 In this topic, we are going to discuss the stages of internationalization model. We are talking about the organizational context of an organization when it goes international. The organizational structure of an organization changes as it goes through different stages of internationalization. What are those stages? We need to understand that. And a model is shown in order to understand those stages. It is not necessary that an organization follows that exact path that is shown in the model. Models are always made to make you understand the reality. But reality is not always according to the models. It may vary slightly, but it does give us an understanding about what may be happening in the real environment. So you can see in this model that there are various stages of internationalization. An organization may go through these stages very quickly. An organization may skip the stages which are shown in this model. It is not necessary that an organization crosses these stages for internationalization. It is possible it may go to the third stage directly. But it is important for us to understand what are the various different possibilities through which an organization goes through when it goes through the evolutionary phases of internationalization. You can see in this model that the first stage of internationalization is exporting. Exporting is when an organization has its production and manufacturing in the parent country and they are exporting, selling their products or services in other countries. So you are exporting. The second stage is sales subsidiary. What happens in sales subsidiary is that you either appoint foreign agents or open a shop or open a retail store. You become an organization which sells directly in the foreign country. So you are not exporting, you are selling from the sale point in the foreign country. So that is your sale subsidiary. For example, you can take example of Khadi. Khadi has got many sale subsidiaries in various different countries. It has got in Dubai, it has got subsidiary in UK, in Paris and many different countries of this world. So having a sales point and sales outlet in another foreign country makes you a sales subsidiary. Then the third step is foreign production. What you do in this is that you start manufacturing in foreign countries. So you have seen a lot of multi-nationals examples of which production plants are in Pakistan, for example Coca-Cola, for example Nestle, for example McDonald's. So all these organizations they have production facilities in the foreign country. They belong to another parent country and they have production facilities in other foreign countries. And then finally the last step of this model is network of subsidiaries in which you may have some sale subsidiaries in a foreign organization. And you have many production facilities in many different foreign countries and that becomes a network of your multinational subsidiaries. So you can see in the environment that there are many organizations who have a network of subsidiaries in the entire world. These are the stage-wise steps of internationalization. You can see in this model that there are some dotted lines. And from this you can see that it is not necessary that a company should go through exporting, sale subsidiary, foreign production and their network. It may go for licensing, export. After that you can give your license to any foreign country, any organization, franchise. And then from there you can go to foreign production through licensing. The second option is that you can go to subcontracting through exporting. In subcontracting you do that you can do partial merger, joint venture with someone. And then from there you can go to foreign production. So you are actually not going through that direct path. You are changing the mode of operation and you are changing the mode of internationalization in that scenario. So then you can go for foreign production and then it's possible that some companies may also go for subcontracting and then directly go towards network of subsidiaries in the international context. For example, McDonald is one of the examples which go for subcontracting and then they have become a network of subsidiaries in the entire world. Why do organizations go through these evolutionary changes? Why don't they stick to one step of exporting or to sale subsidiary? It is because when an organization grows, there are strains that are imposed by the growth and geographical spread. So when an organization spreads its operations, when their sales and demand increase, it is not possible that you can fulfill all the demands operating in a country. So you have to go into foreign production, you have to make a network if your scale of production grows to that extent. Then you have the need for coordination and control across business units. So you cannot just spread in an organic manner. You need to go for a structured growth pattern in which you need to streamline your operations and maximize efficiency. And then there are constraints that are imposed by the host government regulations on ownership and equity. So if the host government requires that you cannot go into production or if you are selling to a certain extent, you have to have a production facility within that particular country. Then you have to go for foreign production. So therefore there are constraints which are applied to your international operations which demand this evolutionary growth.