Internationalization Strategies for Services

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Internationalization Strategies for Services

• Article 18
• By Christian Gronroos
• Presented By
• Chris Tschombor

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Purpose and Objective

• Discuss key challenges for service firms planning
  to go abroad
• Discuss the three methods of entry into an
  international market
• Marketing hard services vs. marketing soft
  services
• Present five different types of
  internationalization strategies for services

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Services The International Market

• Services are the fastest growing part of
  international trade
• However, in the USA the export of services
  accounts for a small portion of total service
  production, only around 6 in 1997, which has
  grown to 30 since the beginning of the decade.
• In the European Union between 10 and 20 of
  service production was exported almost 10 years
  ago.

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Previous Work

• Obstacles of internationalization include lack of
  resources, too little knowledge about exporting,
  and the belief that cultural differences may make
  the process more difficult. (Winstead
  Patterson, 1998)
• The choice mode of entry into the international
  market is to either follow existing clients or
  look actively for new markets (Erramilli Rao,
  1990)
• Services for foreign markets have been divided
  into hard and soft services. (Erramilli, 1990)

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Challenges of Service Firms Going International

• Most literature on internationalization and
  export strategies is geared towards the needs of
  manufacturing firms rather than service firms.
• Research knows very little about how service
  firms enter foreign markets and there has been
  little practice to back up theory.
• What little research that has been done on
  internationalizing service firms suggests it is a
  risky move to make.

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Modes of Entry

• Client-Following Mode
• Firms follow manufacturers that they are
  supplying with services, into their domestic
  market.
• Market-Seeking Mode
• In efforts to expand service firms, search
  internationally for new markets.
• Electronic Marketing Mode
• Technological advances of today have created many
  new opportunities for internationalization.

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Hard vs. Soft Services

• Hard Services
• Require little or no local presence by the
  exporter.
• Architectural design
• Education
• Life Insurance
• Music

• Soft Services
• Require major presence by the service firm or a
  local representative.
• Food service
• Health Care
• Laundry
• Lodging

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Methodology5 Main Strategies for
Internationalizing Services

• Export Strategies
• Direct Export
• Systems Export

• Entry Strategies
• Direct Entry
• Indirect Entry

Electronic Strategies 5. Electronic Marketing
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Direct Export

• Direct export of services may basically take
  place on industrial markets.
• Consultants and firms repairing and maintaining
  valuable equipment may have their base on the
  domestic market and move resources whenever
  needed to produce the service to the client
  abroad.

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Systems Export

• Systems export is a joint effort by two or more
  firms whose solutions complement each other.
• For example, when a manufacturer delivers
  equipment of factories to international markets
  the need for other services is often present.

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Direct Entry

• Means that the service firm establishes a
  service-producing organization of its own on the
  foreign market
• For a service firm, a local organization normally
  has to be able to produce and deliver services
  from the beginning.
• To decrease potential problems with a direct
  entry strategy, firms can acquire local markets
  operating in the same service market, rather than
  establishing a new organization.

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Indirect Entry

• Used when the service firm wants to avoid
  establishing a local operation that is totally or
  partially owned by itself.
• For example, in the lodging business and the
  restaurant industries, franchising is an often
  used concept for indirect entry into a foreign
  market.

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Electronic Marketing

• A strategy in which a firm extends its
  accessibility by use of advanced electronic
  technology.
• Using electronic marketing allows firms to not be
  bound to any particular location.
• For example, in Europe music and fitness
  equipment are offered through satellite
  television services.

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ConclusionWill Customers Accept Foreign
Services?

• Regardless of what entry mode a firm uses, the
  customers must accept services from an
  international firm.
• Openness to foreign cultures may support
  international services, where as patriotism and
  conservatism may keep consumers from buying.
• Younger, as well as more educated consumers, are
  significantly less likely to reject foreign
  services.