A) Sales Force in Overseas Markets: Things to Consider
In the global business environment where boundaries are non-existent, modern-day organisations have began to seek international business expansion through expanding their operations and exploiting different markets. International expansion is defined as the “process by which a multinational enterprise (MNE) enters and invests in a target foreign country in pursuit of the strategic objectives (Luo, 1999, pp. 3-4); nonetheless, the trend now includes small- and medium-scale enterprises which turn to the functionality of new technologies. Towards the realization of business goals, companies are more inclined with acquiring competitive and comparative advantages and leveraging economies of scope and scale.
Notwithstanding the size of the companies, there are several considerations that the business must first accomplish prior to conducting business on the target foreign country. International expansion is processual and a concept which elucidates the slow and incremental nature of cross-border transactions as well as the predictable patterns of such process. As such, when a company expands outside domestic marketplace and start to compete in a global basis, this company is pursuing the creation of value with particular focus on the organisation’s capability to transfer distinctive competencies, to realise location economies and to ride down experience curve ahead of competitors (Hill and Jones, 2001).
Industry Analysis
Aside from the industry analysis as the basic factor to consider when entering an overseas market, organisations also concern the competitive pressures of cost reductions and local responsiveness, different strategies to pursue and the pros and cons of each, the basic entry decisions and the process of entering a foreign market. First is the industry analysis whereby the organisation will assess the economic structure of the marketplace. The purpose of conducting an industry analysis is to determine the complexities that the organisations will likely to experience and to determine the competitive rules and strategies to implement as well.
In learning the structure which will provide insight and to which the company could build upon, there are five forces identified by Michael Porter to make use of: bargaining power of suppliers, bargaining power of buyers, threat of new entrants, threat of substitutes and rivalry among competitors. The main question to answer is: What are the key factors for competitive success? Combined, the strength of these forces could determine the profitability in an industry through influencing the prices, costs and required investment of businesses (Porter, 1998; Ehmke et al, 2004).
In the first factor, how much power do suppliers have over the business, the factors affecting their bargaining power and how to reduce the bargaining power of suppliers are the main aspects to consider. For the buyers, how much negotiating power they possess, how much power they have over the business, the factors influencing such and the process of reducing buyer’s bargaining power are the things to give consideration to. The relative easiness to enter the market for businesses, the unique barriers, the factors affecting the threat of new entrants and how to reduce these threats are the elements to reflect on. In the fourth facet, what products could customers purchase other than the business’ goods, in what form and how they could likely to affect the marketplace as well as the factors affecting the threat and how to reduce are the things to discuss. Rivalry among competitors is affected by particular considerations of how intense the competition is and the rivalry among competitors, the factors that influence this rivalry and how to reduce the threat of rivals (Ibid.).
Cost Reductions vs. Local Responsiveness
Competing in the global marketplace means to explore the competitive pressures that could present conflicting demands for the company. Whether pressure to reduce cost or to be locally responsive, the organisations should determine the sources of such pressures and how to combat them. On the one hand, Efforts to respond to pressures for cost reduction entail that a company should try to minimise the unit costs. Strategically, this endeavor will push the company to base its productive activities at the most favorable low-cost location as well as to standardise products to global marketplace for the purpose of riding down the experience curve as fast as possible. On the other hand, to react to pressures of local responsiveness necessitates the company to differentiate the product offering and the marketing strategy from country to country. This will also mean to accommodate the diverse demands based on consumer preferences, business practices, distribution channels, competitive conditions and government policies (Hill and Jones, 2001, pp. 123-124; Parker, 2005, p. 71).
Strategic Choice
Further, companies practice four different strategies in entering and competing in the global arena: international, multidomestic, global and transnational (Warner and Joynt, 2001, p. 52). The appropriateness of the optimal strategy should be contingent with the extent of the pressures. When the company is seeking to create value by transferring valuable skills and products to foreign markets where indigenous competitors lack in such aspects, the company is considered to be employing international strategy. This strategy only makes sense if a company possesses valuable distinctive competency and is facing weak pressures for local responsiveness and cost reductions. Companies pursuing an international strategy are tended to centralise product development functions (Hill and Jones, 2001, p, 126).
Wherein the goal of the company is to maximise local responsiveness by means of transferring skills and products developed at home country, multidomestic strategy is being adopted. This strategy makes most sense when there are strong pressures for local responsiveness and weak pressures for cost reduction. The tendency, however, is for the company to customise extensively of both the product offering and the marketing strategy to different national conditions while also establishing a complete set of value creation activities (p. 127).
