Operations are outside of the home country.
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globalization
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Reflects the trend of firms buying, developing, producing and selling products and services in most countries and regions of the world.
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internalization
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Doing business in many countries of the world, but often limited to a certain region (e.g. Europe).
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international company
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A company is considered international when more than half of its total sales come from outside its home country.
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global company
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A company is global when over half of its total sales come from outside its home continent.
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global marketing
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the firms commitment to coordinate its marketing activities across national boundaries in order to find and satisfy a global customers needs better than the competition
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a global marketing firm is expected too...
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-develop a global marketing strategy based on similarities and differences between markets -exploit the knowledge of the headquarters (home organizations) through worldwide diffusion (learning) and adaptations -transfer knowledge and 'best practices' from any of its markets and use them in other international markets
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Types of knowledge sharing within a global/international company
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-Forward Knowledge Flow -Reverse Knowledge Flow -Lateral Knowledge Flow
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Forward knowledge Flow
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from headquarters to subsidiaries
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reverse knowledge flow
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from subsidiaries to headquarters
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lateral knowledge flow
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occurs between subsidiaries
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An important component of firm-specific conditions
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management assumptions / beliefs about doing business globally.
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EPRG Frame work
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Ethnocentric, Polycentric, Regiocentric, Geocentric
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Forces for global coordination
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-removal of trade barriers -global accounts/customers -relationship management network -standardized worldwide technology -worldwide markets -global village -worldwide communication -global cost drivers
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removal of trade barriers
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Removal of barriers such as import taxes, safety regulations, customs costs
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global accounts/customers
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who demand global delivery of products, assured supply and service systems, uniform characteristics and global pricing
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relationship management/network
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throughout value chain, including suppliers, customers, inter-departmental, which helps to reduce market uncertainties
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standardize worldwide technology
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especially in high-tech , which leads to more homogeneity in the demand and usage
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worldwide markets
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NO "from the home country to the rest of the world" approach anymore. Products& services diffuse over the countries at the same time (Apple)
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global village
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standardization of human needs or homogenous cultures who desire similar kinds of products AND at the same time with others
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worldwide communication
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Internet based low-cost communication methods make it easier for people to search for products and access them.
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global cost drivers
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Economies of Scale & Scope tempt companies to expand their operations and benefit from higher volume / lowers costs / synergy
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Forces for Market Responsiveness
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-cultural differences -regionalism/protectionism -De-globalization
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cultural differences
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Markets are people, not products. Although globalization prevails, people still keep their cultural characteristics
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regionalism/protectionism
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is the grouping of countries into regional clusters based on geographic proximity (the European Union, EU or the North American Free Trade Agreement, NAFTA) -Trade barriers that are removed from individual countries are reproduced for a region and a set of countries.
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De-globalization
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refers to return to old values, differences and with a hint of ethnocentrism promoting barriers to standardization / global market concept
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inward internationalization
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firms importing from other country/countries
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outward internationalization
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firms expanding its operations to other country/countries.
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proactive motives for internationalization
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-profit and growth goals -tax benefits -managerial urge -technology competence/unique product -foreign market opportunities/market information -economies of scale
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reactive motives for internationalization
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-competitive pressures -domestic market:small and saturated -overproduction/excess capacity -unsolicited foreign orders -extend sales of seasonal products -proximity to international customers/psychological distance
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Internal triggers of Export Initiation
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-perceptive management/personal networks -specific internal event -importing as inward internationalization
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external triggers of export initiation
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-market demand -competing firms -trade associations -outside experts (export banks, agents, governments)
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Barriers hindering Internationalization initiation
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-insufficient finances -insufficient knowledge -lack of foreign market connections -lack of export commitment -Lack of capital to finance expansion into foreign markets -Lack of productive capacity to dedicate to foreign markets -Lack of foreign channels of distribution -Management emphasis on developing domestic markets -Cost escalation due to high export manufacturing, distribution and financing expenditures.
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Barriers Hindering the further Process of Internationalization
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-general market risks -commercial risks -political risks
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General market risks and challenges
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-Competition from other firms • Language and cultural differences • Difficulties in finding the right distributor • Differences in product specifications • Complexity of shipping services
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comercial risks
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-Exchange rate fluctuations • Failure of export customers to pay due to contract disputes, bankruptcy, refusal to accept product or fraud • Delays and/or damage in the export shipment and distribution process • Difficulties in obtaining export financing-
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Political Risks of Host Country
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• Import restrictions • Foreign exchange controls • High foreign tariffs • Civil strife, revolution and wars
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Political Risks of Home Country
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Lack of governmental assistance • Lack of tax incentives • National export policy • High value of domestic currency relative to export markets • Complexity of trade documentation
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Risk-management strategies
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-Avoid exporting to high-risk markets -Diversify overseas markets -Insure risks when possible -Export credit insurance -Structure export business so that buyer bears most risk -Exchange rate risk management forward contracts, future contracts, swaps and options--
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Internationalization Theories
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-Uppsala Internationalisation model -Transaction cost Analysis Model (TCA) -the Network Model
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Uppsala Internationalisation model
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-Developed by Swedish researchers Two Assumptions: -Companies initially tend to expand their operations into geographically close countries. -They follow a sequential pattern of entry with progressively deepening their commitment to each market.
