Introduction
Business enterprises often seek to achieve market leadership in their respective businesses to enhance their chances of profitability. One way through which organisations gain such leadership is by adopting globalisation (Gomory & Baumol, 2009). This is a business strategy whereby firms focus their market activities beyond their home markets as they target to capture advantages present in foreign countries.
These may include low labour costs, unexploited markets, cheap market supplies, or even diversifying against business risks related to domestic business cycles (Yip & Hult, 2012).
The home appliance industry has experienced globalization immensely. Majority of the globally renowned manufacturers, including companies such as Bosch, Whirlpool, Siemens, LG, Samsung, and Indesit have all adopted a global strategy where they set up operations in foreign markets. This strategy has enabled the players to exploit the cheap labour markets in countries like China at low operation costs.
Most organisations have shifted their production from the developed world to China and other developing nation due to their high labour costs in their home countries (Harrisson, Széll, Bourque, 2009). This paper seeks to elaborate extensively on the globalisation strategy adopted by business enterprises by referring to Indesit Company. Indesit is an Italian home appliance brand that is currently focusing on the global market.
The Indesit Company: A Multinational Enterprise
Indesit is headquartered in the eastern region of Italy in a city known as Fabriano. Its market operations, however, spread in different countries. These foreign markets include the United Kingdom, France, Poland, Turkey, Russia, as well as the Scandinavian countries.
Indesit has established several affiliates in the foreign markets as a multinational enterprise (Indesit Company, 2013). The affiliates draw on resources that are commonly utilised by the company, including the patents, trademarks, company assets, information, as well as the human resources. The company also has a strategic vision that is common across the entire group of affiliates.
The Internationalisation of Indesit
Indesit mainly gained a foothold of the international market by way of acquisitions. Indesit acquired Stinol in 2000 after building appliance plants in Eastern Europe, as well as Asia. This was a Russian company that helped Indesit gain the opportunity to exploit the Russian market. Equally, the company acquired General Domestic Appliances (GDA) in 2002, which was the main manufacturer of Hotpoint within the UK. This also presented an opportunity for the company to set its presence and operations within the UK.
Reasons for Indesit transforming into an MNE
Indesit sought to diversify its operations as a means of cushioning against the risks, as well as uncertainties that abound its operations within the Italian market. The Italian market had other established home appliance manufacturers, such as the Indesit brand, Smeg, Philco, and STAR. These companies competed for the same consumers within the Italian domestic market, increasing the risk of doing business for each of the players within the market.
The company also exploited on the need to tap the world market that was growing at a high rate. As technology was expanding, home appliances became attractive to potential users across Europe and in the rest of the world. This growing attractiveness prompted Indesit to expand beyond its Italian market and attempted to take advantage of the market by presenting its products.
Foreign competition by other industry players also prompted Indesit to transform into a multinational enterprise. Its main foreign rivals, including Bosch, Whirlpool, LG, and Electrolux, among many others were expanding very fast in their businesses by establishing foreign market presence. The company, thus, saw the need to establish competition in the foreign market to keep pace with its foreign rivals.
Cost reduction was another reason for Indesit’s transformation into a multinational enterprise. With labour costs mainly becoming too costly in the Western Europe country, there was need to seek for less costly alternatives. The developing countries, such as China and other Eastern European countries including Poland, offered comparatively cheaper labour costs. These low labour costs have the potential of lowering the cost of production significantly.
The foreign acquisitions by Indesit, mainly GDE in the UK and Stinol in Russia, offered an easy avenue for the company to enter into those markets respectively. These acquisitions made it easier for Indesit to gain an entry into the foreign markets because most countries put market entry barriers that aim at protecting their domestic companies.
International Politics and the Expansion of Indesit
Globalisation has resulted in an international economic integration in which countries in a particular region of the world or the entire globe cooperate in order to enhance the performance of international business. Member countries in an international integration often agree to a set of rules that liberate their markets, allowing business firms from a different country an opportunity to exploit their markets fully. The European Union, for instance, is an international integration that mainly involves many of the countries in Europe.
