3.9.3 Assessing internationalisation Flashcards
Explain methods of internalisation (Exporting directly to international customers, Selling via overseas agents or distributors, Opening an operation overseas, Joint venture or buying a business overseas)
- Exporting directly to international customers – collect orders from customers overseas and ship the goods/products directly to them (Example = e-commerce businesses especially)
- Selling via overseas agents or distributors – a contract is made with one or more intermediaries (Example = Coca-Cola)
- Opening an operation overseas – involves physically setting up one or more business locations in the target markets
- Joint venture or buying a business overseas – the firm acquires or invests in an existing business that operates in the target market (Example = airlines)
What is internalisation?
this is the act of designing a product that is can be readily consumed across multiple countries
It fits under the market development sector of Ansoff’s matrix
State influences on the attraction of international markets
- Size and growth of the market (e.g population)
- Economic growth and levels of disposable income
- Ease of doing business/political environment
- Exchange rates
- Domestic competition
- Infrastructure
What questions should be asked regarding the size and growth of the market?
- Does the size of the target market justify the investment and risk involved with selling internationally?
- Which key market segments the business wants to target?
- How large are they and how fast are they growing?
How does economic growth and levels of disposable income influence the attractiveness of international markets?
Emerging economies have experienced faster rates of economic growth than developed economies – this has created a growing “middle class” with rising disposable incomes that have fuelled demand for the products and services of international and domestic businesses
What questions should be asked regarding the ease of doing business/political environment?
- How reliable are the legal systems in the target country?
- Can the intellectual property of the business be protected?
- How volatile is the political environment?
How does exchange rates influence the attractiveness of international markets?
Trading in international markets is very likely to result in greater exposure of a business to exchange rate fluctuations
How does domestic competition influence the attractiveness of international markets?
- If an international market is attractive, chances are that a business will have to compete effectively against local or domestic competition
- What advantages do domestic competitors enjoy?
- Do they have control of, or better access to key distribution channels?
- How important is their more detailed understanding of customer needs and wants?
How does infrastructure influence the attractiveness of international markets?
This covers aspects such as the ease of transportation (into, out of and inside); strength and reliability of data systems (e.g. broadband)
What is reshoring?
this is the reverse of offshoring – it involves a business returning production or operations to the host country that had previously been moved to a different international location.
State the reasons for reshoring.
- Greater certainty around delivery times (including shorter delivery times)
- Minimising risk of supply chain disruptions
- Reducing the complexity of the supply chain
- Making it easier to collaborate with home-based suppliers
- Getting greater certainty about the quality of inputs and components
- Recognising that the cost advantage of producing or sourcing overseas is not as significant as it used to be (particularly in China where unit labour costs have risen significantly in recent years)
Explain what offshoring is.
- This involves the relocation of business activities from the home country to a different international location – this is where the business is done.
- It is the changed international location of where the business activity is performed that is key to understanding offshoring
- It has traditionally been associated with the relocation of manufacturing activities from a domestic economy overseas (e.g. from the US to China, or UK to Poland)
- However, offshoring is also increasingly common with business services (e.g. UK financial services using call centres based in India)
What are reasons for offshoring?
- To access lower manufacturing costs (particularly in emerging markets which enjoy the advantage of lower labour costs)
- To access potentially better skilled & higher quality supply
- To make use of existing capacity overseas
- To take advantage of free trade areas and avoid protectionism
- To make it easier to supply target international markets (where it is important to be located in, or near to, those markets)
What are disadvantages of offshoring?
- Longer lead times for supply & risks of poorer quality
- Implications for CSR (harder to control aspects of operating long distances away from the home country)
- Additional management costs (time, travel)
- Impact of exchange rates (potentially significant)
- Communication: language & time zones
Why is internationalisation attractive to businesses?
- Stronger economic growth job emerging economies (BRICs and MINT)
- Market saturation and maturity (slow or declining sales) in domestic markets
- Easier to reach international customers using e-commerce
- Greater government support for businesses wishing to expand overseas
What does Bartlett and Ghoshal’s Model of International Strategy look like?
