CHAPTER 2: INITIATION OF INTERNATIONALIZATION
Internationalization motives
Internationalization motives = the fundamental reasons – proactive and reactive – for
internationalization
Pro-active motives are
- Profit and growth goals
- Managerial urge
- Technology competence/unique product
- Foreign market opportunities
- Economies of scale
o Boston Consulting Group showed that a doubling of output can reduce
production costs by up to: 30%
- Tax benefits
Reactive motives are
- Competitive pressure
- Excess capacity
- Extend sales of seasonal products
- Proximity to international customers/psychological distance
o Psychic distance = the individual manager's perception of the differences
between the home and the foreign markets
o
- Domestic market: small and saturated
- Unsolicited foreign orders
Triggers of export initiation (change agents)
International triggers = internal or external events taking place to initiate internationalization
Internal triggers
- Perceptive management
- Specific internal event
- Importing inward internationalization
o Outward internationalization = exports as a preceding activity for later entries
in foreign markets
o Inward internationalization = imports as a preceding activity for later entries in
foreign markets
1
,External triggers
- Market demand
- Network partners
- Competing firms
- Trade associations and other outside experts
o Export agents (qualify as experts in global marketing)
o Governments
o Chamber of commerce
o Banks and other financial institutions
- Financing
Information search and translation
______ are perhaps the most critical factor in the initiation of the internationalization process
in the SME
- Information and knowledge
At the most basic level, knowledge is created by: individuals
Internationalization barriers/risks
Barriers hindering internationalization initiation
Factors that hinder the initiation of internationalization
- Insufficient finances
- Insufficient market knowledge
- Lack of foreign market connections
- Lack of export commitments
- Lack of foreign channels of distribution
- Lack of productive capacity to dedicate to foreign markets
- Cost escalation due to high export manufacturing, distribution and financing
expenditures
- Management emphasis on developing domestic markets
Barriers hindering the further process of internationalization
The critical barriers in the process of internationalization may be divided into:
General market risks (1)
- Comparative market distance (= language and cultural differences)
- Adaptation to foreign markets
- Competition from other firms in foreign markets
- Adapting products and services to new local conditions
- Difficulties in finding the right distributor in foreign markets
- Differences in product specifications in foreign markets
- Complexity of shipping services to overseas buyers
2
,Commercial risks (2)
- Exchange rate fluctuations when contracts are made in a foreign currency
- Failure of export customers to pay due to contract dispute, bankruptcy, refusal to
accept the product or fraud
- Delays and/ or damaged in the export shipment and the distribution process
- Difficulties in obtaining export financing
Political risks (3)
- Complexity of trade documentation
- Foreign government restrictions
- National export policy
- Lack of tax incentives for companies that export
- Civil strife, revolution, wars disrupting foreign markets
De-internationalization
De-internationalization = a process where the multinational company shifts to lower
international presence
Other
What was Blake Mycoskie's biggest challenge when he started up TOMS Shoes in Santa
Monica in 2006?
- He did not own the company's production facilities
Global strategy options include:
- Multiple withdrawal
- Individual withdrawal
- Global strategy
- Multi-domestic
The main reason(s) for Elvis Presley Enterprises' (EPE) internationalization was/were:
- Creating long-term profit for EPE and maintaining Graceland
To succeed in global marketing, the firm has to:
- Overcome export barriers
Among the main reactive reasons for Haier's Group internationalization was/were:
- The competitive pressures and the saturation of its domestic market
Following its declining profits throughout the 1990s, BT's new defensive strategy has meant
that the company had to:
- Withdraw from multiple interdependent international markets
In international marketing, brands:
- Personify quality and consistency across markets
The expression 'globalization of production' suggests that:
- Many organizations base individual productive activities at the optimal world locations
for the particular activities
- Many products are assembled in one country from parts that may have been
produced in a number of countries
3
, Compared to LSEs, SMEs often experience a low degree of interdependence between
markets.
