Corporate international operations
What is corporate international operations?
The international operation of an enterprise means that in order to seek a larger market, find better resources, and pursue higher profits, an enterprise breaks through the boundaries of one country and operates in two or more countries. The state is engaged in production, sales, service and other activities.
The motivations for enterprise internationalization
The specific reasons for internationalization of different enterprises vary widely, driven by various factors based on different considerations. However, no matter what the reasons are, the international operations of enterprises are fundamentally based on overall strategic considerations, that is, in order to seek a wider range of competitive advantages. There are three motivations for enterprise internationalization:
(1) Finding new customers for existing products and services.
The most direct motivation for enterprises to engage in international activities is to develop overseas markets and find new customers for existing products and services when the domestic market becomes saturated. With the development of economic globalization, consumers in different countries tend to converge in demand preferences and consumption habits, which makes it possible for companies to promote products and services to a broader market.
(2) Look for low-cost resources.
Enterprises are looking for better and cheaper resources in overseas markets to reduce production costs and gain low-cost advantages. Resources that can bring low-cost advantages mainly include raw materials, labor and technology.
(3) Build core competitiveness.
Core competitiveness is the source of a company's competitive advantage and the fundamental reason why a company is better than its competitors. By expanding the scope of business activities from a single domestic market to overseas markets, enterprises can learn new technologies and management experience on a larger scale, accumulate understanding of customer needs, and thereby create stronger core competitiveness.
Analysis of the international business environment of enterprises
The international business environment of enterprises is far more complex and changeable than the domestic environment. The complexity and variability of the international business environment are intertwined by a variety of factors, including political and legal factors, economic factors and social and cultural factors. Therefore, in the process of international operations, enterprises must pay more attention to environmental variables and carefully prepare countermeasures based on in-depth examination of each environmental variable.
(1) Political and legal factors.
The political and legal factors involved in international operations mainly include:
1. Political system;
2. National security;
3. Commodity inspection regulations;
4. Labor laws;
5. Intellectual product protection.
(2) Economic factors.
Economic factors that require special attention include:
1. Economic system;
2. Economic development level;
3. Economic stability;
4. Exchange rate changes;
5. Tax policy;
6. Inflation rate.
(3) Social and cultural factors.
Every country has its own social culture. National culture is the unique values ??of a country's residents. These values ??shape the way citizens behave and understand the world. Which one, national culture or corporate culture, has a greater impact on employees? Research shows that national culture has a greater impact on employees than corporate culture. In this sense, companies engaged in international operations must have an in-depth understanding of the local culture of the host country and integrate into the local social and cultural environment with respect and tolerance. In the process of internationalization, the main challenge faced by enterprises is how to formulate and implement effective internationalization strategies in the diverse social and cultural environments of different countries.
Selection of international business strategy
The choice of an enterprise's international business strategy includes two parts: one is the company's international strategy; the other is choosing the appropriate way to enter the international market. .
(1) Internationalization strategy.
An enterprise's internationalization strategy is the company's development plan in the process of international operations. It is formulated by multinational companies in order to put the company's growth into an orderly track and continuously enhance the company's competitive strength and environmental adaptability. A general term for a series of decisions. The internationalization strategy of an enterprise will greatly affect the internationalization process of the enterprise and determine the future development trend of the enterprise's internationalization. The internationalization strategies of enterprises can be divided into three types: home-centered strategy, multinational-centered strategy and global-centered strategy.
1. Home-centered strategy. The business strategy is based on the interests and value judgment of the parent company, and its purpose is to take the initiative in international competition and gain competitive advantages with a highly integrated image and strength. The characteristics of this strategy are that the parent company concentrates on product design, development, production and sales coordination, the management model is highly centralized, and the operating decision-making power is controlled by the parent company. The advantage of this strategy is that centralized management can save a lot of costs, but the disadvantage is that the product has poor adaptability to the needs of the local market in the host country.
2. Multi-country center strategy. Under the guidance of unified operating principles and objectives, production and operations are organized according to the actual local conditions of each host country.
The parent company is mainly responsible for formulating the overall strategy and decomposing business objectives, and implementing target control and financial supervision of overseas subsidiaries; overseas subsidiaries have greater operational decision-making power and can respond quickly according to local market changes. The advantage of this strategy is that it has good adaptability to the needs of the local market in the host country and a fast market response. The disadvantage is that it increases the difficulty of coordination between subsidiaries and subsidiaries.
