1.

6 Entry Strategies : Entry Mode Decisions:

How should it enter new markets? Directly via “green fields” expansion,
directly through acquisition of a local established company, or indirectly
using agents or repres1entatives? Should the new market be supplied with
imported product from the home or third countries or locally manufactured
product, “go international” starting with exporting and advancing to foreign
direct investment. These options are not mutually exclusive and may be
used concurrently.
Manufacturers can achieve competitive advantage by shifting production
among different sites. It is little wonder that most of the world’s leading
automakers have set their sights on Brazil and China. Both countries are big
emerging markets; they boast the biggest populations in their respective
regions as well as rapidly growing economies. Nearly 2 million vehicles
were sold in Brazil in 1996, and analysts forecast sales of 3 million units by
2000. In 2010 they are all manufacturing in India.
The presence of VW, Fiat, GM, and other automakers in Brazil illustrates the
fact that every firm, at various points in its history, faces a broad range of
strategy alternatives.
MJ311 M Com Prof S R Khanna
(See Page. 229) 1
 Companies fail to appreciate the range of alternatives open to them and,
therefore, employ only one strategy – often to their grave disadvantage.
The same companies also fail to consider the strategy alternatives open
to their competitors and thereby set themselves up to be victims of the
dreaded “Titanic” syndrome – the thud in the night that comes without
warning and sinks the ship.
Companies must also address issues of marketing and value chain
management before deciding to enter or expand their share of global
markets by means of licensing, joint ventures or minority ownership, and
majority or 100 percent ownership. These decisions are affected by
issues of investment and control as well as a company’s attitude toward
risk.
1. Decision Criteria for International Business: Company must look at
conditions in the potential country to analyze what the advantages,
disadvantages, and costs will be and whether it is worth the risk.
1.1 Political Risk: Risk of a change in government policy that could
adversely impact a company’s ability to operate effectively and profitably,
is a deterrent to expanding internationally.
MJ311 M Com Prof S R Khanna (See Page. 231)
2
Lower political risk, the more likely it is that a company will invest in a country
or market. The difficulty of assessing political risk is inversely proportional to
a country’s stage of economic development. The less developed a country,
the more difficult it is to predict political risk. Inverse relationship between
political risk and the stage of development of a country. The higher the level
of income per capita, the lower the level of political risk.
1.2 Market Access: Local content laws, balance-of-payments problems,
or any other reason, it may be necessary to establish a production facility
within the country itself. The Japanese automobile companies invested in
U.S. plant capacity. Supply that is not exposed to the threat of tariff or
nontariff barriers.
(See Page. 231)
1.3 Factor Costs and Conditions: Factor costs are land, and capital
costs. Labor includes the cost of workers at every level: manufacturing and
production, professional and technical , and management. Basic
manufacturing direct labor costs today range from $0.50 per hour in the
typical less developed country (LDC) to $6 to $20 or more per hour in the
typical developed country.
MJ311 M Com Prof S R Khanna (See Page. 232)
3
Compared to the United States, manufacturing compensation costs are
higher in Western European countries despite a recent decline, and Asia’s
emerging countries have increased relative to the United States since
1980.
Do lower wage rates demand that a company relocate its manufacturing to
the low-wage country? Hardly, In Germany, VW Chairman is trying to
improve his company’s competitiveness by convincing unions to allow
flexible work schedules. For example, during peak demand employees
would work six-day weeks; when demand slows, factories would produce
cars only three days per week.
Land, materials, and capital. The cost of these factors depends on their
availability and relative abundance. United States has abundant land and
Germany has abundant capital. These advantages partially offset each
other. When this is the case, the critical factor is management, professional,
and worker team effectiveness.
Manufacturing can be divided into three tiers. The first tier consists of the
industrialized countries where factors costs are tending to equalize.
(See Page. 233)
MJ311 M Com Prof S R Khanna
4
The second tier consists of the industrializing countries – for example,
Singapore and other Pacific Rim countries – that offer significant factor costs
savings as well as an increasingly developed infrastructure and political
stability, making them extremely attractive manufacturing locations. The third
tier includes Russia and other countries that have not yet become significant
locations for manufacturing activity. Third-tier countries present the
combination of lower factor costs (especially wages) offset by limited
