Abstract
Many firms are always eager to expand to the global market and enjoy the benefits of a wide market. This research set out to find out how a local firm can successfully develop into a global and multicultural organization with a global presence. According to research findings, a local firm has to go through four stages in order to fully become a global firm (Frenz, 1996).
The global and multinational approaches are very critical to the success of a business to succeed in the international market. Global companies have to put multicultural organizational and management strategies in place in order to reap maximum benefits from its culturally diverse staff (Rugman, 2003).
It is therefore very important for a global firm to accommodate and appreciate the differences in culture in order to achieve its goals and objectives.
Introduction
Many businesses are becoming global each and every day and therefore the need to reach customers wherever they are has become a priority for many companies. Establishing a global presence is not an easy task and therefore a lot of effort and the right strategies are needed in establishing, developing and managing a global firm.
A lot of research has been conducted by different business scholars in an attempt to try and find out the best strategies that local firms can use in order to penetrate 5the global market. It is the desire of every company to establish a global presence and expand to the global market.
In order to foster global expansion, the management of a company is supposed to make the right decisions in order to deal with the international market pressure. The multicultural potential of a particular firm can well be determined by monitoring how its products and services are received in the international market.
There are fundamental aspects of establishing global firms that local businesses have to consider in order to establish a successful global firm. To begin with, the company concerned should be aware of all the necessary stages involved in developing and international business.
The company should also have a prior knowledge of all the challenges involved in establishing a global business in order to come up with appropriate strategic approaches and transnational business model. The structural design has to be one that will give the company a global advantage. This research paper will highlight the various aspects involved in the successful establishment, development and management of a global firm.
Findings
Before establishing an international business, there are various stages that have to be strictly followed by those concerned. The process of global development takes place in four major stages. The first stage is characterized by opportunistic exportation of goods and services (Rugman, 2003). During this stage, goods are designed and produced locally and are only exported through standard export channels.
Products are not differentiated geographically and many firms have little or no foreign investment at this stage. Foreign agents are responsible for handling the company’s exported products in the foreign countries (Becker, 2000). These agents have to be licensed in order for them to carry out operations on behalf of the company. This stage is for testing foreign markets before making significant decisions regarding global ventures.
A company moves to the second stage when it has fully decided to venture into international business. During the second stage, the company has a major focus on international market is more reluctant to invest locally. The management is cautious when making local investments and no longer fancies localized designs.
The company begins product modifications in order to expand to the global market. At this stage, company standards and policies reflect international standards (Becker, 2000).
The third stage of international development comes when a company is fully multinational. The company has the ability to meet the needs of both local and foreign markets (Johnson, 2009). The company has extensive experience in the international market with some foreign investments. The company is strong in the local market but the global market is its major interest.
The company has established foreign firms that are fully operational with an assured market. The fourth step of international development comes when the company is fully global. The company has extensive experience in the global market and its brands are well known globally (Johnson, 2009).
Its designs and policies are global with the company dominating key global market. The management and organization of the company is geographically dispersed with efficient sharing of resources (Johnson, 2009).
The process of establishing a global is not always smooth and companies that intent to venture into international business have to be fully aware of the potential challenges that they are likely to face while conducting their business at the global scene.
Globalization has played a very significant role in promoting international trade but it has its shortcomings that pose a great challenge to both present and potential global companies (Daft, 2009). There has always been stiff competition in the global market with many companies being unable to withstand the completion for both the market and competent talents.
Products in the international market face severe public scrutiny and a company may end up losing a lot of sales because of consumer doubt. Many global companies face a lot of pressure from investors who expect them to remain competitive all the times despite the market pressures (Daft, 2009). Changes in the global economy have led to new challenges in the international market.
The absence of a proper framework of global business rules is a major challenge to international business development (Daft, 2009). For a business to function well, it must have some clear rules and regulations to govern it.
