, and companies need to be?
well informed about the legal framework when entering a new market.
This can help in obtaining a better understanding of the risks involved, as?
Helmerich and Payne learned in Venezuela:
Venezuela to Nationalize US Firm’s Oil Rigs
Venezuela will nationalize a fleet of oil rigs belonging to the US company Helmerich and Payne, the latest takeover in a move towards?
socialism as President Hugo Chavez struggles with lower oil output and a recession.
A former soldier inspired by Cuba’s Fidel Castro, Chavez has made energy nationalization the linchpin in his ‘revolution’. He has also taken over ?
assets in telecommunications, power, steel, and banking.
The eleven drilling rigs have been idle for months following a dispute over pending payments by?
the OPEC member’s state oil company PDVSA.
Oil Minister Rafael Ramirez said on Wednesday that the rigs, the Oklahoma-based ?
company’s entire Venezuelan fleet, were being nationalized to bring them back into production.
Ramirez said companies that refused to?
put their rigs into production were part of a plan to weaken Chavez’s government.
“There is a group of drill owners who have refused to discuss tariffs and services with PDVSA and have preferred to keep this equipment stored for a year,”
Ramirez told reporters in the oil producing state of Zulia. “That is the specific case with US multinational Helmerich and Payne.”
The company was not immediately available for?
.
comment
Chavez, who faces legislative elections in September, often pushes ahead with?
radical plans during election campaigns.
The 55-year-old leader is having a hard time in?
his eleventh year in power.
Venezuela’s economy is the worst performing in Latin America this year, a problem exacerbated by?
a drop in oil output since 2008, power outages, and soaring inflation.
The takeover of Helmerich and Payne’s rigs was not a surprise, considering Chavez’ penchant for?
nationalizations and the company’s refusal to work before being paid the $49 million it has invoiced PDVSA.
—————————————— is a small player in the drilling industry but global giants like ——————————————————————–also have a presence in Venezuela.
Helmerich and Payne
Halliburton, Schlumberger, and Baker Hughes
Halliburton and Schlumberger have avoided ————————– with the government. Chavez has kept pressure up on the private sector in recent months, blaming a —————————————————for Venezuela’s recession and ——-percent annualized inflation.
public spats
“parasitic bourgeoisie”
30
He has threatened to nationalize Polar, the top brewer and food processor in the?
country of 30 million.
The government has also ?
seized a bank belonging to an owner of the leading opposition TV station
and put an arrest warrant out for his partner, who is now on the run.
In 2007, Chavez nationalized multi-billion dollar projects in Venezuela’s vast Orinoco oil region, persuading companies such as?
BP Plc, to accept minority stakes in facilities they had built.
Last year, he ordered the takeover of dozens of smaller oil service companies as PDVSA, reeling from?
a sharp plunge in oil prices, struggled to pay contractors.
When he was flush with oil cash during a boom in oil prices that ended in 2008, Chavez often compensated?
nationalized companies fairly, although the 2007 takeovers led to lawsuits from ConocoPhillips and Exxon Mobil.
More recently, Venezuela has been slower in?
paying compensation.
Economic situation
The economic situation in the country provides information on?
the benefits of an investment.
Generally, the GDP and the per capita income give an idea of the —————————————–. A company should carry out a thorough analysis of the economic situation or———————————————.
market size and potential
consult an external expert
The economic analysis should also provide an outlook to the future, information on?
possible import
or export restrictions, payment modalities and practice, taxation, etc.
Social situation
When looking at international investments, an analysis of the social situation should not be?
restricted to facts and figures.
The number of inhabitants and the demographic structure provide a first impression, but the cultural and social factors are?
also extremely important.
The market might exist and be big enough, but what if the buying habits are very different from your own country?
Wal-Mart learned a very expensive lesson in Germany, as our case study illustrates.
Factors That Lead to Competitive Advantages
Internationally successful companies often benefit from ?
local competitive advantages.
These local competitive advantages occur as a result of ?
regional factors.
Some regions are predestined for?
specific business sectors and promote their success.
Michael Porter (1998) identifies four factors that lead to a sustainable competitive advantage for companies:
==Local factors
==Local demand
==Supporting industry
==Local strategy, structure, and competition
Local factors
Some regions are particularly well equipped to?
produce a specific product or service.