infrastructure development and greater political uncertainty.
Today’s cheap factor costs can disappear as the law of supply and demand
drives up wages and land prices. (See Page. 233)
1.4 Shipping Considerations: Greater the distance between the
product source and the target market, the greater the time delay for delivery
and the higher the transportation cost. Today Intermodal services allow
containers to be transferred between rail, boat, air, and truck carriers.
Transportation expenses for U.S. exports present 5 percent of total costs. In
Europe, greatly speeds up delivery times and lower costs.
1.5 Country Infrastructure: Infrastructure be sufficiently developed to
support a manufacturing operation.
MJ311 M Com Prof S R Khanna (See Page. 234)
5
It will include power, transportation and roads, communications, service and
component suppliers, a labor pool, civil order, and effective governance.
Reliable access to foreign exchange for the purchase of necessary material
and components from abroad as well as a physically secure setting where
work can be done and product can be shipped to customers.
One of the challenges of doing business is an infrastructure that is woefully
inadequate to handle the increased volume of shipments. (See Page. 234)
1.6 Foreign Exchange: Exchange rates are so volatile today that many
companies pursue global sourcing strategies as a way of limiting exchange
related risk. An attractive location for production may become much less
attractive due to exchange rate fluctuation. Company will incorporate
exchange volatility into its planning assumptions and be prepared to prosper
under a variety of exchange rate relationships. The dramatic shifts in price
levels of commodities and currencies are a major characteristic of the world
economy today.
1.7 Creating a Product-Market Profile: Establish the key factors
influencing sales and profitability of the product in question. For product-
market profile, nine basic questions to be answered.
MJ311 M Com Prof S R Khanna (See Page. 235)
6
1. Who buys our product?
2. Who does not buy our product?
3. What need or function does our product serve?
4. What problem does our product solve?
5. What are customers currently buying to satisfy the need and/or solve the
problem for which our product is targeted?
6. What price are they paying for the products they are currently buying?
7. When is our product purchased?
8. Where is our product purchased?
9. Why is our product purchased?
If a company wants to penetrate an existing market, it must offer more
value than its competitors – better benefits, lower prices, or both. This
applies to export marketing as well as marketing in the home country.
(See Page. 235)
MJ311 M Com Prof S R Khanna
7
1.8 Market Selection Criteria: Six criteria should be assessed:
a) Market Potential: Does it have the Potential? The cost of assembling sales
literature, catalogs, and technical bulletins should also be considered in
comparison to market potential and profitability. This cost is particularly
important in selling highly technical products.
b) Market Access: Entire set of national controls that applies to imported
merchandise and any restrictions that the home-country government might
have. Export license, import duties, import restrictions or quotas, foreign
exchange regulations, and preference arrangements.
c) Shipping Costs and Time: It is important to investigate alternative modes
of shipping as well as ways to differentiate a product to offset the price
disadvantage.
d) Potential Competition: The commercial representative could provide a very
useful report based on a comparison of the company's product with market
needs and offerings.
e) Service Requirements: If service is required for the product, can it be
delivered at a cost that is consistent with the size of the market?
MJ311 M Com Prof S R Khanna (See Page. 236)
8
f) Product Fit: With information on market potential, cost of access to the
market, and local competition, the final step is to decide how well a
company's product fits the market in question. In general, a product fits a
market if it satisfies the criteria discussed previously and is profitable.
Suppose a company has identified China, Russia, and Mexico as
potential export markets. The table shows the countries arranged in
declining rank by market size. At first glance, China might appear to hold
the greatest potential simply on the basis of population and GNP.
Although it is true that population and GNP are major factors in assessing
market potential, there are other important issues to be considered.
Multiplying the market size and competitive advantage index yields a
market potential of 10 in China, 8.4 in Russia, and 22.0 in Mexico.
The market access considerations are more favorable in Mexico than in
Russia, perhaps due to NAFTA. Multiplying the market potential and the
market access considerations index shows that Mexico, despite its small
size, holds far greater potential than China or Russia.
The market selection framework can, of course, be expanded to include
additional criteria such as political risk, growth potential, and so on.
MJ311 M Com Prof S R Khanna
(See Page. 236-237) 9
Table 8-2 Market Selection Framework