Most countries in the world ratify the World Trade Organisation convention, which requires that they lessen strict domestic market controls as a way of enabling other foreign enterprises an opportunity to explore their markets (Yip & Hult, 2012). Such arrangements also enable businesses in the member countries to engage in trade within the integration body. Indesit, for instance, can benefit from trade within the European Union market because the company’s home country is a member of the EU.
Member countries in integration may support trade creation, as well as diversion through two different ways. This involves trade creation and trade diversion. Trade creation involves a process in which countries belonging to an integration group mainly focus their efforts on goods and services that they enjoy a comparative advantage.
The countries begin trading amongst themselves in an extensive manner because of the advantage that they enjoy. The companies registered in these countries, such as Indesit in Italy, can trade in the enlarged market formed as a result of integration, in this case the EU.
A second process is referred to as trade diversion. This involves member countries that form part of an integration group limit trade with countries that are non-members, and instead consider trading with other member countries. Both trade creation and trade diversion create opportunities through which multinational corporations like Indesit can take advantage to exploit foreign markets and even establish themselves physically in those markets.
Several political ideologies directly affect the economic decisions and situations of a country (Yip & Hut, 2012). The first type of a political ideology that affects the economics of a country is the market-driven economy. This economy type is one in which the goods as well as services in a given country are allocated according to the extent of consumer demand.
Centrally determined economy, on the other hand, is one in which the allocation of goods and services in a given country is conducted basing on a plan. Specific committees that make decisions on what should be offered often formulate such plans. For instance, countries that adopt a centrally determined economy often would not allow foreign firms like Indesit to enter into their domestic markets without their respective governments allowing for such goods or services dealt with the firm (Yip & Hult, 2012).
Foreign Business Acquisitions
Privatisation
The activities of multinational enterprises often are affected by foreign governments’ actions and decisions, particularly where control of assets is concerned. Governments and businesses may decide to sell assets that they own to private buyers, including to multinational firms like Indesit that operate in their country. This can be done either by way of divestiture, which involves the selling of assets to a third party or by way of contract management.
Challenges of Globalisation
International culture
Culture refers to the collection of beliefs, rules, techniques, as well as institutions and artefacts, all of which characterise the human populations (Berry, 2008). When firms, such as Indesit, begin to explore international markets and establish their presence in foreign markets, they often undergo a socialisation process. The firms adopt the foreign culture and the behaviour patterns within the surrounding culture in this process. Culture comprises of varying elements, which include the following:
Language
This cultural component forms a means of information and ideology transmission. Firms that establish operations in foreign countries need to have their workers understand the local language used in the foreign country because this would enable a clearer understanding of the situation in the foreign country. Indesit originates from a country that speaks Italian and therefore establishing operations in countries that speak different languages, such as Spanish, may be challenging.
Religion
This refers to the beliefs, attitudes, and values that people in a given society hold dear. This can affect the business operations of a multinational enterprise in various ways, including the manner in which the people behave, work and the social customs that are adopted in a given society and through politics and overall business. In Italy, the Roman Catholic is the main religion. When Indesit seeks to establish itself in a country that is predominantly Muslim, for instance, it would encounter challenges that relate to the religious base.
Values and attitudes
Values refer to the basic convictions held by people concerning what they think is right and that which they deem as wrong. Value also extends to things that are considered to be good or bad, important or unimportant. Values, on the other hand, refer to a persistent tendency by a person to feel and act in a specific manner toward some object. Multinational enterprises must clearly understand the values and attitudes of a foreign society or country before establishing operations there (Deari, Kimmel & Lopez, 2000).
This would enable the companies to conform their operations in accordance with what the people in the foreign country consider to be of acceptable value or attitude. In Italy, where Indesit originates, there are values and attitudes that relate to the firm and which are also national in their origin. Such values may not be easily acceptable in other countries where Indesit would wish to expand its operations to.
Customs and manners
Customs refer to the practices that are commonly established in a given society. On the other hand, manners refer to behaviours that are considered to be appropriate within a particular society. A firm seeking to establish its presence and operations in a foreign country must be well versed with the customs and manners of the foreign market.
