internalisation 2010

INTERNATIONAL BUSINESS

LECTURE 2:

Globalization & internationalization: from theories to facts; analyzing the global

environment and markets

Gregor Pfajfar, MSc

Faculty of Economics University of Ljubljana

E-mail: gregor.pfajfar@ef.uni-lj.si

November 27th 2009

Table of contents1. Globalization

• What is it?• Effects of globalization for the IB• Drivers toward globalization

2. Internationalization• What is it?• Internationalization theories in use• Internationalization development stages• Internationalization motives• International companies’ mentalities

3. Internationalization strategy• 5-stages model• Different analyses used at each stage

4. Interesting IB resources online

(1) Globalization

Definition and effects• Globalization is a complex economical, cultural and social

phenomena, which requires global adjustment, integration and close connection of business activities in a totally new manner, leading to a new standardized quality and enabling individuals, corporations, and nation-states to reach around the world farther, faster, deeper and cheaper than ever before.

• Global markets are defined as those markets in which buyer preferences are similar across countries.

• FACTORS of globalization: • Growing stake of IB within FDI

• Faster growth of international trade share within GDP

• Higher importance of FDI, economies of scale, knowledge transfer

• The appearance of integrated financial markets

GLOBAL MIGRATION OF PEOPLE AND INVESTMENTS:

• 1980: working better – reengineering

• 1990: working cheaper – outsourcing

• 2000: working elsewhere – offshoring

New technologies

Trends in international business

Abundance of products

New customer segments

Movement of production

Trends in international business

THE

GLOBAL

COMPONENTS

OF

A

BIG MAC

IN UKRAINE

Big mac index

Big mac index-variations

Drivers toward globalization

1. MARKET DRIVERS

2. COMPETITIVE DRIVERS

3. COST DRIVERS

4. TECHNOLOGY DRIVERS

5. ENVIRONMENTAL DRIVERS

6. GOVERNMENT DRIVERS

Three hats

The foreign entry role The local marketing role

The global management role

(2) INTERNATIONALIZATION

What is internationalization?

And what is the opposite of the internationalization???

Broader definition of internationalization

Internationalization is defined as an expansion of economic activity among more countries and is related to all forms of international economic cooperation.

Narrower definition of internationalization

Internationalization is multidimensional process of increased incorporation of inward and outward company activities outside the borders of a home country.

Theories of internationalisation

• The Uppsala internationalization model

• The transaction cost analysis (TCA) model

• The network model

• Born globals

Internationalization development stages

Internationalization steps of a company (COMPANY VIEW):

1.STAGE ~ Individual export tasks

2.STAGE ~ Establishing a subsidiary in the most promising markets

3.STAGE ~ Licensing and strategic alliances

4.STAGE ~ Establishing own production facility in the foreign market

Development stages of export operations (MARKET VIEW):

1.STAGE ~ Export of excess products•company does not have resources to perform continuous export

2.STAGE ~ Export marketing•company is already trying alone to win sales in foreign markets

•company is prepared to adapt marketing in limited terms

3.STAGE ~ Development of foreign markets

•company adapts its products and marketing to foreing markets needs

4.STAGE ~ Technological development•company develops new products for existing or new markets

Internationalization MOTIVES

INTERNAL EXTERNAL

PROACTIVE PROFIT AND GROWTH GOALS MANAGERIAL URGE MARKETING ADVANTAGE ECONOMIES OF SCALE UNIQUE PRODUCT / TECHNOLOGY COMPETENCE

FOREING MARKET OPPORTUNITIES / MARKET INFORMATION AGENTS EXCHANGE

REACTIVE RISK DIVISION EXTEND SALES OF SEASONAL PRODUCTS EXCESS CAPACITY/ OVERPRODUCTION

UNSOLICITED FOREIGN ORDERS DOMESTIC MARKET: SMALL AND SATURATED COMPETITIVE PRESSURES PROXIMITY TO INTERNATIONAL CUSTOMERS / PSYCHOLOGICAL DISTANCE

What do the following companies have in common?

What is a MNC?• MNCs as the Zeitgeist of contemporary economic structures and

socio-cultural contexts

• S. Hymer (1979): “The multinational corporation has become the dominant organizational form of modern capitalism. It now commands tremendous influence and power over the economic, social, political, and cultural lives of many nations and people”

• Kristensen & Zeitlin (2005): “lead agents of the globalization process”

• Zanfei (2005): “ultimate carriers of progress and development opportunities, or seen as the extreme expression of predatory behavior, based on the systematic appropriation of rents”

Definition of a MNC• One of the most widely used definitions of the MNC today is that of

the OECD and UNCTC, which define it as “an enterprise that engages in foreign direct investments (FDIs) and owns or controls value-adding activities in more than one country” .

