Modes of Entry Available to Firms Embarking on a Program of Internationalization - Assignment Example

Question 1 What specific issues do international business firms need to take into consideration in developing their international strategies particularly those that differ from the issues considered by firms not involved in international business? The business environment in foreign countries differs from the one in the home country. Strategies used therefore differ from country to country. This is due to issues arising in those countries that internatonal business firms need to take into consideration when developing international strategies. International managers must encounter languages and cultures, political systems, multiple national governments, accounting systems, currencies and legal systems. Language is an issue when doing business in foreigh countries. International managers must understand the kind of languages preferred in those countries. English might be used in the home country but local languages may be used in foreign countries. Culture is also another complex issue than any international business must put into consideration. Firms not involved in international business may experience a relatively homogeneous culture at home but expanding internationally means experience diverse culture within countries and between countries. Political situation of a foreign country will affect the international business. Countries that are politically unstable might affect the performance of the business unlike at home where politics are more stable. International managers must also consider the economy of a country it would like to do business in. The economy varies between countries and among the countries’regions. The firms in home country experience a uniform economy though business cycles change. By analysis the economic status of a country and its region, an international manager may decide whether to invest in that country or not. Foreign governments sometimes change rapidly and their policies may interfere with the operations of an international business, unlike the home country government that is stable and predictable. Availability of skilled labour in foreigh countries is another issue an international manager should consider. Home countries may have available skilled labour while foreigh countries may have scarce skilled labour or need to be trained or lack of well designed methods of production. Most foreigh countries have poorly developed financial markets and control of flow of capital by the government. Developed infrastructure is important to a business; however, some foreign countries have inadequate transport and communication facilities. Currency varies from country to country and an international business should consider a country’s currency and how it affects the business. Labour relations in foreign countries may make it difficult to layoff workers, may make worker’s participation in management compulsory and so on. Advertising channels should also be considered by international managers in developing strategies. Unlike in the home country media in foreigh countries may be limited, may have many restrictions and citizens may be illiterate to understand printed advertisements. Question 2 Outline concisely the range of ‘modes of entry’ available to firms embarking on a program of internationalization, indicating the circumstances where a particular mode is considered appropriate. Include some mention of the specific advantages and disadvantages associated with each mode. The channel through which international businesses use to enter international market is known as a mode of entry. International business managers choose the mode of entry based on risk and control. A mode of entry is considered depending on the advantages of internationalization, location and ownership and the availability of resources. The less risky mode is does not require greater resources for the firm. The modes of entry for international business are indirect exporting, joint venture, licensing and franchising, and direct investment. Direct exporting is direct sale of goods produced domestically in another country. This is a well established and a traditional approach of reaching international markets. The advantages of direct export are it needs limited finance, it is less risky and availability of exporting motivation. The goods are not required to be produced in the target market and thus no investment is needed. While exporting goods, firm learns the culture and consumer behaviour of the target country and all other issues related to it business wise. Motivation in exporting takes place where a firm is able to provide goods and services in a country that has ready demand for it unlike at the home country. Licensing is a mode of entry where a home country producer (licensor) leases a producer in a foreigh country ( licensee) the right to use is intellectual property like copy rights, technology, brand name, et.c at a paid fee. It is less costly as the investment is low and is low financial risk for the licensor. The licensor doesn’t need to spend money on research and development and in case of product failure the licensor can escape. However, both the licensor and the licensee face the reduction of market opportunities. They both must maintain the quality of the product as well as promote it. The licensee can leak the licensor’s trade secrets and may use the chance to build his own image. Franchising is a business where the business (franchisee) runs the business under the name of another business (franchisor) and pays an agreed fee. The services provided by the franchisor to the franchisee are production orientation and reputation, trade marks, support services like training of employees, advertising and so on. It is less risky and low investment is need. Through the franchisee, the franchisor is able to receive culture, environment, and customs information about the host country market. However, it is complicated to deal with