CONTEMPORARY MANAGEMENT ISSUES

Contemporary Management Issue - International Expansion

Contemporary Management Issue - International Expansion

Introduction

The recent global recession had a significant influence on the global business environment and business management practices implemented by MNCs (Multi-National Corporations) and SMEs (Small & Medium Enterprises) alike (Carraher, 2009; Rigby & Bilodeau, 2011). As a result of this influence, organizations now seek to engage in expansion practices in order to increase market options, expand product lines and minimize localized risk (Munro, 2011; Saunders & Cornett, 2012). This discussion will identify and critically appraise the concept of international expansion as an area of the contemporary business and management environment in relation to applicable theoretical concepts. In order to do so adequately, the discussion will engage in an explanation of text-book expansion techniques with relation to real-world challenges that are brought forth during international expansion.

Discussion

The traditional technique of international expansion calls for the establishment of an office in the target region and the establishment of contracts with multiple distributors (Makki & Geisler, 2011; Lerner & Schoar, 2010). This eliminates the need to establish a complete secondary value chain that is meant to serve the target region. Instead, it allows the expanding organization to worry about nothing more but the revenue figures once the goods have landed at the distribution center. This is because of the fact that the distributor plays the role of a stakeholder and the successful selling of the product becomes equivalent to the success of the distributor (Jones, 2010; Jung, 2009).

It is common to find organizations from developing economies approaching MNCs in order to acquire distribution rights (Salmoni, Hart, McPherson & Winn, 2010; Ghorbani, Tavassoli & Nikookar, 2011). In this case, the distributor buys directly from the organization and gives (or sells) the distributor the right to use the expanding organization's brand name. This completely isolates the expanding organization from the process of expansion while simultaneously enabling the brand name to penetrate into more consumer markets. These approaches (and other similar techniques) are considered to be traditional techniques of international expansion.

It merits highlighting that these methods are heavily reliant on logistical profitability and are generally heavily dynamic in terms of pricing (Olaniyan & Ojo, 2008; Carraher, 2009). However, such expansion techniques are generally low-risk since the distributor is in a position where credit terms are tight and often extensively limited; thus providing the producing (expanding) organization with direct revenue. It is also equally important to note that these models are also known for being indirect expansion techniques (Rigby & Bilodeau, 2011; Munro, 2011). This concept holds true because of the fact that the producer itself does not involve itself with any value chain functions relating to the target expansion region; while the brand expands into an external market nonetheless.

Before an organization can engage in international expansion, it is essential to determine if the organization needs to expand or not (Carraher, 2009; Rigby & Bilodeau, 2011). Most international expansions fail because organizations are under the misconception that an international expansion will help solve problems that are essentially ...