In general terms there are many reasons for which a company might want expand internationally. In fact, the adoption of this strategy is always more frequently the simplest solution to various negative situations which may arise in a company and market (although there are few but consistent risks which have to be taken into account).
The first that jumps to our mind is a condition in which your home market is declining or in some way limiting you (market saturation). In this case you just search for market with open spaces for your company. Another very common situation is when a company already has been selling/trading with foreign countries but now realizes it ends up being much cheaper to actually move part or the entire assembly/manufacturing process to the place which it will later be distributed (vertical or horizontal expansion, and rationalized production). In some way linking to our first case, we may also encounter a circumstance under which you may be producing too much of a product your current market may manage (excess of production). Therefore selling the surplus perhaps overseas might in some cases be a good solution. In other cases, since your company is doing well you may simply have the desire of expanding. This could be done by agreements, joint ventures, and many other possibilities. This very advisable if your product gives you a competitive advantage, for example selling a product in a market where for the moment no one else is doing it.
The world is a very small place and getting smaller each day. The internet, cheaper travel and the shrinking of markets are all forcing companies to compete at an international level. Companies cannot afford to stand still and ignore outer opportunities.
An incredibly relevant fact has occurred back in 2000: Renault acquired Samsung's auto branch in South Korea. This is a very big and full of potential risks maneuver. Samsung Motors started as a joint venture between Samsung and Nissan Motors in 1994. Unfortunately as soon as the started actually entering the market the Asian crisis begins (1997) and although consistent investments have been made, problems aroused. The Asian crisis affected currencies, stock markets, and other asset prices of several Asian countries. Indonesia, South Korea, and Thailand were the countries most affected by the crisis. The Asian crisis contributed to the Russian and Brazilian crisis in 1998, because after the Asian crisis, banks were reluctant to lend money to emerging countries. Few years later Renault comes into action by acquiring as we said 70% of this company while it finds itself in a relatively negative period. The greatest challenge facing Renault, however, was the revision of the sales and marketing program due to the great differences between the home and this market. This came out to be a very good move on the side of the French company.
From the facts we may easily understand that the reasons which pushed Renault to make this move are quite elementary. With this I mean that the principle is simple and straight forward. The only problem is that you have to have a strong financial position in order to support such moves. Putting it in very basic terms, Renault did a classic entrepreneurial move: investing. Conscious for years that a strong international expansion would be a positive thing for the company, the French firm found its great opportunity with Samsung Motors. It has been a great action since the plants and infrastructures where good, the quality and technology was of a high level. The only problem was that the company was going badly due to a general regional crisis. The only thing to do was invest (a relatively small amount of money if we take into account of everything that was included). The results of this became evident since 2002 when Renault Samsung Motors exceeded 100,000 sales and became profitable two years ahead of projections.
Issues for international managers
The relationship between global managers and subordinates are a dependent relationship. Global managers have the ability to understand the world trends and global issues, and are able to adapt the new things. However, global managers also must focus on the unique needs of local customers and marketplace trends while maintaining on corporate advantage. Furthermore, the global managers must scan all internal and external environments when making decision, decentralize decision making, as well as integrate their knowledge of their company's mission and capability with the market. The benefits of global managers are creating synergy that lead to cost saving through sharing research and development, distribution, marketing, and project development expenditure.
The global managers should "think globally and act locally" instead of "think globally and act globally". One of the most important features that the global managers should adopt is to be concern the different value of cultures. Cultural empathy, integrity, and comfortability in dealing people from various cultures are important for managers to think and act. Nevertheless, it does not mean that the global managers have to know the culture in detail, but to think and act with an open mind and in socially responsive ways. The global managers do not integrate foreign thought in their mind but seek to process their thought to generate synergy in order to increase global understanding. For these managers, the global and domestic markets do not separate but integrate into global system.
Managers of transnational companies approach the management differently. They recognize that demands and opportunities are dissimilar in each country. For example, some markets have more complicate customers, while the main competitors are more dynamic in some countries. In addition, the home country may be the most unfavorable environment for some businesses.
In developing strategies, transnational managers need to be responsive to the demand which is forced by local environment and try to achieve the similarity between subunits and their local environments through managerial approach which is tailored to local condition. Managers have to change the ways they think and act due to the penetration of global economic, political, technological, and social forces.
However, in order to manage the transnational effectively, the managers face several administrative challenges. First, the managers must be able to balance the diversity of perspectives within the companies in order to ensure that no any group has more power than the others. Second, the managers must build flexible coordination processes so that each unit, which has different roles and responsibilities, is managed in the suitable manner. In the case that the suitable systems and management processes are significant and the managers cannot work against the force in the companies, it is the most necessary task of the managers to support a share vision and personal obligation in order to integrate the organization at the fundamental level of each subordinate.
As knowledge and specialize skills which have slowly replaced capital are the most important source of competitive advantage; transnational managers have become increasing aware that expertise cannot be allocated from the top. The critical task is to use the knowledgeable managers to identify and exploit opportunities in a complex global environment. In other word, the entrepreneurial function must be focused at the bottom of the hierarchy rather than the top. The entrepreneurial transnational corporation will not be a hierarchical organization with fewer layers of management, but it will be a company which is built around a core entrepreneurial process that will force everyone in the company.
The roles for managing globally competent people that the managers should understand the worldwide business environment, work and learn from people from various cultures simultaneously, create a culturally synergistic organizational environment, use cross-cultural international skills, and treat everyone equally. The authors believe that these competences are needed for working in transnational corporations.
As we previously said Renault made a great economic move which had great effects on the economy on a global change. The way this has been done is in the classic procedure. They understood that an international expansion was a good thing at this point and started being receptive to opportunities. After few years of activity Samsung Motors, mainly due to the Asian Crisis had to pull back from business. This has been a golden opportunity for the French company since Samsung Motors had excellent plants, high levels of technology, and a good environment. As a consequence Renault could acquire 70% of it (therefore has complete control over it) at a relatively low price for what it has gained. After very few years great results became evident. This has been a superb entrepreneurial move: right place and right time. The creation of Renault Samsung Motors is often cited in South Korea as an example of how an overseas company can succeed in South Korea, which has been for such a long time closed to foreign investment. Obviously it takes a great effort to be competitive in such a different environment. In fact the change the managers of Renault Samsung Motors had to experience was drastic. They found themselves having to lead an incredibly big company in an atmosphere very incredibly different values, cultures, points of view etc. It is in these situations that the real managers arise and show their real qualities.
To be integrated, the companies operate as the world is one large market and disregard to the local responsiveness. On the other hand, multi-domestic strategy is no particular pattern of market participation as well as fully customized products and services. Under this strategy, each subsidiary manages independently with autonomous operations. Therefore, the companies must value national cultures, as customers in each market are dissimilar. There are three forces of disintegration, which are cultural differences, government demand, and the growing pressure of localization.
The transformation of transnational company is discussed about the combining between global convergence and national responsiveness. The ultimate goal of transformation is to help the companies escape from traditional ways of work and move forward to be flexible, empowering, and communicative. The companies implement the transformation as a way of presenting a more entrepreneurial and cooperative work culture.
The global managers also must focus on unique needs of local customers and adopt “think globally and act locally”. The multinational managers should recognize the importance of international management development, has ability to scan the environment and notice the change, and have the ability to view the world from different points of view. In the transnational companies, the managers have become increasing aware that expertise cannot be allocated from the top. The critical task is to use the knowledgeable managers to identify and exploit opportunities in a complex global environment. In other word, the entrepreneurial function must be focused at the bottom of the hierarchy rather than the top.
Published: Wed, 24 Oct 2012 11:02:24 +0000