Many government leaders believe that a nation of industrial workers is better off than a nation of salespeople. Politicians attach greater wealth-creation capabilities to a factory (investment) than to a sales office. Thus an MNC's exports to a country are usually tolerated in the hope that eventually the MNC will substitute domestic production for the imported goods. If the MNC decides to do so, the internationalization process moves into the second phase-the making of contractual agreements, such as those licensing local manufacturers. Alternatively, the MNC might opt to co-produce with a local firm or even to build a factory and then turn it over to a local private and/ or state-owned firm.
The internationalization process generally proceeds in a piecemeal fashion until eventually MNC management recognizes that building many small plants all over the world is causing the MNC to lose the economies of scale potentially associated with its size. The MNC then begins a process known in the European literature as rationalization and in U.S. nomenclature restructuring or globalization. This restructuring, which is the last phase in the internationalization process, is an attempt to regain economies of scale through better organization and global management practices.
This chapter discusses the options available in designing an internationalization strategy and provides guidelines for choosing wisely among them.
LEARNING OBJECTIVES
After studying the material in this chapter, the student should be familiar with the following concepts:
- The internationalization process
- The five steps in exporting
- Contractual arrangements
- International licensing and franchising
- Management, manufacturing, and turnkey contracts
- Knowledge agreements
- Portfolio and direct foreign investments
- Joint ventures and wholly owned subsidiaries
- Evaluation of the foreign investment climate
- The entry decision process
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