Thinking International Be Prepared

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Thinking International Be Prepared

• Dr. Jeffrey Johnson

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Why go International?

• Increase sales
• Increase profits
• Domestic competition
• Diversification
• Economies of scale
• First mover advantages
• Opportunity

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Product Screening Factors

• Need for product in foreign markets
• Likely product acceptance
• Profit potential
• Existing production capacity
• Marketing requirements
• After-sale service requirements
• Competition
• Need for adaptation
• Phase of product life cycle

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Product Attributes

• Cultural differences
• Economic differences
• Product and technical standards

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Cultural Differences

• Range of dimensions
• Social structure
• Language
• Religion
• Education
• Most important - the impact of tradition
• Impact is greatest in foodstuffs and beverages
• Also, scent preferences differ from country to
  country
• Some tastes and preferences becoming
  cosmopolitan, e.g. coffee (Japan and Great
  Britain)

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Economic Differences

• Consumer behavior is influenced by economic
  development
• Consumers in highly developed countries tend to
  have extra performance attributes in their
  products
• Price not a factor due to high income level
• Consumers in less developed countries value basic
  features as more important
• Price a factor due to lower income level
• Product reliability is more important

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Product and Technical Standards

• Government standards can rule out mass production
  and marketing of a standardized product
• Differing technical standards constrain
  globalization of markets
• Come from idiosyncratic decisions
  made long ago
• Video equipment
• Television signal frequencies

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Factors Encouraging Standardization

• Economies of scale in production
• Economies in product RD
• Economies in marketing
• Homogeneity of world markets
• Integration opportunities/benefits
• Global competition

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Factors Encouraging Adaptation

• Economic differences in markets (e.g. income
  levels)
• Government and regulatory influences
• Differing consumer behavior patterns
• Local competition
• Marketing infrastructure differences (e.g. media,
  distribution, transportation)

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Market Selection Factors

• Company objectives/resources
• Foreign market
• Economic conditions
• Political environment
• Competitive environment
• Level of technology
• Culture
• Distribution structure
• Geography

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Which Foreign Markets
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Foreign Market Entry Modes
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Exporting

• Advantages
• Avoids cost of establishing manufacturing
  operations overseas
• May help achieve experience curve and scale
  economies
• Disadvantages
• May compete with low-cost location manufacturers
• Possible high transportation costs
• Tariff barriers
• Possible lack of control over marketing reps.

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Licensing
Agreement where licensor grants rights to
intangible property to another entity for a
specified period of time in return for royalties.

• Advantages
• Reduces development costs and risks of
  establishing foreign enterprise
• Lack capital for venture
• Unfamiliar or politically volatile market
• Overcomes restrictive investment barriers
• Others can develop business applications of
  intangible property
• Disadvantages
• Lack of control
• Cross-border licensing may be difficult
• Creating a competitor

Risk Reduction ? Cross-licensing ?Joint venture
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Franchising
Franchiser sells intangible property and insists
on rules for operating business.

• Advantages
• Reduces costs and risks of establishing
  enterprise
• Disadvantages
• May prohibit movement of profits from one country
  to support operations in another country
• Quality control

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Joint Ventures

• Advantages
• Benefit from local partners knowledge
• Shared costs/risks with partner
• Reduced political risk
• Disadvantages
• Risk giving control of technology to partner
• May not realize experience curve or location
  economies
• Shared ownership can lead to conflict

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Wholly Owned Subsidiary
Greenfield
Acquisition

• Advantages
• No risk of losing technical competence to a
  competitor
• Tight control of operations
• Realize learning curve and location economies
• Disadvantage
• Bear full cost and risk

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Establishing a Wholly Owned SubsidiaryGreen-field
or Acquisition?
Acquisition
Green-field

• Pro
• Quick to execute
• Pre-empt competitors
• Possibly less risky
• Con
• Often produce disappointing results
• Overpay for firm
• Too optimistic about value creation
• Culture clash
• Problems with proposed synergies

• Pro
• Can build subsidiary it wants
• Easy to establish operating routines
• Con
• Slow to establish
• Risky
• Pre-emption by aggressive competitors

1. Dont pay too much. 2. Avoid surprises. 3.
Pick compatible culture.
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Selecting an Entry Mode

• Internal Factors
• Financial sources/resources
• Product characteristics
• Extent of marketing presence
• Degree of market penetration
• Firms knowledge/experience
• Speed of market entry

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Selecting an Entry Mode (continued)

• External Factors
• Level of demand
• Commercial infrastructure
• Communication with intermediaries
• Investment climate
• Licensing regulations
• Tariff levels
• Political risk
• Competition
• Protection of Intellectual Property Rights
• Availability of personnel

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Firm-Specific Determinants of Success for Small
High Technology International Start-ups A
Performance Study of UK and US Firms
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Research Objectives

• Identify firm-specific success factors for small
  high technology international start-ups
• Identify factors influencing their distinctive
  early internationalization
• Identify factors influencing the selection of
  their initial country markets
• Identify factors influencing their common early
  establishment of foreign-based organizational
  activities

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Methodology

• Exploratory research
• Qualitative phase - 12 interviews
• Quantitative phase - mail survey
• 600 US 600 UK questionnaires sent
• 89 usable US responses (18.09)
• 102 usable UK responses (19.25)
• 45 US and 49 UK international start-ups
• Data analysis multiple regression

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Sampling Frame

• computer software, computer hardware, and
  electronics sectors
• independent, UK or US owned
• formed between 1981-1993
• current international sales
• total sales exceeding 2 million or 2.5 million

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Population Definition

• Small - lt100 employees
• High technology computer software, computer
  hardware or electronics plus evidence of ongoing
  RD activity
• International start-up
• International vision 1 year of inception
• Business in at least four foreign countries with
  at least one in a different continent than home
• International sales 20 of total firm sales

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Early Internationalization Findings
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Factors Influencing the Selection of Initial
Country Markets

• Large foreign markets
• Key and important industry markets
• International contacts and sales leads

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Factors Influencing the Early Establishment of
Foreign-based Organizational Activities

• To establish a physical presence in a key foreign
  market
• To better provide regional sales and service
  support
• To create the perception of a local company
  rather than a foreign company

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Success Factor Findings

• International commitment of the founders (US
  UK)
• Entrepreneurial/goal-driven internal firm
  behavior (US UK)
• Customer-driven product design (UK)
• Unique/innovative products (US)
• Continuous innovation (US)
• Targeting similar customers worldwide (UK)