3. Global center strategy. The global center strategy treats the world as a unified market, obtains the best resources from around the world, and sells products around the world. Enterprises that adopt a global center strategy connect various subsidiaries through global decision-making systems and achieve resource acquisition and product sales through global business networks. This strategy not only takes into account the differences in specific needs of the host country, but also takes into account the overall interests of multinational companies. It has become the main development trend of corporate internationalization strategies. However, this strategy also has shortcomings. It requires high levels of corporate management and requires large investment in management funds.
(2) Ways to enter the international market.
Enterprises can enter the international market through the import and export of goods, licensing agreements, mergers and acquisitions, joint ventures, and the establishment of new wholly-owned subsidiaries. Each method has its own advantages and disadvantages. Choosing the most appropriate method to enter the international market is crucial to whether a company can achieve its predetermined international business goals.
Types of globalization strategies of international enterprises
The globalization strategies of international enterprises have a gradual development process. From the initial stage to the complete international operation stage, the operation strategies of international enterprises can be summarized into the following four types: product export strategy; contract agreement strategy; foreign direct investment strategy; and international strategic alliance. These four strategies represent the vertical growth trajectory of international enterprises. However, the four strategies are not completely substitutes for each other, but are relatively independent and interdependent.
Product Export Strategy
Product export strategy is not only widely used by small and medium-sized enterprises to test the international market. For large enterprises, this strategy is also the most important part of international operations. Its most important significance is that it is the starting point of the globalization strategy and lays the foundation for international cooperation in a deeper sense.
For most international companies, direct participation in global economic competition through exports remains an important strategy. However, the essential characteristics of maintaining the domestic production base and vigorously promoting exports have changed. For example, exports from the home country are decreasing, while exports from factories built in other countries are increasing. This demonstrates the increasing complexity of export strategies in the global economic market and the inextricable relationship between this strategy and other strategies.
Advantages
1. Enhance the ability to resist market risks and reduce the adverse effects caused by the shrinkage of the domestic market.
2. By selling domestic products directly overseas, companies can maintain a high degree of control over research, design, and production decisions; whereas if production facilities are spread across several regions around the world, or if the company and foreign companies If there is some form of business relationship, this macro-control relationship will not be so strong. Maintaining tight control over research and production decisions is critical to the business. Because this is conducive to protecting key technologies and promoting rapid product replacement.
3. The export strategy enables enterprises to maintain the scale of domestic production and continue to utilize domestic production resources.
Disadvantages
1. Enterprises must deal with various obstacles in foreign markets, such as tariffs and various forms of non-tariff barriers.
2. Irregular fluctuations in exchange rates also expose domestic enterprises to risks in export trade.
3. It is difficult or expensive for foreign importers to maintain successful cooperative relationships.
4. The various expenses required for export will also increase the burden on enterprises.
Contractual Agreement Strategy
By signing a cooperative contractual agreement as a form of trade relationship, enterprises can gain distribution in the international market without making large-scale capital and technological investments in foreign territories. Winning a piece of the pie has become another option for international companies to implement their globalization strategy. This strategy is highly effective in circumventing import restrictions or investment barriers set by foreign governments. It is also a prelude to establishing higher-level strategic partnerships among international companies.
Currently, the internationally popular cooperative contract agreements mainly include three forms: license trade, franchising and subcontracting.
1. License trade
Refers to the signing of a licensing contract (Licensing Contract), in which the exporter of patented products, services or technologies sells a certain limit of production and sales rights to The importing party pays royalties to the exporting party.
International license trade was initially conducted between monopolies in different countries, exchanging licenses to avoid direct conflict between the two in competition. Recently, among high-tech enterprises, license trade has become an effective way to cover R&D expenses.
Advantages:
(1) You can profit from existing products or technologies without spending a lot of investment.
(2) It is a powerful weapon to penetrate foreign market barriers.
Disadvantages:
(1) Low degree of control
(2) Cultivating competitors
2. Franchising< /p>
It is a variant of license trade. The franchise transferor transfers the entire operating system or service system to an independent operator, and the latter pays a certain amount of franchise fee (Franchising fee).
In the United States, franchising is becoming the fastest growing form of trade.
Advantages:
(1) It is a very fast way to enter the international market without large-scale capital investment.
(2) Increase the visibility of the franchised professional company by selling a package of special franchise rights.
