A firm is said to have gone global, when it has expanded its operations beyond the geographical boundaries where it was incepted, to other continents. Globalization itself means the process by which, various countries have made agreements; which either reduce or completely remove barriers that hinder foreign trade. The weakening of the dollar, decline in demand and favorable international terms of trade, have made cross-border markets more attractive.
In retrospect, many countries have deemed it fit to openly accept foreign corporations into their markets; a move that has hitherto given companies the impetus, to extend their economic influence across continents. The advantages that accompany global ventures, have been a pulling factor behind the rapid expansions that were witnessed in the 20th century. By going global, a firm is able to enjoy an increased customer base, and sometimes reduced costs due to economies of scale. Though global expansion has its advantages, care should be taken to ensure the decision to go global is carefully planned.
Why Go Global?
The point of departure for firm, which has a plan of going into the global market, should be the determination of which market to invest in (Brown and Gutterman 25). It is imperative that firms study markets in the host countries properly, to know whether they have comparative advantage over local firms. This is an early indication of good results, since stiff competition with local firms is not healthy for a budding company. Incidentally, emerging economies in Asia, South America and Africa provide the best markets; because of their high demand for goods and services, to fast track their development (Shaw and Onkeisit 19).
The internet and social media have really improved advertising globally, creating demand for goods and services that people need, to keep abreast with the global consumption trends. Seemingly, companies have had to go global, to satisfy these demands and concurrently lower their production costs. The economic progress of the country is also an important point to consider. Entering a market when the economy is in recession, is detrimental and can lead to heavy losses.
The Scale to Employ
It was Tesco’s strategy, to acquire small ventures in countries where it was to establish its empire. Operating in small scale during the initial stages, enabled evaluation of its reception, and the economical viability of the intended expansion. It also helped in management of costs, as production was anticipated to increase perpetually, depending on demand; which helped in avoidance of wastes, in case of over-supply. Population is a necessary but not sufficient factor to consider, in determining what scale to start with; however, research is very necessary to project the demand volume.
Having chosen which market to invest in and what scale of production to employ, comes a question of when to go. It is not prudent for a firm to venture into overseas markets out of a whim. A firm that aspires to go global in the long run, ought to consider factors that will foster sustained growth. The stage of growth of the company is very paramount. A firm which is at its initial stage of growth may not venture into global markets successfully, due diseconomies of scale. International expansion requires backup from the parent firm, for support incase returns do not flow in immediately.
Tesco firmly set up shop and expanded its base in England first, before it went international. A firm that seeks to go global like Tesco; has to have a record of breaking even with huge margins every financial period. This is to ensure that there are sufficient funds for expansion, and to qualify for corporate credit from banks, before going international; since this is a very costly exercise and may have logistical and financial ramifications. Every company is always waiting patiently for an opportunity to expand, so any firm that wants to go international should be on the look out; and be the first one to take hold of the opportunity when it comes.
Lines of Attack
International expansion can be approached in different ways, depending on the prevailing conditions. Management should first of all know which country they are going to, and the cost implications involved. Therefore, it ought to have achievable goals which will serve as a guide line to follow. It is very beneficial if sourcing of employees is done internationally; by employing the natives of the country the firm is venturing into. Tesco used this strategy in ensuring that, it got a hold of the local markets in China, Japan, and South Korea; to know the dynamics of demand in these countries.
Diversification is a very good strategy in business, but it is not the best idea in the initial stages of global expansion. Existing products come in handy at this point; because it is not like introducing a new product into a new market, since there is enough knowledge on its production. The products, in which the firm has stronger competitive advantage, should be the first ones to be marketed overseas (Travis 45). Using Tesco as a case study, it was initially a groceries shop then diversified into the service industry.
On its global expansion strategy, it accordingly started marketing its groceries brand, before its services brand. Understanding the local market where a firm intends to invest in is critical, because it helps in the analysis of demand trends and preferences of customers. A company that is intending to have a global outlook, should also have good customer relations, and adhere to legislations that the host government enacts; with regard to business, if it is to have a cordial relationship with its overseas clients and the state.
How to Go
Of importance in the process of global expansion, is the way to enter into the new markets. A firm might decide to export its products to the new markets, and just have outlets in the new markets (Hill and Jones 251). This depends on the availability of raw materials in the new markets, and the kind of expertise and investment required in starting production. Joint venture is another approach to the idea; whereby a firm joins forces with another firm, in the foreign country in the same business.
This tactic was employed to a larger extent, by Tesco Company. In other circumstances, Tesco went for small acquisitions, in order to measure the degree of success in the new market, before going full scale. Foreign direct investment is also an option, but requires a great deal of cash and should be undertaken cautiously. Firms should therefore, explore all these alternatives, for them to make informed decisions.
When a company opts to go global, it is incumbent upon it to do all the necessary appraisals to ensure it gets the maximum returns from the venture undertaken. Additionally, it is quite imperative that such a firm conducts massive advertising, in the countries where it seeks to set up shop; so that it can woo customers to like its brand. All in all, if global expansion is implemented well, it can yield massive returns to the shareholders, create employment in the host country, and promote consumer sovereignty.
Brown, L., Robert, and Gutterman, S., Alan. A Short Course in International Business Plans: Charting a Strategy for Success in Global Commerce. Oakland: World Trade Press, 2003. Print.
Hill, Charles, and Jones, Gareth. Strategic Management: An Integrated Approach.Mason: Cenagage Learning, 2009. Print.
Shaw, J., John, and Onkeisit, Sak. International Marketing: Strategy and Theory. New York: Routledge, 2009. Print.
Travis, G., Thomas. Doing Business Anywhere: The Essential Guide to Going Global. New Jersey: Wiley & Sons, 2007. Print.