International Restrictions

In international business, there is a fear of the restrictions which are imposed by the
government of the different countries. Many country’s governments don’t allow
international businesses in their country. They have trade blocks, tariff barriers, foreign
exchange restrictions, etc. These things are harmful to international business.

Benefits To Participating Countries

It gives benefits to the countries which are participating in the international business. The
richer or developed countries grow their business to the global level and they get
maximum benefits. The developing countries get the latest technology, foreign capital,
employment opportunities, rapid industrial development, etc. This helps developing
countries in developing their economy. Therefore, developing countries open up their
economy for foreign investments. 

Large Scale Operations

International business contains a large number of operations at a time because it is
conducted on a large scale globally. Production of the goods at a large scale, they have
to fulfill the demand at a global level. Marketing of the product is also conducted at a
large scale to make them aware of the product. First, they fulfill the domestic demand
and then they export the surplus in the foreign markets. 

Integration Of Economies
International Business combines the economies of many countries. The companies use
the finance, labor, resources, and infrastructure of the other countries in which they are
working. They produce the parts in different countries, assembles the product in other
countries and sell their product in other countries.

Dominated By Developed Countries

International business is dominated by developed countries and their MNC’s. Countries
like U.S.A, Europe, and Japan all are the countries that are producing high-quality
products, they have people working for them on high salaries. They have large financial
and other resources like the best technology and Research and Development centers.
Therefore, they produce good quality products and services at low prices. They help
them to capture the world market.

Market Segmentation
International business is based on market segmentation on the basis of the geographic
segmentation of the consumers. The market is divided into different groups according to
the demand of the consumers in different countries. It produces goods according to the
demand of the consumers of the different market segmentations.

Sensitive Nature
International Business is highly affected by economic policies, political environment,
technology, etc. It can play a positive role to improve the business and can also be
negative for the business. It totally depends on the policies made by the government, it
can help in expanding the business and maximizing the profits and vice-versa.
 Imports and Exports of Merchandise: Merchandise refers to physical products, such
as those that can be seen and felt. Therefore, imports and exports of merchandise mean
the transfer or exchange of tangible goods from and to different countries of the world. It
is also called trade in goods as it excludes buying and selling of services. 
 Imports and Exports of Services: Imports and exports of services involve intangible
goods that cannot be seen, felt, or touched. It is also known as invisible trade. Services
such as tourism and travel, transportation, communication, etc. are imported and
exported. 
 Licensing and Franchising: Licensing is a contractual agreement between two firms,
where the licensor (one firm) grants the licensee (another firm), access to trademarks,
copyrights, patents, etc. in a foreign country in exchange for a fee. The fee charged by
the licensor is known as royalty. For example, Microsoft grants a license to different
companies in exchange for royalty. 
Franchising is also similar to licensing. However, it provides services rather than access
to patents, etc. For example, Subway has various franchises all over the world where it
provides the same services to the customers. 
 Foreign Investment: It means investing money into a foreign country in exchange for a
profit. Foreign investment can be of two types Direct and Portfolio Investment. 
Direct investment occurs when a firm invests directly in the machinery and plant in
another country to produce and market goods and services in that country. 
A portfolio investment is a foreign investment where a company buys shares of another
company in a different country or lends money to another company. The return of
portfolio investment is received in the form of dividends or interest respectively.

  Benefits to countries

 Foreign Exchange: It assists a country in earning foreign exchange, which may then be
utilized to buy capital goods, technology, and other products from foreign countries.
 More Efficient Resource Utilization: It is based on the comparative cost advantage
theory. It entails producing what your country can produce more efficiently and trading
the surplus production with other countries to purchase what they can produce more
efficiently. In this way, countries can make better use of their resources.
 Growth Possibilities and Job Opportunities: Countries can enhance their
manufacturing capacity to supply commodities to other countries through external trade.
If external trade holds, the production will rise, increasing the GDP level of the country,
resulting in economic growth. With more production, the demand for more labor also
rises. Therefore, the international business also creates job opportunities. 
 Improved Standard of Living: International business allows individuals to consume
goods and services from other countries. Consumption of a variety of goods and
services improves the standard of living of the people. 

Stage of internationalization

https://www.slideshare.net/Mohitsh2/stages-of-internationalization
A multinational corporation (MNC) is a company that operates in its home country, as well as
in other countries around the world. It maintains a central office located in one country, which
coordinates the management of all its other offices, such as administrative branches or factories.

The OECD Guidelines for Multinational Enterprises (the Guidelines)

are recommendations addressed by governments to multinational
enterprises. The Guidelines aim to ensure that the operations of
these enterprises are in harmony with government policies, to
strengthen the basis of mutual confidence between enterprises and the
societies in which they operate, to help improve the foreign
investment climate and to enhance the contribution to sustainable
development made by multinational enterprises. The Guidelines are
part of the OECD Declaration on International Investment and
Multinational Enterprises the other elements of which relate to
national treatment, conflicting requirements on enterprises, and
international investment incentives and disincentives. The Guidelines
provide voluntary principles and standards for responsible business
conduct consistent with applicable laws and internationally
recognised standards. However, the countries adhering to the
Guidelines make a binding commitment to implement them in accordance
with the Decision of the OECD Council on the OECD Guidelines for
Multinational Enterprises.

EPRG stand for Ethnocentric, Polycentric, Regiocentric, and Geocentric. It is a framework

created by Howard V Perlmuter and Wind and Douglas in 1969.

