CONTRACT AND PROCUREMENT

Contract and Procurement Management



Contract and Procurement Management

Question # 1

KOR-GEN's Expansion into Europe

The means by which firms enter foreign markets, and become truly multinational, have been a subject of study for many years. Because the global marketplace is diverse and dynamic, the study has proved surprisingly difficult: the 'typical' model has been more than somewhat elusive. This model proposes that KOR-GEN'go through a series of stages in becoming international and (eventually) global firms (Bailey, 2010, pp.155-181). The stages are as follows:

Establish a sales office in the foreign market: Once export sales are established, the exporting firm might become interested in the marketing of its goods in the overseas market. Although there will be an increased financial commitment, the firm gains greater control and will also tend to encourage greater confidence among overseas buyers that the firm is serious about staying in the market, and that supplies of the product will continue.

Overseas Distribution: This involves establishing a warehouse and distribution network in the overseas market. This gives even more control to the supplying company, and also shortens the lines of distribution so that foreign buyers' needs can be met more quickly. Clearly the overall credibility of the supplying company is much greater at this point (Benady, 2005. pp. 13).

Overseas Manufacture: The company sets up subsidiary factories in the countries in which it does business, to shorten lines of supply and to adapt the product to local market conditions. In some cases the factory will be a 'screwdriver' operation, in which components shipped from the home country are assembled, in other cases components will be sourced locally, to specifications laid down by the home country's designers and engineers.

Global Marketing: If a firm becomes truly global, it sources raw materials and components from the most cost-effective countries, and markets its products to the most appropriate market segments wherever they may be in the world. In some cases the company may identify truly global segments, cutting across borders entirely. The company's shares may be available on stock markets in several countries, and the company may well employ far more foreigners than nationals of its country of origin.

An alternative view of internationalisation has been proposed by Dunning (1993). Dunning's eclectic theory says that firms enter foreign markets by whatever means are most appropriate to the firm. The decision is based on the firm's competitive advantages, whether in its home markets or in the various overseas markets and the entry method will be decided without necessarily going through any intermediate stages (Berkowitz, 1996, pg. 40). For example, a company in the fast-food business might enter each overseas market by setting up franchises, since it would clearly be impossible to begin by exporting. The eclectic paradigm does not assume that the firm is a manufacturer, but the theory also has implications for manufacture since it implies that firm will produce in whichever country is most appropriate or convenient.

Research by Chetty and Campbell-Hunt (2004) indicates that there may be only small differences between firms that are ...