Write an essay on The process of Internationalization.
The process of Internationalization implies the increase in the engagement of the business or the companies in the international market. The businesspersons are interested in setting up their business in the global market along with the domestic market. Therefore, internationalization means international trade; international relations of the entrepreneurs are growing with time. In the process of internationalization, the domestic products compete in the global market with the goods of the other nations (Hudzik 2014). With growing globalization, the barriers to trade have been decreased all over the world. This has made the internationalization of the business more attractive as a strategy. Due to the internationalization of the companies, the common needs of people from different countries can be met easily. This also allows the enterprises to operate easily and they can now target by segment of different people of different countries. Proper utilization of the process of internationalization is the successes factor the multinational firms. The factors that influence the firms to adopt internationalization are economies of scale; incentive of the government; diversification; market growth and saturated domestic market (Grębosz and Hak 2015).
The paper will discuss how the structure and culture of a company change in order to accommodate the process of internationalization. It is also essential to analyze the importance of expanding business in the international market. There are several approaches of the internationalization. The paper will select a company to describe the stages involved and changes of the company from operating domestically to operating trans-nationally. The chosen company is the McDonalds. The discussion will focus on the structural and cultural change of the selected company.
There are several approaches of the internationalization. The company has to select between the standardization and adaptation while expanding its business globally. Internationalization through standardization methods implies that the company will sell its product in the foreign market that is exactly same as the product it sells in the domestic market. The standardization approach reduces the operational costs and the risks of operating in the unknown market (Boussebaa and Morgan 2015). Internationalization through adaptation methods implies that the variation in the operations of the company in the international market. This approach is driven by the conditions of the host country. However, a company adopts this method of internationalization because they want to serve different consumers of different countries according to their culture or preferences. This strategy generates significant amount of profit (Lounsbury and Beckman 2015). However, it is expensive than the standardization strategy. There are several factors, which are considered by the companies in order to develop their business in the foreign market.
In the process of internationalization, selection of the entry mode is a crucial determinant of the business’s success. Hence, in the entry mode, the firm has to decide which strategy will be adopted. There are three methods of entering the international market (Eriksson, Johanson, Majkgård and Sharma 2015). The firm can enter the market by taking opportunity of the foreign or local distributors. As expanding in a new market is not so easy, the knowledge and the experiences of the local companies are precious. Knowing the local habits of consumption; their culture are important to the company. This will help it to set its target market. Local distributors know better about the local regulations. Therefore, by establishing link with the local distributors helps the company to escape the barriers to enter the market (Cummings and Worley 2014). The firm can also make strategic alliances with the foreign partners to enter the international market. This enables the company to share risks and expenses from R & D. Moreover, the company can take benefit of the resources of its partners. Most importantly, the alliance with the competitors enables the firms to develop capabilities of delivering products with more efficiency. Through merger and acquisitions, also the firm can enter the international market. This enables the firm to enter the market directly by contracting with the local actors. However, this kind of mode of entry is limited to the big MNC’s only as they have resource to do this. A new firm has less possibility to adopt this mode of entry.
Internationalization process also involves the choice of destination. The destination selection process is as crucial as the selection of entry mode. It has significant consequences because; based on this, the internationalization strategies like, standardization and adaptation, will be selected by the company (Forsgren 2015). The selection of the destination is done based on several factors. The geographical localization is the major criteria. The geographic condition like climate; landscape etc affects the decision of the company. Hence, based on the geographical criteria the firm selects its destination. It is also important because; it is important for the firm to set its business in a region that can be reached easily either through road; flight or maritime way. The choice of destination of internationalization process also depends on the cultural aspect of the destination. This is important because; based on the local culture; the company can understand whether its products will be sold in that destination. However, in spite of being apart from the home country of the company, the culture of the host country might have lot of similarities. Therefore, it is beneficial for the company to select a destination where the local culture is similar, if it adopts the standardization of internationalization (Casillas and Acedo 2013). Moreover, it is important to e aware of the needs of the society before entering or selecting destination, because; if the local culture of the host country is different, then the firm will chose adaptation strategy of internationalization. Therefore, the cultural aspect is important in the process of internationalization not only to select the strategy but also to determine the possibility of the success of the product in that location (Chandra, Styles and Wilkinson 2012). Another important factor that affects the selection of the destination is the economic scenario of that country. This will allow to have a snapshot of the destination in terms of development; infrastructures; investment; market demand; competition etc. The economic scenario like openness of the host country; rules and regulations affects the decision of the company regarding their strategy of internationalization. The more open is the host country, the more it will allow the FDI. Invest in the proper infrastructure will attract te company to set up their business in that country. The political situation of the country also indicates the economic environment of the country.
