“Going global” is often described as a gradual and incremental process. Firms typically begin with exports or global sourcing, move toward limited international operations, grow into multinational enterprises, and eventually evolve into global corporations.
However, this apparent gradualism can be misleading. It often hides the fundamental transformations required in a company’s mission, core competencies, organizational structure, processes, and corporate culture. As a result, managers frequently underestimate the profound differences between managing international operations, a multinational enterprise, and a fully global corporation.
Research by Diana Farrell of McKinsey & Company highlights that industries and companies globalize in distinct stages, and each stage presents unique opportunities and challenges for value creation.
The Five Stages of Going Global
Internationalized companies typically progress through five key stages of global growth.
Stage 1: Market Entry
In the market entry stage, companies enter foreign markets using business models similar to those applied in their home country.
To access local customers, firms may need to:
- Establish local production facilities
- Adapt to regulatory requirements
- Localize services (especially in banking, retail, and service industries)
In some industries, such as automobiles, regulatory restrictions make local production mandatory.
Stage 2: Product Specialization
In the product specialization stage, companies shift the entire production of a specific product to a single low-cost location and export it to multiple markets.
Key characteristics include:
- Location-based specialization
- Cost efficiency through scale
- Cross-border trade in finished goods
Different countries begin to specialize in different products or components.
Stage 3: Value Chain Disaggregation
The value chain disaggregation stage involves breaking down the production process and placing each activity in the most cost-effective or strategically advantageous location.
Examples include:
- Manufacturing components in multiple countries
- Assembling final products elsewhere
- Offshoring IT services and business processes
Industries such as personal computers and electronics are strong examples of this stage.
Stage 4: Value Chain Reengineering
In the value chain reengineering stage, companies redesign their processes to suit local conditions, particularly by:
- Substituting labor for capital
- Customizing production techniques
- Leveraging local skills and cost advantages
For example, General Electric’s medical equipment division redesigned its overseas manufacturing processes to take advantage of lower labor costs and locally produced capital equipment.
Stage 5: Creation of New Markets
The final stage focuses on market expansion and demand creation.
According to the McKinsey Global Institute, the combined cost savings from stages three and four can exceed 50% in many industries, enabling firms to:
- Reduce prices
- Enter new markets
- Expand demand in existing markets
Importantly, the revenue generated in this stage often exceeds the value of earlier cost savings, making it the most strategically significant stage.
Industry Globalization: A Matter of Degree
Executives often ask whether their industry is becoming global. However, this question may be overly simplistic. A more meaningful question is:
How global is the industry, and which elements are globalizing?
Most industries are global in some aspects and local in others. Only a few industries—such as oil, automobiles, and pharmaceuticals—are truly global. Others, like tax services or real estate, remain largely domestic. Many industries, including furniture and retail, fall somewhere in between.
Industry globalization should therefore be understood as a matter of degree, not an absolute condition.
Industry Globalization vs Global Competition
It is important to distinguish between:
- Industry globalization
- Global competition
- Firm-level internationalization
An industry may not be fully global, yet firms can still face global competition. Similarly, competing globally does not require every function of a company to be globally organized.
Drivers of Industry Globalization
Key drivers include:
- Economies of scale and scope
- Cross-border cost differences
- Global branding and distribution
- Cross-subsidization across national markets
In global industries, cost-efficient production often requires world-scale volume that cannot be achieved within a single country.
Location Advantage and Global Industry Concentration
Certain industries tend to cluster in specific regions:
- Chemicals in Germany
- Software and entertainment in the United States
- Semiconductors and machine tools in Asia
- Fashion and design in France and Italy
These patterns raise strategic and policy-related questions about location advantage, competitive shifts, and long-term industry leadership.
Governments also play a role by shaping policies to attract and retain globally competitive industries.
Strategic Implications for Companies
For companies, understanding the growth stages of internationalization helps to:
- Anticipate global competitive shifts
- Design appropriate organizational structures
- Align strategy with industry dynamics
- Build sustainable global advantages
Growth into a global company requires more than geographic expansion—it demands strategic transformation.
To understand how organizational structures support global growth, read:
To explore how firms manage coordination across borders, read:
These internal links strengthen your global business and IHRM content cluster.
FAQs
What is the growth of internationalized companies?
It refers to the gradual expansion of firms from domestic markets to global operations through defined stages.
How many stages are involved in global expansion?
Typically, five stages: market entry, product specialization, value chain disaggregation, reengineering, and market creation.
Are all industries global?
No. Most industries are partially global, with varying degrees of international integration.
Why do companies globalize?
To achieve economies of scale, reduce costs, access new markets, and gain competitive advantage.
Does global competition require global operations?
Not necessarily. Firms can compete globally without fully globalizing every function.