This area has not been fully explored by business scholars and a lot of research work needs to be done in order to establish the relationship between a successful international business with rules and regulations (Daft, 2009).
Many countries are not members are not members of the World Trade Organization which makes it difficult to consolidate all the rules governing global trade. There are lots of disagreements on various trade issues such as environmental concerns, intellectual property rules as well as property protection (Travis, 2007).
Since it is very hard to establish international agreements, global firms business will continue to operate without any clear guidelines (Travis, 2007). A company operating in a foreign country is forced to adapt to the business rules of that jurisdiction. This is a great challenge because the business regulations of a particular country may have adverse effects on the operations of multinationals in a particular country.
Global companies are forced to adapt to policies and regulations of the host country (Smith, 2010). The management and organization of a global company is very different from local companies and therefore some companies might find it difficult to its management and organizational structure.
A global company involves a lot delegation authority to various regions whereas the majority of local companies are used to a centralized authority (Smith, 2010).
Those in charge of a particular region or division have to take full responsibility of the various issues at hand without seeking help from the head office (Bruner, 2003). The company has to adapt to new standards, values and corporate culture for it to remain competitive in the international market (Spulber, 2007).
In order for a company to expand at a global scale, the company has to be managed and organized according to international structures and standards. It is always not easy to automatically adapt to new systems and structures and therefore companies have to fully prepare all stakeholders for the new challenge (Green, 2007).
Cultural diversity is also a major challenge in developing an international business. It is always difficult for a multinational to operate in a global market without embracing the local culture (Green, 2011). A company has to understand the cultural dynamics of a country in which it operates and be in a position to tolerate in differences in culture.
The reluctance to adapt different cultures by a global firm can make the company lose a lot of sells and even close down. This is a very serious issue and should not be overlooked in any way. Global companies need to have employees with the ability to bridge the cultural gap in whatever they go to work.
Running a global organization is a great challenge and finding employees who are willing to adapt to all types of culture is a not an easy task (Muhlbacher, 2006). A global company should incorporate the local people in its operations as way of bridging the cultural gap that may exist. Motivation can only be sustained if a global company observes meritocracy.
The other potential challenge to global business that has been brought about by globalization is the issue of corporate and social responsibility in the societies in which global firms operate (Oshri, 2008). It is often a great challenge for global companies when it comes to commenting or having a point of view on various issues affecting the host country.
A multinational company can run into trouble with the local authority because there no clear limits on how far it is supposed to go. Global companies have to understand their role in the society for them to play their part in impacting the society. All these challenges have to be overcome for global firm to retain its competitiveness.
The various challenges facing international trade in recent years has forced global firms to look for the right strategies that can make them remain competitive at the global stage (Oshri, 2008).
Since globalization does not favor all global firms, it very important for global firms to understand all the dynamics in the global before coming up with an effective global strategy (Bartlett, 1990). It is important for the management to understand all the trends in global competition for their companies to benefit from globalization.
A global company can only become more competitive if it has a well structured global policy in operation. There are various ways in which a global firm can gain a competitive advantage over its competitors. To begin with, the company must demonstrate efficiency in its operations.
This can be achieved through operational flexibility, maximum utilization of production resources in the host country, extending the product life cycle and the adoption of economies of scale policy to expand its market (Bartlett, 1990).
Global firms can also become competitive through strategic planning and management. Being strategic involves by being a first mover while it maintains price transfer and cross subsidization. Taking microeconomic and operational risks is another sure way of remaining competitive at the global scene. A global company should invest in innovation and learning as major sources of competence.
A company’s strategic objectives will in the long run determine the position of its products and services in the international market (Grosse, 2000). A global firm has to fully compete in the global for the survival of its products and services.
Before looking at the various strategic approaches in developing international business, it is important to first of all understand the various drivers that determine the potential of a company to excel in the global market (Grosse, 2000).
The cost drivers include the location of the company’s strategic resources and the cost difference. Competitive and government drivers are other important indicators of an industry that is ready for globalization.