Market Market Market Competitive Market Terms of Export

Population GNP Size Advantage Potential Access Potential
Index
China 1,042 100 0.10 = 10.0 0.20 = 2.00
(1.2 billion)
Russia 440 42 0.20 = 8.4 0.60 = 5.04
(150 million)
Mexico 456 44 0.50 = 22.0 0.90 = 19.80
(96 million)

(See Page. 237)

MJ311 M Com Prof S R Khanna

10
1.9 VISITS TO THE POTENTIAL MARKET: First, it should confirm
(or contradict) assumptions regarding market potential. A second major
purpose is to gather additional data necessary to reach the final go/no-go
decision.
Visit a potential market is through a trade show. Hundreds of trade fairs
are held in major markets.
By attending trade shows company can conduct market assessment,
develop or expand markets, find distributors or agents, and locate
potential end users. It is possible to learn a great deal about competitors'
technology, pricing and the depth of their market penetration. Company
managers should be able to get a good general impression of competitors
in the marketplace while at the same time trying to sell their own
company's product.
2. Entry And Expansion Decision Model: First issue is whether to export
or produce locally. In many emerging markets, national policy that
requires local production. In high-income countries, local production is
normally not required.
(See Page. 237)
MJ311 M Com Prof S R Khanna
11
The trade-offs for local versus regional or global production are cost, quality,
delivery, and customer value. Costs include labor, materials, capital, land,
and transportation. Scale economies are an important factor in determining
cost.
If a company decides to source locally, it has a choice of buying, building, or
renting its own manufacturing plant or signing a local contract manufacturer.
A contract manufacturer may be in a position to add production to an existing
plant with less investment than the manufacturer would require to achieve
the same volume of production.
2.1 Exporting: Export selling does not involve tailoring the product, the
price, or the promotional material to suit the requirements of global markets.
The only marketing mix element that differs is the place – that is, the country
where the product is sold. This selling approach may work for some products
or services; for unique products with little or no international competition,
such and approach is possible. As companies mature in the global
marketplace or as new competitors enter the picture, it becomes necessary
to engage in export marketing.
(See Page. 238)
MJ311 M Com Prof S R Khanna
12
 Export is just one strategy. Other options are licensing, franchising, joint
ventures, and foreign direct investment. (See Figure 8-1). If customers are
nationalistic, they may put a positive value on the feature “ made in the
home country.” Such preferences must be identified using market research
and factored in to solve for value in the equation. A successful global
company can source its product from any location: The customers trust the
brand and don’t care about the country of origin.
2.2 Exporting Decision Criteria: The product offered in the home market
is modified as needed to meet the preferences of international target
markets. Prices to fit the marketing strategy and does not merely extent
home country pricing to the target market.

Export marketing is the integrated marketing of goods and services that are
destined for customers in international markets. Export marketing requires:

1. An understanding of the target market environment;

2. The use of marketing research and the identification of market potential;

MJ311 M Com Prof S R Khanna (See Page. 239)

13
FIGURE: 8-1 Ownership and Control

MJ311 M Com Prof S R Khanna (See Page. 240)

14
3. Decisions concerning product design, pricing, distribution and channels,
advertising and communications – the marketing mix;
Exporting, in and of itself, is essential a developmental process that can
be divided into the following distinct stages;
1. The firm is unwilling to export;
2. The firm fills unsolicited export orders but does not pursue unsolicited
orders.
3. The firm explores the feasibility of exporting.
4. The firm exports to one or more markets on a trial basis.
5. The firm is experienced exporter to one or more markets.
6. After this success, the firm pursue country – or region – focused
marketing based on certain criteria.
7. The firm evaluate global market potential before screening for the best
target markets to include in its marketing strategy and plan.
(See Page. 240)
MJ311 M Com Prof S R Khanna
15
Moving from stage 2 to stage 3 depends on management’s attitude
toward the attractiveness of exporting and its confidence in the firm’s
ability to complete internationally. Before a firm can reach stage 4, it
must receive and respond to unsolicited export orders. The quality and
dynamism of management are important factors that can lead to such
orders. Success in stage 4 can lead a firm to stages 5 and 6. A company
that reaches stage 7 is a mature, geocentric enterprise that is relating
global resources to global opportunity. To reach this stage requires
management with vision and commitment.