They have ready access to raw materials needed for production or have a supply of ?
desired resources, such as human resources or knowledge resources.
Switzerland, for example,
is known for its banking industry. One factor that certainly promoted its growth was the banking secrecy law and Switzerland’s status of neutrality.
Banking secrecy law
The banking secrecy law is a legal commitment to maintain the secrecy of bank customers and their financial information, protecting this information even from governments.
A further prerequisite for the expansion of the private wealth sector is?
the linguistic ability of the Swiss population.
Three languages – German, French, and Italian – are spoken in—————————————–.
this small country
This capacity for providing services in multiple languages no doubt fostered the growth of?
the financial business as discussing private wealth information is, for most people, very personal, and they prefer to converse about it in their mother tongue.
This is why Switzerland continues to be one of the countries of choice for ———————- management, despite the fact that banking ————————– are not absolute (Caputo, n.d.).
private wealth
secrecy laws
Local demand
The local demand for certain products or services often favors the establishment of?
specific business in the area.
The advantage for the business is that a part of the demand is already satisfied locally. Therefore, the location advantage creates?
a competitive edge for the local industry.
In 1886, the German inventor Carl Benz filed a patent for ?
the first motorized vehicle,
marking the birth of the modern automobile.
A world-renowned car industry was henceforth established in ———————–. The strong connection of the German people to locally produced —————————–(which still exists today), paired with the German sense of quality, has led to and perpetuated the ——————————————— of German companies in the automotive industry.
southern Germany
automobiles
competitive advantage
Supporting industry
The development of an industry in a specific region often leads to?
the establishment of suppliers in the same location.
In the example of the German automobile industry, when a company begins manufacturing cars in a region, adjunct businesses, such as?
engineers who start up their own company, are often established soon after in the surrounding area.
The proximity of such supporting businesses to?
the producer facilitates cooperation and enhances innovation. Thus, a location advantage is created for the industry.
the producer facilitates cooperation and enhances innovation.
The proximity of such supporting businesses to the producer facilitates cooperation and enhances innovation. Thus,?
a location advantage is created for the industry.
Clustering
This describes a local aggregation of similar businesses.
An interesting example of such a development (which is called clustering) is located in?
the Italian village of Montebelluna.
A hiking boot manufacturing business has developed into?
a cluster of companies making ski boots.
Today, there are about 400 companies in Montebelluna that ?
cover an unbelievable 75% of the world market for ski boots.
Local strategy, structure, and competition
The characteristics of the local businesses, such?
as the focus of the German automobile industry on quality and innovation, as well as the structure of the industry lead to a further competitive advantage.
Moreover, in an environment of aggregate businesses, the local competition forces companies to?
constantly improve and develop in order to survive, thus further fostering innovation.
How Can a Company Invest Internationally?
There are various ways in which a company can expand internationally. Some options are ?
more risky than others.
Each option of expanding internationally has advantages and disadvantages – companies have to decide on?
the degree of investment and what best matches their strategy.
We will now explore the following four options for international expansion:
=Exports
=Joint ventures /alliances
=Licenses
=Foreign direct investments
Exports
Exporting is the easiest way to operate internationally. The product is created in the home country, then?
marketed and sold in another country.
Exporting is best suited to products that can easily be transported. The advantage is that?
the company does not have to invest in a production facility abroad, and the financial investment is relatively small.
The company benefits from economies of scale in the home country due to?
the expansion and the increase in sales.
The internet facilitates communication with?
distributors and aids international marketing and sales efforts.
However, exporting also has disadvantages. Companies that export products or services forgo?
the location benefits of many foreign countries.
A company that does not make their products in the foreign country gains no tax advantage or cost saving as?
a result of lower employee wages abroad.
Furthermore, companies are dependent on local distributors, who might sell more than?
one product or service and may not realize the maximum possible sales.
Exporting companies might also encounter trade barriers and have to pay customs fees, which ?
will make the products more expensive compared to local products.
An additional cost factor that might make the product more expensive in the foreign country are?
transport costs associated with distribution.
Despite these disadvantages, exporting is the most popular way of being present in?
international markets.
