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Unit 1: International Business: An Overview

For example, it does not have to manage a foreign work force. notes
Companies often move into some type of foreign production after successfully building
exports to that market. Initially this foreign production is apt to minimize the use of one’s
own resources by licensing, by sharing ownership in the foreign facility, or by limiting the
amount of manufacture such as simply packaging or assembling output abroad.
Nevertheless this foreign production usually involves a greater international commitment
of the company’s resources than does exporting to importing. The greater commitment
results primarily because the company has to send qualified technicians to the foreign
country to establish and help run the new operations. Further, it must be responsible for
multifunctional activities abroad, such as sales and production. Later, companies are apt
to make an even higher commitment through foreign direct investments that involves
more than packaging and assembly. Their infusion of capital, personnel, and technology
are highest for these operations. A company typically does not abandon its early modes
of operating abroad, such as importing and exporting, when it adopts other means of
operating internationally. Rather, it usually continues them by expanding its trade to new
market or complements them with new types of business activities.

4. Geographic Diversification – Path D: When companies first move internationally, they
have one or very few foreign locations. Axis D in Figure l.1 shows that overtime, the number
of countries in which they operate increases. The initial narrow geographic expansion
parallels the low early commitment of resources abroad. It also minimizes the number of
foreign environments with which the company must be familiar.
Initially, companies tend to go to those locations that are geographically close and/or
perceived to be similar. There is also a perception of less risk because of greater familiarity
with nearby areas and because of a perception of similarity of environments because of
common languages and levels of economic development. Later, companies move to more
distant countries, including those that are perceived to have less similar environments to
those found in home country.
5. Leapfrogging of Expansion – Path E: The patterns that most companies have followed in their
international expansion are not necessarily optimal for their long range performance.

Example: The initial movement into a nearby country, like movement by a US company
into Canada, may delay entry into faster growing markets, such as some of those in Southeast
Asia. There is, however, evidence that many new companies are starting out with a global
focus.

Normally the following stages of internationalization can be followed as:
Stage 1 – Domestic Company: Domestic Company limits its operations, mission and vision
to the national political boundaries. These companies focus its view on the domestic market
opportunities, domestic suppliers, domestic financial companies, domestic customers etc. These
companies analyze the national environment of the country, formulate the strategies to exploit
the opportunities offered by the environment.
Stage 2 – International Company: These companies select the strategy of locating the branch
in the foreign market and extend the same domestic operations into foreign markets. These
companies remain ethnocentric or domestic country oriented. Normally internalization process
of most of the global companies starts with this stage of two processes. Many of the companies
follow this strategy due to limited resources and also to learn from the foreign market gradually
before becoming a global company without much risk.

Stage 3 – Multinational Company: This stage of multinational company is also referred as
multidomestic company formulates different strategies for different market, thus the orientation
shift from ethnocentric to polycentric. Under polycentric orientation the offices/branches/

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