The decision to engage in export marketing should be based on a

number of criteria, including potential market size, competitor activities,
and overall marketing mix issues such as price, distribution, and
promotion. The choice of one or more export markets to target. The
selection process should begin with a product-market profile or plan.

(See Page. 245)

MJ311 M Com Prof S R Khanna

16
MJ311 M Com Prof S R Khanna
(See Page. 241) 17
2.2 Organizing for Exporting:
a) Organizing in the Manufacturer’s Country: Assign export responsibility
inside the company or work with an external organization.
i) In-House Export Organization: Depending on the company’s size,
responsibilities may be incorporated into an employee’s domestic hob
description. These responsibilities may be handled as part of a separate
division or organizational structure.
The possible arrangements for handling exports include the following:
1. As a part-time activity performed by domestic employees
2. Through an export partner affiliated with the domestic marketing structure
that takes possession of the goods before they leave the country.
3. Through an export department that is independent of the domestic
marketing structure.
4. Through an export department within an international division.
5. For multidivisional companies, each of the foregoing possibilities exists
within each division.
MJ311 M Com Prof S R Khanna
(See Page. 242) 18
ii) External Independent Export Organization: Export trading companies
(ETCs), export management companies (EMCs), export merchants,
export broker, combination export managers, manufacturer’s export
representatives or commission agents, and export distributors.
b) Organizing in the Market Country: Also make arrangements to
distribute the product in the target market country. To what extent do we
rely on direct market representation as opposed to representation by
independent intermediaries?
i) Direct Representation: Own employees in a market: control and
communications allows decisions concerning program development,
resource allocation, and price changes to be implemented unilaterally.
Special offers are necessary to achieve sales. These special efforts are
ensured by the marketer’s investment. Possibilities for feedback and
information from the market are much greater. Direct representation
involves selling to wholesalers or retailers.
ii) Independent Representation: In smaller markets, not feasible to
establish direct representation because the low sales volume does not
justify the cost.
MJ311 M Com Prof S R Khanna (See Page. 243)
19
 A small manufacturer usually lacks adequate sales volume to justify the
cost of direct representation; therefore, use of an independent distributor
is an effective method of sales distribution. Finding good distributors can
be the key to export success.
iii) Piggyback Marketing: One manufacturer obtains distribution of
products through another’s distribution channels. Both parties can
benefit: The active distribution partner makes fuller use of its distribution
system capacity and thereby increases the revenues generated by the
system. The manufacturer using the piggyback arrangement does so at
a cost that is much lower than that required for any direct arrangement.
Appeal to the same customer, and they must not be competitive with
each other.
2.2 Additional International Alternatives:
a) Sourcing: Imports can be subdivided into two categories: goods that are
purchased ready-made and goods that a foreign company has a voice in
their design and packing. These latter goods are referred to as sourced
goods.
(See Page. 244)
MJ311 M Com Prof S R Khanna
20
In both consumer and industrial goods. Nike doesn’t make any athletic shoes.
It does not own any manufacturing facilities. All its shoes are sourced in other
countries, primarily in Asia. As shown in Table 8-5, six factors must be taken
into account in the sourcing decision.