There are three major types of International strategies that a global firm can apply in its quest establish its presence in the international market. The multi-domestic strategy, global strategy and mass customization are the three major types of international strategies (Joynt, 2002). In the multi-domestic strategy, products and services are tailored for each market.
This strategy prefers decentralization of power where regional managers are given powers to make decisions without depending on the central authority. Many countries across the world are very different in terms of social and economic growth (Joynt, 2002). In cases where the differences between countries are extremely large, the multi-domestic strategy is the best in such scenarios.
Some of the advantages of this strategy include minimal exchange rate and political risks. This strategy is suitable for product differentiation which can at times be useful in stimulating local response.
The global strategy does not support product differentiation and firms that apply this method produce same product in all countries or regions. The global strategy has a centralized power system where regional managers wait for directions from the head office before making major decisions (Amman, 2007). The global strategy is preferred when there is a minimal difference between countries.
For global firms that want their products to develop at a faster rate in the global market at a lower cost will always go for the global strategy. It important to note that the type of strategy applied by a company depends on the nature and structure of the company (Amman, 2007).
The nature and structure of companies tend to and it therefore necessary to do a thorough evaluation of a particular strategy before deciding whether it is good for the company or not. The multi-domestic strategy emphasizes on local research and development which in turn offers a favorable atmosphere for innovation.
Since the multi-domestic strategy involves backward integration, a global firm is in a better position to produce quality goods and services by applying this strategy (Bruner, 2003). The entrepreneurial spirit is cultivated and enhanced through the multi-domestic approach.
The multi-domestic strategy faces quite a number of challenges despite the advantages it offers to the company. Some of the major challenges include high costs of producing tailored products and slow market introduction (Daft, 2009).
The global strategy is associated with effective networks for distributing global products with a strong financial control. The global strategy facilitates quick penetration to the global market. In the global strategy, a firm has a strong financial control where products are market driven (Daft, 2009). The global strategy also faces quite a number of challenges such as the fluctuating exchange rate and dependence on a single product.
The mass customization strategy offers economies of scale by preferring to use the same internal components in the majority of its appliances. The customization strategy leads to low cost of production because the outer structure of appliances is customized lower cost.
Different consumer preferences pose a great challenge to this strategy. The mass customization strategy has to withstand the competition in a fragmented industry (Daft, 2009).
The mode of entry to the global market is important to global firm’s strategy for penetrating the international market. The four major modes of entering the global market include joint ventures, foreign direct investments, exporting and franchising.
Companies will tens to choose their mode of entry according its risks and rate of penetration. The mode of entry to the foreign market plays a critical role in the company’s success in the international market (Grosse, 2000).
The structural design and organization of a global firm are very critical to its success. Global firms must apply the right structural designs in order to remain competitive in the global market (Grosse, 2000).
The there major structural designs normally applied by global firms include the global area division structure, the global functional division structure and the product division structure In global product division structure the company’s product lines are normally managed globally by specific divisions.
The responsibility of managing a particular product both in the local and international market is given to a particular product division. A particular product division is fully fledged with production, finance and marketing personnel. The global product division structure is advantageous in the sense that the application of economies of scale is very possible (Daft, 2009).
The product divisions produce different products and their operations are completely independent. This structure is suitable for unique products that have distinct features. These types of products require some special attention for them to be effectively marketed in the global market. Each division ahs a specialized marketing force and communication between divisions is restricted.
The second structural design that is normally applied by global firms is the global area division. In this type of structure, the division is based on functions rather than products (Green, 2011). A particular division such as a marketing division is responsible for marketing all the company’s products in both the local and international market. The entire product range is under one functional division.
This structure is applied before a global firm grows. As the organization grows, local companies may start having its own functional divisions and therefore discrediting the global functional division. In instances where a company is trying to optimize its technologies, this type of structure is the most applicable (Green, 2011).
