Reasons for targeting international markets

• Growth — the domestic market may be saturated or in decline, while an emerging economy's middle class is expanding fast.
• Economies of scale — a bigger total market means longer runs and lower unit costs, which strengthens the firm at home too.
• Spreading risk — different economies move through the cycle at different times, so a downturn in one is cushioned by another.
• Extending the product life cycle — a product in decline at home can be in growth abroad. This is Ansoff's market development.
• Lower costs — cheaper labour, materials, land, energy or tax.

Assessing the attractiveness of a market: its size and growth rate · income levels and their distribution · competition already there · cultural fit with the product · political and legal stability · infrastructure and logistics · exchange-rate risk · and the ease of doing business (corruption, red tape, contract enforcement).

Your turn — sizing the market

Methods of entering international markets

Think of these as a ladder of rising commitment, control and risk:

• Exporting — make it here, sell it there. Lowest cost and lowest risk; keeps production and jobs at home. But there is no local presence, transport costs and tariffs apply, the firm is fully exposed to exchange-rate movements, and it learns very little about the market.
• Licensing / franchising — a local firm makes or sells the product under your brand, paying a royalty. Very fast, almost no capital required, and the licensee supplies the local knowledge. But margins are thin, quality control is weak, and you may be training your future competitor.
• Strategic alliance / joint venture — share cost, risk and expertise with a local partner (and in some countries it is legally required). But control is split, profits are shared, and cultural or strategic conflict between the partners is common.
• Direct investment — build or buy your own operation abroad. Full control over quality, brand and strategy, avoids tariffs, gets close to the customer. But it is the highest capital cost and the highest risk: political risk, cultural error and enormous sunk costs if it fails.

Which entry method?

Tap a characteristic, then tap the entry method it describes.

Choosing an entry method

Producing and sourcing abroad

Offshoring means moving production (or a service function) to another country. Re-shoring means bringing it back.

Why offshore: lower labour and land costs · proximity to raw materials or to the target market · favourable tax and regulation · access to skills · and being close to a growing customer base.

Why firms re-shore: the wage gap has narrowed as emerging economies develop · rising shipping costs and long, fragile supply chains · quality problems and the difficulty of controlling a distant operation · long lead times that kill responsiveness · automation reducing the labour-cost advantage in the first place · and consumer and political pressure to make things at home.

Your turn — landed cost

Your turn — the annual saving

Should they offshore?

Managing an international business

Every multinational faces two competing pressures at once:

• Pressure for cost reduction — standardise everything, produce at global scale, one product, one campaign.
• Pressure for local responsiveness — adapt the product, price, marketing and distribution to local tastes, laws and channels.

Bartlett and Ghoshal map the four resulting strategies:

• Global — high cost pressure, low local pressure. One standardised product worldwide. Maximum scale economies; ignores local differences.
• Multi-domestic — low cost pressure, high local pressure. Each country operates almost as its own business, adapting fully. Excellent local fit; duplicated cost and no scale.
• International — low on both. Develop at home, transfer abroad with minimal adaptation.
• Transnational — high on both. Seek global efficiency and local responsiveness simultaneously, with knowledge flowing in every direction. Theoretically ideal; extremely hard to manage.

Culture is where internationalisation actually fails (and it links straight to Hofstede in 3.10.2). Products, advertising, brand names, pricing expectations, negotiating norms and management style all travel badly. The famous failures are almost never engineering failures — they are failures to understand a customer.

Global or local?

Assessing greater use of digital technology

The pressures to adopt: competitors are already doing it · customers now expect it · the cost of not having the data your rivals have · and the fact that digital capability increasingly is the business model, not a support function.

• E-commerce — sell direct, worldwide, 24/7, with far lower fixed costs than physical retail. It collapses barriers to entry (a strength for the small firm, a threat to the incumbent), enables dynamic pricing and personalisation, and hands the firm the customer relationship directly. Costs: price transparency shreds margins, logistics and returns are expensive, and it can cannibalise your own retail channel.
• Big data — datasets far too large for conventional analysis, generated by transactions, apps, sensors and social media.
• Data mining — searching that data for previously unknown patterns and relationships, then using them to predict behaviour, target marketing, and price dynamically.
• Enterprise Resource Planning (ERP) — a single integrated system linking finance, operations, inventory, HR and sales, so that every function works from the same real-time data. It enables JIT, sharply improves decision speed and coordination — but implementation is notoriously expensive, disruptive and prone to failure.

Match each digital technology to its meaning

Tap an item on the left, then its partner on the right.

Your turn — e-commerce revenue

The impact on the functional areas

• Marketing — precise targeting, personalisation, dynamic pricing, measurable ROI on every pound of spend.
• Operations — real-time inventory, demand forecasting, predictive maintenance, JIT made genuinely reliable.
• Finance — instant management accounts, automated reconciliation, better cash-flow forecasting.
• HR — remote working, e-learning, algorithmic scheduling — and a large-scale shift in the skills the firm needs to recruit.

The costs and risks: heavy capital expenditure with an uncertain payback · a serious skills gap and the need to retrain or replace staff · resistance to change (3.10.1) · cyber-security exposure · data-protection law · and dependence on systems whose failure now halts the entire business.

A £12m technology decision

Thinking like an examiner

• Entry method must match capital and knowledge. Rank the ladder — export (low risk, low control) → licensing → joint venture → direct investment (high risk, full control) — and place this firm on it, with reasons.
• Offshoring arithmetic is the easy part. Always price in lead time, quality, capability loss, tariff and exchange-rate risk, and reputation — and test how thin the saving is.
• Bartlett and Ghoshal is a tension, not a menu. Say which pressure dominates for this firm and why.
• Digital investment is a change-management problem in disguise. The technology usually works; the organisation frequently does not.
• Culture is where international strategies die. Link it forward to Hofstede.

The big ideas to know

Press Finish to see your score.