Managing internationalisation
Introduction
Lutosa potatoes Video
Technology & R&D
To serve the customer needs Interlinked
Control the value chain vertical integration?
Buy or internalize? decision to make as a company: internalize to control the market
Speak local language if you want to sell abroad
A big range of clients (hotel/ restaurants/ ..)
Wholesale and Retail
Fully automated plant vs labour intensive
Quality control
Temperature control important when transporting internationally
Important considerations:
Size of market
Access to market
Consider:
Internal factors
Size, capacity, …
External factors
Competitors, requirements, …
Big lactose intolerance in Asia Consider when exporting mashed potatoes to Asia.
Milk in China has a very bad reputation a lot of people died because of poisonous milk.
Some companies sell potatoes as a delicacy in China. It’s ready made (don’t have to add milk)
they often use western names translated into Chinese characters (same pronunciation).
Paper:
Company analysis:
A company with a lot of debt cannot open a subsidiary with own funds
look at financial data, case studies, …
Small companies cannot open big plants overseas
Market study:
What is the most promising market?
What variables are you going to use to determine the market?
Segment market and estimate potential customers
calculate potential market etc.!!!
Analysis per region
4 regions to analyse: US, Asia, Europe, ME&A
, Analyse industry specific! focus on industries, not on the whole country
Eg: if you sell online, internet coverage is more important than the size of the country
don’t state the obvious generic differences, focus on industry and product, not general.
You can also take countries where they are present, if they don’t do it properly you can try to
improve.
Chapter 2: initiation of
internationalization
= detailed summary of entire text, not specified for paper.
MNE can internationalize as a continuous process, SME internationalize gradually (all individual
projects). Important to have relevant information.
Mostly a mixture of factors lead to the action of internationalization (not only increasing profit).
Dunning 4 main motives for internationalization:
it’s answers the question: why do I internationalize.
1. Market-seeking find new customers
access to new markets for bigger sales potential
2. Efficiency-seeking: lower the costs/ work more efficiently
E.g. low cost labour
3. Resource-seeking: access resources not available in the home market/ or lower cost
E.g. natural resources, parts from foreign suppliers, ..
4. Strategic asset-seeking: obtain strategic assets (tangible/ intangible) long term strategy
e.g. buying another company to use the patents/ knowledge.
Other motives for starting export:
Proactive: stimuli to attempt strategy change, you came up with this yourself
interest in exploiting unique competences or market possibilities
Profit and growth goals
Short term profit important for SME’s
Higher profits:
, o selling more
o buying cheaper exploit comparative advantage of host country
Exchange rates can influence the profits
Managerial urge
= desire, drive and enthusiasm of management towards global activities.
good reason for international travel/ desire for growth and market expansion
MNE: DMU, in SME: can be single person
Managers who lived or travelled abroad more internationally minded.
Technology competence/ unique product
Products with competitive edge go international
BUT: lot of competition + lack of international patent protection
Foreign market opportunities/ market information
Only possible if a firm can respond to the opportunities
Market entry = costly & risky
Likely to explore overseas markets similar to home market
Specialized knowledge needed to compete
Economies of scale – learning curve
Exploit resources that form competitive advantage transfer them abroad and achieve
economies of scale.
Increased output makes firm climb on learning curve.
International expansion can lower the cost in the domestic market
fixed costs can be spread over more units. (standardizing marketing mix not always
necessary).
Tax benefits
US: foreign sales corporation: assist exporters tax deferrals.
BUT: anti-dumping laws enforced by WTO protect local producers.
Reactive motives: you react to something that has happened
form reacts to pressures or threats in home/ foreign markets
Competitive pressure
fear of losing domestic market share to other companies that have benefited from
economies of scale due to global marketing activities).
Other firms internationalizing creates a strong incentive to internationalize yourself.
Domestic market can be small and saturated
Too small to achieve economies of scale and scope.
Common for industrialized products with few identified customers.
Saturated: firms prolong lifecycle by expanding internationally. the needs of less
developed countries follow the need of industrialized countries with some delay.
Also possible that the firm has unused productive resources.
Production slack: stimulus for securing new market opportunities
Overproduction/ excess capacity
Domestic sales below expectation too much inventory.
