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organization would like to expand its activities abroad, and a lot of them come up due to its own growth as also the changing nature of the global economy today. The motivations may arise from many reasons and not all would be the change in the organization producing the goods or services. It may also be due to the change in the costs and expectations of labor in the home country which makes it impossible for the organization to supply the goods or services at an economic cost. Another problem is with the imposition of different laws by governments which make the production of certain items difficult, if not impossible. Another factor is the availability of suitable locations and raw materials for increasing capacity. There may also be a very high competition in the local market and that may lead to the feeling within the organization that a market abroad may provide a better opportunity to sell the product or service. Sometimes this may be just a method of disposing of goods which will no longer be accepted in the home market. Thus there may be a variety of reasons for going abroad. The difficulty is however in deciding what type of an organization to start there. This may be of four main types as discussed later on. There are advantages and disadvantages of each of the four methods, and the major reason for selection of any one is the suitability to the mother organization. Earlier there were a number of restrictions that were being put up by the governments that one was going to, but it is now a world of free trade, and that has made internationalization simpler. Yet a lot of thought has to go into the form of international expansion that one is thinking about, as after all it is investment of money that one is talking about. A failure will make even the survival of the home organization difficult.
Designing Organizations for the International Environment
Motivations for Global Expansion:
There can be many reasons why a firm tries to go abroad and the most common reason for this is to gain a competitive advantage. This advantage can be due to many different reasons and the first of these is the economies of scale that the company can gain from the access that it can get to many different customers and markets. At the same time the company can get easy access to the resources of another country in terms of labor and raw materials. This may end up in helping the production of the country in any country. When the company goes to less developed countries the organization can gain in terms of extension of the life cycle of the products that the company deals in. When the products get old in one country it may be possible to still sell them in another country. (Global Strategic Management)
The organization also gets a lot of flexibility due to the shift as it can cut costs, benefit due to exchange rates and all such changes can be done over a period of time. Another set of motivation are related to the strategic position of the product, and this may be realized if the product is the first in the country. Then it will get the advantage of being the first mover in the market. It will also help the organization to subsidize the price of the product between different countries. The product can also be sent to the other countries at a transfer price and that is a lower price then when it is possibly brought in by the other producers.
The organization also reduces its own risks with the product and the major factor among these is the microeconomic risks. These take place due to the difference in business cycles differing from country to country. The organization producing the product also gains from the reduction of operational problems that take place due to labor, wars, natural calamities, etc. The other opportunity that international expansion provides to the organization is through the learning opportunities that it gives the company. This happens as the operating environs are different in different countries. The final advantage that the organization gets is from the effect it has on the customers due to the impression that is transferred from market to market. (Global Strategic Management)
The key factor about motivation of different industries is that they with different levels of intensity. This effects the investment in those industries, which also then may be related to these levels. The most important factors for seeking expansion abroad are the search for intangible assets and these arise from the salaries of highly paid human capital and the search for efficiency that can take place. This is critical for the judgment of the possibility of expansion abroad. The personnel also serve as the intellectual capital in certain cases like the information intensive industries. In these industries the costs between different countries for travel and transport is also very low and that need not be taken into account. Where the industry is not information intensive, the main factors in going abroad are the possible expansion of market and seeking a place where the product can be prepared at a lower cost. (The persistence of distance? The impact of technology on MNE motivations for foreign investment)
Evaluation of motivation for international expansion:
It is very important to understand the real reasons why the organization is choosing to go abroad. These may be the stoppages on growth of sales in the home country due to lack of further demand, the high demand for the product or service in the country that one is planning to go, the high cost of changing technology for the product and the necessity to change technology whose cost has to be spread over a large volume or the short life cycle of the product. Whatever it may be, these have to be studied and then decided before a final decision is taken to go abroad. (Going International -- Benefits and Costs)
Suitability for international expansion:
It has been seen that some industries are more suited for industrialization than others. The suitability for international expansion is determined some factors and the first among these factors is the cost of the product. This cost often depends on the local availability of resources and these may be essential for the manufacture of the product. The second factor may be the cost of production in the country due to the costs of labor, power etc. The third factor is the potential for the production of the item concerned in a large scale. When the experience of the product is flat to the consumers, it is not likely to be accepted much as an international product. This difference can be seen in the case of select industries. The production cost of facsimile machines drop by about 30 to 40% when the volume produced is doubled, but the furniture industry does not have any sizeable reduction in costs when the numbers produced are increased.
This makes the globalization of the furniture industry much more difficult than facsimiles. Some industries like the aircraft industry have a high expense in R& D. And these industries are relatively easier to internationalize than industries like dry cleaning where the major expenses are in rent and labor. Those industries will not get much of a benefit by becoming an international industry. In general it can be seen that industries where the costs drop by at least 20% when the volume is doubled end up being good industries for developing abroad. The final factor in this regard is the transportation cost that the industry has to face. The costs of transportation depend on the value of the item being considered in bulk or the value in relationship to the weight being considered. The items for this may be thought to be in terms of internationalization of diamonds and ice. (Global Strategic Management)
The second reason for going international is having customers all over the globe. The needs of the customers are for uniform products and it is always better if they have the same supplier at all places. One such group is the automobile industry, and they tend to ask their suppliers to build up facilities at all places where they are assembling the automobiles. The differences to automobiles due to local tastes are only in color, minor modifications, seating capacity, etc. This is followed by the requirements of global customers and this is probably the reverse of what has just been discussed. The automobile ancillary manufacturer probably has to go to all markets where the brand travels. Another main reason for their shifting is that global manufacturers demand standard products for all their production. This is the process of traveling in the global markets and the entire marketing has to be properly coordinated. If the global brands have to give the responsibility for distribution to the local distributors then the process of…[continue]
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