It is designed to be used in an internationalization process of businesses and mainly

addresses how companies view international management orientations. According to the
EPRG Framework (or the EPRG Model), there are four management approaches that an
organization can take to get more involved in international business substantially.

The EPRG Framework suggests that companies must decide which approach is most
suitable for achieving successful results in countries abroad.

For this reason, the EPRG Framework can be a useful tool to utilize if a company does not
know yet how to manage business activities between companies in the local country and a
host country. The EPRG Framework is additionally useful for making strategic decisions.

In the following section of this article, the four approaches of the EPRG Framework
(Ethnocentric, Polycentric, Regiocentric, and Geocentric) are described more in detail.

EPRG Framework approaches

Ethnocentric
In this approach of the EPRG Framework, the company in a local country that wants to do
business overseas does not put in much effort to do research abroad about the host country’s
market. Instead, most of the market research is executed in the headquarters in the local
country.

With this approach, the company seeks for markets abroad that share the same
characteristics as the local market so that the marketing strategy does not have to be
adapted. More specifically, the ethnocentric approach uses the same marketing strategies
that are created by local personnel and further utilized multiple countries.

It is many times possible that companies that utilize this approach believe that local products
should not be adapted to the local need of countries abroad because the products are already
of high quality. Another reason could be that a specific product is sold in large volume in the
local market, and for this reason, it is believed it will do the same in other markets abroad.

The ethnocentric approach of the EPRG Framework has benefits but also downsides. At first,
the company saves a lot of operational costs that can be invested elsewhere. But the
downside is that the company does not build up new knowledge about the market abroad,
which could substantially increase sales volume if products and strategies would be adopted
to the needs of the host country.

Polycentric
In the polycentric approach of the EPRG Framework is the opposite of the ethnocentric
approach. A company that utilizes this approach carefully consider different markets abroad
to identify host countries that could potentially offer the most benefits.

It means that if a company has a local headquarter and a separate office overseas in a host
country that manages the operations in that or more countries, the marketing strategies are
locally created and implemented based on the local needs.

Businesses that utilize the polycentric approach of the EPRG Framework strongly believe that
every market has its differences. For this reason, these types of companies implement
different marketing strategies for each market.

In the polycentric approach, it is therefore easier to make strategic decisions based on

current cultural differences and political differences. Companies that use this approach can
also more easily adapt to changes in the market because of their decentralized decision-
making authorities.

The downside is that the local headquarter has less control over its operations abroad. As
long as the business operations in the host country demonstrate to be successful, this might
not be a problem. But if the business operations overseas show to be not too profitable and
result in losses, it is more difficult for the local company to minimize those losses.

However, companies that use this approach learn by doing. For this reason, a learning effect
occurs, and new knowledge is an intellectual asset of the company.

If a company is the first to enter a market or offer an unfamiliar product, the local company
has first-mover advantages. It could have the best location in a host country to operate the
business, and this could additionally substantially increase profit margins.

Regiocentric
In a regiocentric approach of the EPRG Framework, businesses create and implement
internationalization strategies for specific regions. Companies that utilize this type of approach
use this for the area in which the local business is operated.

It can also be that an organization utilizes two kinds of approaches. An organization can use a
regiocentric approach for the business in the region in which it operates. And the same
organization can use a polycentric or ethnocentric approach to do business in countries
outside the region.

Businesses that use a regiocentric approach of the EPRG Framework many times believe
that the markets in the region share the same characteristics of the market in the home
country.

It is still challenging to determine countries in one region that share the same characteristics.
Consider, for example; some companies use this approach for NAFTA countries, which
include the United States, Canada, and Mexico.

All countries are in the same region but still have some different characteristics. The same
implies for the Benelux, which include Belgium, Netherlands, and Luxembourg. The countries
are in the same region, but Belgium has different market characteristic than the Netherlands
and Luxembourg.

The reason why companies use this approach to group countries into for example NAFTA
and Benelux. is depending on the type of industry and product or service. Every organization
has its way of internationalization.

Geocentric
A geocentric approach of the EPRG Framework means that a business strongly believes that
it is possible to utilize one type of strategy for all countries, regardless of the cultural
differences.

However, companies that use this approach attempt to create products or offer services in a
way that best suit national and international customers. This means that instead of believing
that their product or service is excellent and that it will sell in other markets, like in the
ethnocentric approach, these organization proactively adapt their products and services that
best meet the global needs.

Companies sometimes prefer this type of strategy of the EPRG Framework because it does
not involve many adoptions, which minimizes operational costs. These companies use one
strategy to sell a product or service, and could for this reason, achieve economies of scale.

Organizations that have a geocentric approach are many times considered as key
international businesses because these companies utilize a combination of the polycentric
and ethnocentric approaches.

It means that organizations with a geocentric approach of the EPRG Framework can identify
similar cultural characteristic, and they can convert the different cultural characteristics into
mutual characteristics.

EPRG Framework conclusions

Determining which approach to utilize is dependent on the type of business and in which
industry it operates. Due to globalization, many companies operate abroad or are willing to do
business overseas. However, doing business abroad really depends on the size of the
company and the experience they have.

Even if a business does not know yet what type of approach of the EPRG Framework / EPRG
Model is most suitable to the current position of the company, it is always good to research
potential markets in term of what size, characteristic, and similar available products in the
market.

There is a lot to learn from competitors. This knowledge is free, and it could help to identify
what opportunities are available, and thus, which approach of the EPRG Framework is best
for an internationalization process.