The global area division is a structural design based on geographical divisions. For example, a global firm can have a division in charge of African divisions and another division in charge of Asian operations. His structural design is applied when a global firm intends to stimulate a local response (Green, 2011). This structure is also applicable for a product that has got brand equity.
Regional managers have complete control of all the regional operations and therefore functional divisions can not work in this scenario. This structure provides the right framework for market dynamism and responsiveness.
The structural design of a global firm should be applied according to its level of growth, market competition. The matrix structure combines both product and functional divisions in its operations. By applying this strategy, a company aims at reaping the benefits of both the product and functional division structures (Green, 2011).
An international business model should integrate the environment and business skills to meet customer needs across the world. Customer needs have been evolving over time and it is there very necessary to have business model that will distribute company resources and talents in the best way possible.
The ever changing global market calls for a competent business portfolio that. A global business must sustain innovation, efficiency, profitability and quality (Joynt, 2002). Optimum sourcing of resources is an essential element of an effective business model that is ready to establish global presence (Joynt, 2002).
The type of business model to be applied in the international market varies from one organization to another. The just –in time model is an emerging supply chain system that is suitable for global companies involved in manufacturing. The just-in time model of a supply chain is designed in such a way that the delivery of production materials at the exact moment in which they are require.
The same thing happens when delivering finished products to customers wherever they are (Joynt, 2002). This type of supply chain system ensures punctuality and reliability at all times. The management of the supply chain is very important in determining how effective a business model will be. It is important to consider all the necessary elements of a good business model for a business to thrive at the global stage.
The global market is very open to all players and it is therefore very necessary to attain the much needed competitive advantage over competitors. Global firms need to possess both technical and business expertise in order to adapt to market changes.
Workforce flexibility helps in bringing the best out of employees. A global organization should have top class employees in order to steer the company towards achieving its strategic objectives in the global market (Grosse, 2000). The international business model emphasizes on skill development and innovation and is against protectionist policies.
Most international business policies encourage business models that focus on train global workforce (Grosse, 2000). The global marketplace has got a lot of challenges that can be addressed by the full implementation of an international business model that meets international standards. All cultures around the world are unique and different form each (Oshri, 2008).
It is therefore very important to try its level best to accommodate the cultural diversity of its employees. Because of this reason, all global firms have to develop into multicultural organizations for them to succeed at the global stage. A multicultural organization has organizational and management structures that are greatly influenced by the cultural diversity of its employees.
A multi-cultural organization uses the cultural diversity of its employees to its own advantage. Having employees from different backgrounds ahs its benefits and which should be fully enjoyed by a global firm. A multicultural firm view diversity as an advantage rather a limitation (Oshri, 2008).
The organizational resources of a global firm that appreciates cultural diversity are distributed in a fair manner and is no way affected by cultural differences. The decision making process is all inclusive and each member of the organization has a right to be heard when major decisions are being made. The organizational culture of a multicultural organization fully appreciates and emphasizes on the need for unity and togetherness.
All the company policies and regulations are flexible enough to accommodate all employees (Amman, 2007). There are various principles that multicultural those global firms must observe in order to be seen as a multicultural organization.
To begin with, the firm must practice heterogeneity where all employees are seen as integral members of the organization. The company has to recognize and manage the cultural diversity within the organization rather than diving employees into categories based on their background (Amman, 2007).
A multicultural organization must view and judge its employees as individuals and not according to their race or culture. Racial prejudices and generalizations should not be part of a multicultural global firm (Amman, 2007).
The company should take advantage of the talents and special sills brought about by diversity instead of focusing on negative assumptions. By recognizing the positive effects of a particular cultural background, the company will be able to motivate its staff and in the process bring out the best out of it.
A multicultural organization advocates for collective responsibility where all stakeholders are urged to support the organization to achieve its goals and objectives. Responsibilities are shared across the board with everyone working hard to achieve common organizational goals (Amman, 2007). Sharing responsibilities helps in bringing positive behavioral changes among the staff s some prejudices and myths are phased out.