This is because the people in the new market will only embrace and accept the multinational firm if its customs and manners are considered as acceptable within the society. The customs and manners of the people of Italy, which is inherent in Indesit as a company, may not necessarily be the same as those of the people in other countries. Exporting such customs and manners into a different market other than Italy would face challenges like objection and opposition.
Corporate culture
The corporate culture of a firm characterises the manner in which a company’s management, as well as its work force tend to behave. For instance, a company such as Indesit has its own unique corporate culture that identifies it. Corporate culture is also critical in determining the success of a company’s operations in a foreign market.
The management of Indesit, for instance, may shape their organisation’s performance by being dynamic or innovative (Lee et al. 2000). This may be appealing and attractive to the foreign market, thus appealing to the locals to associate with the company. Indesit as a company has its own adopted corporate culture that may be in collision with a people’s culture and norms in a different country.
Effects of Culture on International Management
Work attitudes
As Indesit seeks to expand its activities to cover the international market, the work attitudes in the foreign societies will have a bearing on its management and the general strategy formulation. For instance, the work ethics that are observed in Italy, which is Indesit’s home country, are not the same ones that can be expected in other countries. Thus, the management will likely face different attitudes that may call for adjustments in strategy management in order to achieve harmonious working.
Achievement motivation
Different people are motivated differently. While workers in Italy may highly value a certain type of motivation, the same may not be true for workers in another country. Thus, Indesit’s management may need to adopt other achievement motivations for each of the countries that they operate in.
Time and future
The overall future timing of Indesit is affected by the company’s transformation into an international firm. It is difficult to settle on a unanimous decision that touches on all the countries because the different countries in which the company operates encounter their own unique challenges and opportunities. Equally, the implementation of certain plans may be of less priority in particular countries, while taking major precedence in others.
International Trade: Barriers to Trade
While seeking to explore international markets may seem easy and viable for multinational enterprises, international trade is often shrouded in barriers to trade. As Indesit explores international growth, the company will encounters barricades that will make it difficult to achieve the objective of globalisation. There are several reasons why international trade barriers exist. They include:
Efforts by the government to offer protection to the locally available jobs
Such an objective would see the government put restrictive mechanisms that discourage foreign firms from exploiting a particular market. A foreign firm dealing in home appliances may be barred from entering Italy by the government in order to protect Indesit’s business. The authorities in a country may also encourage local firms to produce goods that will work towards replacing imports.
Other reasons that may prompt a government to erect entry barriers into its local market may include the need to shield the domestic industries from competition, reduction of reliance on foreign-based suppliers, promotion of export activity, and limitation of problems that are related to balance of payment (Ma & Lu, 2011).
In effecting these barriers, governments often use several mechanisms, including imposition of tariffs, quotas, and embargos. Other governments promote the of use of cartels, which involves several firms in the domestic market agreeing amongst themselves to fix either the prices or the quantities of goods sold as a way of controlling prices. Governments also apply controls on foreign direct investments, which put a cap on the amount of funds for investment that a foreign company may spend in a particular country (Ma & Lu, 2011).
The Foreign Exchange Market and Globalisation
Companies such as Indesit rely on the foreign exchange market to undertake transactions in different currencies. The following methods can be used by the company to conduct its foreign exchange:
Between banks method or system
This involves transactions of foreign exchange between banks. A broker’s way of exchange involves depending on foreign exchange brokerage firms, which make foreign currency markets. Another way involves forward transaction in which case Indesit as a foreign firm may ‘lock in’ a foreign exchange rate, thereby being cushioned against unfavourable change risks.
Future market is a foreign exchange mechanism in which case the amount being transacted remains fixed and is transferred at a date in the future at an exchange rate that is fixed.
Indesit faces challenges that occur due to exchange rate determinants. In particular, exchange rates often shift as a result of purchasing power parity and the international Fischer effect (Yi & Hult, 2012). In addition, activities of traders and brokers often affect directly the exchange rate determinants. Equally, the activities of governments affect the rates of foreign exchanges, thus bearing heavily on the multinational enterprises that depend on it.
