With this video, we begin an extended examination of what it takes to go global, that is entering into foreign countries for expansion and enterprise. What factors are driving the growth for global businesses? Here are a few. The rapid growth of global population and the rise of new international markets, modern information technologies that make global communication almost instantaneous, transportation technologies that allow goods to be shipped anywhere in the world quickly and economically, liberalized trade policies between nations, multinational trade blocks where groups of nations agree to favorable trade terms with one another, and a global supply chain that facilitates all of the above. What are the specific reasons that firms may decide to go global. They may want to move beyond a saturated home market that has little remaining growth potential. They may want to tap into new markets and customers. They may want to counter competitive pressures at home or from the possible entrance of foreign competition into home markets. In business as in sports, the best defense is often to go on offense. Developers always diversify customer bases beyond the firm's domestic market, acquire access to resources, talented labor not available in our market, leverage the economies of scale by growing internationally, benefit from material transportation and labor cost savings. But the ultimate goal of going global is to sustain and grow revenues and profits. When thinking about going global, understand that it's just not harder, it's three times harder. As this quote suggests, going global is hard and risky. There are difficult language and cultural barriers. Products and services often need significant modification to meet the needs of foreign markets. National legislation and regulations can be very different from the home market. Business practices must adapt to local laws and ordinances. Finally, managing a diverse population of foreign employees with different cultures, habits and expectations, can be challenging indeed. For all these reasons, efforts to go global should not be undertaken without serious deliberation. A useful tool to provide insights into the go global decision, is the eclectic theory of international operations which asks, ''Does our firm have ownership, location and internalization advantages if we go global?'' First, we determine if we have ownership advantages in a foreign market. In other words, do we have sufficient competitive advantage over entrenched rivals in a foreign market to effectively compete? As examples, do we have a great brand or economies of scale, novel technologies or access to niche markets that would allow us to prevail against competitors? If the answer is no, then we should probably remain domestic and just stay home until such times as we develop new competitive advantages that will allow us to prevail in an international market. However, if the answer is yes, we next ask, do we have location advantages in a foreign market? Are there immobile locational advantages for setting up in a foreign country. Location advantages might be access to resources, labor, technology, infrastructure, or markets that we cannot get in our home country. If the answer is no, we have no locational advantages, then why bother to go abroad? Instead, our best option in this case is to export our products and services from our home country and avoid the expense in complexity of international expansion. However, if the answer is yes, our final question is, do we have internalization advantages by going abroad? Will Foreign operations augment and exploit or improve our core competencies? Internalize here means bringing foreign operations into our organizational structure thereby becoming part of the company. Alternatively, going just as effectively out source or contract for foreign operations. If the answer to internalization is no, then we should consider licensing or franchising, letting foreign country companies market and sell our products or services in their home market. Finally, if the answer is yes to internalization, we should consider moving into a foreign country by directly investing and operating in that country. Foreign direct investment can take many forms, including a joint venture with a local company, acquisition of a local company, or greenfield investments where we set up operations from scratch. The eclectic theory of international operations is also known as the OLI framework for ownership, location, and internalization. It provides valuable insights for determining why and how and if we should go global. Once we decide to go global, we need to develop a detailed expansion strategy to guide our efforts. Our strategies should include identifying reasons for going global, such as leveraging company specific advantages, for instance, existing products or services, assets and capabilities, and leveraging location specific resources such as people, finance, materials and capabilities that are currently not part of the firm. Next, we need to determine which business functions to globalize. Marketing, production, finance and accounting, HR. There usually is no need to replicate every home office business function in a new foreign location. Then develop a country business model, specifically, how will we differentiate ourselves from competitors and add new value for potential customers. Other details include the legal structure of foreign operations at its base of operations. Develop a strategic partnership or partnerships as needed. No entrance into a foreign market are usually most successful if they develop strategic relations with local communities, suppliers, distributors and professionals such as lawyers, accountants and other intermediaries. Finally build cross-border networks. Local networks such as engaging expert communities, engaging with foreign nationals at home, foreign trade offices and other organizations with insights and experience in the destination country. Moving forward, there are three major decisions that must be made to execute a global expansion strategy. First, when should we enter a new foreign market? Second, into what country or countries should we expand? Third, how should we expand? That is, what entry mode should we employ? Should we export, indirect expansion such as licensing or franchising, or direct expansion such as the joint venture or greenfield expansion. Answers to each questions will be topics of the next extended series of videos. In summary, there are significant tailwinds for global expansion. New technologies, lower tariffs and improved regulations and access to new markets resources in cost savings. However, there are significant challenges to going global. Some observers state that going global is three times harder than domestic expansion. To help make the go global decision is the eclectic theory of international operations, which can be a good starting point for developing a global expansion strategy. Finally, to execute global execution are three important decisions, timing of entry, country selection and motive entry. In the next video, we'll begin an examination of these three decisions. See you there.
