Methods of managing global operations

Entrepreneurship-and-Communication-Skills-notes

There are five main stages in the evolution of a global business

Exporting – In this case the saleable product in overseas markets is exploited means of foreign intermediaries eg agents and distributors.

Little or no adjustment is made to the product . This is a low risk strategy since there is little financial commitment but the company is very much dependent on the efforts and motivations of its foreign intermediaries . The management orientation is ethnocentric

Overseas branches The foreign sales are large enough to justify having own sales force and branches. Financial commitment increases with increasing business. Exchange and political risks also go high. According to OHmae , it is at this stage that the firm begins to acquire the local knowledge and experience that it will need. The management orientation is however still ethnocentric

Overseas production- Export sales are now so high that shipping and other export related costs represents an opportunity for savings establishing overseas production. It makes sense to use cheap

labour and other resources abroad as well. The company’s management orientation is still largely ethnocentric with some functions such as R&D and HR being centralized. 

Insiderisation- The company completes the corporate functionality in each location rather than restricting itself to marketing. The aim is to develop a full marketing capability and other products suited to local requirements. The management slowly shifts to a polycentric orientation and thinks of itself as a multinational. This approach reduces exchange risk and political risk but requires financial commitment.



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