• Underlying this view are two crucial parts, one pertaining to a (1) long-term investment of resources in other countries (FDIs) and the other to the (2) control of value-adding activities in foreign environments.

Are all MNCs the same?

Yes and No!

A short evolutionary perspective…

Bartlett & Ghoshal: 4 mentalities• 1989: Bartlett & Ghoshal Managing across borders: the

transnational solution (one of the 100 most influential economic and business books of the 20th century)

• Any internationally active company must fulfill 3 important strategic goals:

– GLOBAL EFFICIENCY in existing activities– INTERNATIONAL FLEXIBILITY and LOCAL RESPONSIVENESS

(appropriate management of risks and opportunities)– WORLD-WIDE LEARNING thought its exposure to local contexts

• 4 company mentalities:– INTERNATIONAL COMPANY– MULTINATIONAL COMPANY– GLOBAL COMPANY– TRANSNATIONAL COMPANY (a revolutionary new form; NEW

MANAGEMENT MENTALITY!)

The book

Bartlett & Ghoshal: 4 mentalities

Who else is participating in international business?SMEs {small and medium enterprises}• SMEs are defined as independent companies that employ less than

250 people (OECD, 2009). OECD estimates say that SMEs perform 95 % of all world business and employ 60 – 70 % of all active population.

• SMEs have appeared as a direct result of internationalization, as they started to take over functions, which were given by multinationals to external service providers (outsourcing).

• Technological advancement and integration processes are considered to be main factors to barrier decrease for SMEs to enter international business.

• SMEs contribution to global economy: development of new employment, flexibility in the process of goods creation, increase of market competitiveness, capability of creating innovative environment and development of entrepreneurship, etc.

Example: Akrapovič, Elektronček, Armeton, Bisol, Lesimpex…

(3) Internationalization strategy

Figure 1: The internationalization model

Source: Adapted from Hollensen, 2004; Czinkota, Ronkainen, Moffett, 2005; Kotler, 2005; and own modification.

T H E D E C I S I O N W H E T H E R T O I N T E R N A T I O N A L I Z E

T H E D E C I S I O N W H I C H M A R K E T S T O E N T E R

M A R K E T E N T R Y S T R A T E G I E S

D E S I G N I N G T H E G L O B A L M A R K E T I N G P R O G R A M

I M P L E M E N T I N G A N D C O O R D I N A T I N G T H E M A R K E T I N G P R O G R A M

1. STAGE: The decision whether to internationalize

T H E D E C IS IO N W H E T H E R T O IN T E R N A T IO N A LIZE

C O R PO R A TE PO L I C YI N T E R N AT I O N AL

M O T I VE SI N T E R N A T I O N A L C O M P E T I T I VE

A D VA N T A GE I D E N T I F I C A T I O N

B U SI N E SSM I SSI O N

B U SI N E SSP H I L O SO P H Y

- p u r p o se- b u s in e ss d o m a in- m a j o r o b j e c tiv e s

- v a lu e s- n o r m s- r u le s o f b e h a v io r

IN T ERN A T IO N A L T H EO RIES CO M P A RIS O N A N D IN T ERN A T IO N A LIZ A T IO N P RO CES S P RO P O S A L

BAR R I E R S HIN D E R I N GI N T E R N AT I O N AL I Z AT I O N

P R O A C T I V E R E A C T I V E - T H E P O R T E R D I A M O N D- P O R T E R ' S FI V E FO R C E S- V A L U E C H A I N A N A L Y SI S- B E N C H M A R K I N G - C O M P E T E N C E P R O FI L E

M A C R O

M I C R O

SU C C E SS FA C T O R S & D I ST I N C T I V EC A P A B I L I T I E S

ID EN T IF ICA T IO N & A S S ES S M EN T O F GLO BA L M A RK ET O P P O RT U N IT IES F O R T H E F IRM 'S P RO D U CT S

D EV EL O PI NG FI R M 'S I NTER NA TI O NA L PR O FI L E

- D E G R E E O F I N T E R N A T I O N A L I Z A T I O N A N D O V E R SE A S E X P E R I E N C E - S I Z E / A M O U N T O F R E SO U R C E S - I N T E R N A T I O N A L I Z A T I O N G O A L S- T Y P E O F I N D U ST R Y / N A T U R E O F T H E B U SI N E SS - E X I ST I N G N E T W O R K S O F R E L A T I O N SH I P S

2. STAGE: Which markets to enter?

T H E D E C IS IO N W H IC H M A R K E T S T O E N T E R

HO W M A N Y M A R KETS TO EN TER A N D W HEN

S EGM EN TA TIO N O F M A R KETS IN S P EC IFIC R EGIO N

L E VE L O F D E VE L O P M E N T( p e r c a p it a in c o m e , gr o wt h )

