Exam Flashcards
Levitt 1983. Main elements?
- Gone are accustomed differences in national or regional preference. Gone are the days when a company could sell last year’s models-or lesser versions of advanced products in the less developed world.
- Gone are the days when prices, margins, and profits abroad were generally higher than at home.
The world’s needs and desires have been irrevocably homogenized. This makes the multinational corporation obsolete and the global corporation absolute.
- Daniel Boorstin says: “the Republic of Technology [whose] supreme law .. .is convergence, the tendency for everything to become more like everything else.” –> A push for standardized products
- Although companies customize products for particular market segments, they know that success in a world with homogenized demand requires a search for sales opportunities in similar segments across the globe in order to achieve the economies of scale necessary to compete.
- The global competitor will seek constantly to standardize his offering everywhere. He will to digress from this standardization only after exhausting all possibilities to retain it, and he will push for rein statement of standardization whenever digression and divergence have occurred. He will never assume that the customer is a king who knows his own wishes.
- Global competition spells the end of domestic territoriality, no matter how diminutive the territory may be.
- Many companies have tried to standardize world practice by exporting domestic products and processes without accommodation or change.
- Gradually and irresistibly it breaks down the walls of nationalism. What we see today as escalating commercial nationalism is simply the last violent death rattle of an obsolete institution.
- It will systematically push these vectors toward their own convergence, offering every one simultaneously high-quality, more or less standardized products at optimally low prices, thereby achieving for itself vastly expanded markets and profits. Companies that do not adapt to the new global realities will become victims of those that do
Ghemawat, 2003. Main elements?
- Opposite of Levitt
- Semiglobalisation is a continuum between the two endpoints, Total separation between countries and total integration between countries.
- This condition of incomplete cross-border integration, referred to here as semiglobalization, is more complex than the extremes of total separation and total integration because it involves situations in which the barriers to market integration at borders are high, but not high enough to separate countries completely from each other. Another way of putting this is that semi-globalization covers the range of situations in which neither the barriers nor the links among markets in different countries can be neglected.
Why do firms internalize: Motives and triggers
Hollensen 2012.
2x2 matrix:
X: Motives for internationalization: Proactive and Reactive
Y: Triggers: Internal and External
1-1 Proactive, internal: Profit and growth goals Managerial urge Unique technology competence/product Economies of scale
2-1 Reactive, internal
Overproduction
Extend sales of seasonal products
Risk diversification
1:2 Proactive, external
Foreign market opportunities
Market information
2-2 Reactive, external Competitive pressures Small Domestic market Unsolicited foreign orders Proximity to int. customers Export promotion
Distance. Main authors?
COUNTRY-LEVEL DISTANCE:
Distance can be measured in different way by different people
______________
- Ghemawat, 2001 - The CAGE framework
- Cultural, Administrative, Geographic and Economic distance
- Cultural distance
Distance between two countries increases with:
Different languages, ethnicities, religions and social norms - Administrative distance
Distance between two countries increases with:
Absence of shared monetary or political association, Political hostilities and Weak legal/financial institutions. - Geographic distance
Distance between two countries increases with:
Lack of common border, waterway access, adequate transportation or communication links, Physical remoteness and Different climates. - Economic distance
Distance between two countries increases with:
Different consumer incomes, Different costs and quality of natural, financial, and human resources and Different information or knowledge
______________________
- “Karunaratna” has 8 distances instead of the 4 in Ghemawat CAGE framework:
cultural, Language, Education, Institutional, Industrial, Political, time zone and Colonial link distance - The Global competitiveness index has 12 parameters formed as a spiders web to compare countries against each other
- Hutzchenreuter et. al 2016 is a review of serval papers view of distance in an effort of grouping the articles along six distance dimension: Cultural, Institutional, Geographic, Economic (CAGE), Psychic and other distances. –> Psychic distance is a umbrella term of “factors preventing or disturbing the flow of information between firms and the market. Examples: language, culture, political system, level of education etc.
__________________________
PDS and PPD
“Psychic distance stimuli” (PDS) is distances you can measure” by the CAGE framework. The CAGE framework is an objective country-level measurement of differences
“Perceived psychic distance” (PPD) is firm-level distance within the firm and is different between different firms. Psychic distance measures subjective differences.
