9.3 Assessing internalisation (includes Bartlett & Ghoshal matrix)

Question 1

What is internationalisation/ globalisation?

(Pages 246 & 247)

Answer 1

Countries are becoming more linked through markets & production.

There is an increasing mobility of resources including flows of money, goods & services around the world.

Question 2

Why is globalisation/ internationalisation important for managers?

Answer 2

• They need a broader vision than in the past.
• They have more markets in which to recruit, a greater cultural diversity in their workforce, a broader customer base & more market opportunities around the world.
• They also have more potential threats & face more competitive markets now that there are fewer barriers to trade globally.

Question 3

What has caused greater internationalisation?

Answer 3

• Trade agreements.
• Improvements in transport.
• Improvements in communications technology.

Question 4

Trade agreements

What does this enable?

Answer 4

Trade enables businesses in one country to focus on producing the goods & services which they are good at (comparative advantage) & buy in the items that can be produced efficiently aborad.

Question 5

Trade agreements

What should this enable for the country & consumers?

Answer 5

• The country & consumes as a whole benefit from a wider range of products than it could produce domestically.
• Consumers should benefit from better value for money- as items can be purchased from the best & most efficient producers around the world.
• Producers equally have access to the best suppliers in the world.

Question 6

What is free trade?

Answer 6

Occurs when there is trade between countries without barriers such as tariffs & quotas.

Question 7

What is a tariff?

Answer 7

A tax placed on foreign goods & services.

Question 8

What is a quota?

Answer 8

A limit on the number of imported goods & services.

Question 9

What is a customs union?

Answer 9

Occurs when there is free trade between member countries but an agreed tariff on non-members.

Question 10

What do worldwide government organisations such as the World Trade Organisation exist to do?

Answer 10

• Exist to encourage governments to have more free trade.
• There have been many numerous trade agreements -either establishing/ extending areas in which there is free trade between member countries so businesses can easily produce/ sell there.
• This means they remove the taxes of foreign goods (tariffs) or limit the amount of foreign goods that can be imported into the country.

Question 11

Why does not everyone favour free trade?

Answer 11

• Particular domestic industries can’t compete effectively globally- more openeness may lead to closure & redundancies.
• Producers- that are worried about their competitiveness may try to put pressure on governments to protect them.
• Some businesses may prefer for their country to be free to make its own trading policy rather than be part of the organisation & follow rules.

Question 12

What has made it easier for businesss to operate around the world?

Answer 12

Technology- particularly information & communications technology

Question 13

What have developments in technology and communications brought for businesses?

Answer 13

• The price of international phone calls has fallen dramatically- allowing communications with overseas offices & staff affordable.
• It is now possible to pass huge pieces of data required to run a business around the world closer to each other in terms of what they watch, read & listen to.
• The internet, newspapers, radio and Tv are making people more similar in their tastes, creating global markets.

Question 14

Transportation costs

What has happened to them & what was one of the biggest breakthroughs?

Answer 14

• Transportation costs have fallen dramatically.
• It is now much cheaper to move items by air/ sea.
• One of the major breakthroughs = the development of containerisation.

Question 15

Transportation costs

What does containerisation do?

Answer 15

Through standardising the size & design of containers, they can be fully loaded, quickly lifted off or onto a lorry, put onto a boat & stacked efficiently.

This will massively reduce unit costs!

Question 16

Greater internationalisation & the opening of borders create opportunities for businesses in relation to what?

Answer 16

Selling products abroad.

Buying inputs from abroad.

Producing abroad.

Question 17

Selling in overseas markets

Why may it be attractive to sell abroad?

Answer 17

A larger population- so larger consumer base- higher sales- fast growth (particularly in emerging economies).

The opportunity to reduce risk- By spreading sales more globally, if sales in one market fall, they may be compensated by rising sales elsewhere.

Question 18

Using Andoffs matrix, what would entering an international market be an example of?

Answer 18

• Market development if the products are essentially the same as those being offered in domestic markets OR diversification if the products are new.
• Both these strategies involve the risk of entering a new market but help spread risk at the same time by operating in new areas.

Question 19

What are the methods of entering international markets?

Answer 19

Exporting

Licensing

Alliances/ ventures

Direct investment

Question 20

What is exporting?

Answer 20

• Occurs when a business continues producing domestically but sells (exports) some of its products abroad.
• Relatively low risk & involves a low level commitment to overseas sales in terms of finance & management times.*

Question 21

What is licensing?

Answer 21

• When a business sells the right to an overseas business to produce/ sell its products.

This provides the business with a local presence. Can provide valuable insights into the business environment of the country & provide networks & market links.

Question 22

What are alliances/ ventures?

