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    Models of Internationaisation

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    Shreyas Raut
    Larsen and Toubro (L&T) is an Indian multinational engaged in engineering, procurement and construction projects. It has operations across several countries and follows various models of internationalization over time. Based on the Uppsala model, Transaction Cost Theory and Network model, L&T began with indirect exports and has increasingly established joint ventures and wholly-owned subsidiaries globally, achieving a high level of internationalization.

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    Models of Internationaisation

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    Shreyas Raut
    462 views8 pages
    Larsen and Toubro (L&T) is an Indian multinational engaged in engineering, procurement and construction projects. It has operations across several countries and follows various models of internationalization over time. Based on the Uppsala model, Transaction Cost Theory and Network model, L&T began with indirect exports and has increasingly established joint ventures and wholly-owned subsidiaries globally, achieving a high level of internationalization.

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    UPPSALA, transaction cost , IFC etc

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    Larsen and Toubro (L&T) is an Indian multinational engaged in engineering, procurement and construction projects. It has operations across several countries and follows various models of internationalization over time. Based on the Uppsala model, Transaction Cost Theory and Network model, L&T began with indirect exports and has increasingly established joint ventures and wholly-owned subsidiaries globally, achieving a high level of internationalization.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    462 views8 pages

    Models of Internationaisation

    Uploaded by

    Shreyas Raut
    Larsen and Toubro (L&T) is an Indian multinational engaged in engineering, procurement and construction projects. It has operations across several countries and follows various models of internationalization over time. Based on the Uppsala model, Transaction Cost Theory and Network model, L&T began with indirect exports and has increasingly established joint ventures and wholly-owned subsidiaries globally, achieving a high level of internationalization.

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    of 8

    Larsen and Toubro Hydrocarbon Upstream: L&T- Upstream is in to EPIC industry in construction of offshore oil and gas platforms.

    . We have our own engineering center, LT-Valdes, at Bangalore. Our own central Procurement team at Powai, Mumbai. We have three fabrication yards at Sohar Oman, Hazira Gujarat India and Katupalli Andhra Pradesh India. We also have our own Installation and Pipe lay vessel, LTS 3000 in JV with M/s Sapura. Our project life cycle is typically 18 months, where we do complete engineering of the module, procure material, fabricate, transport to offshore site, install and commission. We have all in house capabilities of the entire value chain but one. After the module is fabricated we hire transportation barges and tugs from foreign market, preferably from Middle East or Far East for transportation of modules from fabrication yards to offshore sites.

    The different models to understand how global or internationalized a company is are: Concept of Internationalization Uppsala Model Transaction Cost Theory The Network Model The OCF Model The Functional Model Scale, Scope and Synergy Model

    [A] Stages of Internationalization:

    Larsen and Toubro as a company is purely Transnational since it has different subsidies in different countries where each of them has their own head office, operations, policies, hierarchy and structure.

    [B] UPPSALA Model:


    The Uppsala model is a theory that explains how firms gradually intensify their activities in foreign markets. Firms first gain experience from the domestic market before they move to foreign markets; firms start their foreign operations from culturally and/or geographically close countries and move gradually to culturally and geographically more distant countries; firms start their foreign operations by using traditional exports and gradually move to using more intensive and demanding operation modes (sales subsidiaries etc.) both at the company and target country level. Currently L&T has several joint ventures with many companies around the world, 1) L&T Sapura Acergy in Malaysia 2) Mitashi In Japan 3) L&T - Komatsu Limited In Japan It also has many Subsidiaries around the world, some of them are as listed below 1) Larsen & Toubro financial services Financial Services is a subsidiary which was incorporated as a Non Banking Finance company in November 1994. [28] The subsidiary has a spectrum of financial products and services for corporate, construction equipments etc. L&T Finance was able to withstand the market dynamics and adapt as per that. 2) Larsen and Toubro Infrastructure Finance Company Limited was set up as a 100% subsidiary of L&T. It commenced its business in January 2007 upon obtaining Non-Banking Financial Company (NBFC) license from the Reserve Bank of India (RBI). As of 31 March 2008, L&T Infrastructure Finance has approved financing of more than a billion USD to select projects in the infrastructure sector. 3) L&TIntegrated Engineering Services (IES L&T Integrated Engineering Services (L&T IES), a business unit of L&T, offers a combination of mechanical, electrical and electronic design (mechatronics/embedded systems), civil and architectural services. L&T IES has its design and delivery locations in Vadodara, Chennai, Bangalore, Mysore and Mumbai in India. It is clear that L&T has developed in increasing commitment and also diversified in many countries by increasing its geographical presence, thus increasing Internationalization Index as per the UPPSALA model.

    [C] Transaction Cost Theory:


    With relation to transaction cost theory and the internationalization aspect of companies, the organization will seek the internationalization of activities, which economizes n transition costs. The below table clearly illustrates the linkage between transactions and internalization Asset Specificity High Low Medium Low Frequency Of Transaction High Occasional Transactions Contracts Turnkey Projects

    Externalization (Market Turn = distributor /importer)

    Bilateral Agreements (Joint Ventures)

    Internationalization (vertical Integration, 100 % owns Subsidiaries)

    Base on on above model L&T is at Internationalization level.

    [D] The Network Model

    The early starter, is the firm which has competitors, suppliers and other firms in the domestic market that have few international relationships. The firm has little knowledge about foreign markets and cannot expect to get thisknowledge from its relationships in the domestic market. In this situation firms use agents to enter foreign markets The second, the lonely international, is the firm which is highly internationalized in a market environment that is not so characterised. Initiatives for increasing internationalisation do not come from suppliers, customers or competitors as they are not internationalized. This firm has acquired knowledge and experience with foreign markets so failures are rare The third type, the late starter, has indirect relations with foreign business networks, through its suppliers, customers and competitors who are already internationalised. These relationships might be driving forces to propel firms into foreign markets The fourth type, to which L&T belongs are the international-among-others, describes the situation where both the firm and its environment are highly internationalized. Sales subsidiaries are established rapidly as they have the international knowledge, and there is a great need to coordinate activities in different markets. The positions that international among others occupies in international networks gives it access to external resources. Thus sub-contracting increases and this may be a requirement of foreign governments. Through its customers or joint venture partners in foreign markets the firm has the opportunity to enter third countries.

    [E] OCF Model


    OFC stands for Ownership, Control and Facilities and the matrix below can define the stage at which the company is. I D Y Y Y F D Y Y Y II F D Y Y Y III F D IV F Y Y Y

    Stages Ownership Control Facilities

    L&T is in Stage III. It has ownership in India the as domestic company but has given local control and has facilities setup in each foreign country.

    [F] Functional Model


    Evolution of a Global Company:

    L&T as a company is in Stage IV where it has full set up in many foreign countries like operations, sales, administration, HR and some part of finance as well, only the resource policies and management is not completely under the Mumbai L&T corporate.

    [G] Scale, Scope and Synergy Model


    L&T is in Phase III (Globalisation Rationalized)

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