CHAPTER 4: THE GLOBAL BUSINESS EXPANSION/DEVELOPMENT

PROCES AND ORGANISATIONS

Globalizing a company’s business is a step-by-step process that require specific activities and
decisions o be made by the firm. In the chapter we shall examine the key steps involve in the
internationalization of a company as well as the major business philosophy in each stage
before looking at the major player the global market.

SECTION 1: The Key Steps in the Globalization of a Business

Generally, the international business operation go through five different steps as follows:

➢ The decision to internationalize

➢ The choice of the targeted market

➢ The choice of the mode of entry

➢ The elaboration of the international marketing plan

➢ The choice of the mode of organisation and the development policy

4.1. The Decision to engage in Global Business

For a manager to decide whether or not to engage in international business operation, he

bases on certain factors such as:

Assessment of the mode of management: An enterprise that envisages internationalizing

her activities must verify her mode of management to see if it fit in with global business
requirements.

The identification of the strength and weaknesses of the enterprise. This is done in
order to define the resources and competences that will be necessary for her in the export
market.

The internationalization motive: In practice, an enterprise enters into international market

in two ways; Either it is solicited by an exporter of this country, or an importer or foreign
government or she takes the initiatives of the operation due to a super capacity of her
production or more interesting possibilities in the foreign market than in the internal market.

4.2. The Choice of the Market

The key activities in the process of selecting the international market (s), which the company
will operate include the following
 A. The Study of the Exploitability of the Eventual Targeted Country Market

Before analyzing the specific market in which the enterprise wishes to operate, it is essential
to

➢ Firstly, put aside risky countries i.e., countries where the economic, political and
social situation does not permit to envisage normal commercial relations.
➢ Secondly classified the potential interesting countries in priority order based on:
the economic demographic, judicial, cultural criteria etc.

B. The Choice of the Zone or Country Identified as the Most Pertinent

In order to select the target market, the manager must study in a more precise manner and
evaluate the attractiveness of each of the potential interesting country. Here, the manager
carryout a verification on

1) The potential and constraints of the new market. Here, the manager has to
➢ Estimate the actual potential of each market. That is the possible sales and profit
that the market can currently generate. This work is done using the existing
documents compiled from the information acquired through the means of inquiries
(investigation).
➢ Preview the future potentials: It consists of anticipating the economic, political,
demographic and cultural evolution of the cultural market to see how it will affect
current business trends. This help bring out future opportunities and threats in the
market.
2) The level of competition in the new market: it consists to examine the enterprise
competitive position in the market given that she is to be faced with both local and
international competition. What can the enterprise due better than rivals in this market.
The use of the five-force model of Micheal porter, strategic group mapping as well as
benchmarking of competitors is very vital to draw this conclusion.
3) The possible market share: the manager has to evaluate the manner in which buyers
will appreciate the relative advantage of the product and the enterprise that produces
them. he needs to determine the relative and absolute market shares. This is so
because in the global market, the enterprise is exposed to the competition not only from
the local enterprises but equally from other exporters.
4) Prevision of cost and benefits: Cost depends on the strategy envisage by the enterprise
to penetrate the market (export or DFI). After haven evaluated her cost, the enterprise will
deduce her turnover so as to determine the benefit of the enterprise for each year in a
provisioner manner
5) The estimation of the returns on investment: To estimate profitability, we will need to
verify the benefits on investment, the rate of returns has to be sufficient in other to offer
the habitual objective of all enterprises i.e. return on capital invested, as well, it has to
cover the risk attached to marketing in the foreign market. It all depend on: (1) risk
relative to investment; this is the risk linked to the actions that the government or
population can take such as confiscation, destroyed/damaged properties. (2) Risk
relative to operation itself. this is risk linked relatively to economic resources and
revaluations etc.

6) Her wish and what she can really do.

In conclusion, we observed that to select the market the enterprise will want to focus on, she
has to: Elaborate a systematic procedure of evaluating and comparing the different potential
interesting countries.

Section 2: Approaches and Stages in Global Business Development

In the globalisation process, firm progress in different stages and adopt specific business
approach or philosophies according to the stage in which they are in the globalisation
process. This section presents the key philosophies and corresponding stages of
internationalisation.

1.1. The business approaches or philosophies

1) Ethnocentrism: the international development is considered secondary where

national market is still the goal. Hence global business is done for example in order to
clear or adjust her stocks. Here, the enterprise simply transposes her domestic
marketing tools to the inter market. That is, 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 export-import merchants for its export sales.

2) Polycentrism: By Polycentrism, the enterprise recognizes the impact of the sales

volume and profit from her global market ventures. Here, her international market
decisions (strategies) are articulated or defined with respect to the specificities of each
country or market in order to preserve the particularity of each zone and take into
consideration, the socio-cultural difference. Each country is treated as a separate
entity and individual strategies are worked out accordingly. Local assembly or
 production facilities and marketing organizations 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. It is best when countries have
significant economic, political and cultural differences and performance of these tasks
are free from the problems created primarily by the environmental factors.

3) Regiocentrism: Here, the enterprise has a strong maturity and a solid experience in
international marketing. As such, in her marketing (strategies), she takes into account
those international markets which present identical economic characteristics and
same or similarity features. To this market considered, the enterprise then
standardized her marketing policies with respect to the characteristics of the
market. That is, in egocentric approach, the firm develops 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 coordinated.
Adaptations are only made where needs arise.

4) Geocentrism: By Geocentrism, the enterprise considers the planet as one single

market. The marketing approach here is qualified planetary. To this, the enterprise
conceives a world strategy which is going to be applied at all levels. 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.

1.2. The stages in global business expansion

These approaches correspond respectively to the following stages of global business

expansion/ development

1) Sporadic Stage: this stage exposes the enterprise into learning how to carryout
current export operations like export logistics, methods of inter payment,
identification of international partners or intermediaries.

2) The Current Regular stage of Affairs: Here, the activities of the enterprise an
international business change from being marginal to become important. The
enterprise closely follows her business decisions and carryout international business
 prospection. The enterprise search for commercial partners such as representatives
and importers in other countries. This stage is characterized by:

➢ An enlargement of the market in which the enterprise is operating

➢ An increase in the number of customers in the international market.
➢ An increase in the quantity of or volume of commands made by customers.
➢ An increase in fidelity and customer purchase
3) The Internationalization stage: at this stage, the internationalized activities of the
enterprise are identical both abroad and home. This stage is very delicate to the
enterprise because, it requires the enterprise to:

➢ Have a mastery of new skills by the enterprise management body particularly the
skills on how to realize profit from the investments made abroad.

➢ The delegation capacity from the managing body i.e., assigned functions or
responsibility to a representative abroad.

➢ It requires a good mastery of international marketing tools such as the definition of

the field of action (international marketing (strategy) at the strategic level and the
elaboration of the international marketing plan.

➢ Once the enterprise turnover realized from abroad is 50% of her total turnover. the
enterprise status changes into a multinational enterprise.

4) The Globalization stage: The globalization of the enterprise activity is the final stage
of international opening to an enterprise. This stage sees multinationals all over the
world as leaders of their domains of activities. Here the enterprise local market
(domestic market) only represents a small part of her commercial or industrial
activities. Here, there is no longer the difference between domestic market and
international marketing. Examples could include coca cola Rossignal, Michelin etc.

1.3. The International Business Opening logic

The Global business opening follows a sequential process: that is, from exportation via
intermediaries, to exportation via agents, to exportation via filial and then implantation. In
order words it moves from sporadic stage, to current regulation affaire, to internationalisation
and finally to globalisation.

However, it consists of a relative sequential and deterministic process because some

internal and external factors may disrupt the sequential process. The internal and external
factors that influence the sequential process of international business opening are as seen
below:
 a) External factors

1) The cost of commercial negotiation and that of establishing and following up

international business contracts. Once this cost is high, it can cause the skipping of
some steps

2) A lesser cost of production in other countries than in the domestic market.

3) The regulatory constraints of the foreign market

4) The reaction of local competitors to the entry mode and means put in place with the
enterprise

b) Internal factors

1) A simultaneous utilisation of different modes of entry.

2) The use of shortcuts in the of the process of international opening by an enterprise

thanks to the accumulated experience gather in the international scene.

SECTION 3: Major types of global business organisations

The above explain stages of internationalisation are characterise by different type of

business. By implications the name of each international business is in function of it stage in
international business operation. These different organisations are:

1) Domestic Companies: they are those who generally have an ethnocentric reasoning
and sees international business as just accessary to their activity. Hence, they can
carry out international business either via; exportation, licences or franchising. The
key types of business here are small and medium size companies
2) International companies: They are those who carry out international importation or
exportation but have no direct investment in any foreign market. They could be SMEs
or large size firms
3) Multinational companies: they are does who have investment in more than one
country but whose activities are not coordinated business operations. They adapt their
product to each national market according to its characteristics
4) Global companies: they have investments in several other countries but their
activities are coordinated from one corporate office which put in place a global
strategy. They are focus on acquiring high volume, cost efficiency.
5) Transnational companies: They are much more complex organisation. They invest
in foreign operations, have coordinated activities but delegate the power of
decision making, R&D, and marketing activities to his representatives in each
international market.
CHAPTER 5: THE DIFFERENT MODES OF ENTERING THE
INTERNATIONAL MARKET.