MJ311 M Com Prof S R Khanna

(See Page. 244) 21
b) Licensing: A contractual arrangement whereby one company (the
licensor) makes an asset available to another company (the license) in
exchange for royalties, license fees, or some other form of compensation.
Patent trade secret, or company name. A company with advanced
technology, know-how, or a strong brand image can use licensing
agreements to supplement its bottom-line profitability with little initial
investment. The only cost is signing the agreement and of policing its
implementation.
The principal disadvantage of licensing is that it can be very limited form
of participation. When licensing technology or know-how, what a company
does not know can put it at risk. Potential returns from marketing and
manufacturing may be lost, and the agreement may have a short life if the
licensee develops its own know-how and capability to stay abreast of
technology in the licensed product area. Licensees have a troublesome
way of turning themselves into competitors or industry leaders. Licensing
enables a company to borrow - leverage and exploit – another company’s
resources. In Japan, for example Meiji Milk produced and nmarketed
Lady Borden premium ice cream under a llicensing agreement with
Borden., Inc.
MJ311 M Com Prof S R Khanna (See Page. 245)
22
 Meiji learned important skills in dairy product processing, and, as the
expiration dates of the licensing contracts drew near, rolled out its own
premium ice cream brands.
Conversely, the failure to seize an opportunity to license can also lead to
dire consequences. Mid-1980s, Apple Computer chairman John Sculley
decided against licensing Apple’s famed operating system. Such a move
would have allowed other computer manufacturers to produce
Macintosh-compatible units. Meanwhile, Microsoft’s growing world
dominance in computer operating systems and applications got a boost
from Windows, which featured a Mac-like graphical interface. Apple
belatedly reversed direction and licensed its operating system.
When companies do decide to license, they should sign agreements that
anticipate more extensive market participation in the future. Insofar as is
possible, a company should keep options and paths open for other
forms of market participation. One path is a joint venture with the
license.
c) Investment: Joint Ventures: Sharing of risk and the ability to combine
different value chain strengths – for example, international marketing
capability and manufacturing.
MJ311 M Com Prof S R Khanna (See Page. 245-246)
23
One company might have in-depth knowledge of a local market, an
extensive distribution system, or access to low-cost labor or raw
materials. Such a company might link up with a foreign partner
possessing considerable know-how in the area of technology,
manufacturing, and process applications. Finally, a joint venture may be
the only way to enter a country or region if government bid award
practices routinely favor local companies or if laws prohibit foreign
control but permit joint ventures.
Companies should think beyond the equity joint venture (EJV) with a
well-connected local partner and consider the alternative of a wholly
foreign-owned enterprise (WFOE).
It is possible to use a joint venture as a source of supply for third-country
markets. This must be carefully thought out in advance. One of the main
reasons for joint venture “divorce” is disagreement about third-country
markets in which partners face each other as actual or potential
competitors. It is essential to work out a plan for approaching third-
country markets as part of the venture agreement.
(See Page. 247-248)
MJ311 M Com Prof S R Khanna
24
Joint venture partners must share rewards as well as risks. The main
disadvantage of this global expansion strategy is that a company incurs very
significant costs associated with control and coordination issues that arise
when working with a partner. A dynamic joint venture partner can evolve into
a stronger competitor. In some instances, country-specific restrictions limit
the share of capital held by foreign companies. Cross-cultural differences in
managerial attitudes and behavior can present formidable challenges as
well.
Difficulties are so serious that, according to one study of 170 multinational
firms, more than one third of 1,100 joint ventures were instable, ending in
“divorce” or a significant increase in the U.S. firm’s power over its partner.
Another researchers found that 65 joint ventures with Japanese companies
were either liquidated or transferred to the Japanese interest in 1976. The
most fundamental problem was the different benefits that each side
expected to receive.
(See Page. 248)
Japanese and Korean firms seem to excel in their ability to leverage new
knowledge that comes out of a joint venture.
MJ311 M Com Prof S R Khanna
25
 Toyota learned many new things from its partnership with GM – about
U.S. supply and transportation and managing American workers – that
have been subsequently applied at its Camry plant in Kentucky.
However, some American managers involved in the venture complained
that the manufacturing expertise they gained was not applied broadly
throughout GM. (See Page. 249)
d) Investment: Ownership and Control: Key variable in the location
decision is the vision and values of company leadership. The sourcing
decision highlights three roles for marketing in a global competitive
strategy. The first relates to the configuration of marketing. Although
many marketing activities muse be performed in every country,
advantage can be gained by concentrating some of the marketing
activities in a single location, Service, for example, must be dispersed to
every country. Training however, might be at least partially concentrated
in a single location for the world. A second role for marketing is the
coordination of marketing activities across countries to leverage a
company’s know-how. This integration can take many forms, including
the transfer of relevant expertise across national boundaries in areas
such as global account management and the use of similar approaches
or methods for marketing MJ311 Mresearch, product positioning, or other
Com Prof S R Khanna
marketing activities. (See Page. 249) 26
A third critical role of marketing is its role in tapping opportunities in product
development and research and development (R&D).
On forms of cooperation and control, there are many, ranging from the
management contract to wholly owned subsidiaries and global strategies
partnerships. The issues that these alternatives raise are control and
ownership. (See Page. 249)
As shown in Table 8-7 below:-

MJ311 M Com Prof S R Khanna

(See Page. 250) 27
 There are many options that vary the amount of ownership and
investment and the degree of control of country marketing. Although it is
possible to have ownership without control and control without
ownership, greater ownership is normally linked with greater control.
Companies with wholly owned affiliates or subsidiaries have complete
control over every aspect of the affiliate’s operations: strategy and
structure, human resources, financial strategy and policy, marketing
strategy and policy, and so on.
e) Ownership / Investment: The desire for control and ownership of
operations outside the home country drives the decision to invest.
Foreign direct investment (FDI) figures record investment flows as
companies invest in or acquire plant, equipment, or other assets outside
the home country.

