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Flashcards in L2: Internationalization process Deck (53)
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Proactive motives (Hollensen, 2013)

Represents stimuli to attempt strategy change, based on firm’s interest in exploiting unique competences or market possibilities

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Types of proactive motives (Hollensen, 2013)

1. Profit and growth goals
2. Managerial urge
3. Technology competence/ Unique product
4. Foreign market opportunities/ Market information
5. Economies of scale
6. Tax benefits

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1. Profit and growth goals proactive motive

Increase profit by selling more (exploit all existing resources) or buying better (access comparative advantage of host country and utilize its competitive advantage).

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2. Managerial urge proactive motive

- Managers’ commitment and motivation that reflect the desire and enthusiasm to drive internationalization forward. The desire for entrepreneurial motivation (market expansion and continuous growth), cultural socialization, etc.
- Strategy depends on the decision-makers.

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3. Technology competence / Unique product proactive motive

- Real or perceived advantage?
- The issue: how long the competitive advantage can continue, due to competing technologies and international patent protection.

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4. Foreign market opportunities/ Market information proactive motive

- Only if the firm can secure those resources necessary to respond to the opportunities.
- Explore markets with similar opportunities to their home.
- Tempting opportunities: ASEAN (economic success), Eastern European (political freedom).
- Market information: specialized MKT knowledge (competence) or secret-shared access to information.

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5. Economies of scale ( - learning curve) proactive motive

- Exploit the resources and capabilities (competitive advantage) at home to transfer them abroad and benefiting from economies of scale.
- BCG report in production cost <30% -> benefit for both domestic and foreign sales.

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6. Tax benefits proactive motive

- Allow firm either to offer products at a lower cost in foreign markets or to accumulate a higher profit.
- Anti-dumping (WTO) to against selling very cheap price on local market.

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Reactive motives (Hollensen, 2013)

Firm reacts to pressures or threats in its home market or in foreign markets and adjusts passively to them by changing its activities over time.

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Types of reactive motives (Hollensen, 2013)

1. Competitive pressures
2. Domestic market: small and saturated
3. Overproduction/ Excess capacity
4. Unsolicited foreign orders
5. Extend sales of seasonal products
6. Proximity to international customers / psychological distance

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1. Competitive pressures reactive motive

- Losing domestic market share to competing firms
- Losing foreign markets permanently to domestic competitors.

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2. Domestic market: small and saturated reactive motive

- Small market: unable to sustain economies of scale, so they export industrial goods that have few customers or consumer goods with small national segments.
- Saturated domestic market: products in declining stage of PLC. So firms choose to prolong the PLC by going abroad, especially the developing markets.
- Unused productive resources exist within firm (ex: production and managerial slack).

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3. Overproduction / Excess capacity reactive motive

a. Overproduction: high inventory level => export sales via short-term price cuts, then can terminate global activities.
- However, customers are not interested in temporary business relationships.
b. Excess capacity: not fully utilized equipment => export to spread fixed cost.
- Changing demands in domestic market for new products => Sell old version globally.

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4. Unsolicited foreign orders reactive motive

The orders can result from advertising in trade journals that have a worldwide circulation, through exhibitions and by other means.

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5. Extend sales of seasonal products reactive motive

Seasonality in demand conditions may be different in the domestic market from other international markets.

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6. Proximity to international customers / Psychological distance reactive motive

The physical and psychological proximity to the international market. (Ex: EU)

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Internationalization triggers (Hollensen, 2013)

The internal or external events taking place to initiate internationalization.

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Types of internal triggers (Hollensen, 2013)

1. Perceptive management
2. Specific internal event
3. Inward/Outward internationalization

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1. Perceptive management internal trigger

They gain early awareness of developing opportunities in overseas market. Business becomes knowledgeable about these markets, and managers are open-minded about overseas expansion.

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2. Specific internal event internal trigger

- A major event such as overproduction or a reduction in domestic market size.
- Employees may find ways to motivate their management in undertaking global marketing activities.

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3. Inward/Outward internationalization internal trigger

- Importing (inward) may precede and influence market entry and marketing activities (outward) in foreign markets.
- It is initiated by the buyers who initiate the reverse marketing, or the buyers (importer) who gain access to the network of suppliers.
- Inward activities: franchisee and licensee in host country, import direct, import intermediary, buying agent, etc.

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Factors causing internationalization - as an outward-driven activity (Fletcher, 2011)

1. Management characteristics: Demographics, International exposure, Knowledge of IB
2. Organizational characteristics: Technological advantage, Willingness to fund IB, Nature of products
3. External impediment: Exchange rate, Competitors activities, Perception of risk
4. External incentives: Overseas demand, Excess capacity, Reduction in cost.

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The holistic approach (Fletcher, 2011)

- Firms become internationalised by undertaking import-led activities.
- Firm’s international decision-making is both multidimensional (both inward and outward-driven) and multifocal (both circumstances of the firm and market).
- ‘inward’ and ‘outward’ activities are ‘linked’ in different ways: strategic alliances, cooperative manufacturing and countertrade.

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Types of external triggers (Hollensen, 2013)

1. Market demand
2. Network partners
3. Competing firms
4. Trade associations and other outside experts
5. Financing

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2. Network partners external triggers

Access to external network partners encourages company to use this as a source of knowledge (ex: access to international sales via distribution and sales network).

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4. Trade associations and other outside experts external triggers

- Small firms decide to export on the basis of collective experience of the group of firms which they belong.
- Outside experts: Export agents (handle exportable products), Governments (export assistance program), Chambers of commerce (overseas market information) and Banks (capitalize foreign opportunities).

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5. Financing external trigger

Financial resources to fund international activities.
- Influenced by firm’s willingness to borrow funds from financial institutions.
- Raise funds by Government grants. Or a riskier method, industry grants, debt or equity finance.

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Globalisation’ impact on business environment (Lee and Carter, 2012)

impact on PEST aspects of global business environment.

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Globalisation’ impact on Economic factor

Global presence of businesses, Integration of financial institutions, Emergence of international competition

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Globalisation’ impact on Political factor

Distribution of politico-economic power, Loss of national sovereignty, Presence of global institutions.