international franchisee especially in terms of control. This also reduces market opportunities for both especially where market is shared. The frachisor and franchisee have a responsibility of product promotion as well as maintain product quality. Trade secrets of the licensor can also be leaked. Direct investment is the method where the home country owns facilities in the foreigh target country. Resources transfer like capital, personnel and technology takes place. Direct investment may occur through buying of an existing business or establishment of a new business. Its advantage is the provision of more control of operations internationally, easy and quick to market products and market changes. Its disadvantage is high cost involved in terms of fianances and personnel. It is also more risky compared to other modes. A joint venture method is where a home country firm shares proportional ownership of a business with a foreign firm in the target country. It provides easy access to distribution channel due to the formed relationship. It also helps in connection of the domestic firm politically. It enables sharing of risk and reward, product development and technology. It disadvantage is lack of parent firm to support the venture, clashing of culture, conflicts of opinions and intentions, mistrust of each other, when to end the relationship and how to do it. Question 3 Explain why firms engaged in international businesses often form strategic alliances with overseas firms, indicating the advantages of these alliances. What are some of the risks involved and what can be done to try to minimize these risks? Strategic alliance is relationship between two firms to pursue goals and objectives agreed upon or to meet needs of the business that are critical while maintaining their independence. The strategic alliance may be provided resources like capital equipment, distribution channel, knowledge, intellectual property, capability of manufacturing and products by those partners. Firms engaging in international strategic alliances have hopes they will benefit more from the alliances than from their individual efforts. Expenses and risks are shared; transfer of technology as well as specialization in economy takes place. Strategic alliances is the major tool today for business that what to expand their operations internationally. The decision to form strategic alliances always depends on the goals and needs of firms involved. An example of a form of a strategic alliance is joint venture. There are advantages and disadvantages of strategic alliances for international businesses. Strategic alliance is an easy way to market entry in foreign countries. A firm is able to find information on suppliers, distribution channels, markets, and customer preferences from local firms. Another advantage is sharing of risks and expenses by the firms involved. When firms in partnership develop a common product for the market they share expenses and thus minimizing individual risks. Sharing of knowledge and expertise is also another advantage. Partners contribute assets, brands, skills and market knowledge. Strategic alliance can also help firms to gain a competitive advantage. A firm can take advantage of an already existing grand image. It can also be used to gain products shelf space. Regardless of its benefits to the firm, strategic alliances are costly due to money invested in the alliance and the returns which are not guaranteed. It requires time resources of management to establish it, manage it and resolve any conflict of interest arising between the parties over the operations of the alliance. Even though there are established incentive schemes, proper contracts sets and other ways of strengthening the alliance, conflict between the partners cannot be avoided. When a part becomes part of an alliance it blocks its possibility of collaborating with other competing companies and thus various financing options are denied for the company. Alliances expose firms to their partners and the partner firms can use the information exposed to become competitors once the alliance is over. Partners may also direct the company to achieve their personal interests but not those of the alliance. To minimize the risks a firm should search for thorough information about the company it wants to form allowance with to ensure that a strong relationship will be formed. All matters concerning incentives, contribution of resources, sharing of rewards should be clearly indicated in the contract to avoid conlicts from taking place. Question 4 (a) Using point format where possible, outline the main factors that firms engaged in international business need to take into consideration in communicating with overseas clients and partners Success of a business lies on the relationship with overseas partners and clients. The following are the main factors that firms engaged in international business need to consider when communicating to overseas clients and partners: Language Different people from different parts of the world have different languages they use. Some countries use one language while others have several languages and yet others have a national language that harmonizes other languages. Some countries have shared languages and some need interpretation of languages. It is thus important for mangers to understand which languages their clients and partners use. Communication styles Different groups though sharing a language may have different word meanings due to their cultural differences. Different groups of people encode and decode messages different due to culture filters. Non-verbal communication is also used in countries and they differ from country to country. Gift-giving and practice of hospitality is a way of communication in some parts of the world and therefore managers should understand all these. Cultural differences. Culture is the collection of behaviours, attitudes, beliefs, customs and values that differentiate one society or group of people to another. Rules operated