Stages of Internalization The stages of internationalization has been changing at a faster rate after 1990 s.

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 grow th rate & GDP of countries like China, India, Brazil, Mexico. Spread of MNC . In creased globalization of culture. Increase in business alliances like mergers, t akeovers, joint ventures. Increase in educational opportunities, in developing e conomies. 1

STAGES OF INTERNTIONALIZATION Internationalization process different stages 1. Domestic company Mission object ives Features Environment Expansion Diversification Does not think globally No i nternational 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 co mpany 2

Formulates Strategy for foreign Markets Focus: Domestic with branches at foreign countries Domestic product price and promotion to foreign markets Resources req d. limited Gradually extends from one country to another country. Pattern of int ernationalization. 3. Multinational Company & Multidomestic Co. Limitations of International Compan y In the longrun vulnerable Expansion difficult Eg.: Toyata of Japan Export of T oyapet 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 3

Multidomestic Formulates different strategies for different markets Shift of Foc us p Ethnocentric to Polycentric Polycentric Approach. An MNC will work like a d omestic company in each country (Subsidiary / Branch/ Office of MNC) There are c ertain limitations of MNC with polycentrism too. Eg.: Multidomestic Co. Philips of Netherlands (1960). Autonomy for policy formulation but later failed when Mat sushita of Japan entered with global Focus i.e. Quality Value Design Low price To meet the specific Mktg. Requirements, strategies need to address the problems . Hence later Philips changed its strategy/approach. 4 RegioCentrism & Geocentrism

4. Global Company A global company is the one which has either Global Marketing strategy or a Global Production Strategy Production Single Country Globally Dome stically Mktg. Globally Eg.: Harley, USA, Heavy Motor Cycles designs & Produces at USA Mktg. p Globally Dr. Reddys Lab: India Mercedes Germany Procures products globally and markets in one country through retail network etc. Focus (Understanding consumer + Competit ive Advtg.) 5

5. Transnational Company TNC produces, markets, invests and operates across the world. It is an integrated global enterprise which links global resources with g lobal 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 c ustomer Allows adaptation to add value to its global offer. Assets distributed t hroughout the world Independent, specialized R & D integrated. Production spread but specialized and integrated. Mfg. + Assembly in different countries 6

Units of TNC create and develop knowledge in all functions and share among them. Eg. Caterpillar : Mfg/ Assembly many locations ii) Scanning or Information Acqu isition: Environmental Information, geographic scope iii) Vision & Aspirations: Global, Global markets, Global customers, ahead of global co/TNCs iv) Operating style: Key operations are globalised. Eg.: Proctor & Gamble p R & D Colgate p Ke y human resources v) Adaptation to suit local environment Mercedes Benz: Super l uxury 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 source viii) HR policies (Geocentric) 7

Stage and Company/Att ributes Strategy Model Domestic International Multi domestic Global TN Domestic NA International Co-ordinated federation Extension Markets Ethnocentric Multidomestic decentralised federation National Markets Global centralized hub Global Markets or Resources Mixed All in Home country Exc ept Mktg or sourcing Mktg. Or sourcing Mktg. developed jointly and shared Global integrated network Global Mkts & Resources Geocentric Dispersed Interdepe ndent & specialised View of World Home Country Orientation Key Assets Ethnocentric Located in Home Country Polycentric Decentralised Core self sufficient centralized, others dispersed Role of country units Knowledge Single country Adapting and leveraging competencies Created at center and transferred Exploiting local opportunities Retained with in operating units Contributions to company world wide All functions developed jointly and shared 8 Home country Source: Warren Keegen

International Business Approaches (IBA) According to Douglas Wind & Pelmutter there are four IBPs 1. Ethnocentric Approa ch 2. Polycentric Approach 3. Regiocentric Approach 4. Geocentric Approach The s tages in the international Business are based on the aforesaid approaches to Int ernational Business 9

1. Ethnocentric Approach Organization . Structure of Ethnocentric MNE Managing Director Manager R&D Manager Finance Manager Prodn. Manager Human Resource Manager 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 10

2. Polycentric Approach Orgn. Structure of polycentric approach. Managing Director Manager R&D Manager Finance Manager Prodn. Manager HR Manager Mktg. Features: 1. Later stage of Ethnocentric Approach for domestic cos. 2. Foreign s ubsidiary with CEO Decentralization of operations Delegation of Decision Making (Including major de cisions) Appointments from home countries (key personnel) Sub. Co. formulates po licies, strategies, designing the product etc. based on prevailing environment at Host country. 11

Focus: On the conditions of the host country in policy formulation, strategy imp lementation & operation. 3. Regiocentric Approach Orgn. Structure Managing Director CEO Subsidiary Southern Africa Mktg Lesotho Mktg Kenya Mktg Namibia Manager R&D Manager Finance Manager Prodn. Manager HR Manager Mktg. 12

Features: 1. Extension from single country to many countries. 2. Foreign Subsidi aries considers regional Environment. Eg. Africa, Asia or South East Asia 3. Pol icies and strategies are based on regional Environment 4. Production design coul d be same but Mktg. Strategies invariably varies. 4. Geocentric Approach: Entire world e with no. of Each sub. co. HR Policies, 13 is treated like a country Select Employees from Entire globe Operat subsidiaries Coordination of activities at Head quarters is autonomous in formulating policies, strategies, product design, operations etc.

Managing Director Subsidiary India Subsidiary Namibia Subsidiary Kenya Subsidiary Lesotho Subsidiary South Africa Eg.: Aircraft Defence Techonology 14

Evolution of strategy in the Internationalization Process: There are variations among cos. IBM, Nestle/Toyota However there are overall pat tern in internationalization process Focus p Risk Minimization behaviour Domestic Less risky Pattern of Expansion. Strategies for heavy International com mitments usually evolve gradually from: Foreign Mktg. Greater risk is attached t o FM Passive to active pursuit of opportunities External to Internal handling of Busi ness Limited to Extensive modes of operations Few to many foreign Locations Simi lar to dissimilar environments 15

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. Impetus for Intl. Business A High Medium Low Company handles foreign Other firms handle external contracts Internal versus external handling of foreign operatio ns B Domestic Business One Several E Degree of similarity between foreign and domestic countries Many Extensive C Mode of operations prodn. Abroad with DDI and all other functions 16