(3) Franchise royalties are often recorded in the "advance payment" received by the enterprise. It can be said that this is a very considerable additional operating fund income obtained by the enterprise.
Disadvantages:
(1) Franchising is mainly suitable for those service industries, but is not suitable for high-tech industries or general manufacturing industries, and it is difficult to generalize.
(2) Similar to license trade, once a franchise agreement is signed and comes into effect, management is prone to loss of control, especially in developing countries, where government intervention in the economy or political instability prevents control. Local business activities bring difficulties. Furthermore, cultural and language barriers may also inhibit the effective development of franchising abroad.
3. Sub-letting
It refers to a company contracting a specific production task or a certain business department of the company to another company.
Advantages:
(1) Focus on the main business
(2) Reduce costs
(3) Gain technological competitive advantage.
Disadvantages:
(1) The weakening of its own production capacity, as well as the decline in the overall operational flexibility and management control capabilities of the company in the future.
(2) The hollowing out of production and operations.
Foreign Direct Investment Strategy
Foreign Direct Investment (FDI) refers to the foreign direct investment conducted by enterprises abroad with the core of controlling the business management rights of the enterprise and the purpose of obtaining profits. Main purpose investment. Its biggest feature is that investors have operating control rights over the invested enterprises, that is, investors have controlling rights in the foreign enterprises they invest in, can exercise voting rights, and have a say in the operation and management.
Foreign direct investment has become the main engine of world economic globalization. The vigorous development of foreign direct investment is mainly due to the stability of the world's macroeconomic environment, the rapid changes in the information technology revolution, and the continuous advancement of trade liberalization, investment liberalization, and financial liberalization. As long as this trend remains unchanged, the foreign direct investment of international enterprises will Investment will continue to serve as the engine of globalization and drive the world economy forward.
There are two main ways for international enterprises to expand through foreign direct investment: one is through greenfield; the other is through mergers and acquisitions.
1. Newly built enterprise (Greenfield Investment)
That is, a sole proprietorship, all ownership belongs to the investor, and the investor provides all funds, operates independently, and obtains all profits.
Advantages:
Effectively overcome import restrictions, penetrate the target country market deeper than exporting, and have more profit opportunities than using license trade. And you can become more familiar with the local sales network and business methods.
Disadvantages:
Creating a new enterprise is expensive, slow, time-consuming and highly uncertain.
Especially under the influence of many countries' implementation of various policies to attract foreign investment, the establishment of new enterprises has become an important way for international enterprises to implement globalization strategies. However, as time goes by, its disadvantages become increasingly apparent, and the dominant position of newly established enterprises in FDI has been replaced by another form - mergers and acquisitions.
2. Cross-border mergers and acquisitions (M&A)
Business mergers and acquisitions are the general term for corporate mergers and acquisitions. The former refers to a company that has an advantage in competition purchasing all the assets of another company. The act of forming an enterprise; the latter refers to the act of one enterprise acquiring control and operating rights of another enterprise by publicly acquiring a certain number of shares of another enterprise.
At present, the cross-border mergers and acquisitions of international enterprises are extensive and huge in scale. This unprecedented scale of mergers and acquisitions will likely lead to major changes in an industry, a region and even the global economic model.
Advantages:
(1) Mergers and acquisitions can enable companies to quickly enter the target country market.
(2) Mergers and acquisitions can quickly expand product categories.
(3) M&A and “localization” strategies complement each other.
(4) Mergers and acquisitions can benefit from the undervaluation of the assets of the companies being “eat”.
Disadvantages:
(1) Difficulty in value assessment during the merger and acquisition process.
(2) There are differences between enterprises in various countries in terms of geography, tradition, culture, corporate image, etc. It is difficult for mergers and acquisitions to quickly improve the differences between two enterprises. After mergers and acquisitions, there will often be differences between the two enterprises. situation, causing enterprises to face the risk of ineffective operational control.
(3) Enterprise mergers and acquisitions will polarize enterprises and create a pattern of "too few enterprises, too little competition and too high prices", resulting in rising product market prices and unemployment in the factor market. If there are too many, enterprises will suffer from problems such as inertia, weakened motivation for innovation, and inefficiency due to excessive scale.
