As organizations go global, they often use different approaches. (See Exhibit 3–1.) At first, managers may want to get into a global market with minimal investment. At this stage, they may start with global sourcing (also called global outsourcing), which is purchasing materials or labor from around the world wherever it is cheapest. The goal: take advantage of lower costs in order to be more competitive. For instance, Massachusetts General Hospital uses radiologists in India to interpret CT scans.6 Although global sourcing may be the first step to going international for many companies, they often continue using this approach because of the competitive advantages it offers. However, during the last economic crisis, many organizations reconsidered their decisions to source globally. For instance, Dell, Apple, and American Express were just a few U.S. companies that scaled back some of their offshore customer service operations. Others brought manufacturing back home. For instance, Apple decided to build some Mac computers in the United States for the first time in about a decade. The company had faced political pressure to hire U.S. workers and to “reduce its reliance on foreign subcontractors whose treatment of workers” has been strongly criticized.7 As companies think about the best places to do business, they face choices of offshore (in another global location), onshore (at home), or nearshore (in countries close to home).8 Then, as a company takes that next step in going global, each successive stage beyond global sourcing requires more investment and thus entails more risk for the organization.

Exhibit 3–1

How Organizations Go Global

The next step in going global may involve exporting the organization’s products to other countries—that is, making products domestically and selling them abroad. In addition, an organization might do importing, which involves acquiring products made abroad and selling them domestically. Both usually entail minimal investment and risk, which is why many small businesses often use these approaches to doing business globally.

Finally, managers might use licensing or franchising, which are similar approaches involving one organization giving another organization the right to use its brand name, technology, or product specifications in return for a lump-sum payment or a fee that is usually based on sales. The only difference is that licensing is primarily used by manufacturing organizations that make or sell another company’s products, and franchising is primarily used by service organizations that want to use another company’s name and operating methods. For example, New Delhi consumers can enjoy Subway sandwiches, Namibians can dine on KFC fried chicken, and Russians can consume Dunkin’ Donuts—all because of franchises in these countries. On the other hand, Anheuser-Busch InBev licensed the right to brew and market its Budweiser beer to brewers such as Labatt in Canada, Modelo in Mexico, and Kirin in Japan.

Once an organization has been doing business internationally for a while and has gained experience in international markets, managers may decide to make more of a direct investment. One way to do this is through a global strategic alliance, which is a partnership between an organization and a foreign company partner or partners in which both share resources and knowledge in developing new products or building production facilities. For example, Honda Motor and General Electric teamed up to produce a new jet engine. A specific type of strategic alliance in which the partners form a separate, independent organization for some business purpose is called a joint venture. For example, Hewlett-Packard has had numerous joint ventures with various suppliers around the globe to develop different components for its computer equipment. These partnerships provide a relatively easy way for companies to compete globally.

Finally, managers may choose to directly invest in a foreign country by setting up a foreign subsidiary as a separate and independent facility or office. This subsidiary can be managed as a multidomestic organization (local control) or as a global organization (centralized control). As you can probably guess, this arrangement involves the greatest commitment of resources and poses the greatest amount of risk. For instance, United Plastics Group of Westmont, Illinois, built three injection-molding facilities in Suzhou, China. The company’s executive vice president for business development says that level of investment was necessary because “it fulfilled our mission of being a global supplier to our global accounts.”9