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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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