Flashcards in L2: Internationalization process Deck (53)
Proactive motives (Hollensen, 2013)
Represents stimuli to attempt strategy change, based on firm’s interest in exploiting unique competences or market possibilities
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
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).
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.
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.
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.
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.
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.
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.
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
1. Competitive pressures reactive motive
- Losing domestic market share to competing firms
- Losing foreign markets permanently to domestic competitors.
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).
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.
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.
5. Extend sales of seasonal products reactive motive
Seasonality in demand conditions may be different in the domestic market from other international markets.
6. Proximity to international customers / Psychological distance reactive motive
The physical and psychological proximity to the international market. (Ex: EU)
Internationalization triggers (Hollensen, 2013)
The internal or external events taking place to initiate internationalization.
Types of internal triggers (Hollensen, 2013)
1. Perceptive management
2. Specific internal event
3. Inward/Outward internationalization
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.
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.
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.
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.
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.
Types of external triggers (Hollensen, 2013)
1. Market demand
2. Network partners
3. Competing firms
4. Trade associations and other outside experts
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).
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).
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.
Globalisation’ impact on business environment (Lee and Carter, 2012)
impact on PEST aspects of global business environment.
Globalisation’ impact on Economic factor
Global presence of businesses, Integration of financial institutions, Emergence of international competition