Often, companies will allow local distributors to make?
their own decisions regarding prices, packaging, and marketing.
This strategy can be used if a coordinated marketing program does not add any value. Examples of?
this strategy are found in the case of raw materials or agricultural products that are often marketed locally.
Joint Ventures /Alliances
Joint ventures
These are organizations that are founded by at least two legally separate entities.
Joint ventures or alliances with local companies have many advantages for?
companies who want to expand internationally.
A partnership with a local company splits the —————————– between two organizations. Both partners benefit from complementing
—————————————— .
investment risk
competencies and resources.
Companies from abroad can, for example,?
provide the technical know-how, and the local company provides the distribution and local market know-how.
In some countries, joint ventures or alliances are stipulated by?
law in order to enter the market (e.g., China).
It is often not simple for companies to find a suitable partner, one who is?
trustworthy and contributes in the same manner to a common goal and common success.
To establish a functioning partnership, companies have to be prepared to?
engage in relationship management and invest in the coordination of the partners.
However, partnerships often have problems associated with integration and coordination;
the transfer of know-how can be exploited by the local partner, which leads to a loss of the competitive advantage in this particular market.
More Information
For additional information about successful alliances, please refer to the article by?
Kaplan, Norton, and Rugelsjoen (2010).
Licenses
If companies do not want to sell their products or services directly in a foreign market, they can use?
license agreements with foreign partners.
The most popular license agreement is?
the so-called franchise agreement.
A well-known example of ?
a franchise system is the fast food chain McDonald’s. Other brands that use the franchising system to sell their products are Mister Minit, Tchibo, or Baumarkt in Germany. The advantage of a franchising system is that the partners share the risks and costs.
The license agreement defines the payments to?
the company in exchange for using the brand.
Especially in foreign countries, it can be difficult for companies to find?
good franchise partners that respect the intellectual property rights of the brand, adhere to its quality standards, and try to maximize sales.
A further disadvantage is that the company that wants to expand internationally cannot exploit local benefits, such as?
low wages, as the franchising or licensing partner reaps these benefits.
Furthermore, the company may lose its competitive edge in the market if the franchisee does not deliver the product or service that was promised by?
the organization or if the franchisee copies the system and opens his or her own business. Constant quality controls are the key to a successful franchise system.
Foreign Direct Investments
Foreign direct investments are capital investments made by?
a company in a foreign country.
Thus the influence and control over the operation in the foreign country rests with the investor. The investing company also transfers know-how and technology;
revenue goals are therefore key to the investment decision.
Advantages of the foreign direct investment include complete control over?
the operation and the possibility of coordinating a full integration, which will show a long-term commitment.
The company has the opportunity of entering a new market quickly by?
investing directly.
An additional advantage is that?
foreign direct investments are often subsidized.
Subsidy
This refers to governmental financial support for a new operation which does not need to be paid back.
However, foreign direct investments usually require?
a large financial and coordination commitment.
The full integration of a foreign company often fails despite all efforts as companies have to?
contend with not only a different culture in the foreign country but also a unique corporate culture.
Foreign direct investments are thus a risky and expensive option for?
organizations to expand internationally.
The world has grown closer together, and improvements in the infrastructure and the Internet have made it possible even for small companies to operate internationally.
Trade agreements and free trade zones facilitate?
the internationalization of businesses.
Companies that operate internationally benefit from economies of scale as they are able to?
increase sales and may benefit from local differences, such as lower wages.
The globalization of business also has disadvantages, such as?
interdependencies and increasing competition.
When companies decide to expand internationally, they should analyze?
the political, legal, economic, and social factors in those regions they want to invest in.
Furthermore, local factors such as resources and the local demand for?
the product or service need to be investigated.
Local suppliers and the local strategy, structure, and competition are factors that can potentially offer?
a competitive advantage to producers.
Choosing an option for its international expansion depends on؟
how much risk the company is ready to take.
Exporting is the easiest way of?
offering products or services internationally.
There is also the option of founding a partnership with a local company in the form of?
an alliance or a joint venture.
Many companies use the franchise system to sell in?
foreign countries through franchise partners.
The most costly way to invest in a foreign country is ?
through foreign direct investments.
