Internationalization stages

Most companies pass through different stages of internationalization. There are, of course, many companies which have international business since their very beginning, including 100 percent export oriented companies. Even in the case of many of the hundred per cent export oriented companies, the development of their international business would pass through different stages of evolution.

A firm which is entirely domestic in its activities normally passes through different stages of internationalization before it becomes a truly global one.

There are many companies which enthusiastically and systematically go international as part of their corporate plan. However, in the case of many firms the initial attitude towards international business is passive and they get into international business in response to some external stimuli.

A firm may start exports on an experimental basis and if the results are satisfying it would enlarge the international basis and if the results are satisfying it would enlarge the international business and in due course it would establish offices, branches or subsidiaries or joint ventures abroad. The expansionary process may also be characterized by increasing the product mix and the number of market segments, markets and countries of operation. In the process the company could be expected to become multinational and finally global.

In short, in many firms overseas business initially starts with a low degree of commitment or involvement; but they gradually develop a global outlook and embark upon overseas business in a big way.
The important stages in the evolutionary process are the following.

Domestic company:

Most international companies have their origin as domestic companies. The orientation of a domestic company essentially is ethnocentric. A purely domestic company “operates domestically because it never considers the alternative of going international. The growing stage-one company, when it reaches growth limits in its primary market, diversifies into new markets, products technologies instead of focusing on penetrating international markets.” However, if factors like domestic market constraints, foreign market prospects, increasing competition etc. make the company reorient its strategies to tap foreign market potential, it would be moving to the next stage in the evolution.

A domestic company may extend its products to foreign markets by exporting, licensing and franchising. The company, however, is primarily domestic and the orientation essentially is ethnocentric. In many instances, at the beginning exporting is indirect.

The Company may develop a more serious attitude towards foreign business and move to the next stage of development, i.e., international company.

International company:

International company is normally the second stage in the development of a company towards the transitional corporation. The orientation of the company is basically ethnocentric and the marketing strategy is extension, i.e., the marketing mix ‘developed’ for the home market is extended into the foreign markets. International companies normally rely on the international business.

Multinational company:

When the orientation shifts from ethnocentric to polycentric, the international company becomes multinational. In other words, “when a company decides to respond to market differences, it evolves into a stage three multinational that pursues a multi-domestic strategy. The focus of the stage three company is multinational that pursues a multinational or, in strategic terms, multi-domestic. The marketing strategy of the multidimensional company is adaptation.

In multinational companies each foreign subsidiary is managed as if it were an independent city state. The subsidiaries are part of an area structure in which each country is part of a regional organization that reports to world headquarters.

The global company will have either a global marketing strategy or a global sourcing strategy but not both. It will either focus on global markets and source from the home or a single country to supply these markets, or it will focus on the domestic market and source from the world to supply its domestic channel. However, according to the interpretation of some others all strategies – product development, production marketing etc- will be global in respect of the global corporation.

The transitional corporation is much more than a company with sales, investments, and operations in many countries. This company, which is increasingly dominating markets and industries around the world is an integrated world enterprise that links global resources with global markets at a profit.