A multicultural organization is normally influenced to deliberate and plan for changes before implementation. The process of deliberations ensures that all those affected by changes are fully involved in decision making. This helps a great deal in motivating employees and making the feel important to the organization.
Multicultural organizations are normally associated with problem definition and analysis. This ensures extensive participation and helps in making decisions and policies that accommodate the cultural differences within the organization (Grosse, 2000).
Accountability is very important in a multicultural organization because it makes managers of particular groups to rally their teams towards achieving organizational goals and objectives. Members of a multicultural organization are supposed to understand what a multicultural organization is and make their full contribution towards helping the organization to achieve its goals and objectives.
It is important for a multicultural organization to maintain its system in order to make its employees accountable for their performance as individuals. The organizational principles of a multicultural organization should be motivated by the need to get the best out the cultural diversity in the organization (Spulber, 2007).
Apart from influencing the organizational structure of a global firm, cultural differences also determine how the firm is managed. There are various management criteria that a multicultural organization must meet in order to remain competitive in the international market.
A competent multicultural manager should view cultural diversity as an opportunity and not as a problem. The manager should be sensitive to needs of all employees regardless of their cultural and racial background.
By understanding their workforce, managers in multicultural organizations are able to solve a lot of issues arising from cultural diversity (Spulber, 2007). Multicultural mangers should study and analyze all the cultural facts and myths in order to fully utilize the positive aspects of different cultures to bring the best out of their employees.
This enables managers to eliminate all stereotypes and negative prejudices that might exist in the organization. The managers should go out their way to seek skills and talents within the organization that are inmost cases undervalued and unrecognized. It these skills and talents are put into use, the performance of a multicultural organization in the international market will surely improve (Amman, 2007).
Conclusion and Recommendations
From the above findings, it is clear that expanding a business to the global market requires a lot of effort and planning. The fourth stage of international business development can not be reached if a firm is not ready to put in place policies and structures that can compete in the global market.
Many business scholars have come with different ideas on how a company can penetrate in the international market but some knowledge gaps still exist in international business studies that will be covered in this research paper.
To begin with, the area of international business model development is still very shallow and therefore more research in that area in need in order to determine the right business model to apply both at the entry and maturity stage of global firms. The current models are very impractical in the current international market.
The rules and regulations governing international trade are not yet clear and therefore many multinational companies have to endure local trade regulations which may differ with the company’s policies. It has been difficult to harmonize international business regulations and in the process leaving many global firm to operate without any clear guidelines.
An effort should be made to harmonize the right trade regulations that cut across all cultures for international firms to operate with some certainty. The area of international business law has to be explored with relevant and all inclusive policies and guidelines being put in place to foster international trade.
Many companies have the desire to operate internationally but fear losing their investments due to lack of clear guidelines to protect their foreign investments. With the ever increasing number of multinational companies, the global market is becoming more competitive and there fore using strategies that were put in place the previous century renders the current global firm incompetent.
Strategic management is very fundamental in the success of both local and global organizations. Apart from exploring new ideas of improving international business development, this research will also focus on various ways of modifying the current strategic approaches in international business development.
The global economy has been fluctuating all the time which is not good for small global firms. Strategic approaches and structural designs of global firms should be able to withstand the current uncertainty in the global market.
Most business research is focused on local markets and very few business researchers are willing to explore the various issues affecting global business.
Most companies depend on research recommendations in making important management and organizational decisions and with little or no information about international business development, many global firms tend operate with a clear understanding of what it means to be global business player.
There are a lot of topics about international trade that have not been fully covered but this paper research will only focus on strategic approaches and organizational structures that can help a global firm survive in the ever competitive global market.
Most of he organizational and management strategies that have been reviewed in this paper do not meet the current international market needs. A thorough analysis of the current international business trends should be done before deciding the best approaches to use.
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