Answer 22

• Occur when a domestic business works in a partnership with an overseas business- perhaps share the investment & risk together in terms of building a brand & market presence.
• This gives the UK business access to local expertise & contacts & shares the risk, but doesn’t involve sharing the profits too.

Question 23

What is direct investment?

Answer 23

• Involves the greatest level of commitment from the domestic business.
• Involves investing overseas- perhaps to establish outlets/ production facilities.
• Requires relatively high funds & a high-risk decision.
• When a business has its own operations abroad- is called a miltinational.

Question 24

What are mulinational companies?

Answer 24

Organisations that have production bases in more than one country.

Question 25

Why are multinational businesses welcomed by overseas governments?

Answer 25

* Bring skills & expertise. * Bring employment. * Bring investment. * Increase demand for local goods & services. * Increase tax revenue.

Question 26

Why have **multinational companies** been criticised?

Answer 26

* **Exploiting** local resources & not sharing the rewards of the business with the local economy. * Keeping **senior jobs for their staff** & employing **local employees** for **low-level jobs**. * **Keeping** the **majority of the profits** for their own head office & **not investing locally.** * Finding ways to **avoid paying high levels** of **tax.** * Being involved in **corruption** to **win contracts**.

Question 27

Why is being international good for the business iself?

Answer 27

* Gives it direct access to local markets- may help it to overcome trade barriers against 'foreign businesses' as operated within the country. * Means production is closer to local customers- may improve the speed of responses- cut transporting costs- fit with desire to buy locally produced products. * May involve subsidies & tax incentives from the local gov which is eager for this investment- can reduce costs. * Spreads risks of being independent on one country /one production base by having more than one around the world. If there is natural disaster in one -another may still be able to produce. If demand in one fell- may still be growth in another market.

Question 28

What may the difficulties of being a multinational business be for the business?

Answer 28

* Bring **management challenges**- may be more complex to manage a business with base in different countries. * **Practical issues** of **communication** & issues such as cultural differences, differences in labour markets, government regulations & ways of doing business. * Bring criticism from some groups if the business is said to be abusing its power in any way/ if there is pressure to buy local brands not global ones.

Question 29

What factors must be considered when a business decides which markets to target abroad?

Answer 29

* The **size & growth** of the market * The **expected costs** of entering the market. * The **macro environment**- PEST-C analysis * How **culturally similar** the country is to the UK * The degree of **competition** * The **perceived risk** involved. * The fit with the **overall strategy** of the business & its competences. * The extent to which the business has to be **adapted** for **local requirements.** * The **impact** on the business of **overseas growth.**

Question 30

Why may businesses want to produce abroad? (page 543)

Answer 30

* It **costs less.** * It may be **nearer** to **resources.** * It may be **more efficient** to produce locally in overseas markets & sell there. * There may be **particular skills/ expertise** in a given area. * It may **overcome barriers to trade.**

Question 31

What is outsourcing?

Answer 31

If production is moved abroad.

Question 32

What is re-shoring?

Answer 32

Occurs when a business **moves** its **production** to the **domestic country**.

Question 33

Why may **re-shoring** take place?

Answer 33

* **Problems maintaining quality** abroad. * **Problems** with **delivery** from overseas. Local production may be more flexible to demand. * A **fall** in the **cost differential**. E.g. if wages overseas rise faster than domestically. * A desire to be seen to **support domestic production** & **create jobs locally**.

Question 34

What are the influences to produce or sell abroad? (page 543)

Answer 34

* **The pressure for growth.** *(E.g. from investors- if fast growth is required- it may be the domestic market doesn't offer enough overseas opportunities & overseas expansion = key!)* * **The pressure for lower costs** *(managers may be forced to search gloablly for the lowest cost resources/ production sites.)* * **Location** *(Need to be closer to overseas markets may affect location decisions.)* * **The availability of suitable resources locally** *(may be necessary to source inputs overseas if not available locally)* * **Politics/economics** *(Political & economic situation may affect the ease with which business can be undertaken overseas.)*

Question 35

What may businesses consider when considering entering international markets?

Answer 35

* **Extent** to which **local markets differ** in terms of **customer requirements.** * **Costs** of **adapting products** to local needs * **Economies of scale** from standardising products and selling the same products all around the world * The **ease of managing the business** centrally from one location

Question 36

What can the strategic options open to managers be shown using? What two factors?

Answer 36

**Bartlett & Ghoshal (1991) matrix** In this matrix- the choice of strategy can be analysed in relation to two factors- * The **pressures** for **local responsiveness** * The **extent** to which the business wants to be **globally integrated.**

Question 37

Bartlett & Ghoshal (1991) matrix The **pressure for local responsiveness**- what is this?