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4 stages of Internationalization with Uppsala
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- No regular export activity (sporadic export) - Export via independent reps (export modes) - Establishment of foreign sales subsidiary - Foreign production/manufacturing units
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intensification of market experience occurs as
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experience grows
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sequential pattern of entry
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successive foreign markets with progressive deepening of commitment to each market
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Exceptions to the Uppsala Internationalisation Model
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Firms with large resources experience small consequences of commitments and can take larger internationalisation steps - When market conditions are stable and homogeneous, relevant market knowledge can be gained other than by experience - When firm has considerable experience from markets with similar conditions, it can be generalised to specific market - Experiential knowledge can be obtained through grafting which means acquire local units that has necessary market knowledge - Too deterministic (foreign market conditions are sometimes such that you cannot plan and follow these steps one after another) - Leapfrogging- entering 'distant' markets in terms of psychic distance at an early stage - Globalization- Psychic distance decreased
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Transaction cost analysis Model (TCA)
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• The costs that emerge due to 'friction' between buyer and seller, which is explained by opportunistic behaviour is Transaction Costs • The friction between buyer and seller arises due to opportunistic behaviour • A party to an exchange has the potential to behave opportunistically (i.e., engage in self-seeking interest behaviour with guile, lying, stealing, or violating agreements) • It is a theory which predicts that a firm will perform internally those activities it can undertake at lower cost through establishing an internal ('hierarchical') management control and implementation system while relying on the market for activities in which independent outsiders (such as export intermediaries, agents or distributors) have a cost advantage. • Focussed on [lowering] the cost of transactions caused through friction between buyers and sellers
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cost elements of the TCA model
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ex ante costs, ex post costs
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ex ante costs
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search costs, contracting costs
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ex post costs
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monitoring costs, enforcement costs
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Transaction costs equation
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Transaction costs = ex ante costs (search + contracting costs) + ex post costs (monitoring + enforcement costs)
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TCA Framework
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Cost minimisation explains structural decisions Firms internalize (vertically integrate) to reduce transaction costs
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Transaction cost analysis concludes...
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if the 'friction' between buyer and seller is higher than through an internal hierarchical system then the firm should internalize
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Limitations of TCA Model
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Narrow assumptions of human nature. Itis not always opportunistic, or zero-sum game. Firms can turn it into winwin situation between them and their partners. • Model excludes "internal" transaction costs. There can also be high friction costs between the head office and its sales subsidiaries. • Model is not applicable for SMEs. As mostly lacking resources and knowledge, they are confined to externalization, building trust-based relationships with their partners. • Model focuses on transaction costs, and ignores "production cost, such as R&D, manufacturing. • THUS, most efficient choice of internationalization mode is one that will minimize the sum of production and transaction costs.
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the Network Model
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suggests that the relationships of a firm in a domestic network can be used as bridges to other networks in other countries. So firstly domestic, then internationalized firm.
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business networks
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a mode of handling activity interdependences between several business actors. Actors are autonomous and their relationships to each other are flexible and may alter accordingly to rapid changes in the environment
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a basic assumption of the network model
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the individual firm is dependent on resources controlled by other firms.
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main unit of study in the network model
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the group of firms
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born global
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A firm that from its 'birth' globalizes rapidly without any preceding long term internationalization period.
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born globals have 'time-space compression', what is known as
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'here and now' functioning
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born globals are managed by
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visionary entrepreneurs
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born globals challenge
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the traditional internationalization theories
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born globals are generally
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SMEs with fewer than 250 employees.
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competitive analysis
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How the firm creates and develops competitive advantages in the international market
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country competitiveness
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National competitiveness refers to a country's ability to create, produce, distribute service/products in international trade while earning rising returns on its resources
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industry competitiveness
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Refers to a dominant industry which stands out among other industries with the value that it creates both for BtoB and BtoC customers. The state of competition and profit potential in an industry depends on five basic competitive forces: new entrants, suppliers, buyers, substitutes, and existing market competitors.
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firm competitiveness
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A firm is competitive if it can produce products and services of superior quality and lower costs than its domestic and international competitors.