The structure of the company changes due to internationalization. The firms’ structural characteristics changes while operating in the foreign market. Outward movement of the firm in international operation leads to change in the strategy structure and resources (Burke 2013). The internationalization leads to change that ranges from change in the technology to transformation of the structure. The structure of the firm changes because; internationalization involves analyzing the market of host country from several aspects (Whitley 2012). This requires the company to set up new departments in order to manage the operation. Due to internationalization, the business has to engage in a process in order to get accustomed with the international environment. The internationalization also requires employment of the skilled workers for the new business in the global market. The risk taking behavior of the firm also changes (Bartunek and Woodman 2015). The export of the company will be increased and the structure of the company will become export oriented. As the company is growing, there will be psychological change among the employers. The company is engaged in the new venture of setting up business in the foreign market. Therefore, it requires setting infrastructure as well. Internationalization leads to change in the demand for the products. It also changes financial structure of the company. The information and knowledge resources also changes as the company starts to set up business. The policy or strategy of the firm is also modified because of the internationalization, which leads to the change in the structure of the organization (Moorman 2013). Internationalization causes the market place to change. Since the company now requires bringing the people of the sales department accustomed to selling and working on either new product or the same product in the different market. Hence, there should be new approach of marketing than the existing one. Hence, change in market place leads to organizational structure change. Due to internationalization of the company, the way of business the company does also changes. The company can allow its various departments to be autonomous in order to operate in the new market. In contrast, it may also operate its business in a centralized ways to change the structure of the company.
The culture of the organization may also change due to the internationalization. This is for example; according to the needs of the customers of the foreign country, the customer service of the business might be improved or changed. The company has to look after the customers of different culture from different. As a result of this, the management also brings cultural change to the workers. They use grassroots approach in order to change the structure of the company. Managers might represent the problem that arises due to the increased responsiveness of the company in the changing condition of the market (Nesbit and Lam 2014). The structural change of the company also incorporates the relocation of the employees within the company. Therefore, company also trains the employees according to the cultural need of the consumers of the foreign market. Therefore, there is skill diversity among the workers of home country and the workers of the host country. Internationalization requires the operations of the company more transparent (Alvesson. and Sveningsson 2015). Since the company is entering in to the new country, the culture of the organization must consider the quality management system. Since the company is into a new venture, it is expected that the structure of the company also change in terms of incorporating advance technology. Hence, sophisticated information and communication system assist the new working culture in the organization, which will further help the company to expand in the international market (Behal and Bansal 2013). The changes in the structure of the organization lead to change in organizational culture and change is structure of the company also requires a cultural change of the company.
McDonalds’s is the one of the leading company in the fast food sector. The rapid expansion in the international market is the key to their success. The company was first established in 1940 at California. The main selling products are hamburgers; cheeseburgers; flit-o-fish etc. The restaurants of this firm are operated by the corporation itself; by a franchisee and an associate. The company has taken diversified strategy and located its units in the 118 countries. In the process of internationalization, it has adopted the model of franchisee. Over 85% restaurants of this company are running by the franchisee (Dabija and Postelnicu 2015). The company has followed standardized processes across all its restaurants in the world. Therefore, the central control of this company remains at its headquarters and the strategic controls generates value for the entire chain of the business. The company experienced significant growth in the home country, United States. It has first started its restaurants outside the country during 1967 in Canada. Eventually it has spread to other countries in Europe; Asia and Australia. In the countries like, Japan; Canada; Germany; England; France and Australia, the company has achieved immense success. These “Big Six” provided 80% of the income of the company from its overseas operation (Crawford 2015). The other major important countries where they opened their operations are China; India; South Africa; Brazil; Saudi Arabia etc.