Ansessing firm-level distance - Reference points
Then talking about distance it depends on the reference point. You can take different reference points:
- Home country
- Closest neighbor
- Firm portfolio
- Cluster
Example from class: A US firm want to enter Sweden: - Home country: US --> Sweden - Closest neighbor: Norway --> Sweden - Firm portfolio: US, Finland, Norway, Germany... --> Sweden - Cluster: Finland, Norway --> Sweden
Theoretical background, focus, assumptions, unit of analysis and managerial implications of the four perspectives
Rask et. al 2008
2x2 matrix
X: Drivers (Internal, External)
Y: Nature of decision (Planned, Emergent)
1-1: Institutional economic perspective:
- Microeconomic theory: The choice between internalization and externalization.
Opportunistic behavior harms economic efficiency
Transaction cost.
Choice of entry mode: Internalize if transaction costs are higher than control costs.
2-1: Strategic competition:
- Industrial economics: Competitive positioning and competitive advantage.
Firm should gain competitive advantage (Porter), so Business unit in a specific industrial context.
Analyze the environment, create strategy as a response
1-2: Learning:
- Behavioral theory of the firm: The choice between markets and entry modes.
Increasing commitment through experience, so
Experience, commitment (which entry mode to chose), knowledge, psychic distance.
Choose new markets with low psychic distance and entry modes with low risks
2-2: Inter-organizational:
- Organizational sociology: Leveraging organizational relationships.
The firm should move into the position of power and influence in a web of ties, so Relations (Network) between firms.
Use relationships of the firm for internationalization
Explain the Learning perspective
Johanson and Wiedersheim 1975:
Its important to understand psychic distance:
- The psychic distance is all factors preventing the flow of information from and to the market like differences in language, education, business practices, culture, and industrial development.
Emperical observations:
- Firms tend to enter new markets through agency establishments in increasingly more (psychicly) distant markets
- Firms tend to enter and expand in markets through a particular establishment chain (Export / Agent –> subsidiary)
Johanson and Vahlne 1977
Assumptions of the learning perspective:
(These are the reasons firms internationalize)
1. The firm aims to increase its long-term profit through growth
2. Lack of resources
3. Risk-aversion
4. Lack of knowledge about foreign markets and operations in the foreign markets is a barrier to international operations
5. Objective knowledge helps, but most necessary knowledge can be obtained only through foreign operations (direct experience)
The model:
Establisment chain:
Market knowledge –> Commitment decision
X: Degree og risk/commitment
Y: Degree of control
Export via independent representatives –> foreign sales subsidiary –> foreign production and sales susbidaries (High control/ressource commitment)
Types of entry mode:
- Non-equity mode: Export/Agent
- Equity mode: Sales/production subsidiary
THE MODEL 2/4 - Market knowledge
- Objective knowledge - Easy to get, less valuable
- Experiential knowledge - More valuable, but comes with increased ressource commitment
3/4 and 4/4 - removed.
Criticism of the Uppsala model:
- The flow of information from foreign markets had been enhanced, reducing the psychic distance and promoting greater international integration between markets
- The cost of international travel and communication had been reduced and its efficiency enhanced, enhancing firms’ ability to coordinate cross-border activities
- International managerial experience had become more widely available, enabling firms to quickly acquire such knowledge through recruitment and initial resource endowment
- According to learning perspective, “born globals” should not exist –> This is a major flaw/weakness to the learning perspective, because born globals does exits:
Uppsala model vs Born Global
There as the Uppsala model follow the establishment chain,
Born global spread out very quickly (not risk averse):
The born global are firms that from inception seek to derive significant competitive advantages from the use of resources and the sale of outputs in multiple countries
- The defining characteristic of a born global is its accelerated internationalization: Often defined as having an export share above 25% with the first 3 years (scope)
Important personal factors in Internationalization:
- Positive perceptions of global environment
- Entrepreneurial orientation
Explain the inter-organizational perspective
Johanson and Mattson 1988:
Assumption:
- The firm aims to secure powerful/influential position in international networks
- Access to resources through relationship-building
- Lack of knowledge about and experience working with foreign partners
- The quality of social bonds impacts both country selection and entry mode choice
- Nothing about risk averseness
Empirical observations:
- Business transactions take place within firms with long-term well-established relationships (average age of relationships is 13 years).