Global strategy focuses on increasing profitability by obtaining the cost reductions that come from experience-curve effects and location economies. This strategy involves the concentration of production, marketing and research and development (R&D) activities in few, favorable locations as it makes string sense when there are string pressures for cost reductions but limited demands for local responsiveness. Conversely, the tendency is to market a standardized product worldwide so that they can reap the maximum benefits from the economies of scale (p. 128).
Transnational strategy is implemented for the purpose of exploiting experience-based cost economies and location economies, transferring distinctive competencies within the company, and doing all this while paying attention to pressures for local responsiveness. A company that employs a transnational strategy is trying to simultaneously achieve low-cost and differentiation advantages. Transnational strategy makes most sense when companies face high pressures for cost reductions and high pressures for local responsiveness (Ibid.).
Basic Entry Decisions
Consequently, there are three basic decisions that companies must get done prior to contemplating the offshore market penetration as which markets to enter, when to enter the market and on what scale. The company must embark on the basis of assessment of their long-run profit potential when choosing foreign markets. Several factors contribute to the attractiveness of a country to be a potential market for an international business such as balancing the benefits, costs and risks of conducting business in a specific market. Other considerations are the size of the market, the present wealth of consumers and the future of the wealth of consumers as well as the suitability of product offering and nature of indigenous competition.
The philosophy ‘entry is early when an international business enters a foreign market before other foreign firms, and late when it enters after other international businesses have already established themselves’ is being followed by the companies when it comes to the timing of entry. The first-in approach of any company benefits them to preempt rivals and to capture the demand by means of establishing a string brand name; pioneering costs is the disadvantage however (p. 130).
Companies also have to decide on the scale of entry which will determine the marketing and distribution strategies eventually. The consequences of entering of a particular scale are related with the value of the resulting strategic commitments or the decisions that has a long-term impact. These consequences, notably, are difficult to reverse which will have an important influence on the nature of competition in the market.
Choice of Entry Mode
Entry modes conform to five options including exporting, licensing, franchising, joint ventures and wholly owned subsidiaries. The process of sending goods for sale or exchange to another country is known as exporting. Exporting advents companies to avoid the cost of establishing manufacturing operations overseas (Luo, 1999, p. 138). Licensing refers to authorising the business to take place with official permission from a government or under a law without having to bear development costs and risks in conducting business offshore. Franchising is knows as the process of selling limited rights for the use of brand name in return of a lump sum payment and a share of benefits. Defined as the entity formed between two or more parties to undertake economic activity together, the advantages of joint venture lies in benefiting from a local partner’s knowledge of host country’s competitive conditions, culture, language, political systems and business systems. Wholly owned subsidiaries are the most costly method since there is the need to bear the full costs and risks associated with setting up an overseas operation (pp. 131-133).
B) Roles of Expatriate and Expatriate Preparation
Expatriation is not a new concept; it emerges long before empires sent soldiers to for regional takeovers processes. However, expatriation moves along with the recent trends in economy as organisations continuously pursue the internationalisation of businesses. Globalisation of the human resource management is perceived to be a pivotal element in the success of offshore businesses. Expatriation, or the process of transferring employees from one country to another while remaining on the organisation’s payroll, is one way of accomplishing this objective. The main goal of any expatriate is to contribute towards the achievement of the organisation’s strategic objectives through coordination and control. Nonetheless, there are benefits and risks with regards to employing an expatriate.
Roles of the Expatriate
Expatriates are always perceived to be taking the roles of bears, bumble-bees and spiders. The bear role of expatriates is reflected on the level of dominance inherent to the functions and responsibilities of the expatriate. Expatriates could be used to realise control based on socialisation and the creation of informal communication networks. The role of the expatriates when it comes to socialisation is that of the bumble-bees; organisational bumble-bees fly ‘from plant to plant’ and create a cross-pollination between the various offshoots. Weaving an informal communication network is regarded to be the spider role of the expatriates (Harzing and Ruysseveldt, 2003, p. 265).
Further, expatiates assume additional roles of facilitating an open communication between the foreign operation and at the home country. Expatriation also serves as means of personnel development and knowledge transfer and transmitter of corporate culture. Overcoming lack of qualified host country nationals are also possible with expatriation. However, expatriation conforms to culture shocks for the individuals and costs, failure rates and repatriation for the home office (Mossler, 2003).
