international business approaches
If a firm wants to expand its business and want to explore new opportunities in foreign markets, here the approaches of international business help them in grabbing new, opportunities, managing and organizing the business affairs, managing the workforce requirements of a business, strategic planning, and telling them how to run a sustainable and profit-oriented business. Today in this article we give you an overview about what are the approaches of international business, what is international business, and their examples.
What is international Business?
International Business is defined as any business that operates across international boundaries and trade of goods, services, raw material, knowledge, and capital take place between two or more nations.
International business provides an opportunity to facilitate the trade of goods and services outside of the home country. It is very helpful there for those countries where domestic trade is not sufficient to fulfill domestic consumer’s demands.
Approaches of international business
- Ethnocentric Approach
- Polycentric Approach
- Regiocentric Approach
- Geocentric Approach
1. Ethnocentric Approach
The domestic companies normally formulate their strategies, their product design and their operations towards the national markets, customers and competitors. But, the excessive production more than the demand for the product, either due to competition or due to changes in customer preferences push the company to export the excessive production to foreign countries. The domestic company continues the exports to the foreign countries and views the foreign markets as an extension to the domestic markets just like a new region. The executives at the head office of the company make the decisions relating to exports and, the marketing personnel of the domestic company monitor the export operations with the help of an export department.
The company exports the same product designed for domestic markets to foreign countries under this approach. Thus, maintenance of domestic approach towards international business is called ethnocentric approach.
This approach is suitable to the companies during the early days of internationalisation and also to the smaller companies.
◉ Examples of Ethnocentric Approach – Indian clothes, dresses, food, and beverage are exported to foreign nations where a large number of Indian live.
Organisation structure of
Ethnocentric company
2. Polycentric Approach
The domestic companies which are exporting to foreign countries using the ethnocentric approach find at the later stage that the foreign markets need an altogether different approach.
Then, the company establishes a foreign subsidiary company and decentralises all the operations and delegates decision-making and policy making authority to its executives. In fact, the company appoints executives and personnel including a chief executive who reports directly to the Managing Director of the company. Company appoints the key personnel from the home country and all other vacancies are filled by the people of the host country.
3. Regiocentric Approach
The company after operating successfully in a foreign country, thinks of exporting to the neighbouring countries of the host country. At this stage, the foreign subsidiary considers the regional environment (for example, Asian environment like laws, culture, policies etc.) for formulating policies and strategies. However, it markets more or less the same product designed under polycentric approach in other countries of the region, but with different market strategies.
4. Geocentric Approach
According to the Geocentric approach, businesses consider the whole world is the same as one country for their business operation.
Businesses select the best talent from the entire globe and operate with their large number of a subsidiary that is located around the globe. The headquarters coordinate the activities of the subsidiaries. Each subsidiary functions like an independent and autonomous company in formulating policies, strategies, product design, human resource policies, operations etc.
This approach is used by big business giants which have large-scale business operations and a significant presence around the globe.
This international business approach helps in building brand image and earning a great amount of loyalty.
◉ Examples of Geocentric Approach – Apple, Coca-cola, Dell.