- The relationship is often important to both parties involved (in about half cases the interviewees were main suppliers of a customer, satisfying at least 50% of customer needs; the average share of a customer in supplier’s sales was 5.5%).
- The relationship is built and maintained by several people from the firm, not one (management level, manufacturing, R&D), constituting complex patterns of relationships between firms.
- Suppliers and customers prefer conducting business (especially significant and customized) with partners they trust. And it takes time to develop
Hollesen 2012:
Transactions and relationships:
Two ”ways” of doing business:
1) When you dont know the buyer (transaction)
2) When you know the buyer (Relationship)
Over time 1) can become 2)
–> Plot: diagonal relationship between
X-axis: Short-long time frame.
Y-axis: Low-high Interdependence
Johanson and Mattson 1988 again:
A network-view of industrial systems:
- Each firm has a position in the network which is a product of it (and others’) earlier activities.
- Firms are dependent on each other directly and indirectly.
- Events in one relation can have impact on other firm’s relations in the network.
- A firm’s position entails strategic possibilities and restrictions
THE MODEL
X-axis: Degree of internationalization of the market / Production network (Low, High)
Y-axis: Degree of internationalization the firm (Low, High)
- 1-1: The early starter
- 2-1: High, Low: The late starter
- 1-2: The lonely international
- 2-2: The international among others
3 strategies to chose from:
1) International extension: Entering af new market/network
2) International penetration: Strengthen the commitment in a foreign country. E.g. Going from export to FDI.
3) International integration: Firms in your network coordinating activities with each other.
Combined;
1. 2. 3. 4. 1) Green Red Yellow Yellow 2) Yellow Yellow Green Green 3) Red Green Yellow Green
- THE EARLY STARTER
- A firm has little knowledge about foreign markets and cannot count on utilizing domestic contacts
- As resources are required to understand how to build relations with foreign counterparts, size and resourcefulness of the firm matters:
- small firms will follow staged internationalization approach;
- large firms may start with higher commitment in foreign markets - The initiative for cross-border relation is usually done by agents in the foreign market
- The importance of starting with agents as guarantors in the relationship
- Success and duration of a firm in a foreign network depend on the position of an agent
- The question of resource adjustment
- THE LATE STARTER
- A firm has less knowledge of foreign markets than its competitors, but trust in foreign networks may be easier to gain
- A firm’s relationships in the domestic market with internationalized partners drive internationalization of the firm
- No staged internationalization:
- can cross large psychic distances
- establishment of sales subsidiaries should be made earlier than in the case of an Early Starter - Size and resources matter:
- small firms will have to be highly specialized and serve a niche market;
- large firms have resources, so can enter foreign markets through equity modes. - THE LONELY INTERNATIONAL
- A firm has experience of relationships in foreign countries
- Is capable for resource adjustment
- Low difficulty of entering structured networks
- New market selection does not depend on market similarities, but driven by resources and experiences, so capable of heavy market commitments
- The initiative for internationalization comes from the firm and its a driver of internationalization of other firms in its network
- THE INTERNATIONALS AMONG OTHERS
- Further internationalization is minor changes in extension and penetration
- More coordination within the network is required
- Major position changes are made through joint ventures and mergers and acquisitions
- Bridging
Weakness of the 2x2 matrix:
- Unclear strategies pertaining to each architype.
- The importance of decision-maker in the firm (The decision maker in the firm can “kill” the progress, if the manager doesn’t want to do that the theory wants the firms to do).
- No discussion of how networks can inhibit a firm’s internationalization.
- No discussion of how external events trigger a firm’s internationalization.
- No discussion of how a firm shifts positions in the matrix
- Who is in the network?
_______________________________
The revisited Uppsala model - Johanson and Vahlne 2009
“LIABILITY OF OUTSIDERSHIP”
Firm’s uncertainty about problems and opportunities in international business…
… are becoming less a matter of country-specificity
… and more of a relationship-specificity and network-specificity
… The lack of market-specific business knowledge due to the characteristics of the firm’s network constitutes the liability of outsidership.
Background:
- An INSIDER is a firm that is well established in the relevant network(s)
- An OUTSIDER is a firm that have no position in the relevant network(s)
- Relationships are developed through a process of reciprocal experiential learning about the counterparts’ resources and capabilities
- An insider is tapping into other firms experiential knowledge.