Internationalizing can be ideal for achieving broader distribution of fixed costs.
Market penetration strategy based on variable cost alone not feasible on long term
Excess capacity can be caused by switch in customer demands.
Unsolicited foreign orders
enquiries from overseas.
, Extend sales of seasonal products
seasonality in demand may be different overseas guarantee a stable demand over the
year.
E.g. agricultural machinery needed in spring time spring in Australia is opposite to
spring in Europe.
Proximity to international customers/ psychological distance
Cultural variables etc can make a market geographically close but psychologically distant.
e.g. For the US, the UK seems closer than Mexico despite geographical distance.
Research Westhead: the bigger the firm, the more likely it would be to cite proactive motives.
Research Suárez-Ortega and Alamo-Vera: main driving forces for internationalization are found
within the firm. based on management’s strengths and weaknesses (not external environment).
Triggers of export initiation (change agents)
change agent: someone or something within or outside the firm must initiate the process of
internationalization = change agent that provokes the behaviour.
In most cases, it’s a combination of internationalization triggers that initiates the process:
Internal triggers:
Perceptive management
They gain early awareness of developing opportunities. they become knowledgeable
about these markets.
Foreign travel can make managers discover opportunities.
Specific internal event
e.g. overproduction or reduction in domestic market size.
CEO should be convinced to enter international marketplace. He makes the final decision.
Research Forsman: Three most important triggers for starting up operations internationally:
o Management’s interest in internationalization
o Foreign enquiries about the company’s products/ services
o Inadequate demand in the home market
Companies do not regard contacts from chambers of commerce etc as important for getting
international activities going according to this study.
Inward/ outward internationalization
Natural way: first import than export gather relationships and knowledge from import an
apply this to export.
Welch and Loustarinen claim that importing (inward internationalization) may precede and
influence outward internationalization.
Effective inward activities can determine the success of outward activities.
Inward Int. can be initiated by the buyer and the seller. The rolls shift when going from
inward to outward int.
example network:
counter-trade arrangement: firm initiates exporting to same market from which importing
takes place.
External triggers:
Introduction
Lutosa potatoes Video
Technology & R&D
To serve the customer needs Interlinked
Control the value chain vertical integration?
Buy or internalize? decision to make as a company: internalize to control the market
Speak local language if you want to sell abroad
A big range of clients (hotel/ restaurants/ ..)
Wholesale and Retail
Fully automated plant vs labour intensive
Quality control
Temperature control important when transporting internationally
Important considerations:
Size of market
Access to market
Consider:
Internal factors
Size, capacity, …
External factors
Competitors, requirements, …
Big lactose intolerance in Asia Consider when exporting mashed potatoes to Asia.
Milk in China has a very bad reputation a lot of people died because of poisonous milk.
Some companies sell potatoes as a delicacy in China. It’s ready made (don’t have to add milk)
they often use western names translated into Chinese characters (same pronunciation).
Paper:
Company analysis:
A company with a lot of debt cannot open a subsidiary with own funds
look at financial data, case studies, …
Small companies cannot open big plants overseas
Market study:
What is the most promising market?
What variables are you going to use to determine the market?
Segment market and estimate potential customers
calculate potential market etc.!!!
Analysis per region
4 regions to analyse: US, Asia, Europe, ME&A
, Analyse industry specific! focus on industries, not on the whole country
Eg: if you sell online, internet coverage is more important than the size of the country
don’t state the obvious generic differences, focus on industry and product, not general.
You can also take countries where they are present, if they don’t do it properly you can try to
improve.
Chapter 2: initiation of
internationalization
= detailed summary of entire text, not specified for paper.
MNE can internationalize as a continuous process, SME internationalize gradually (all individual
projects). Important to have relevant information.
Mostly a mixture of factors lead to the action of internationalization (not only increasing profit).
Dunning 4 main motives for internationalization:
it’s answers the question: why do I internationalize.
1. Market-seeking find new customers
access to new markets for bigger sales potential
2. Efficiency-seeking: lower the costs/ work more efficiently
E.g. low cost labour
3. Resource-seeking: access resources not available in the home market/ or lower cost
E.g. natural resources, parts from foreign suppliers, ..
