Impact of Internationalisation of Business Markets

Impact of Internationalisation of Business Markets This report aims to analyse and discuss the internationalisation of business and global marketing issues. It also analyses the influence of global marketing environment on the marketing activities of the firm. In order to prepare this report, there has been a use of various Academic textbooks and journals. Over the past thirty years, internationalisation of the firm has been the most frequently researched topics in international marketing (Fletcher 2001). It has been used to describe the outward movement or increasing involvement in a firms or larger groupings international operations (Fillis 2000). In general, Internationalisation refers to the increasing importance of international trades, international treaties, international relations, alliances, etc. Firms undertake international operations due to various reasons (Lam and White 1999). Some internationalise due to the fact that their competitors or customers have been globalised (Ohmae, 1990), whereas others are pushed by the idea of multinationalism as a symbol of success and progress (Gerlinger et al. 1989). The firms use a stepwise approach along with an organisational continuum, in order to develop the international operations. The Uppsala School views internationalisation as having four stages while it has also been modelled with five and six. Although the number of incremental steps may differ, there is general agreement that with each subsequent step comes increasing involvement in international operations. However, due to increasing globalisation, chaotic market conditions and technology effects, it is believed that such stepwise advancement is not generally exhibited in SMEs and that alternative modelling of microenterprise behaviour is needed in order to account for emerging modes of behaviour (Fillis 2000). Definition of Internationalisation: There are many possible definitions of Internationalisation, some referring to the whole economy of the home or internationalising, country, some referring to specific sectors of the economy, and some referring to MNEs themselves (Kumar, N 1998). Calof and Beamish (1995: 116) denotes Internationalisation as the process of adapting firms operations (strategy, structure, resources, etc) to international environments. Whereas, Welch and Luostarinen (1988), Rao and Naidu (1992), Easton and Li (1993) and Johanson and Vahlne (1993) has defined internationalisation as a process by which firms increase their involvement in international business activities. From the above-proposed definitions, it can be concluded that Internationalisation is a process in which the firm gradually increases its international involvement. Complexity and challenges in Internationalisation: Internationalisation is a process which is very complex and challenging by nature. There have been various factors which have made internationalisation as a complex process. The most important factors are uncertainty in formats, formula and markets, the high degree of operational flexibility required and there need to be the high rate of formula innovation in order to get a success in internationalisation (Dawson, J. 2003). Uncertainty in Formats, Formula and Markets: As being an international market for the internationalising firm, it is very uncertain. The firm faces huge competition from the local markets. These all factors make internationalising for the firm very challenging. High degree of operational flexibility required: In order to perform a successful internationalisation process, there needs to be a high degree of operational flexibility, which will give an advantage to the internationalising firm over the local firms. Need of high rate of formula innovation: In order to gain an advantage over the local firms, the internationalising firm has to be very active in terms of innovation. As the competition will be high for the internationalising firm there needs to be a rapid innovation of the formula. Uppsala Internationalization Model: The Uppsala Internationalization Model was originally developed by Johanson and Vahlne (1977, 1990). This model, also known as the incremental theory of internationalisation, shows that enterprises gradually increase their international involvement according to the development of their knowledge about foreign markets and operations. Camuffo et al. (2007) enhanced this model by adding technological knowledge and customer-supplier interaction as important determinants of the process, stating that cross-border expansion into a neighbouring country might shorten the time required to accumulate knowledge and to control the facility in the target country (Reiner, G. 2008). The Uppsala model has described the internationalisation of a firm as a process of experiential learning and incremental commitments which lead to an evolutionary development in a foreign market. Johanson and Vahlne formulated this approach in 1977, referring to empirical observations on Swedish manufacturing firms from their studies at the international business department of Uppsala University. One of the basic assumptions of the model is that the lack of knowledge is an important obstacle to the development of international operations (Johanson Vahlne, 1977: 23). Hence, the Uppsala model has dealt fundamentally with knowledge acquisition and learning. It has been observed that the absence of market-specific knowledge has forced the many manufacturing firms to develop their international operations in small steps, undertaking incremental commitment decisions and moving at the beginning to psychically close countries in order to reduce the market uncertainty (Johanson Vahlne, 1977 : 24). Uppsala model is based on four core concepts: market commitment, market knowledge, current activities and commitment decisions. These four concepts are then divided into state aspects and change aspects. The two state aspects are market commitment, which is the resources committed to foreign markets, and market knowledge, which is the knowledge about foreign markets and operations possessed by the firm at a given time. The two change aspects are current activities and commitment decisions. The latter are the decisions to commit resources to foreign operations (Johanson Vahlne, 1990). Drawback of Uppsala Internationalisation model: The Uppsala model has been criticised for being partial and deterministic (Hollensen, S. 2007).The first criticism is based on the fact that Johanson and Vahlne 1977 rely on only one