Explain the Strategic competition perspective
Assumptions:
- Core strategy is based on competitive advantage and experience and knowledge are treated as part of a firm’s competitive advantage
- Internationalization is driven by external forces and the goal is to achieve efficiency
- The firm aims to increase profits and win the competition war by establishing significant market share globally
- Nothing about risk-taking.
- Entry mode choice is done based on resources available to the firm and market potential
- The perspective thinks that the home market is saturated
YIP, 1989:
Global vs multi-domestic strategy
MULTI-DOMESTIC:
- The potential of a single market is important
- Fully/semi customized product in each country
- All activities in one country
- Local marketing approach
- Standalone competitive moves by country
GLOBAL:
- The big picture is important
- Fully/semi) standardized product in each country
- Value-added activity in different country
- Uniform worldwide marketing approach.
- Integrated across countries
Yip´s model:
There are 3 essential steps in developing a total worldwide strategy:
- Developing the core strategy - the basis of sustainable competitive advantage. It is usually developed for the home country first.
- Internationalizing the core strategy through international expansion of activities and through adaptation.
- Globalizing the international strategy by integrating the strategy across countries.
Multinational companies know the first two steps well, but the third less, since globalisation runs counter to the accepted wisdom of tailoring for national markets.
Benefit/drawbacks of global strategy - Cost reductions - Improved quality - Enhanced product preference - Increased competitive leverage Drawbacks: - Too early/big of a commitment to a given market? - Less responsive to local needs - Long range between key activities and customers. \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Douglas and Craig´s model
Yip focus a lot of external triggers, but Douglas and Craig focus on both internal and external triggers.
Its a similar process to the “establishment chain” in the sense that the firm do one stage at a time:
- Pre-international-phase
- Phase 1: Initial Entry
The firm does not have any experience abroad.
Goal: Economy of scale - Phase 2: Local market expansion
The firm are in some countries abroad –> tailoring to local customers. Very costly.
Goal: Economy of scope - Phase 3: Global rationalization
To reduce cost you think global. Allocating resources only to the places it make sense.
(- Phase 4 - Semi globalization: From the 2011 paper Firms need to be smarter and detect groups of people firms can make a standardized products to – across borders.)
Critique:
- Unit of analysis
- Are firms independent or interdependent in a global setting?
Explain the Institutional-Economic perspective
Coase, 1937
Assumptions:
- The firm aims to decrease overall costs
- Improve long-term efficiency
- The firm is risk-averse
- Countries and markets differ in terms of their competition with varying transaction costs
- Minimize exposure to transaction costs
Empirical observations:
- Economic system is composed of byers and sellers. The best way. (invisible hand)
- Coordination of byers and sellers is done through price mechanism
- Some buyers and sellers are organized in firms that also make up the economic system.
- Since firms are part of economic system, then the same laws of coordination through price mechanism should apply.
Transaction cost:
Transaction is a process through which a good or a service is transferred from a provider to a user. Coase pointed out, that each transaction conducted through the market entails a cost, which is termed transaction cost.
Alternative modes of governance:
(different ways of coordinating transaction)
- Coordination by the market:
Ex-ante Stage 1: Search and informations costs
Ex-ante Stage 2: Bargaining and contracting costs
Ex-post Stage 3: Monitoring and enforcement costs - Coordination by the firm:
The form has all the parts in-house (Production, sales, R/D etc.) instead of searching for it in the market. But a firm have cost of operating - like transactions cost in the market - but now they are called “coordination cost”
The “dark side” / issues using the firm coordination:
- At some point, the cost of conducting one more transaction within the firm becomes equal to the cost of organizing a transaction through the market
- hybrid-coordination
Contractual agreements like e.g. franchising.
How to choose governance mode - Choose the cheapest alternativ of the market or the firm:
Sources of transactions costs:
1. uncertainty and complexity (We don’t know what’s going to happen tomorrow)
- asymmetric information (The seller and the buyer does not have the same information)
- bounded rationality (Humans have a limited capacity. We cant always pick the best opions)
- opportunism (Humans wants to achieve the highest reward possible)
- small numbers (Small number of suppliers/firms –> collusion, higher prizes)
- Asset specificity (The buyer of a very specific product uses his leverage to squeeze the seller to get a cheaper prize because the seller cannot sell it to other buyers do to the fact the product is very niche/specific)
Anderson and Gatignon 1986:
They combine the “establishment chain” ideas of risk/control in entry modes with the concepts of transactions cost.