4. Strategic asset-seeking: obtain strategic assets (tangible/ intangible) long term strategy
e.g. buying another company to use the patents/ knowledge.
Other motives for starting export:
Proactive: stimuli to attempt strategy change, you came up with this yourself
interest in exploiting unique competences or market possibilities
Profit and growth goals
Short term profit important for SME’s
Higher profits:
, o selling more
o buying cheaper exploit comparative advantage of host country
Exchange rates can influence the profits
Managerial urge
= desire, drive and enthusiasm of management towards global activities.
good reason for international travel/ desire for growth and market expansion
MNE: DMU, in SME: can be single person
Managers who lived or travelled abroad more internationally minded.
Technology competence/ unique product
Products with competitive edge go international
BUT: lot of competition + lack of international patent protection
Foreign market opportunities/ market information
Only possible if a firm can respond to the opportunities
Market entry = costly & risky
Likely to explore overseas markets similar to home market
Specialized knowledge needed to compete
Economies of scale – learning curve
Exploit resources that form competitive advantage transfer them abroad and achieve
economies of scale.
Increased output makes firm climb on learning curve.
International expansion can lower the cost in the domestic market
fixed costs can be spread over more units. (standardizing marketing mix not always
necessary).
Tax benefits
US: foreign sales corporation: assist exporters tax deferrals.
BUT: anti-dumping laws enforced by WTO protect local producers.
Reactive motives: you react to something that has happened
form reacts to pressures or threats in home/ foreign markets
Competitive pressure
fear of losing domestic market share to other companies that have benefited from
economies of scale due to global marketing activities).
Other firms internationalizing creates a strong incentive to internationalize yourself.
Domestic market can be small and saturated
Too small to achieve economies of scale and scope.
Common for industrialized products with few identified customers.
Saturated: firms prolong lifecycle by expanding internationally. the needs of less
developed countries follow the need of industrialized countries with some delay.
Also possible that the firm has unused productive resources.
Production slack: stimulus for securing new market opportunities
Overproduction/ excess capacity
Domestic sales below expectation too much inventory.
Internationalizing can be ideal for achieving broader distribution of fixed costs.
Market penetration strategy based on variable cost alone not feasible on long term
Excess capacity can be caused by switch in customer demands.
Unsolicited foreign orders
enquiries from overseas.
, Extend sales of seasonal products
seasonality in demand may be different overseas guarantee a stable demand over the
year.
E.g. agricultural machinery needed in spring time spring in Australia is opposite to
spring in Europe.
Proximity to international customers/ psychological distance
Cultural variables etc can make a market geographically close but psychologically distant.
e.g. For the US, the UK seems closer than Mexico despite geographical distance.
Research Westhead: the bigger the firm, the more likely it would be to cite proactive motives.
Research Suárez-Ortega and Alamo-Vera: main driving forces for internationalization are found
within the firm. based on management’s strengths and weaknesses (not external environment).
Triggers of export initiation (change agents)
change agent: someone or something within or outside the firm must initiate the process of
internationalization = change agent that provokes the behaviour.
In most cases, it’s a combination of internationalization triggers that initiates the process:
Internal triggers:
Perceptive management
They gain early awareness of developing opportunities. they become knowledgeable
about these markets.
Foreign travel can make managers discover opportunities.
Specific internal event
e.g. overproduction or reduction in domestic market size.
CEO should be convinced to enter international marketplace. He makes the final decision.
Research Forsman: Three most important triggers for starting up operations internationally:
o Management’s interest in internationalization
o Foreign enquiries about the company’s products/ services
o Inadequate demand in the home market
Companies do not regard contacts from chambers of commerce etc as important for getting
international activities going according to this study.
Inward/ outward internationalization
Natural way: first import than export gather relationships and knowledge from import an
apply this to export.
Welch and Loustarinen claim that importing (inward internationalization) may precede and
influence outward internationalization.
Effective inward activities can determine the success of outward activities.
Inward Int. can be initiated by the buyer and the seller. The rolls shift when going from
inward to outward int.
example network:
counter-trade arrangement: firm initiates exporting to same market from which importing
takes place.
External triggers:
