Chapter 11: ENTRY AND EXPANSION

Initiating international business activities takes the firm in an entirely new direction, quite different from adding a product line or hiring a few more people. Going international means that a fundamental strategic change is taking place. Companies that initiate international expansion effort and success with them, typically begin to enjoy operational improvements-such as positioning strengths in competition- long before financial improvements appear.

The first step in developing international commitment is to become aware of international business opportunities. Management must then determine the degree and timing of the firm’s internationalization.
Proactive motivation to do international business. Profits are the major proactive motivation for international business. Management may perceive international sales as a potential source of higher profit margins or of more added-on profits. Profitability is often linked with international growth-yet many corporate international entry decisions are made based on expectations of market growth rather than actual market growth.

Unique products or a technological advantage can be another major stimulus. Other proactive stimulus is special knowledge about foreign customers or market situations. Tax benefits can also play a major motivating role. A final major proactive motivation involves economies of scale.

Reactive motivations describe stimuli that result in a firm’s response and adaptation to changes imposed by the outside environment. The other words, the firms with reactive motivations go international because they have to. The motivations are competitive pressures, overproduction, declining domestic sales, excess capacity, saturated domestic markets, and proximity to customers and ports.

Going international the firm with new environments, entirely new ways of doing business, and host a new problems. The problems have a wide range. They can consist of strategic considerations, such as service delivery and compliance with government regulations. The firm needs to determine its preparedness for internationalization by assessing its internal strengths and weaknesses.

The alternatives for international business entry are licensing, franchising, and local presence. Under licensing, one firm permits another to use its intellectual property for compensation designated as royalty. The property licensed might include patents, trademarks, copyrights, technology, technical know-how, or specific business skills. The basic advantage is that it does not involve capital investment or knowledge of foreign markets. Its major disadvantage is that licensing agreements typically have limit, are often proscribed by foreign governments, and may result in creating a competitor.
There are many types of strategic alliances such as informal cooperation, contractual agreements, equity participation, joint venture, consortia, and managerial consideration.
1. Informal cooperation. In informal cooperative deals, partners work together without a binding agreement. This arrangement often takes the form of visits to exchange information about new product, processes, and technologies. The relationships are based on mutual trust and friendship.
2. Contractual agreements. Strategic alliance partners may join forces for joint R&D, join marketing, or joint production. Their joint efforts might include licensing, cross-licensing, or cross-marketing activities.
3. Equity participation. Many multinational corporations have acquired minority ownerships in companies that have strategic importance for them to ensure supplier ability and build formal and informal working relationships. The partners continue operating as distinctly separate entities, but each enjoys the strengths the other partner provides. This type is chosen because market entry and support of global operations.
4. Joint venture. Joint venture can be defined as the participation of two or more companies in an enterprise in which each party contribute assets, has some equity, and share risk.
5. Consortia. The consortia pool their resources for research into technologies ranging from artificial intelligence to semiconductor manufacturing.
6. Managerial consideration. The first requirement of inter firm cooperation is to find the right partner. Partner should have an orientation and goals in common and should bring complementary and relevant benefits to the endeavours.