construct- experiential knowledge as one of several constructs, including the decision making process of the firms management. On the other hand, the internationalisation process model does deal with how other factors are handled in the process (Blomstermo, A. 2003). The criticism that the model is deterministic has to do with the incremental development of experiential knowledge and its manifestation in the visible stage model. Researchers provide empirical evidence that shows that firms do not always start with occasional exports and end up with a production company abroad (Newbould, Buckley and Thurwel 1978).It has also been argued that the model does not take into account interdependencies between different country markets (Johanson and Mattson, 1986) Advantages of Uppsala Internationalisation model: After analysing the Uppsala Internationalisation model it was found that there have been very few advantages. The only advantage associated with this model is that it explains the internationalisation process. In comparison to all the other models of internationalisation this has been highly criticised (Madsen, K. 1991). Macro-environment Forces: Whether its an international banking organisation, a university or a manufacturer, no organisation exists within a vacuum. It is very likely competitors, to be subject to international, national and local control, obliged to comply with national or European pollution fluctuations in the fortunes of the global economy (Brooks, I. 2004). Factors that influence a companys or products development but that are outside of the companys control. For example, the macro environment could include competitors, changes in interest rates, changes in cultural tastes, or government regulations etc (Hill, C. 2009). Macro- environmental forces influencing Internationalisation process: The various outside influence on a firms decision to go international are as follows: Export Agents Governments Chamber of commerce Banks etc. Unsolicited international orders are one major factors influence the firm to begin exporting. In United States, such orders have been found to account for more than half of all cases of export initiation by small and medium-sized firms. Another major influencing agent may actually be a competitor. Just as firms respond to competitive pressures from other companies, statements by executives from other competing firms may serve as change agents (Czinkota, M. 2007). Export Agents: Export agents as well as export management firms generally qualify as experts in global marketing. They are already dealing internationally with other exportable products, have overseas contacts and are set up to handle other exportable products, have overseas contacts and are set up to handle other exportable products. Many of these trade intermediaries approach prospective exporters directly if they think that their product have potential markets overseas (Hollensen, S. 2007). Governments: In nearly all countries governments try to stimulate international business through providing global marketing expertise (export assistance programmes). For example, government stimulation measures can have a positive influence not only in terms of any direct financial effects that they may have, but also in relation to the provision of information (Welfens, P. 2001). Chambers of commerce: Chambers of commerce and similar export production organizations are interested in stimulating international business, both exports and imports. These organizations seek to motivate individual companies to get involved in global marketing and provide incentives for them to do so on. These incentives include putting the prospective exporter or importer in touch with overseas business, providing overseas market information, and referring the prospective exporter or importer to financial institutions capable of financing global marketing activity (Hollensen, S. 2007).. Banks: Banks and other financial institutions are often instrumental in getting companies to internationalize. They alert their domestic clients to international opportunities and help them to capitalize on these opportunities. Of course, they look forward to their services being used more extensively as domestic clients expand internationally (Czinkota, M. 2007). Common Customer needs: In general, standardization is less likely with services that with goods. Within services, the potential for standardization is greater the less the provider is involved in the delivery because this increases the extent to which customer needs are likely to have more features in common. Scale Economies: These are driven by the opportunity to spread fixed costs. With services, such economies are more likely to come from standardised processes than from a physical concentration of activities (Blythe, J. 2005). Competition Drivers: These often occur because the service provider finds it necessary to go international in order to protest its position in the domestic market, especially if costs can be lowered. If the service providers do not take this step, then there is an increased risk that firms in the international market may use that market as a base from which to internationalise their operations (Toyne, B. 1989). Information Technology drivers: The ability to centralise information hubs on a global basis is a motive because it strengthens the firms competitive position. For example: Rupert Murdochs involvement in satellite TV in order to monopolise sports coverage (Brown, L. 2004). Apart from the above-mentioned drivers, there are some more drivers of internationalisation such as Revolution in information and communications systems, globalisation of financial markets and also improvements in business travel (Blythe, J. 2005). Conclusion: From the above discussion and findings, it can be concluded that Internationalisation is a process in which the firm gradually increases its international involvement. It has been also found that the internationalisation is very complex by nature. Various models of internationalisation have been proposed till date, out of which the most famous model is Uppsala approach model of internationalisation. However, it was found that there have been various drawbacks in this model such as, being partial and deterministic, not taken into account interdependencies between different country markets etc. From the discussion of the influence of various macro environmental forces on internationalisation, it can be concluded that there is an increasing number of influence on the firms to go for industrialisation.