International strategic alliance
International strategic alliance means that an enterprise's alliance partner transcends national boundaries and forms partners with enterprises that are beneficial to its development around the world. The alliance of these enterprises is for the purpose of maximizing resource ownership, minimizing risks, and maximizing benefit sharing. In essence, it is cooperation instead of confrontation, which is the beginning of a higher form of more intense competition.
In 1897 Thomas Edison, the founder of General Electric Company, formed a cooperative enterprise with Corning Glass Manufacturing. Toshiba Corporation also became keen on establishing joint ventures as early as 1906. The earliest international strategic alliance was established in 1979, when Ford Motor Company of the United States and Mazda Motor Company of Japan formed the first international strategic alliance.
1. Conditions for the formation of international strategic alliances
Respective comparative advantages
Similar strategic goals
Independent legal personality
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Long-term partners
Synergy effects of alliances
Global market orientation
2. Types of international strategic alliances
Research and development strategic alliance
Two or more international enterprises with sufficient independence to jointly develop new technologies and certain new products and jointly provide , *** share the resources required for development, *** bear risks, and *** enjoy the benefits generated by research and development, but do not constitute a business entity.
Manufacturing Production Strategic Alliance
A form of cooperation between international enterprises by providing each other with parts and components used as production inputs and related technologies. This alliance has shifted the area of ??cooperation to the midstream - the manufacturing and production of products. Among manufacturing strategic alliances, alliances between product brands are common.
Joint sales strategic alliance
International companies reach an agreement to sell each other's products (or products produced in cooperation). This is the state produced by the alliance cooperation field entering the downstream.
Joint venture strategic alliance
refers to international companies combining their different assets to jointly produce, bear risks and share benefits.
3. Advantages
(1) Improve competitiveness.
(2) Share risks and gain economies of scale and scope.
(3) Expand the market.
(4) Prevent excessive competition.
(5) Challenge the "big business disease"
4. Disadvantages
(1) Cooperation is difficult.
(2) The balance of interests is difficult to achieve.
(3) The technology developed through cooperation is abused.
The path of globalization of Chinese enterprises
(1) The internationalization of Chinese enterprises has entered a new stage.
In 2005, China's foreign trade continued to maintain rapid growth. According to customs statistics, the country's total export value in the first three quarters reached US$1.02451 billion, a year-on-year increase of 23.7%, of which exports were US$546.42 billion, an increase of 31.3%, and imports were US$478.08 billion, an increase of 16.0%; the cumulative trade surplus was US$68.34 billion. The contribution of net foreign trade exports to economic growth reached 3.5 percentage points. Foreign direct investment grew rapidly. Overseas M&A activities have entered an active period.
(2) The main obstacles faced by Chinese enterprises in internationalization.
Although the international operations of Chinese enterprises have entered a new period of development opportunities and have made great achievements, the degree of internationalization is not high and the development is not yet mature. It is different from the international operations of the world's famous multinational companies. There is still a big gap between levels. The main obstacles affecting the improvement of the internationalization level of Chinese enterprises include the following aspects:
1. Financial obstacles. Chinese enterprises generally face the obstacle of insufficient funds in the process of international operations, resulting in long-term problems such as low development speed, small investment scale, low-scale production and operation, and low quality of overseas merger and acquisition targets.
2. Talent barriers. International enterprises need international talents, and Chinese enterprises face the prominent problem of lack of international talents in the process of internationalization. The existing talents of domestic enterprises cannot adapt to overseas markets, which is currently the most troublesome problem for enterprises. The lack of marketing talents, international business management talents, legal talents, and financial talents with international business experience has severely restricted the international development of Chinese enterprises.
3. Management obstacles. International operations put forward higher requirements for corporate management. At present, Chinese enterprises generally lack experience in cross-border management, and the existing management capabilities of the organization are difficult to adapt to the needs of enterprise internationalization. Management obstacles are prominently reflected in: first, the lack of a global organizational structure; second, the lack of cross-cultural integration capabilities; third, the lack of a global thinking model.
4. Brand barriers.
Brand value is a reflection of an enterprise's comprehensive strength. How to get your brand recognized by overseas consumers is an obstacle that almost all Chinese companies must overcome.
The ways for Chinese enterprises to internationalize
The internationalization of Chinese enterprises must do five aspects of work:
1. Cultivate international business talents.
2. Establish a global organizational structure.
3. Carry out cross-cultural integration.
4. Engage in international brand promotion.
5. Build the core competitiveness of the enterprise.
I hope this information I provided can be helpful to you.