Aside from the above mentioned roles, the roles of sales workforce are extended on sufficient authority to make important business decisions ‘on the spot’. The purpose of this is to increase the salesperson’s credibility and raises the tone of the meeting from what will look like a courtesy visit. The necessity of making decisions while abroad requires a level of managerial ability not always needed for domestic sales staff. Hence, international sales staff should be capable of working with minimal supervision.
Expatriate sales personnel could be also domiciled in the target country despite the sound arrangement rationale that might cause the occurrence of management problems. In addition, maintaining an expatriate sales force could be also expensive, conflict-laden and problematic since control is reduced and the expatriate sales personnel may feel isolated from home country. As such, the morale amongst the staff should be carefully watched for for this can be difficult to maintain for them (Lancaster and Reynolds, 2002, p. 232).
Expatriate Preparation
There are four stages of culture shock that an expatiate should go through to enhance the success of expatriation: euphoric or honeymoon, irritation and hostility or disillusionment, integration or gradual adjustment and acceptance or biculturalism. Euphoric stage is the initial reaction of enchantment, enthusiasm, admiration and other superficial relationships with hosts. Disillusionment is the crisis wherein initial differences are realized that eventually leads to anxiety, homesickness and depression. Adjustments are recovery mechanisms that may lead to biculturalism as sojourners started to blend in and adapt some cultures and values (Furnham and Bochner, 1986, p. 131).
In lieu with overcoming the culture shock, acculturation abilities and global staffing orientations should be attended to. Padilla (1980) defines acculturation as the process of adapting patterns of the surrounding culture; thus a candidate for expatriation must be well-acquainted with his/her capabilities to easily adapt the other culture. Orientations, on the other hand, are ways to measure the mutinationality of the business and the people. There are three approaches: ethnocentric – home-country orientated, polycentric – host-country orientated, geocentric – boundary-orientated and regiocentric – locational-orientated orientations. The expatriate’s orientation is crucial for international staffing since it guides the process of choosing by means of weighing the costs and benefits while also addressing innovations, skills, costs and corporate goals (Scullion and Collings, 2006, pp. 18-23).
Deresky (2005) emphasises the importance of preparations and training to present consequences of expatriation as well as reducing the risk for culture shock. Expatiate packages must compensate expatriate by means of home and family visits plan or sponsorships, equalization of standard of living and compensations for inconvenience and qualitative losses. The necessity of developing the global workforce through expatriate competencies and expertise calls for effective international assignment management programmes with greater emphasis to be given on cross-cultural preparedness. For the expatriate sales workforce/personnel, it would be necessary to integrate national sales personnel for the purpose of achieving high levels of sales.
The rationale of this is the support of the familiarisation process on the part of the expatriate with the language, customs and culture by which the expatriate sales staff might never achieved by themselves. Although the customers could consider a sales force of local nationals, the presence of expatriate sales work team would be plausible, if it will not hone an atmosphere of exclusivity. As such, cultural variables must be adopted in such a way that it will not hurt the expatriates. One way to do this is to let the expatriate sales workers with the help of local nationals to observe and practice rules of etiquettes when dealing with sales, for instance (Lancaster and Reynolds, 2002, p. 233).
Apart from learning about the cultures and lifestyles in host countries, an external effort of investigating managerial value systems and decision styles as well as discussing preferences with respect to degree of participations are also a must (Ali, et al, 1995). Preparing the host country workforce for the arrival of the expatriate must be also considered further so as not to be distressed on the changes that the expatriate worker may apply, and to hone a harmonious working relationship as possible. This could be carried out through a model-based discussion of instructional systems development regarding the exchange, participation, corporate social responsibility and strategic human resource planning (Vance and Ring, 1994).
Legal and financial protections must be provided by the company towards the expatriate. Examples of these are mandatory tax equalisation protection, international payment plans, income, mortgage and pension protections, investments and insurances, employer-provide health care and the right to join a union (Hakimian and Nugent, 2003, p. 224). According to Feltes et al (1993), The company should also sponsor reality trainings, work site rules clarification and local consultations as part of the civil protection of the expatriates.
As such, poorly managed international assignment has its consequences as the expatriate could contribute in negating the business of a maximum return on investment (ROI); productivity of the expatriates is directly equated with expatriate’s ROI. If management assignments proved to be delinquent, the performance and effectiveness of the expatriates will be lessened. Career uncertainties will be also possible due to poor management of the expatriate’s career development and failures of appreciating the international experience. Downward job mobility, increased financial pressures and lack of expectations communications are other consequences (McNutty, 2005).
References
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