C U L T U R A L SI M I L A R I T Y O F T H EC O U N T R I E S

P O P U L A T I O N C O M P A R I SO N

PR EL I M I NA R Y S C R EENI NG (u s in g g e n e ra l cr it e ria )

M A C R O IN D IC A TO R SA S S ES S M EN T O F TH E A N TIC IP A TED C O S TS O F

EN TER IN G TH E M A R K ET

- P O L I T I C A L ST A B I L I T Y- G E O G R A P H I C D I ST A N C E- E C O N O M I C D E V E L O P M E N T

- T R A N SP O R T A T I O N C O ST S - C U ST O M S D U T Y- SU P P O R T I N G T H E P R O D U C T I N T H E M A R K E T - W A R E H O U SI N G- D I ST R I B U T I O N I N T H E C O U N T R Y - ST O R A G E

P ES T A N A L Y S IS

I N-D EPTH S C R EENI NG (u s in g s pe cif ic pro du ct / m a rk e t cr it e ria )

M A R K ET P O TEN TIA L A S S ES S M EN T IN -C O UN TR Y S EGM EN TA TIO N

- M A R K E T SI Z E - M A R K E T G R O W T H R A T E- H E I G H T O F E N T R Y B A R R I E R S I N C L U D I N G T A R I FFS A N D Q U O T A S- ST R E N G T H & W E A K N E SSE S O F E X I ST I N G & P O T E N T I A L C O M P E T I T I O N

- P R E C I SE T A R G E T SE G M E N T FO R E C A ST S- C U L T U R A L / P SY C H I C D I ST A N C E T O P O T E N T I A L M A R K E T

P O R TER D IA M O N D & P O R TER 'S FIV E FO R C ES

D E C I SI O N B A SE D O N T H E H I GH E STM A R K ET P O TEN TIA L

FI NA L C O UNTR Y S EL EC TI O N

F O R E C A ST E D R E VE N U E S A N D C O ST C O M P A R I SO N

S W O T A N A L Y S IS

F I R M 'S C O M P E T E N C I E S C O M P A R E D W I T HST R E N GT H S A N D W E A K N E SSE S O F C O M P E T I T O R S

D E C I SI O N B A SE D O N T H E H I GH E STS A L ES P O TEN TIA L

S EGM EN TA TIO N B Y C US TO M ER GR O UP

TA R G ET M A R K ET

R EG I O NA L M A C R O S C R EENI NG - C O UNTR Y I D ENTI FI C A TI O N

3. STAGE: How to enter new markets?

4. STAGE: Designing global marketing program

D E S IG N IN G T H E G LO B A L M A R K E T IN G P R O G R A M

M AR KE T I N G O BJ E C T I VE S

M AR KE T I N G S T R AT E G Y D E VE L O P M E N T

F O R M UL AT E T HE BUS I N E S S M AR KE T I N G M I X

P R O D UC T O RS E R VI C E

P E R S O N ALS E L L IN G

P R I C I N G

S AL E SP R O M O T I O N

CH A N N ELS O FD IS T RIBU T IO N

TAR G E TC U STO M E R

P R IM A R Y D A TA A N A L Y S ISS EC O N D A R Y D A TA A N A L Y S IS

M A C R O E N VI R O N M E N T : p o lit ic a l, e c o n o m ic a l,t e c h n o lo gic a l a n d so c io - c ult ur a l e n v ir o n m e n t

M I C R O E N VI R O N M E N T : sup p lie r s, c o m p e t it o r s,p ublic a udie n c e , m a r k e t in g a ge n t s.

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2 .

1 .

2 .

B U Y E R B E H A VI O R A N A L Y SI S

C O M P E T I T I VE P R A C T I C E A N A L Y SI S

M A R K ETI NG I NFO R M A TI O N S Y S TEM

M A R K ETI NG O R G A NI ZA TI O N A ND R EA L I ZA TI O N S Y S TEM

MA

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5. STAGE: Implementation and coordination of the marketing program

IM P L E M E N TIN G AN D C O O R D IN ATIN G TH E M AR KE TIN G P R O G R AM

R E S P O N S E O F T A R G E TM A R K E T S E G M E N T S

E S T A B L I S H M A R K E T I N GP E R F O R M A N C E S T A N D A R D S

E V A L U A T IO N & C O N T R O L

O R G A N IZA T IO N A L L E A R N IN G {B E T T E R P E R F O R M A N C E & IN N O V A T IO N }

(4) Interesting IB resources online

• Alibaba:

http://www.alibaba.com/

• CIA factbook:

https://www.cia.gov/library/publications/the-world-factbook/

• WTO:

http://stat.wto.org/CountryProfile/WSDBCountryPFView.aspx?Lang

uage=E&Country=SI

• World bank– doing business:

http://www.doingbusiness.org/