STAGES OF

INTERNATIONALIZATION

Domestic Company
International Company
Multinational Company
Global Company
Transnational Company
Versatile Business School, Egmore, Chennai - 600 008

Domestic company
Domestic company :Most international
companies have their origin as domestic
companies. The orientation of a domestic
company essentially is ethnocentric. A
purely domestic company operates
domestically because it never considers
the alternative of going international.
Limits operation, Vision, Mission to
National political boundaries

International companies
International companies are
importers and exporters, they have
no investment outside of their home
country.
Focus on domestic practices but
extend wings to foreign countries
(Mere export-import)

Multinational companies
Multinational companies have
investment in other countries, but do
not have coordinated product
offerings in each country. More
focused on adapting their products
and service to each individual local
market.
Different strategy for different market

Global companies
Global companies have invested and are
present in many countries. They market
their products through the use of the same
coordinated image/brand in all markets.
Generally one corporate office that is
responsible for global strategy. Emphasis on
volume, cost management and efficiency.
Either produce in one country and market
globally or produce globally and market
domestically

Transnational companies
Transnational companies are
much more complex organizations.
They have invested in foreign
operations, have a central corporate
facility but give decision-making,
R&D and marketing powers to each
individual foreign market.
Produces, markets, invests and
operates across the world

Approaches in International Business

ETHNOCENTRIC ORIENTATION:
The ethnocentric orientation of a firm considers that the products,
marketing strategies and techniques applicable in the home
market are equally so in the overseas market as well.
In such a firm, all foreign marketing operations are planned and
carried out from home base, with little or no difference in product
formulation and specifications, pricing strategy, distribution and
promotion measures between home and overseas markets.
The firm generally depends on its foreign agents and exportimport merchants for its export sales.
target market is own country , Excessive production will export
due to change in customer taste, preferences
Domestic companies view foreign markets as an extension to
domestic markets

Ethnocentric approach
Organization Structure
Managing Director

MGR
R&D

MGR
FIN

MGR
PROD

MGR
HRD

MGR
MKTG

Asstt. Mgr

Asstt. Mgr

Asstt.

Mgr
North india

South India

Exports

POLYCENTRIC OPERATION
Companies establish foreign subsidiaries and empowers its executives
attempts to organize its international marketing activities on a country
to country basis.
Each country is treated as a separate entity and individual strategies
are worked out accordingly.
Local assembly or production facilities and marketing organisations are
created for serving market needs in each country.
Polycentric orientation could be most suitable for firms seriously
committed to international marketing and have its resources for
investing abroad for fuller and long-term penetration into chosen
markets.
Polycentric approach works better among countries which have
significant economic, political and cultural differences and performance
of these tasks are free from the problems created primarily by the
environmental factors.
Companies establish foreign subsidiaries and empowers its executives

Polycentric approach
Organization Structure
Managing Director

CEO

FOREIGN SUBSIDIARY

SOUTH AFRICA

MGR
R&D

MGR
FIN

MGR
PROD

MGR
HRD

MGR
MKTG

REGIOCENTRIC
ORIENTATION :
the firm accepts a regional marketing policy covering a
group of countries which have comparable market
characteristics.
The operational strategies are formulated on the basis of
the entire region rather than individual countries.
The production and distribution facilities are created to
serve the whole region with effective economy on
operation, close control and co-ordination.
the company operating successfully in a foreign country
thinks of exporting other neighboring countries of the
host country.
Subsidiaries consider regional environment for
policy/strategy formulation

Regiocentric approach
Organization Structure
Managing Director

CEO

SOUTH AFRICA

Mktg

Mktg

Mktg

( Lesotho) ( Kenya) (

Nambia)

MGR
MGR MGR
MGR
MGR
R&D

FIN

PROD

HRD

MKTG

GEOCENTRIC ORIENTATION
the company analyses the tastes, preference and needs of the
customers in all foreign markets and then adopts a standardized
marketing mix for all the foreign markets.
Companies view the entire world as a single unit
the firms accept a world wide approach to marketing and its
operations become global.
In global enterprise, the management establishes
manufacturing and processing facilities around the world in
order to serve the various regional and national markets through
a complicated but well co-ordinate system of distribution
network.
There are similarities between geocentric and regiocentric
approaches in the international market except that the
geocentric approach calls for a much greater scale of operation.

