Free «Exploring Corporate Strategy» Essay
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Internationalization of trade opens new opportunities for domestic companies to sell their products and expend target markets. International marketing is one of business's significant frontiers. The full effect of internationalization is a long way from achievement. Its influence will continue to grow as increasing numbers of companies establish operations abroad. These opportunities, though substantial in total, confront a company with several basic problems. To be effective, internationalization of trade requires more than a consideration of corporate effort alone. It needs an integrated plan that takes into account both government policy and the competitive position of participating American businesses.
Causes and Drivers of Internationalization
Internationalization is defined as: “a process of increased international business activity” (Hollensen 2007; p. 54). Critics (Johnson and Scholes 2006) explain that common markets achieve economies in the social, economic, and even political policies of member countries by pooling resources, technology, and markets. In Europe, the development of homogeneous conditions within the Common Market is said to spring from the harmonization of objectives. Yet many problems exist, and common markets do not necessarily result in homogeneous product needs. In many companies international activity is seen as source of "additional revenue" while a business continues serving its regular markets. This is the usual perspective, particularly when businesses first enter the international arena. Eventually, however (as international market opportunities expand, foreign investments increase, profits expand, and the rate of growth of international markets becomes greater than domestic market opportunities), the focus changes. International markets are seen as an integral part of the business system, since they affect fundamental strategies, plans, and organizations, and generate a large proportion of total profits (Brewster and Harris 2004;Hollensen, 2007).
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For some companies, internationalization is the only possible way to survive and remain competitive. For instance, for hotel chains and travel agencies local markets are too small to proper and gain competitive advantage. The result is that the distinction between international and domestic marketing is blurring. The multinational or global corporation is emerging to prompt a new organizational style. Within organizations, a world-wide perspective is unfolding in marketing management, with marketing decisions made on the basis of global alternatives. Companies are now integrating foreign sales with total sales, and the distinction simply becomes one of marketing in other territories. In this sense there are no foreign markets, just logical extensions of current markets that become integral components of the complete marketing scheme (Sterman, 2000). Each management seeks the means most suited to their company to cultivate international markets. Each company's current markets, corporate structure, finances, product line, and image all have an influence on its operations abroad. But, flexible marketing policies are required for distribution channels, pricing, and advertising policies. They must be adjusted to meet foreign environments (Black, 2003).
The marketing philosophy knows no national boundaries. Assuming that companies seek to satisfy profitable markets, the concept ignores political divisions and views markets on a global basis. The acceptance of a multinational philosophy of business means that research and development, new products, and new methods of doing business must be designed for specific areas. It recognizes that differences in social, economic, political, and legal environments limit the mobility of total company resources (Hollensen, 2007). For modern business it underscores the transcendence of national boundaries and the necessity of doing business with countries in varying stages of economic development. It also implies that business can become one of the least nationalistic of all institutions.
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Methods of internationalization
The main methods of internationalization are franchising, licensing agreements, partnership with local companies, Foreign Direct Investments. Active involvement in international markets brings about organizational complexity. A company faced with world opportunity requires coordinated action, which is difficult to achieve. The integration of foreign operations with national operations, while retaining the flexibility necessary to solve problems according to the uniqueness of each environment, poses a major challenge to the company's organizational genius. Problems of organization in multinational companies center on ownership arrangements and control. American companies would probably prefer to serve overseas markets from their home plants, whereas foreign countries would most likely prefer the establishment of overseas facilities. Government regulations growing out of nationalism can compel the latter. Traditionally, a company's global activities have been grouped into an international division. Another structure may be requires when companies actually operate at multiple points around the world rather than merely exporting to them(Hollensen, 2007). The formal organization arrangement used may be separate, mixed, or integrated. Separate organizations are those in which the exporting company seeks the greatest degree of control by serving international markets through company export departments, international sales departments, or wholly owned subsidiaries. Here entrepreneurial involvement by foreign nationals is lacking. Great involvement can be achieved by integrated arrangements through joint ventures or foreign mergers. Mixed arrangements have elements of both separate and integrated organizations. Examples are licensing agreements, or other arrangements with export houses, and foreign importers who buy the product or take it on consignment and control its distribution. Subsidiaries and export departments which give the home corporation the greatest control over marketing also require specialists in exporting. Licensing may permit extensive coverage with limited risk and capital through association with knowledgeable local businessmen (Johnson and Scholes 2005). Some experiences with licensing have proven to be poor, and control over the operation even poorer. Joint ventures are often the result of nationalistic pressures. Nationals can benefit from technology, but minority ownership by an American company may also put the venture into a precarious position. It has been argued that since Americans have the greatest knowledge of marketing techniques, they are usually best equipped to handle marketing operations and should strive to gain the greatest degree of control over international marketing. On the other hand, each international environment is different, and marketing factors vary among countries. Since international marketing emphasizes that some activities must be perceived within the context of local situations, international marketing (Hollensen, 2007).
