Challenges of International Expansion

Ghauri & Cateora (2010) established that cultural dynamics played a vital role as far as international marketing was concerning. Marketing is a major component of business strategy and is particularly critical in the exporting and franchising approaches to international market entry. Cultural dimensions differ among all countries.

Usunier (1996) developed an empirical outlook of 50 nations based on Hofstede’s cultural dimensions of; power distance, uncertainty avoidance, individualism, and masculinity. It was based on a scale of 1 – 100. A country like United States had; power distance (40), uncertainty avoidance (46), individualism (91), and masculinity (63), (Usunier, 1996).

On the other hand, an emerging nation like India had the respective scores of; 77, 40, 48, and 58 using the same scale. Effectively, advanced economies tended to exhibit greater levels of individualism with collectivism being witnessed in developing economies. The ability to encapsulate cultural knowledge is imperative in achieving success.

Cultural diversity also extends to management practices which can influence the success of the venture. Daimler-Benz faced such challenge when it acquired Chrysler with management cultures clashing on several. This was particularly instrumental in the massive failure of the acquisition as the cultural differences affected production.

There are numerous regulatory and legal challenges whenever an organization establishes significant market penetration in an external market (Hitt, Ireland, & Hoskisson, 2011). This is evident for investments that require extensive resources commitments such as joint-ventures, acquisitions, and developed of Greenfield operations.

Other risks that are associated with internationalizing business include; political and economic risks (Hitt, Ireland, & Hoskisson, 2011). Political instability has a direct impact on economic outlook. Tepid economic growth in external markets affects the impetus to inject more funds and influence the expected rate of return.

Companies that seek internationalization in emerging markets are inextricably faced with policy risks. Henisz & Zelner (2010) noted that western multinationals leveraged on a variety of tools to protect their income streams. They include a combination of; financial instruments, insurance, and legal contracts.

Henisz & Zelner (2010) asserted that the reliance on country risks ratings based contract-repudiation and asset-seizure was lopsided and inadequate. They indicated that policies differed from country-to-country and were largely industry-specific. Political mastery is an essential tool that would provide relative protection against arbitrary policy changes.

Shifts in domestic policy relating to strategic focus on a particular industry might limit access to international firms. Hout & Ghemawat (2010) examined China’s push to make the country a technology superpower through aggressive policy changes. It has been “cajoling, co-opting, and often coercing western and Japanese companies” (Hout & Ghemawat, 2010, p.96).

The government has adopted four main mechanisms; tax incentives, increased state research spending, favoring indigenous firms during procurement, and coercing multinationals to transfer technology through state-owned joint-ventures (Hout & Ghemawat, 2010). This is an increasing challenge even in advanced economies as governments seek to protect employment.

Bhattacharya & Michael, 2008) examined the growing influence of efficient homegrown firms in limiting the expansion of western transnational firms. They noted that emerging market firms such as Baidu and TV Globo has incorporated technology to enhance competitiveness. Effectively, western firms had more difficulty in accessing the domestic market.

To overcome the evolving competitive environment in these markets, multinationals have to adapt their business models to be more market aware and circumvent main obstacles (Bhattacharya & Michael, 2008). Technology firms often face piracy and fraud risks but they have to leverage on advanced technology rather than relying on policy frameworks.

They are more than not inadequate and hard to effect and monitor. The other strategies to enhance competitiveness are; taking advantage of cheap labor and having in-house staff training, scaling up rapidly, and investing in talent through training and attractive working environment (Bhattacharya & Michael, 2008).

Essentially, multinationals have to adopt the strategies that have made local firms highly successful and develop their own strategies which are inimitable (Bhattacharya & Michael, 2008). They have to use their international experience to create a differentiation for their brands and employing global consistency in their operational frameworks.

Another persistent challenge in international markets as well as domestic environment is employee motivation. Multinationals have to adopt a motivational framework that takes the levers of; a reward system, cultural alignment, specific job design, resource-allocation, and performance-management (Nohria, Groysberg, & Lee, 2008).

Talent acquisition and retention remains to be a perennial challenge for these firms in their domestic environments and internationally. Employee motivation lies in effectively addressing four main drivers; drive to acquire, drive to bond, drive to comprehend, and drive to defend (Nohria, Groysberg, & Lee, 2008).