- True
If equipment for production is not fully utilized, firms may:
- See expansion in international markets as a possibility for distributing fixed costs
Westhead et al. (2002) found the following main reasons for firms starting to export
- Being contacted by foreign customers who place orders
- One of order (no continuous exporting)
- The availability of foreign market information
- Part of the growth objective of the firm
- Export markets are actively targeted by the key founder/owner/manager
The results of the Westhead et al. (2002) study showed that the bigger the firm:
- The more likely it would be to cite proactive stimuli/motives
Japanese firms are known to exploit foreign market opportunities primarily by using:
- Penetration pricing strategies
____ is the fundamental reason for exporting
- Making money
Forsman et al (2002) showed that the three most important triggers for starting up operations
internationally were
- Management's interest in internationalization
- Foreign inquiries about the company's products and services
- Inadequate demand in the whole markets
4
Internationalization motives
Internationalization motives = the fundamental reasons – proactive and reactive – for
internationalization
Pro-active motives are
- Profit and growth goals
- Managerial urge
- Technology competence/unique product
- Foreign market opportunities
- Economies of scale
o Boston Consulting Group showed that a doubling of output can reduce
production costs by up to: 30%
- Tax benefits
Reactive motives are
- Competitive pressure
- Excess capacity
- Extend sales of seasonal products
- Proximity to international customers/psychological distance
o Psychic distance = the individual manager's perception of the differences
between the home and the foreign markets
o
- Domestic market: small and saturated
- Unsolicited foreign orders
Triggers of export initiation (change agents)
International triggers = internal or external events taking place to initiate internationalization
Internal triggers
- Perceptive management
- Specific internal event
- Importing inward internationalization
o Outward internationalization = exports as a preceding activity for later entries
in foreign markets
o Inward internationalization = imports as a preceding activity for later entries in
foreign markets
1
,External triggers
- Market demand
- Network partners
- Competing firms
- Trade associations and other outside experts
o Export agents (qualify as experts in global marketing)
o Governments
o Chamber of commerce
o Banks and other financial institutions
- Financing
Information search and translation
______ are perhaps the most critical factor in the initiation of the internationalization process
in the SME
- Information and knowledge
At the most basic level, knowledge is created by: individuals
Internationalization barriers/risks
Barriers hindering internationalization initiation
Factors that hinder the initiation of internationalization
- Insufficient finances
- Insufficient market knowledge
- Lack of foreign market connections
- Lack of export commitments
- Lack of foreign channels of distribution
- Lack of productive capacity to dedicate to foreign markets
- Cost escalation due to high export manufacturing, distribution and financing
expenditures
- Management emphasis on developing domestic markets
Barriers hindering the further process of internationalization
The critical barriers in the process of internationalization may be divided into:
General market risks (1)
- Comparative market distance (= language and cultural differences)
- Adaptation to foreign markets
- Competition from other firms in foreign markets
- Adapting products and services to new local conditions
- Difficulties in finding the right distributor in foreign markets
- Differences in product specifications in foreign markets
- Complexity of shipping services to overseas buyers
2
,Commercial risks (2)
- Exchange rate fluctuations when contracts are made in a foreign currency
- Failure of export customers to pay due to contract dispute, bankruptcy, refusal to
accept the product or fraud
- Delays and/ or damaged in the export shipment and the distribution process
- Difficulties in obtaining export financing
Political risks (3)
- Complexity of trade documentation
- Foreign government restrictions
- National export policy
- Lack of tax incentives for companies that export
- Civil strife, revolution, wars disrupting foreign markets
De-internationalization
De-internationalization = a process where the multinational company shifts to lower
international presence
Other
What was Blake Mycoskie's biggest challenge when he started up TOMS Shoes in Santa
Monica in 2006?
- He did not own the company's production facilities
Global strategy options include:
- Multiple withdrawal
- Individual withdrawal
- Global strategy
- Multi-domestic
The main reason(s) for Elvis Presley Enterprises' (EPE) internationalization was/were:
- Creating long-term profit for EPE and maintaining Graceland
To succeed in global marketing, the firm has to:
- Overcome export barriers
Among the main reactive reasons for Haier's Group internationalization was/were:
- The competitive pressures and the saturation of its domestic market
Following its declining profits throughout the 1990s, BT's new defensive strategy has meant
that the company had to:
- Withdraw from multiple interdependent international markets
In international marketing, brands:
- Personify quality and consistency across markets
The expression 'globalization of production' suggests that:
- Many organizations base individual productive activities at the optimal world locations
for the particular activities
- Many products are assembled in one country from parts that may have been
produced in a number of countries
3
, Compared to LSEs, SMEs often experience a low degree of interdependence between
markets.
- True
If equipment for production is not fully utilized, firms may:
- See expansion in international markets as a possibility for distributing fixed costs
Westhead et al. (2002) found the following main reasons for firms starting to export
- Being contacted by foreign customers who place orders
- One of order (no continuous exporting)
- The availability of foreign market information
- Part of the growth objective of the firm
- Export markets are actively targeted by the key founder/owner/manager
The results of the Westhead et al. (2002) study showed that the bigger the firm:
- The more likely it would be to cite proactive stimuli/motives
Japanese firms are known to exploit foreign market opportunities primarily by using:
- Penetration pricing strategies
____ is the fundamental reason for exporting
- Making money
Forsman et al (2002) showed that the three most important triggers for starting up operations
internationally were
- Management's interest in internationalization
- Foreign inquiries about the company's products and services
- Inadequate demand in the whole markets
4