(See Page. 250)

MJ311 M Com Prof S R Khanna

28
By definition, direct investment presumes that the investor has control or
significant influence over the investment, as opposed to portfolio
investment, in which it is assumed that the investor does not have
significant influence or control. The operational definition of direct
investment is ownership of 20 percent or more of the equity of a company.
100 percent ownership, which may be achieved by start-up or acquisition,
requires the greatest commitment of capital and managerial effort and
offers the fullest means of participating in a market.
Large-scale direct expansion by means of establishing new facilities can be
expensive and require a major commitment of managerial time and energy.
Alternatively, acquisition is an instantaneous – and sometimes less
expensive – approach to market entry. Although full ownership can yield the
additional advantage of avoiding communication and conflict-of-interest
problems that may arise with a joint venture or coproduction partner,
acquisitions still present the demanding the challenging task of integrating
the acquired company into the worldwide organization and coordinating
activities.
(See Page. 251)
MJ311 M Com Prof S R Khanna
29
 The decision to invest abroad – whether by expansion or acquisition –
sometimes clashes with short-terms profitability goals. This is an
especially important issue for publicly held companies. Despite these
challenges, there is an increasing trend toward foreign investment by
companies.
(See Page. 251)
Licensing, joint ventures, and ownership – are infact points along a
continuum of alternative strategies or tools for global market entry and
expansion. The overall design of a company’s global strategy may call
for combinations of exporting/importing, licensing, joint ventures, and
ownership among different operating units.
(See Page. 252)
f) Investment in Developing Countries: Investment in developing
nations grew rapidly in the 1990s. The appeal is their rapid growth,
expanding purchasing power, and expanding markets.
Foreign investments may take the form minority or majority shares in
joint ventures, minority or majority equity stakes in another company.
MJ311 M Com Prof S R Khanna (See Page. 252)
30
3. Marketing Strategy Alternatives: Regardless of the entry form
selected, companies must decide in their marketing strategy for each
market. Broadly, the alternatives are to use independent agents and
distributors or to establish a company-owned marketing subsidiary.
These alternatives trade off ownership and investment with control, as
shown in Figure 8-2.
The advantage of the agent/distributor option is a pay-as-you-go option.
It does not create a company presence in the market and it does not give
a company control over its marketing effort. Agents and distributors are
not necessarily a no-investment option.
Companies combine the company-owned marketing subsidiary with
agents and distributors. This option gives the company local presence
and control of the marketing effort and, where cost-effective, takes
advantage of distributor and agent capabilities. The local presence of the
company can provide a much better communications link with the
regional and world headquarters and, if it is well executed, ensure that
the company’s effort reflects the fullest potential of the company’s ability
to execute a global strategy with local responsiveness.

MJ311 M Com Prof S R Khanna (See Page. 253)