under by a firm in the society are influenced by culture and it is the one that affects the way people communicate with each other. International business managers must understand the partners and clients culture to know how to communicate to them. (b) Describe concisely the main factors international business manager need to take into consideration motivating staff and handling workplace diversity within a multicultural workplace of an international business. Motivation of overseas employees depends much on the needs, culture, attitudes and behaviours of individuals. What is important to an individual as motivation is not important to another. Since motivational methods are not universal to all cultures, managers must use appropriate methods that work best for employees in their own environments. In high developed countries, work environment challenges, compensation, independence in functioning and mobility may be motivating factors for employees, while those from less developed countries may value working hours, job security, social benefits and number of holidays as motivation factors. Culturally, there are religious festivals in the some societies where traditional, social and religious practices are held and workers in those countries would prefer days off as a motivation factor to involve in those practices. It is very crucial to handle workplace diversity within a multicultural workplace of an internation business. Workplace diversity is a people issue, focused on the differences and similarities that people bring to an organization. It includes dimensions which influence the identities and perspectives that people bring, such as profession, education, parental status, nationality, race, ethnicity and religion, which are likely to affect the workforce. The dressing code, work position and gender roles for example differ from country to country. Managers must analyze diversity differently depending on which countries they do business in to avoid imposing their home cultural values on those countries. Managers should also recognize specialized skills to create a productive and diverse workforce and create a diversity culture. Question 5 Describe concisely the range of control issues facing an international business, and outline key recommendations in the literature on how to deal with these issues. The control issues facing an international business involve levels of international business control; strategic control, organizational control and operational control. Strategic control deals with monitoring of how international business strategies are formulated and strategies are achieved. Organisation control monitors the organization design and how it controls the rest of the organization. Business environments and strategies change and the organization design should be able to respond to these changes in order to achieve the goals of the business. Operational control monitors the operating processes within the organization, operating units, distribution centres, manufacturing units and so on. One of the issues arising from these control levels is the lack of established control system, essential teachniques of control, culture and resistance to control. Lack of well established controls system prevents the organization from achieving its goals because of the absence of control system process. Technique of control like accounting systems, performance ratios and procedures are not appropriately established or they are not established at all making control impossible. People resist control if control is overboard and thus feel overwhelmed. If the control is focused inappropriately people may also resist it as they see no meaning of it. When there is control it means increased accountability which people always resist. If control is not inline with the people’s culture they may resist it because they feel they are not respected. The recommendations of dealing with control issues are Establishing a good control system In establishing a control system process, an international business should set control performance standard for managers to be help accountable, measure actual performance by developing a valid performance measure, compare actual lperformance against the standard performance and respond to outcomes that results from comparing the actual performance with the standard control. Identify essential techniques of control The essential techniques of control should be establishment of accounting systems, procedures and performance ratios Managing the resistance of people to control. To avoid resistance to control the international managers should involve people in designing control process so that they can own it. They must also create control systems that are appropriately focused in order to create accountability that is reasonable without exerting overcontrol. There should also be a mechanism of addressing deviation in performance that people may find fair other than blaming them. The managers must also consider people’s culture in the foreign country when exerting control to ensure that it goes inline with it. References Adapted from Arvind V. Phatak (1989). International Dimensions of Management (2ed). Boston: PWS Kent Publishing. Chow, I., Holbert, N., Kelley, L., & Yu, J. (1997). Strategy Implementation and control. Czinnota, M. R., Ronkainen, I. A., & Moffett, M. H. (2001). International business. Fort Worth: The Dryden Press. Department of Foreign Affairs & Trade. (1997). Electronic Commerce, SMEs and Australia’s International Trade. Fisher, G., Hughes, R & Pustay, M. (2006). International Business (3 ed.). Australia: Pearson Education Australia. Holt, D. H. (1998). Motivating people: the challenge of diversity. O’Hame, K. (1998). Life in the round. Management Today Rodrigues, C. (1998). Cross-cultural communication. Rugman, A. M. & Hodgetts, R. M. (1995). Corporate Strategy and National Competitiveness Walters, B.A., Peters, S., & Dess, G.G. (1998). Strategic Alliances and Joint Ventures: Making them work. Read More