The company has initially adopted standardized strategy of integration. However, with time, this company has incorporated transitional strategy in terms of responsiveness of the local market and through integrated global market. McDonald’s has recognized that the standardization strategy will not bring desired outcome of revenue, as the food-intake habits are different in different nations. This is mainly because of the diversity in culture of each nation. Hence, it felt that need for local responsiveness is extremely necessary. Since, the business in the home country was big enough and they wanted to expand in the international market, it required them to manage business of different regions effectively according to the local scenario. McDonald’s has constructed their value chain by considering the local culture; economic environment; legal constraints and political scenario of the respective countries. In the process of internalization, the company has brought changes in the menus that it offers. Keeping the basic menu same, it has changed their making ingredients, for example, instead of pork or beef in the burgers the company uses chicken in the burgers and sandwiches in the countries like India (Nandini 2014). Therefore, the changes in the operations and culture of the organization have been identified in the process of internationalization.
In the process of globalization, the company hired local employees of the respective nations to make it more appealing and acceptable to the local market. This enables the company to make bureaucratic association with the local government. This in turn brought up the culture of innovation in the company; improved customer sensitivity and liability to the local market. This represents change in the culture of the organization. Moreover, the company incorporates local management and its franchisee model enables this company to reduce its cost of setting up business in the new region (Mahajan 2014). This indicates the structural change in the organization. The change in structure of the organization also leads to the change in the culture of the company. These changes have taken place in this company due to the process of internationalization. The changes in the organizational structure and culture also generates due to the political sensitivity of the local market. The environment regulations might restrict the disposal of waste generated by the functioning of the company. Therefore, the operation of the company had to consider the issues related to its production and adopted production processes that would create less pollution to the nature. As a result of this, producing foods maintaining sustainability of the environment has become the culture of the McDonald’s. Hence, due to the internationalization, organization culture focuses on making goodwill of the company and the brand has been built. The structural change also includes engagement in the Corporate Social Responsibility like healthy and nutritious foods; sustainable supply chain etc (Shen and Xiao 2014). The operations of the company also changes according to the changing habit of the customers. For example, the customers now prefer low-calorie content foods, because of the growing health concern. As a result of this, the company changed its production process due to local need of the respective countries.
Since the company is a transnational, McDonald’s follows the standard operation processes all over the world. However, these processes might be different from the original operation method of the initial period of the company. With internationalization, the company’s operation changed. Implementation of ERP system helps the company to maintain standardization in the business operations. Therefore, in spite of internationalization, where the firm is investing at a huge amount the cost of setting up a new venture has been reduced. This is considered to be a structural change in the organization. Since there is distance because of the national boundary, the company required a proper communication and information sharing process. As a result of this, the company developed transparent and efficient information sharing in order to reach properly to the stakeholders (Kane 2016). The McDonald’s charges same level of prices all over the world, however, the price paid might be different because of the volatility of the exchange rate. It has been identified that, in spite of internationalization, the operation of the company is centralized across the world. However, the strategies of different countries are different. Hence, in some region the company required involvement of higher degree of assurance of resources and some many not. Due to internationalization, the investment level is also different countries. Moreover, the organizational structure of the franchisee model allowed the company to spread at a cheaper cost. In addition to this, due to internationalization, McDonalds also controls the operations of the franchisees and use their brand as well. This company owns the property, on which the franchisees operate, and earns a percentage of sales as a rent to the property on a monthly basis. Similarly, the service fees are also obtained by the restaurants based on the performance of sales.
Internationalization of McDonald’s was tremendously successful due to various reasons. The company’s change in culture according to the local culture of China is the major reason behind the success of the company (Chen 2014). In the process of internationalization, the company’s focus on meeting local needs was its the major global expansion policy. The need for internationalization has led to using vertical integration approach in order to improve the productivity by implementing efficient software. The opening of McDonald’s stores at shopping malls and town, i.e., in the areas of busy lifestyle, took place in South Africa in order to comfort the consumers. In Saudi Arabia, this company remains close during the five times for prayer and they do not serve pork in order to respect the culture of Islam. This is another example how the company’s culture has changed due to internationalization. In India, this organization uses highly customized menu to suit the taste of India. It has separated Vegetarian and non-vegetarian kitchen to take care of the local beliefs of the population. While internationalizing, McDonald’s has integrated its brand all over the world to build high identifications and brand image (Aula and Mantere 2013).
Conclusion
The paper has identified the internationalization process of an organization. It has been identified that there are two methods, one is standardization and adaptation. The company may sell same products to the foreign market or may sell different products based on the requirement of the foreign customers. The strategy of internationalization is important as it involves the key to success of the firm that plans to expand in the international market. It has been identified that McDonald’s organizational culture has changed according to the local requirement of the respective firms. The structural change of McDonald’s has also been identified due to internationalization of the company.
References
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