In hotel and recreation business, it is desirable to have nationals who understand local practices fill key executive posts. The expansion of markets abroad and the need for decentralized decisions present added pressure for local authority. However, the problems of recruiting and developing key marketing personnel in other countries pose difficulties. There appear to be four distinct but overlapping stages in the evolution of a company from a national to a multinational company. International marketing arrangements (such as exclusive licensing or patent exchanges) that seem beneficial at one stage of development, may, in fact, block marketing progress at another. Longer-term implications of developments must be considered (Johnson and Scholes 2005).
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There now seems to be a preference among hotel chains (such as Ritz-Carlton Hotels) engaged in international operations for equity participation or equity control. Considerable dissatisfaction exists with licensing agreements. The intensity and scope of international marketing is increasing. The wants and needs of other industrial powers and emerging nations are promoting a race for new markets. International marketing will affect the life style of people worldwide and have an impact on multinational and national businesses. Economic interdependence and the creation of world markets is a reality. Marketers are now faced with the challenge of cultivating world opportunities and overcoming the barriers to worldwide trade. Foreign markets often permit more rapid growth rates than do those in developed countries (Johnson and Scholes 2005).
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HRM and Market Challenges
International marketing is complicated by a fusion of diplomatic, economic, national, and political considerations. Common language, currency, tax programs, and governmental regulations do not exist. Nationalism and differing methods of organization, operation, and planning raise obstacles to smooth functioning. The task of evaluating future political environments of unstable countries and their impact on marketing requires that contact be maintained at various levels of government (Brewster and Harris 2004).
For HRM, the main challenges include language barriers, differences in customs and traditions, diverse needs and expectations of clients. There are also the necessities of making long-run capital commitments, meeting the requirements of joint ventures with nationals, and the imposition of special income taxes and import duties on necessities, as well as differences in social legislation, location considerations protection of home International marketing magnifies various marketing problems. For instance, risks are greater. Long-term investments are often necessary in politically unpredictable environments (Black, 2003). New problems evolve concerning lack of knowledge, understanding of cultural trends, and distribution and promotion techniques. Marketing executives must often change their assumptions and perspectives to be able to function in a strange setting. Foreign customers need not react the same as American customers. Nor will successful marketing practices and strategies necessarily apply in other environments. Management also lacks common standards to assess relative effectiveness that can be applied to divisions around the world. What is in the best interest of the foreign division need not correspond with the domestic division, since there are always differences in perspective between the parent and international companies. The goals of multinational companies may sometimes even conflict with the objectives of various countries in which they operate. Assessment of political and economic factors involves uncertainty. It is not easy to balance the risks and potentially higher returns of an unstable country with that of another country that presents greater stability plus lower r Gaining international marketing information on a centralized basis is also difficult. Although information acquired in one market should be carried over to others, the differences must be noted. Also, the diverse character of regions makes it difficult to get comparable informational risks and returns, and still arrive at a logical decision (Brewster and Harris 2004).
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Internationalization has both micro and macro dimensions. For some companies, international markets are the most profitable. However, organizational problems are encountered, and varying arrangements from licensing to the development of wholly owned subsidiaries may be used to handle them. In any case, marketers must be prepared to deal with different laws, customs, taxes, middlemen, and media-to adjust to different environments. International markets often involve greater corporate risks, especially the risks associated with nationalization. From a macro perspective, marketing has a major role to play in stimulating the economic development of lesser-developed countries. For those countries at the lower end of the economic development spectrum, physical-distribution activities are the most significant. For the more mature economies, regardless of political ideology, the demand-creation activities of marketing assume greater significance. Also, marketing must be assessed in a supranational context, in the context of common markets. Among the errors resulting in ineffective marketing abroad are those related to product adaptation, market acceptance, market communication, distribution channels, and misunderstanding of both consumers and environments. Competition abroad may often be difficult because of lower labor costs, lower overhead, taxes and subsidies, and the political climate in foreign countries. Distributions of income are developing, and as income bases broaden, market opportunities for most products expand, national and trade barriers tend to fade, and regions merge into new economic and political alignments. The factors of economic nationalism are always present. In foreign countries, it is politically undesirable to compete so vigorously that national companies, however inefficient, are driven out of business.