Answer 37

The extent to which local tastes differ & the need to adapt products as a result.

Question 38

Bartlett & Ghoshal (1991) matrix **The extent to which the business wants to be globally integrated-** what is this?

Answer 38

Where all the international units are working together within the overall whole- or less integrated where they operate more independently.

Question 39

Bartlett & Ghoshal (1991) matrix What are the 4 strategic options on the matrix?

Answer 39

International Multi-domestic Global Transnational

Question 40

Bartlett & Ghoshal (1991) matrix Strategic option- **International** What does this mean?

Answer 40

* The business is mainly focused on its **domestic operations.** * **Products** are **not adapted** for the international market; the existing prodcts are simply sold abroad. * This means the **products** are **not responsive** to local markets. * **International** business **less important** than **domestic** business * Products are **designed** for the **domestic market** & **international market** is seen mainly as a way to **boost sales**

Question 41

Bartlett & Ghoshal (1991) matrix Strategic option- **Multi-domestic** What does this mean?

Answer 41

* **Different parts** of the business **operate** **fairly independently** in their **own regions**. * Overall business- a **collection separate units** that **operate alone**. * Each one **adapts** to its **local environment-** terms of what it **offers** & how is **run- decentralised structure.** * **Each region** essentially **runs itself**- so overall organisation is a **collection of different local businesses** (multi-domestic) * Disadvantage of approach- **resources are not shared** between the seperate companies.

Question 42

Bartlett & Ghoshal (1991) matrix Strategic option- **Global** What does this mean?

Answer 42

* Products- **fairly standardized** around the world. * Common in industries where the **product does not need to change** in **different markets.** * Business is integrated in that it **follows similar policies & approaches** wherever it **operates.** * In a global business- the ways of doing things- set by head office- so business is very centralised. * Can lead to **economic of scale** & **management efficiencies**. * Business- is **run from the centre** with **overseas operations** as **'satellites'**- implementing head office policies- business is integrated from the head office.

Question 43

Bartlett & Ghoshal (1991) matrix Strategic option- **Transnational** What does this mean?

Answer 43

* Approach- aims to **maximise responsiveness** & **integration** across **all divisions** around the world. * Products- **adapted to meet the needs** of **local markets** & **respond** to their **different needs**. * **Business** is **very integrated**- shares ideas, technology, resources & discuss different ways of doing things. * **Transnational**- is **not dominated by a domestic head office** setting out what everyone does- it gives more input to businesses around the world to collaborate with each other- areas such as operations, finance, HR etc. * **Staff** moved between centres - unite business. * **Responds locally** whilst **benefiting** from being a **global business.**

Question 44

What are the risks of internationalisation?

Answer 44

* Cultural differences. * Differences in negotiating & decision- making style. * Ethical standards. * Anti-globalisation feelings. * Instability of the country.

Question 45

Why do some **pressure groups** have **Anti-globalisation feelings**?

Answer 45

* **Local businesses** & **cultures** are **_destroyed_** by large multinational companies. Critiques argue they are destroying local business & making the world too similar! * **Too big multinationals** are **exploiting local businesses & employees**- e.g. produce in a country & make use of natural resources- yet **profits do not remain in the country**- are exported overseas!

Question 46

How does **internationalisation** impact on the **functional areas** of a business?

Answer 46

* **Market Research-** *need to find out more about new markets & segments to target.* * **R&D-** *as business develops new products/ modifies existing products for overseas markets.* * **Purchasing of supplies-** *have access to far more suppliers around the world- communications technology enables to identify, contcat & manage relationship more effectively.* * **Production-** *may look to produce overseas to benefit from lower costs, better skills & technology & availability of resources.* * **Marketing decisions-** *how to promote & price products & how to distribute them.* * **HR-** *How & where to recruit, rewards offered & how best to manage people.*

Question 47

What may a businesses decision to offshore production lead to?

Answer 47

* **A relocation of production facilities & the development of the operation abroad (operations).** * **A reduction in staff domestically & the recruitment of employees overseas** (HR issues). *Managing staff abroad -different- differences in labour market, skills & expectations of workforce, cultural differences & employment legislation.* * **Lower costs** * **Marketing may be affected** if the business can build on the regional strengths of where product is produced.

Question 48

The decision for a business to target new overseas markets may lead to what?

Answer 48

**Changes to the product** & ways they are **promoted** *(adapted for new segments)* **Changes to the operations process**- *to be able to produce products suitable for the new market.* **Changes to HR decisions**- *if business is operating overseas- will need to recruit & train staff abroad.* **Changes to finances-** *May be initial costs & investments to establish a presence overseas- but long term overseas sales may lead to higher profits.*