How Multinationals Protect Against Exchange Risk
Firms dealing in foreign business, such as Indesit, can adopt a risk avoidance mechanism to minimize on the effects of exchange risks. This involves the company avoiding transacting any foreign currencies. The companies also use an alternative mechanism referred to as risk adaptation. This is a mechanism in which multinational firms practice ‘hedging’ against the changes of the exchange rate.
Risk transfer is yet another strategy adopted by firms in ensuring they limit exchange rate risks. This mechanism involves the firms using an insurance contract that reassigns the risk related with the exchange risk to the guarantor or the insurer. Diversification, on the other hand, involves reducing exchange risk for multinational firms by spreading assets, as well as the liabilities across varying currencies (Menon & Zarb, 2005).
Regional Money and Capital Market
Indesit operates in Europe where some of the countries have adopted the use of euro as common currency. The company can deposit its revenues to the Eurodollar bank. Indesit can alternatively deal in Eurobonds for its activities in the foreign market (Yi & Hult, 2012). Alternatively, Indesit can also rely on euroequities as a source of its shares. The euroequities refer to shares of stocks that are publicly traded. The shares, often, are traded outside an exchange of the home country’s issuing firm.
Strategic Orientations
Multinational firms can often adopt various strategic orientations that have the ability to enhance their performance. These orientations could be ethnocentric, polycentric, regiocentric, or geocentric (Strategic Orientation, 2010).
Ethnocentric predisposition is a practise by multinational firm managers to depend on the parent company’s values and interests during the implementation of the strategic plan. On the other hand, multinational enterprises may get inclined towards customising their strategic plan to be in tandem with the local culture’s needs.
This is referred to as a polycentric predisposition. A different strategy predisposition, the regiocentric predisposition, refers to the tendency by multinational enterprises to adopt a strategy that addresses both the local, as well as regional needs. A geocentric predisposition points at a multinational’s tendency to establish its strategy plan, with the focus being on global operations.
There are several organisational structures that Indesit can achieve in its globalisation strategy and focus. The first one is a global product structure whose operations involve the domestic divisions being given worldwide responsibility that covers different groups of products. In other words, the domestic divisions focus their operations on the global market (Strategic Orientation, 2010).
The global area structure involves the delegation of primary operational responsibility to the area managers, with each one of them being in charge of particular geographic regions. Thus, such a strategy would see Indesit assigning managers with specific responsibilities within their areas of jurisdictions.
The global functional structure is yet another organisational structure for the management of international firms. The focus of this strategy mainly builds around an organisation’s basic tasks. In the case of Indesit, this may involve the production of its range of products, the financing, as well as the marketing departments (Strategic Orientation, 2010).
Global Marketing
As business enterprises go global, they also need to adopt a global marketing strategy in order to fulfill their objectives. Indesit may adopt a global marketing strategy, such as using a local brand of a country to market itself in the foreign brand (Akayya, n.d.). Such a strategy would appeal more to the local market and attract buyers. The company will still remain as Indesit although its subsidiaries in different countries may use names that reflect the local market.
Conclusion
Business enterprises often adopt a globalisation strategy that sees them focus their market on the international market. This is referred to as globalisation. There are several reasons that prompt business enterprises to adopt globalisation, including the need to reduce their operation costs, moving closer to markets, breaking market entry barriers, and moving closer to supplies among many others. Indesit has achieved globalisation mainly as a strategy to lower its costs of operations and maintain competition with its foreign competitors.
Cultural challenges, such as language, attitudes, values, and religion, affect the manner in which Indesit’s operations in foreign markets is conducted. In order for the company to succeed in its foreign operations, it must study closely the practices and norms of the foreign markets and adopt the alien practices within the respective markets in order to be able to appeal to the market and gain acceptance from the populations.
The management at the Indesit may be able to determine the right motivation methods that suit each culture by adopting several cultures for different foreign markets. Equally, it would enable the management to adopt new work attitudes in the market and customise a business strategy that specifically reflects on the specific market wishes.
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