The MODEL
Different scenarios: 1. Transactions-specific assets 2. External uncertainty 3. Internal uncertainty 4. Free-riding potential ... needs different degree of control (entry mode) ... to gain long-term efficiency \_\_\_\_
- Transactions-specific assets, dealing with
- Proprietary knowledge and Tacit knowledge
- New, poorly understood products
- Customization
Needs a HIGH degree of control (entry mode) to gain long-term efficiency - External uncertainty, dealing with:
- Environmental unpredictability, e.g. political instability, economic fluctuations.
- The whole point is to maintain flexibility in volatile environments
Needs a LOW degree of control (entry mode) to gain long-term efficiency - Internal uncertainty
- Lack of international experience
- Large cultural differences
- Large foreign business community
- Coordination costs for inexperienced firm are higher than TC
Needs a LOW degree of control (entry mode) to gain long-term efficiency - Free-riding potential
- High brand name value
Needs a HIGH degree of control (entry mode) to gain long-term efficiency
Explain Multi-nationality performance
There are different ways of measuring multinationality:
- simple measures (ratios, cunts),
- sophisticated measures (Dispersion, diversity)
- composite measures (UN index) which gives different
results.
There are also different reasons for going international:
- Scale benefits: Gaining new customers, Economy of scale
- Arbitrage benefits: Resources, Learning, Tax advantages
- Competitive pressure: Follow the leader, competition
- Personal motives: Increase status, job safety,
There are 5 different models within MP:
- The positive model:
- Existence of imperfections in the product or factor markets.
- Multinational firms invest abroad because they obtain monopolistic advantages and hence can generate higher profits than those achieved by local competitors.
- Extensive expenditure on advertising and R&D may create imperfections in the product market, such as entry barriers, thus enhancing the ability of firms to earn mono-poly rents - The negative model:
- Multinationality requires extensive assets, in particular, in relation to the earnings these assets generate.
- More specifically, multinationality is associated with a slight positive effect on firm value, but is also associated
with a much larger positive effect on the asset base of the firm.
- Accordingly, multinationality leads to value destruction.
- Thus, the multinational discount is likely to be attributable to this relatively inefficient use of assets. - The inverted U-shape model:
- During the initial phase of foreign entry, benefits rise faster than the associated costs.
- In the initial phase of expansion, elaborate infrastructural, personnel, or administrative investments are neither
critical nor typical.
- Continued increase in multinationality leads to an increase in complexity and increases the costs of communication,
coordination and agency. This, however, leads to decreasing profits. - The U-shape model:
- Multinational firms encounter both the benefits and the costs of being multinational.
- Increasing international involvement, firms face an increasing imbalance between external and internal environments, leading to inferior performance.
- Increasing performance pressure drives and organizational learning process and forces firms to reconfigure their internal structures and processes.
- Actively managed, firms can then reap the benefits of an increasing degree of multinationality - The Sigmoid model:
- Internationalizing firms encounter benefits and costs.
- Costs result from both liabilities of foreignness and newness, and coordination, control, and agency costs.
- With an increase in multinationality liabilities of foreignness and newness decrease, overcompensating other costs.
- Due to increase in benefits, an overall positive relationship is encountered.
- Finally, coordination, control and agency costs overcompensate benefits of further internationalization.
MP or PM:
Corporate managers are the agents of shareholders, a
relationship fraught with conflicting interests. Agency theory,
the analysis of such conflicts, is now a major part of the
economics literature. The payout of cash to shareholders
creates major conflicts that have received little attention.
Payouts to shareholders reduce the resources under
managers’ control, thereby reducing managers’ power.
Managers have incentives to cause their firms to grow beyond
the optimal size. Growth increases managers’ power by
increasing the resources under their control. It is also
associated with increases in managers’ compensation.
The MP relationship:
• Focus on economic arguments at the expense of ‘behavioral arguments.
• Variation with regard to the inclusion of benefits and/or costs of multinationality
• Obvious appeal of identifying a general MP-relationship
The PM relationship
• Focus on’ behavioral arguments’ rather than on economic arguments
• Strong ‘economic arguments’ on the individual level regarding the increase in multinationality
• Putting the individual manager back into the relationship of M and P
Explain Economy of scale
X-axis: Output
Y-axis: Average cost, AC
Downward curve
- When average cost decreases as output increases, there are economies of scale.
- If average cost increases as output increases, we are facing a situation of dis-economies of scale.
- When average cost does not change with a change in output, we have constant return to scale.
- Minimum Efficient Scale (MES) is the point when the lowest AC possible is archived when increasing output.
3 arguments for not going abroad in regards to EOS:
- Argument against EOS as an argument to going abroad, because its important to look at the context. Going abroad is hard for the foreign firm.
- If the firm already has reach the MES then its pointless to go aboard.
- Distance can be hard. Look at your own market closely before going abroad, is it possible capture more customers in your own market?
Note: Economy of scope means that the production of one good reduces the cost of producing another related good.
Explain market selection (IMS)
Its about the question “Where to go”
Anderson and Buvik, 2002
Three perspective on international market selection:
- Systematic/Rational-analytical IMS:
Normative = how things should be = Not biased, not subjective.
Reality: Its hard to pick the ”correct criteria” and to do it all correct by the book. A systematic approch on how to go abroad: there, when, how, why:
- a. Problem formulation: structuring, defining, and isolating
- b. Criteria identification: defining relevant criteria*
- c. Weighing the criteria: defining the importance of individual criteria
- d. Generating alternatives: identifying potential markets
- e. Ranking alternatives: Rating each alternative on each criterion
- f. Compute the optimal decision
Some criteria:
High degree of measureability
- General characteristics: Geographic location Language, Political factors, Demography, Economy, Industrial structure, Technology Social organization Religion Education
- Specific characteristics Cultural characteristics Lifestyle Personality Attitudes tastes
Low degree of measureability
Market attractiveness can be measured by a 2x2 matrix…
X: Competitive strength (1-5 scale):
Market size (total and segments)
Market growth (total and segments)
Buying power of customers
Average industry margin
Infrastructure
Psychic distance
Etc.
Y: Market/country attractiveness (1-5 scale):
Market share
Product fit market demands
Price
Product quality
Quality of distribution and service
Etc.
… and end up in A, B, C countries. A is most desirable.
- Non-systematic/Learning IMS:
The Uppsala model is behind this IMS perspective.
Assumptions:
- Managers are risk averse and try to keep firm risk on a low level.
- Lack of knowledge is the major impediment of internationalization.
- Two kinds of knowledge
- Objective knowledge: Can be transferred and taught
- Experiential knowledge: Can only be learned through personal experience (Very important!)
Internationalization is an incremental, evolutionary process.
Given risk aversion, firms start their internationalization into foreign markets they can easily understand. Over time, foreign markets with successively greater (Psychic-) distance are added.
Talking about different type of distance - talking about CAGE:
- Cultural distance
- Administrative distance:
- Geographic distance:
- Economic distance:
- Relational/Network IMS:
Relationship is key!
There are two kind of market-view:
- Neoclassical market:
Many independent firms. The unknown lies in the distance to the new market
- Relational market:
A network of firms. The unknown lies in how to get access to the network and avoid outsidership (Important!)
- Initially, the focal firm is likely to search for a number of different feasible international exchange partners
- Though a number of information sources may be used, the focal firm will most likely start with the existing network
- Potential direct exchange partners are being screened first, before their exchange partners are considered
Revised Uppsala model
This is linked to the revised Uppsala model, with the following assumptions:
- Opportunities are the most important part of knowledge.
- Network position rather than commitment alone is relevant.
- Commitment is now in relation to business relationships
- Learning still relevant and driver of outcomes
“Our use of the term ‘‘learning’’ is at a higher level of abstraction: that is, we think of it as more than experiential learning, although we still regard that to be the most important kind of learning.” (p. 1424)
_____________
Four different levels of analysis:
- Macro level, 2. Meso level, 3. Micro level, 4. Situational factors
Background:
- Initial market entry decisions typically focus on country evaluations based on macro- level data
- Macro-level data are aggre- gates that do not consider differences within the country
- Put differently, homogeneity of the country/market is the underlying core assumption
Why using different levels:
- Examining context factors across different levels provides a richer and deeper understanding regarding IMS.
- In particular, the levels for contextual comparison help shed light on within-country heterogeneity (e.g. in terms of customer behavior, competitive behavior, infrastructure, etc.).
- A high degree of within-country heterogeneity is likely to reduce a country’s attractiveness in terms of entry – given the costs of adapting to diverse contexts and fragmented markets.
- Finally, an examination of context factors may help identifying target market segments both within and across countries.
_____________________________
International market-entry by online firms
Two modes of online market entry:
- Default mode:
- No intention of the firm to internationalize
- Non-country specific website
- May generate unsolicited foreign orders
- Active mode:
- Focus on specific foreign countries often with a
high degree of e-business readiness - An investment in entering foreign markets
Similar to traditional market entry and market
expansion - More time-compressed market entry sequence
than in traditional internationalization
- Focus on specific foreign countries often with a
The virtuality trap:
You only know about the costumers who bought something in your shop – nothing about the people who left without buying anything. In a brick and mortor shop you will normally talk to customers eventhough they dont buy anything.
- This can be linked to the Uppsala model regarding “Experiential knowledge” –> the firm have to be one the ground to get the knowledge.
Explain global market expansion
We have selected “where to go”, now the question is “when to go where”
Two generic strategies:
- Waterfall approach - One market at a time
- Shower approach - Every market at a the same time
Keep in mind: Pure waterfall and shower represent endpoints of a continuum
This model that should not be mixed together with the article (Ayal and Ziff, 1979) because this is from practice and the article is from academia.
______
Ayal and Ziff, 1979:
BASIC CONSIDERATIONS
Two strategies from academia:
- Concentration - Characterized by a slow and gradual rate of growth
- Diversification - Characterized by a fast rate of growth regarding the markets served
Keep in mind:
- At each point in time the strategy of concentration will result in a smaller number of markets served relative to the strategy of diversification
- The unit of time? Its not mentioned in the article. There is no answer to it - its depend on your argument.
- Over time the optimal number of markets will be the same for both strategies - maybe draw the
DETAILED CONSIDERATIONS
Segments within a country
2x2 matrix
X: Segments (Concentration, Diversification)
Y: Countries (Concentration, Diversification)
1-1: Narrow focus 2-1: Country focus 1-2: Country diversification 2-2: Global diversification \_\_\_\_ Factors affecting choice between concentration (C) and diversification (D):
- *Sales response function - Concave (D) S-curve (C)
- Growth rate of each market - Low (D) High (C)
- Sales stability in each market - Low (D) High (C)
- Competitive lead-time - Short (D) Long (C)
- Spill over effects - High (D) Low(C)
- Need for product adaption - Low (D) High (C)
- Need for communication adaption - Low (D) High (C)
- Economies of scale in distribution - Low (D) High (C)
- Program control requirements - Low (D) High (C)
- Extent of constraints - Low (D) High (C)
*Alternative market share response functions - the sales response function:
X: Marking effort
Y: Sales
- S-curve function:
Unknown knowledge of the products functionality, brand and firm. Also a low level of demand and low competitive response. - Concave function:
High knowledge of the products functionality, brand and firm. Also a high level of demand and fast competitive response.
____
Allocation of resources
The Uppsala model - the establishment chain:
X: Time
Y: Market commitment, effort and ressources
- No regular export: Lack of foreign knowledge
- Export via independent representatives: Its expensive, opportunistic behavior can happen, but low risk and increasing of learning
- Sales subsidiaries: More control, but more resources spend.
- Production facilities: The most control and the most expensive in terms of resources.
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Expansion within a country
Depth: The number of subsidiaries/investment in a single country (More of the same)
Breadth: The number of different business in a single country (More different)
Note: Its a good idea to use breadth, because the firm can make an internally network of business and help each other and share knowledge across the market.
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Market expansion and the internet
Prediction 1 - modest effect
- Information and knowledge are the critical resources for market expansion
- The internet has a clear advantage in providing and helping gathering objective knowledge / information.
- However, experiential knowledge that is acquired through actions and seen as the core resource cannot be gained via the Internet.
= Following af CONCENTRATION strategy.
Prediction 2 - Accelerating effect
- The Internet increases transaction efficiency, e.g. By reducing search costs
- The Internet will result in an increasing speed of internationalization as it speeds up contact with potential customers
- Internet-based activities will generate experiential learning
- Firms can penetrate foreign markets without involving themselves in substantial and irrevocable FDI.
