Globalization refers to the growing interdependent relationships among people from different cultures and nations as physical and psychological walls collapse, barriers to the movement of trade, capital and people are blurred and modern technology is integrated (Daniels et. al. 2009; Hill 2009). This indicates the two main factors that drive globalization are the decline in barriers to the free flow of goods, services and capital, and the change in technology (Daniels et. al. 2009). Internationalization involves customizing business strategies depending on cultural, regional and national differences (Vignali 2001). Since the 20th century, more corporations have become global to create value for their organizations and to achieve competitive advantage. This was followed by the development of multinational enterprises or corporations (Daniels et. al. 2009).

According to Vignali (2001), globalization involves marketing standardized products the same way everywhere, thus viewing the world as a single entity (Vignali 2001). However, the reality is that nations, cultures and people vary around the world. Corporations need more than just globalization to succeed in the international market. According to Taylor (see Vignali 2001), companies should “think global, act local” (Vignali 2001, p.98) by combining internationalization and globalization elements to create a competitive advantage.

Entry Modes

Determining the appropriate entry mode for a corporation is a complex task. Hill, Hwang and Kim (1990) state that different entry modes have different levels of control over foreign operations, in terms of managing operational and strategic decision-making. Some of the common entry modes used by global corporations are franchising and joint ventures (Hill 2009).

Franchising is when a company, or franchisor, sells intangible property, like a trademark, to the franchisee with the stipulation that the franchisee abides the by the rules and conditions specified in the franchising contract (Hill 2009). The rules as to how franchisees operate a restaurant extends to control over the menu, cooking methods, staffing policies, and design and location. This is a common strategy approached by many fast food chains.

By franchising to local people, the delivery and interpretation of something foreign is translated by the local people, in terms of both product and service (Vignali 2001), and the costs of running the business is cheaper. However, franchising may inhibit a corporation taking profits out of one country to support competitive attacks in another country (Hill 2009). Also, the quality of the brand in the foreign country may not be the same or up to par as the quality of the brand of products in the corporation’s native country, which is ultimately bad for business (Hill 2009).

Joint venture is sharing ownership between two or more companies and the percentage of ownership varies from 50% to more or less (Daniels et. al. 2009). It has similar advantages as franchising but can have more problems, such as lack of control of technology (Hill 2009).

When choosing the market it is important to consider long-term economic benefits including the market size, the present wealth of consumers in the market, and the future wealth of the consumers, which depends on the economic growth rate (Hill 2009). Hill (2009) argues the product value in the foreign market is another deciding factor. This depends on if the product is suitable to the market and the local competition.

As they turn global, organizations are transformed in terms of their strategies, operations, management, marketing, and human and material resources and services (Daniels et. al. 2009). This is because foreign markets have different physical, social and competitive factors from the domestic market, and this affects the objectives and the strategy of the corporation (Daniels et. al. 2009).

IR Model

Companies that operate internationally face two forces: pressures for global integration and pressures for local responsiveness (Daniels et. al. 2009). In their research paper, Doz and Prahalad (1984) explain economic, technological and competitive conditions push global integration, whereas diversity in customer needs, distribution channels, media and trade barriers between countries push responsiveness.

Research shows that the higher the pressure for global integration, the greater the need to maximize efficiency through standardization (Daniels et. al 2009). Customers accept standardized products and this reduces costs for the corporation (Daniels et. al 2009). But, international corporations are under pressure to adapt their operations to the local market conditions and local customer demands, as well as adhere to the policies mandated by host-country governments, which varies around the world (Daniels et. al. 2009).

The integration-responsiveness model, shown in figure 1, was initially developed by Prahalad and Doz in 1987 and then developed further by Bartlett and Ghoshal in 1989. It shows the interaction between global integration and local responsiveness (Daniels et. al. 2009). The IR model presents four strategies to guide how international corporations will enter and compete in the foreign market: international strategy, multidomestic strategy, global strategy and transnational strategy.

Pressure for National Responsiveness

Transnational

Global

International