Geocentric approach
Organization Structure
Managing Director
Headquarters India

Subsidiary
Subsidiary
Subsidiary
Subsidiary
India
Nambia

South Africa

Kenya

Mode of entry
Direct export.
The organization produces their product in their home market and
then sells them to customers overseas
Advantages
Control over selection of foreign markets and choice of foreign
representative companies
Good information feedback from target market
Better protection of trademarks, patents, goodwill, and other
intangible property
Potentially greater sales than with indirect exporting.
Disadvantages
Higher start-up costs and higher risks as opposed to indirect exporting
Greater information requirements
Longer time-to-market as opposed to indirect exporting. [7]

Indirect export
The organizations sells their product to a third party who then sells it on
within the foreign market.
Advantages
Fast market access
Concentration of resources for production
Little or no financial commitment. The export partner usually covers
most expenses associated with international sales
The management team is not distracted
No direct handle of export processes.
Disadvantages
Higher risk than with direct exporting
Little or no control over distribution, sales, marketing, etc. as opposed
to direct exporting
Inability to learn how to operate overseas

Licensing
Licensor will grant an organization in the
foreign market a license to produce the
product, use the brand name etc in return
that they will receive a royalty payment
For example, British American Tobacco
Company
(BATS) has given licenses in many
countries for the manufacture of their
brand of cigarettes 555. In India, ITC is
the licensed producer of 555.

Advantages and reasons to use an international

licensing

Obtain extra income for technical

know-how and services
Reach new markets not accessible by
export from existing facilities
Quickly expand without much risk
and large capital investment
Pave the way for future investments
in the market

Franchising
Franchising is a form of licensing wherein the franchiser
exercises more control over franchisee. The franchiser
supplies the main part of the product, and provides the
following services to the franchisee:
1. TRADEMARKS
2. OPERATING SYSTEMS
3. PRODUCT
4. BRAND NAME
Company support systems like advertising, training of
employees, quality assurance are also involved in
franchising
Eg: KFC, Pizza hut, Dominos Pizza

Advantages of the international franchising

mode:
Low political risk , Low cost, Allows simultaneous
expansion into different regions of the world ,Well
selected partners bring financial investment as
well as managerial capabilities to the operation.
Disadvantages of the international
franchising mode:
Franchisees may turn into future competitors
Demand of franchisees may be scarce when
starting to franchise a company, which can lead
to making agreements with the wrong candidates
A wrong franchisee may ruin the companys
name and reputation in the market

CONTRACT
MANUFACTURING
Many companies outsource their
products and concentrate mainly on
marketing operations. Contract
manufacturing is the strategy of
identifying a manufacturing unit to
produce items at a competitive pricein
any part of the world.
Nike is procuring its athletic footwear in
a number of factories in South East Asia.

CONTRACT MARKETING
All the companies, which are strong
in production, may not have equal
marketing strengths.
Wallmart, metro, best price

MANAGEMENT
CONTRACTS
Companies with a low level of technology
and managerial expertise may seek the
assistance of foreign countries.
agreement between two companies
whereby one company provides
managerial and technical assistance for
which proper monetary compensation is
given, either as a flat lump sum fee or a
percentage on the sales or a share in the
profits.

Joint venture
A joint venture is a binding contract
between two venture partners to set up
aproject either in home country or host
country or a third country.
In this case both parties are committed to
joint risk taking and joint profit sharing.
For example, Mahindra & Mahindra has
recently entered in to a joint venture with
Renault to manufacture cars. Pespsi&
lipton

COLLABORATION
a joint venture deals with the project
in totality, in financial terms and the
proportionate partnership
commitments, Collaboration deals
with only apart of the functions.
For example Bajaj Auto has
technological collaboration with
Kawasaki of Japan, who offers the
technology for two wheelers.

MERGERS AND
ACQISITIONS
Merger = A+ B = C
Glaxo wellcome + smith kline
beecham = Glaxo smithkline
Acquisition= A+B = A
Eg : tata group & Corus = tata group
Vodafone & hutch = vodafone

Take Over's
This is a strategy whereby a
company identifies a healthy unit
with strong brand name and network
and brings it under the management
of another unit in order to become a
leader in the field and guarantee
success
Eg: Hindujas who took over Ashok
Leyland and
Uniliver who took over Brook Bond

TURNKEY PROJECTS
A turnkey project is a contract under which a
company is fully involved from concept to
completion. It covers right from supply of
manpower, capital, and erection of plant,
installation and commissioning up to the trial
operation of a project. The turnkey project
contractors either get a fixed fee or the cost plus
profits are collected over a period of time.
Today,infrastructure projects like power plants,
airports, refineries, railway lines, highways and
dams are undertaken on a turnkey basis.
Eg Delhi metro, roads , airport