31
MJ311 M Com Prof S R Khanna (See Page. 253)
32
3.1 Five Market Expansion Strategies: Whether to expand by seeking
new markets in existing countries or, alternatively, seeking new country markets
for already identified and served market segments. These two dimensions in
combination produce four strategic options as shown in Table 8-10. Strategy 1
concentrates on a few segments in a few countries. This is typically a starting
point for most companies. It matches company resources and market
investment needs. Unless a company is large and endowed with ample
resources this strategy may be the only realistic way to begin.
In strategy 2, country concentration and segment diversification, a company
serves many markets in a few countries.
Strategy 3, country diversification and market segment concentration, is the
classic global strategy whereby a company seeks out the world market for a
product. The appeal of this strategy is that by serving the world customer, a
company can achieve a greater accumulated volume and lower costs than any
competitor and, therefore, have an unassailable competitive advantage.
Strategy 4, country and segment diversification, is the corporate strategy of a
global multibusiness company such as Matsushita. Success in overseas
markets can boost a company’s total volume and lower its cost position.
MJ311 M Com Prof S R Khanna (See Page. 254)
33
MJ311 M Com Prof S R Khanna
(See Page. 254) 34
3.2 Alternative Strategies: Stage of Development Model: Table 8-11 lists
the stages in the evolution of the global corporation, from domestic to
international, multinational, global, and transnational. As discussed in
Table 8-12, orientation does not change as a company moves from
domestic to international. The difference between the domestic and the
international company is that the international is doing business in many
countries. Like the domestic company, it is ethnocentric and home-country
oriented. However, the stage 2 international company sees extension
market opportunity outside the home country and extends marketing
programs to exploit those opportunities. The first changes in orientation
occurs as a company moves to stage 3, multinational. At this point, its
orientation shifts from ethnocentric to polycentric. The difference is quite
important. The stage 2 ethnocentric company seeks to extend its products
and practices to foreign to countries. It sees similarities outside the home
country but is relatively blind to differences. The stage 3 multinational is the
opposite; it sees the differences and is relatively blind to similarities. The
focus of the stage 3 multinational is on adapting to what is different in a
country. Figure 8-3 outlines the different orientations of management.
(See Page. 255)
MJ311 M Com Prof S R Khanna
35
TABLE 8-11 Stages of Development of the Transnational
Corporation
1. Domestic
2. International
3. Multinational
4. Global
5. Transnational

(See Page. 255)

MJ311 M Com Prof S R Khanna

36
MJ311 M Com Prof S R Khanna (See Page. 255)
37
MJ311 M Com Prof S R Khanna (See Page. 256)
38
The stage 4 global company is a limited form of the transnational.
Management’s orientation is either on global markets or global resources
but not on both.
Table 8-13 illustrates some of the other differences in companies at the
different stage. Special mention must be made of some of the distinctive
qualities of stage 4 companies that pursue integrated global strategies. Key
assets are dispersed, specialized, and interdependent. A transnational
automobile company – Toyota, for example – makes engines and
transmission in various countries and ships these components to assembly
plants located in each of the world regions. Specialized design labs might
be located in different countries and work together on the same project. The
role of country units changes dramatically as a company moves across the
stages of development. In the stage 5, transnational, the role of each
country is to contribute to the company worldwide. In the international and
multinational, the responsibility of the marketing organization is to realize
the potential or the individual national markets. In the transnational, the
responsibility of the marketing unit is to realize the potential of the national
market and, if possible, to contribute to the success of marketing efforts
worldwide by sharing successful innovations and ideas with the entire
organization. MJ311 M Com Prof S R Khanna (See Page. 256)
39
Table 8-14 (below) each of the stages has its strengths. The international
company’s strength is its ability to exploit the parent company’s knowledge
and capabilities outside the home country. In the telecommunications
industry, Ericsson gained a competitive edge over NEC and ITT by
pursuing this approach.
(See Page. 257)

MJ311 M Com Prof S R Khanna

40
 Table 8-13 Stages of Development II

Organization Characteristics

Stage and 1. Domestic 2. 3. 4. Global 5.

Company International Multinational Transnational
Key assets Located in Core Decentralized All in home Dispersed
Home centralized and self- country interdependent
Country others sufficient except and specialized
dispersed marketing
or sourcing
Role of Single Adapting and Exploiting Marketing Contribution to
country units country leveraging local or sourcing company
competencies opportunities worldwide

Knowledge Home Created at Retained Marketing All functions

country centre and within or sourcing developed
transferred operating developed jointly and
units jointly and shared
shared

MJ311 M Com Prof S R Khanna

(See Page. 257) 41
 Table 8-14 Stages of Development III

Strengths at Each Level

International:
Ability to exploit the parent company’s knowledge and capabilities
through worldwide diffusion of products.
Multinational:
Flexible ability to respond to national differences
Global:
Global market or supplier reach, which leverages the home-
country organization, skills and resources.
Transnational:
Combines the strengths of each of the proceeding stages in an
integrated network, which leverages worldwide learning and
experience (See Page. 257)

MJ311 M Com Prof S R Khanna

42
(Ref. Warren J. Keegan (7th Ed.) 2002 Ch. 8, Page. 229-257)