Stages of Internalization

• The stages of internationalization has been changing at a faster rate

after 1990s.
• 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 growth rate & GDP of countries like China, India, Brazil, Mexico.
• Spread of MNC .
• Increased globalization of culture.
• Increase in business alliances like mergers, takeovers, joint ventures.
• Increase in educational opportunities, in developing economies.
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 STAGES OF INTERNTIONALIZATION
Internationalization process – different stages
1. Domestic company
Mission – objectives
Features – Environment – Expansion – Diversification
Does not think globally
No international 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
2
Product design, policies, strategies – done by domestic company
Formulates Strategy for foreign Markets
Focus: Domestic with branches at foreign countries
• Domestic product price and promotion to foreign markets
• Resources reqd. limited
• Gradually extends from one country to another country.
• Pattern of internationalization.

3. Multinational Company & Multidomestic Co.

• Limitations of International Company
• In the longrun – vulnerable
• Expansion difficult
Eg.: Toyata of Japan
Export of Toyapet 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 Focus  Ethnocentric to Polycentric
Polycentric Approach. An MNC will work like a domestic company
in each country
(Subsidiary / Branch/ Office of MNC)
There are certain limitations of MNC with polycentrism too.
Eg.: Multidomestic Co. Philips of Netherlands (1960). Autonomy
for policy formulation but later failed when Matsushita of Japan
entered with global Focus – i.e.
 Quality
 Value RegioCentrism & Geocentrism
 Design
 Low price
To meet the specific Mktg. Requirements, strategies need
to address the problems.
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Hence later Philips changed its strategy/approach.
4. Global Company
A global company is the one which has either Global Marketing strategy or a Global
Production Strategy
Production Mktg.
Single Globally
Country
Globally Domestically
Eg.: Harley, USA, Heavy Motor Cycles designs & Produces at USA
Mktg.  Globally
Dr. Reddy’s Lab: India
Mercedes – Germany
Procures products globally and markets in one country through retail network etc.
Focus (Understanding consumer + Competitive Advtg.)

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5. Transnational Company
TNC produces, markets, invests and operates across the world.
It is an integrated global enterprise which links global resources with global 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 customer
 Allows adaptation to add value to its global offer.
 Assets distributed throughout 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 Acquisition:
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  R & D
Colgate  Key human resources
v) Adaptation to suit local environment
Mercedes Benz: Super luxury 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)
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 Stage and Domestic International Multi domestic Global TN
Company/Att
ributes
Strategy Domestic NA International Multidomestic Global Global
Model Co-ordinated decentralised centralized integrated
federation federation hub network

View of World Home Country Extension National Markets Global Global Mkts &
Markets Markets or Resources
Resources

Orientation Ethnocentric Ethnocentric Polycentric Mixed Geocentric

Key Assets Located in Core Decentralised All in Home Dispersed

Home Country centralized, self sufficient country Interdependent
others dispersed Except Mktg & specialised
or sourcing

Role of country Single country Adapting and Exploiting local Mktg. Or Contributions
units leveraging opportunities sourcing to company
competencies world wide
Knowledge Home country Created at Retained with in Mktg. All functions
center and operating units developed developed
transferred jointly and jointly and
shared shared

Source: Warren Keegen 8

 International Business Approaches (IBA)
According to Douglas Wind & Pelmutter there are four IBPs

1. Ethnocentric Approach

2. Polycentric Approach

3. Regiocentric Approach

4. Geocentric Approach

The stages in the international Business are based

on the aforesaid approaches to International Business

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1. Ethnocentric Approach
Organization . Structure of Ethnocentric MNE

Managing
Director

Manager Manager Manager Manager

Manager
R&D Finance Prodn. Human
Mktg.
Resource

Asst. Asst. Asst.

Manager Manager Manager
North India South India Exports

Features: (1) Exports (2) Foreign Mkt. Extn. of Domestic Markets (3) Domestic co. formulate
strategies (4) Export Dept. Product Design, Operations

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 2. Polycentric Approach
Orgn. Structure of polycentric approach.

Managing
Director

Manager Manager Manager Manager Manager

R&D Finance Prodn. HR Mktg.

Features:
1. Later stage of Ethnocentric Approach for domestic cos.
2. Foreign subsidiary with CEO
 Decentralization of operations
 Delegation of Decision Making (Including major decisions)
 Appointments from home countries (key personnel)
 Sub. Co. formulates policies, 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 implementation
& operation.

3. Regiocentric Approach
Orgn. Structure
Managing
Director
CEO Subsidiary
Southern Africa

Mktg Mktg Mktg

Lesotho Kenya Namibia

Manager Manager Manager Manager Manager

R&D Finance Prodn. HR Mktg.

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Features:
1. Extension from single country to many countries.
2. Foreign Subsidiaries considers regional Environment.
Eg. Africa, Asia or South East Asia
3. Policies and strategies are based on regional Environment
4. Production design could be same but Mktg. Strategies invariably varies.

4. Geocentric Approach:
 Entire world is treated like a country
 Select Employees from Entire globe
 Operate with no. of subsidiaries
 Coordination of activities at Head quarters
Each sub. co. is autonomous in formulating policies, strategies, product design, HR Policies,
operations etc.

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 Managing
Director

Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary

India Namibia Kenya Lesotho South Africa

Eg.: Aircraft
Defence Techonology

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Evolution of strategy in the Internationalization Process:
 There are variations among cos. IBM, Nestle/Toyota
 However there are overall pattern in internationalization process
 Focus  Risk Minimization behaviour
Domestic Foreign Mktg.
Less risky Greater risk is attached to FM
Pattern of Expansion.
Strategies for heavy International commitments usually evolve gradually from:
 Passive to active pursuit of opportunities
 External to Internal handling of Business
 Limited to Extensive modes of operations
 Few to many foreign Locations
 Similar to dissimilar environments

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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 Internal versus external

High
Intl. Business A B handling of foreign
operations
Medium
po rch ve

Company
nit for
op sea Acti

ies

handles
Low foreign
rtu

pr ons sive

Other firms
os to

handle
s p as

als
op e

Domestic
re P

external
Business
contracts
ts
Qu
i n produc s
sim te Ltd fo r e ig ion
ilar u l t ip l e funct
Mo
de One and m
Ve simil ratel
di ry ar y Several
ss
E
im
ila
Extensive C Mode of operations
r prodn. Abroad
Degree of similarity Many
with DDI and
between foreign and all other
domestic countries functions 16