= Following af DIVERSIFICATION strategy.
Prediction 3 - Rash effect
- The Internet is surrounded by some sort of ‘hype’ that may put pressure on firms to mimic other firms (e.g. those using the Internet in market expansion activities)
- As a result of this – overconfidence in the Internet – firms may embark on rash foreign market expansion.
- Internet-mediated market expansion may lead to a skimming of the market but most likely not to a full penetration, for which a local presence would be necessary.
Explain entry mode
Now we need to look at “How to go there”
Hollensen, 2012:
Three alternative market entry mode decision rules
- Naive rule:
One size fits all‘, meaning the same mode is used for all foreign markets. - Pragmatic rule:
Customized approach‘ typically starting with export - Strategic rule:
Systematic/rational-analytical assessment of potential entry modes.
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Pan and Tse, 2000:
Two types of entry modes:
- Non-equity modes:
- Indirect/direct export
- Licensing/franchising (Co-operations)
- R&D contracts (Co-operations) - Equity modes
- JV (Co-operations)
- Greenfield
- M&A / brownfield
- FDI
Which one to choice:
Degree of control: Export modes (Low) Hierarchical modes (High)
Degree of risk: Export modes (Low) Hierarchical modes (High)
Degree of flexibility: Export modes (High) Hierarchical modes (Low)
Motives for FDI:
- A firm’s wish for more control with local market activities
- Reduction of production costs
- Reduction of transportation costs
- Reduction of trade barriers
- Comply with requirements for local production
- Strengthen local market position
- After-sales service
- Commitment to local market
- Strengthen cooperation with customers and/or suppliers
Explain Global branding
Global vs. local branding
Global branding:
- Globally consistent brand names, identities and positions
- High efficiency with regard to economies in marketing expenditures and managerial control and accountability.
- Low complexity
Levitt talks about a new kind of “flat world” with a global standardized consumer where firms can archive economy of scale, reduced world prices, and gone are the nationally differences.
Local branding:
- Branding that takes into account local taste and preferences.
- Closeness to the customer, customizing the offering or message to individuals.
- High complexity
Remember its a continuum, there are many combinations of local and global branding.
The brand tree:
- Brand decision
- 1 No brand
- 2 Branded product
- 2.1 Manufacturers own product
- 2.1.1 Single market
1. 2.1.1.1 Single brand
1. 2.1.1.2 Multible brands - 2.1.2 Multiple markets
1. 2.1.2.1 Local brand
1. 2.1.2.2 Global brands - 2.2 Co-branding (Not a JV)
- 2.3 Private label
Firms can ask for a premium for a popular brand. Brands create awareness and brands create exposing in the mind of the customers.
AIDA model: A: attention, I: interest, D: Desire, A: Action
It can be a big faliure to change the brand name even though the content is the same – brand is very important.
Changing the brand = breaking the psychological contract between customer and the firm. Changing the material aspect can change the brand, which firms should be careful of.
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Standardization and adaption of products and brand (2x2)
X: Product features (Adaption, Standardization)
Y: Brand elements (Adaption, Standardization)
1-1: One local brand 2-1: Different local brand 1-2: Adapted Global brands 2-2: Global brands \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
The importance of branding:
- Sociological:
- Brands as group phenomenon (e.g. corporate branding, corporate identity)
- Brands as a crowd/mob phenomenon (e.g. brand communities)
- E.g. Harley Davidson - Psychological:
- Brands come to life in a consumer’s mind
- Meaningful aggregates of associations,, meaning, perceptions, and all other intangibles
- Brands are owned jointly by the producer and the
consumer
- Brand as a contract between firm and consumer
- E.g Apple - Brand communities
- An extra market communication channel closer to the core customers
- Brand communities enhance consumer identification with the brand and foster the development of a strong corporate feeling.
- A brand community is defined as any group of people that possess a common interest in a specific brand and create a parallel social universe.
- Traditionally the brand communities have suffered from a geographical restraints
- Its extremely costly to get new customers, that is why brand communities are very good thing for a company, they retain the customers and they properly do not buy competing products. But some community groups may push some new customers away because they would not be associated with that type of group. E.g. Harley Davidson.
- Internet increases the reach and richness of the interaction. - Virtuel communities
- Similar to #3 but online.
