A Global Form is one that, in operating in more than one country, captures R&D, production, logistical, marketing and financial advantages in its costs and reputation that are not available to purely domestic competitors. Global firms plan, operate and coordinate their activities on a world wide basis.
Each national market has unique features that must be grasped. A global firm has to take into account economic, political – legal and cultural factors of target country while planning its expansion programmes.
Three characteristics reflect a country’s attractiveness as an export market.
- The first is the size of country’s population. Other things being equal, large countries are more attractive to exporters than small markets.
- The second is the country’s industrial structures, four types of industrial structures can be distinguished: –
- Subsistence Economics: – In Subsistence economics the vast majority of people engage in simple agriculture. They consume most of their output and barter the rest for simple goods and services. They offer few opportunities for exporters.
- Raw Material Exporting Economics: – These economics are rich in one or more natural recourses but poor in other respects. Much of their revenue comes from exporting these resources Examples are Chile (tin and copper); Zaire (rubber). These countries are good markets for extracting equipment, tools and supplies, materials handling equipment and trucks. Depending on the number of foreign residents and wealthy native rulers and landlords, they are also a market for western – style commodities and luxury goods.
- Industrializing Economies: – In an industrializing economy, manufacturing begins to account for between 10 and 20 percent of the country’s grogs national product. Examples include India, Egypt etc. As manufacturing increases, the country relies more on imports of textile raw materials, steel and heavy machinery and less on imports of finished textiles, papers products and automobiles. The industrialization creates a new rich class and small but growing middle class, both demanding new types of goods, some of which can be satisfied only by imports.
- Industrial Economies: – Industrial economies are major exporters of manufactured goods and investment founds. They trade manufactured goods among themselves and also export them to other type of economies in exchange of raw materials and semi-finished goods. The large and varied manufacturing activities of these industrial nations and their sizable middle class make them rich markets for all sorts of goods.
The third economic characteristics are the country’s income distribution. Income distribution is related to a country’s industrial structure but is also offered by the political system.
Political – Legal Environment
A company should consider four factors in deciding whether to do business in a particular country.
- Attitude towards International Buying: – Some nations are very receptive, indeed encouraging to foreign firms and others are very protectionist. For example, Mexico for a number of years has been attracting foreign investment by offering investment incentives, while India in the post required the exporter to cope with import quotes, blocked currencies and so on.
- Political Stability: – Government in some countries changes hands, sometimes quite violently. And with changes in government foreign trade policies also change. The foreign company’s property might be expropriated, or its currency holdings might be blocked. In such conditions international marketers might prefer export marketing to direct foreign investment. They will convert their currency rapidly. As a result, the people in the host country pay higher prices, have fewer jobs and get less satisfactory products.
- Monetary Regulation: – Sellers want to realize profits in a currency of value to them. Foreign firms want payments in hand currency with profit repatriation rights, but that may not be available in many markets.
- Government Bureaucracy: – A fourth factor is the extent to which the host government runs an efficient system for assisting foreign companies: quick licensing procedures, efficient custom handling adequate market information and other factors conductive to doing business.
Cultural Environment: – Each nation has its own values, customs and taboos. Foreign business people, if they are to be effective, must drop their ethnocentrism and try to understand the culture and business practices of their hosts, who often out on different concepts of time, space and etiquette. The way foreign consumers perceive and use certain products must be checked out by the seller before planning the marketing programme.