Managing Internationalisation
Initiation of internationalization
SME = Small and medium-sized enterprises
LSE = Large-scale enterprises
Internationalization motives:
1. Market-seeking: new customers
2. Efficiency-seeking: lowering costs
3. Resource-seeking
4. Strategic asset-seeking: tangible or intangible
Proactive motives represent stimuli to attempt strategy change, based on firm’s interest in
exploiting unique competences or market possibilities.
Reactive motives indicate that the firm reacts to pressure or threats in its home market or in
foreign markets and adjusts passively to them by changing its activities over time.
Proactive motives Reactive motives
o Profit and growth goals o Competitive pressures
o Managerial urge o Domestic market: small and saturated
o Technology competence/unique product o Overproduction/excess capacity
o Foreign market opportunities/ market o Unsolicited foreign orders
information o Extend sales of seasonal products
o Economies of scale o Proximity to international customers/
o Tax benefits psychological distance
CASE: Jägermeister: the famous herbal liqueur is going global as a result of ‘managerial
urge’ in the family-owned company
Doubling of output can reduce production costs by up to 30 per cent.
CASE: Global marketing and economies of scale in Japanese firms
FSC = Foreign Sales Corporation, tax mechanism in the US
WTO = World Trade Organisation
The bigger the firm, the more likely it would be to cite proactive stimuli/motives.
CASE: Internationalization of Haier – proactive and reactive motives
Internationalization triggers (change agents) = internal or external events taking place to
initiate internationalization.
I
, Internal triggers External triggers
o Perceptive management o Market demand
o Specific internal event o Network partners
o Importing as inward internationalization o Competing firms
o Trade associations and other outside experts
o Financing
Most important triggers for starting up operations internationally:
1. Management’s interest in internationalization (proactive, internal)
2. Foreign enquiries about the company’s products/services (reactive, external)
3. Inadequate demand in the home market (reactive, external)
Triggers:
Barriers:
Antecedents are characteristics that precede any managerial decision.
Factors are actionable decision characteristics.
Inward/outward internationalization = imports (inward) as a preceding activity for the later
market entries (outward) in foreign markets.
• The buyer: active international search of different foreign sources (buyer initiative
reverse marketing)
• The seller: initiation by the foreign supplier (traditional seller perspective)
SMOPEC = small open economies
II
,Business-model-specific factors:
Trade associations and other outside experts:
• Export agents as well as export trading companies and export management firms
generally qualify as experts in global marketing. They are already dealing
internationally with other products, have overseas contacts and are set up to handle
other exportable products. Many of these trade intermediaries approach prospective
exporters directly if they think that their products have potential markets overseas.
• Governments
• Chambers of commerce
• Banks
Of all resources, information and knowledge are perhaps the most critical factor in the
initiation of the internationalization process in the SME.
At the most basic level, information is created by individuals. Individuals acquire explicit
knowledge via specific means and tacit knowledge through ‘hands on’ experience
(experiential learning).
Barriers hindering internationalization initiation:
o Insufficient finances
o Insufficient market knowledge
o Lack of foreign market connections
o Lack of export commitment
o Lack of capital to finance expansion into foreign markets
o Lack of productive capacity to dedicate to foreign markets
o Lack of foreign channels of distribution
o Management emphasis on developing domestic markets
o Cost escalation due to high export manufacturing, distribution and financing
expenditures
III
, Barriers hindering the further process of internationalization:
➢ General market risks
o Comparative market distance: each additional foreign market creates
additional organizational costs
o Adaptation to foreign markets (production process, marketing mix)
o Competition from other firms in foreign markets
o Adapting products and services to new local conditions
o Difficulties in finding the right distributor in the foreign market
o Differences in product specifications in foreign markets
o Complexity of shipping services to overseas buyers
➢ Commercial risks
o Exchange rate fluctuations when contracts are made in a foreign currency
o Failure of export customers to pay due to contract dispute, bankruptcy,
refusal to accept the product or fraud
o Delays and/or damage in the export shipment and distribution process
o Difficulties in obtaining export financing
➢ Political risks
o Foreign government restrictions
o National export policy
o Foreign exchange controls imposed by host governments that limit the
opportunities for foreign customers to make payment
o Lack of governmental assistance in overcoming export barriers
o Lack of tax incentives for companies that export
o High value of the domestic currency relative to those in export markets
o High foreign tariffs on imported products
o Confusing foreign import regulations and procedures
o Complexity of trade documentation
o Enforcement of national legal codes regulating exports
o Civil strife, revolution and wars disrupting foreign markets
Risk management strategies:
o Avoid exporting to high-risk markets
o Diversify overseas markets and ensure that the firm is not overdependent on nay
single country
o Insure risks when possible – government schemes are particularly attractive
o Structure export business so that the buyer bears most of the risk (price in a hard
currency and demand cash in advance)
De-internationalization = a process, determined by internal and external factors, where the
multinational company shifts to a strategic configuration that has a lower international
presence.
CASE: De-internationalization at British Telecommunications (BT)
IV
Initiation of internationalization
SME = Small and medium-sized enterprises
LSE = Large-scale enterprises
Internationalization motives:
1. Market-seeking: new customers
2. Efficiency-seeking: lowering costs
3. Resource-seeking
4. Strategic asset-seeking: tangible or intangible
Proactive motives represent stimuli to attempt strategy change, based on firm’s interest in
exploiting unique competences or market possibilities.
Reactive motives indicate that the firm reacts to pressure or threats in its home market or in
foreign markets and adjusts passively to them by changing its activities over time.
Proactive motives Reactive motives
o Profit and growth goals o Competitive pressures
o Managerial urge o Domestic market: small and saturated
o Technology competence/unique product o Overproduction/excess capacity
o Foreign market opportunities/ market o Unsolicited foreign orders
information o Extend sales of seasonal products
o Economies of scale o Proximity to international customers/
o Tax benefits psychological distance
CASE: Jägermeister: the famous herbal liqueur is going global as a result of ‘managerial
urge’ in the family-owned company
Doubling of output can reduce production costs by up to 30 per cent.
CASE: Global marketing and economies of scale in Japanese firms
FSC = Foreign Sales Corporation, tax mechanism in the US
WTO = World Trade Organisation
The bigger the firm, the more likely it would be to cite proactive stimuli/motives.
CASE: Internationalization of Haier – proactive and reactive motives
Internationalization triggers (change agents) = internal or external events taking place to
initiate internationalization.
I
, Internal triggers External triggers
o Perceptive management o Market demand
o Specific internal event o Network partners
o Importing as inward internationalization o Competing firms
o Trade associations and other outside experts
o Financing
Most important triggers for starting up operations internationally:
1. Management’s interest in internationalization (proactive, internal)
2. Foreign enquiries about the company’s products/services (reactive, external)
3. Inadequate demand in the home market (reactive, external)
Triggers:
Barriers:
Antecedents are characteristics that precede any managerial decision.
Factors are actionable decision characteristics.
Inward/outward internationalization = imports (inward) as a preceding activity for the later
market entries (outward) in foreign markets.
• The buyer: active international search of different foreign sources (buyer initiative
reverse marketing)
• The seller: initiation by the foreign supplier (traditional seller perspective)
SMOPEC = small open economies
II
,Business-model-specific factors:
Trade associations and other outside experts:
• Export agents as well as export trading companies and export management firms
generally qualify as experts in global marketing. They are already dealing
internationally with other products, have overseas contacts and are set up to handle
other exportable products. Many of these trade intermediaries approach prospective
exporters directly if they think that their products have potential markets overseas.
• Governments
• Chambers of commerce
• Banks
Of all resources, information and knowledge are perhaps the most critical factor in the
initiation of the internationalization process in the SME.
At the most basic level, information is created by individuals. Individuals acquire explicit
knowledge via specific means and tacit knowledge through ‘hands on’ experience
(experiential learning).
Barriers hindering internationalization initiation:
o Insufficient finances
o Insufficient market knowledge
o Lack of foreign market connections
o Lack of export commitment
o Lack of capital to finance expansion into foreign markets
o Lack of productive capacity to dedicate to foreign markets
o Lack of foreign channels of distribution
o Management emphasis on developing domestic markets
o Cost escalation due to high export manufacturing, distribution and financing
expenditures
III
, Barriers hindering the further process of internationalization:
➢ General market risks
o Comparative market distance: each additional foreign market creates
additional organizational costs
o Adaptation to foreign markets (production process, marketing mix)
o Competition from other firms in foreign markets
o Adapting products and services to new local conditions
o Difficulties in finding the right distributor in the foreign market
o Differences in product specifications in foreign markets
o Complexity of shipping services to overseas buyers
➢ Commercial risks
o Exchange rate fluctuations when contracts are made in a foreign currency
o Failure of export customers to pay due to contract dispute, bankruptcy,
refusal to accept the product or fraud
o Delays and/or damage in the export shipment and distribution process
o Difficulties in obtaining export financing
➢ Political risks
o Foreign government restrictions
o National export policy
o Foreign exchange controls imposed by host governments that limit the
opportunities for foreign customers to make payment
o Lack of governmental assistance in overcoming export barriers
o Lack of tax incentives for companies that export
o High value of the domestic currency relative to those in export markets
o High foreign tariffs on imported products
o Confusing foreign import regulations and procedures
o Complexity of trade documentation
o Enforcement of national legal codes regulating exports
o Civil strife, revolution and wars disrupting foreign markets
Risk management strategies:
o Avoid exporting to high-risk markets
o Diversify overseas markets and ensure that the firm is not overdependent on nay
single country
o Insure risks when possible – government schemes are particularly attractive
o Structure export business so that the buyer bears most of the risk (price in a hard
currency and demand cash in advance)
De-internationalization = a process, determined by internal and external factors, where the
multinational company shifts to a strategic configuration that has a lower international
presence.
CASE: De-internationalization at British Telecommunications (BT)
IV
