International Business Management part I

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International Business Management
part I

• Wojciech Popczyk Ph.D.
• The Department of Business Management
• The Lodz University
• wpopczyk_at_uni.lodz.pl

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The contents of the 8-hour course

• 1. Chandler and Drucker's business development
  model ( the place of internationalization strategy
  in the model),
• 2. The factors supporting business international
  expansion,
• 3. Motives for international expansion,
• 4. The structure of the internationalization
  strategy,
• 5. Two models of internationalizing the
  traditional, stage model vs international new
  ventures,
• 6. Different foreign market entry modes,
• 7. Multinational, international, global,
  transnational philosophies of operating in
  foreign markets.

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Internationalization

• The business capability of adapting itself to the
  continually changing environment and influencing
  it is a major condition for the businesss
  survival and development in a long term.
• A corporate growth strategy is the best
  instrument of adapting to the environment.
• Internationalization stands for undertaking
  business operations beyond national borders.
• At present, a strategy of business
  internationalization or business international
  expansion seems to be the best way of adapting to
  the environment, in which the business functions.

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Business development stages with reference to
Chandlers and Druckers researches
1900-1930
1930-1950
1950-1970
Concentration strategy
Geographical expansion strategy, Vertical
integration strategy
Diversification strategy
1970 - obecnie
Internationalization strategy Entrepreneurial
orientation SME
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Globalization

• A new, international social system, which
  replaced the system of cold war at the moment
  of falling down the Berlin Wall.
• The process of evolving national markets and
  sectors/industries to the global/world scale or
  appearing new, technological sectors global
  from inception.
• The highest development stage of a business,
  which functions in the global environment,
  oriented to world markets, world competition and
  benefiting from world production factors.

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Globalization

• Market globalization - its the phenomenon of
  disappearing differences resulting earlier from
  national specifics due to the liberalization of
  the social (democracy) and economic (market
  economy) orders and technical progress as well.
• Sector globalization - a global sector consists
  of competitors performing on the world scale,
  which headquarters, however, are mostly located
  in different countries.

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Historical stages of globalization

• The contemporary globalization is the third wave
  in a row over the past 200 years.
• 1800 1914 massive globalization driven by
  imperialism, particularly by the British one and
  the development of transportation and
  communication.
• 1950 1973 the source of that globalization
  wave were the American economic growth and the
  intensification of American, political and
  economic relations with the postwar West Europe.
• 1989 2005 the present globalization wave
  results from technological progress (
  accelerating rates of technological changes/
  innovations ) and from substantial changes in the
  world environment.

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The sources of the post-war globalization waves

• Substantial changes in the international
  environment
• Technological progress

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Substantial changes in the international
environment

• The worldwide inclinations to reducing tariff and
  non-tariff walls in trade. The General Agreement
  on Tariffs and Trade (GATT) and next WTO are the
  best examples of the tendencies.
• Establishing worldwide economic and financial
  institutions supporting international trade,
  economic cooperation like OECD, The World Bank,
  The International Monetary Fund. The
  organizations create a favourable atmosphere for
  international expansion.
• Regional integration processes EU, EFTA (Island,
  Norway, Sweden, Liechtenstein), CEFTA and NAFTA.

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Substantial changes in the international
environment

• The unification of standards, quality regulations
  obligatory in individual countries.
• The spread (diffusion) of the pattern/ model of
  market economy newly developed countries,
  former centrally planned economy countries from
  East and Central Europe.
• The unification of technology and consumption
  patterns in the world

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Technological progress

• Accelerating rates of technological changes/
  innovations
• Increasing expenditures on research and
  development and on the other hand compressing the
  duration of international product life cycles. It
  requires introducing technological innovations
  simultaneously into many markets to prevent
  imitations and ensure the redemption
  (amortization) of all costs of research and
  development.
• The development of new communicative and
  information technologies like satellite TV, the
  internet which facilitate managing subsidiaries
  located in different parts of the world.

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Technological progress
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Motives for internationalization

• The imperative of permanent growth limitations
  on a domestic market,
• Benefiting from already achieved competitive
  advantage (in technology, marketing, management
  etc.),
• Searching for competitive advantage (economies of
  scale, effects of learning, access to cheaper or
  better production factors ( labour, raw
  materials, technology ),
• Reducing economic and political risks,
• Benchmarking the imitation of leading
  competitors behaviour.
• Following the major clients.
• The general reason for international
  expansion is to improve economic performance
  measured by profit to assets, profit to sale.

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Global sources of competitive advantage
Competitive advantage

• Economies
• of scale
• logistics
• RD
• production
• marketing

• Effects
• of learning
• higher quality
• global experience

• Comparative
• advantage
• production factors,
• RD facilities
• a governmental
• policy of supporting
• home firms

• Coordinating
• resources and
• capabilities
• on the global
• scale

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The influence of internationalization on business
economic performance
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Elements of an internationalization strategy
Selecting a product and foreign/target markets
for international expansion
Choosing a target country entry
mode export contractual modes direct investments
A strategy of functioning abroad multinational,
global, transnational, international
Setting goals to be achieved in target countries
Control system
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Selecting a product for international expansion

• To be an object of internationalization, a
  product has to meet the following two
  requirements
• It should have competitive advantage over
  foreign products
• - the advantage is worked out by the firm
  itself,
• - the advantage results from comparative
  advantage
• The costs of possible adapting the product for
  international markets will not diminish its
  competitive advantage

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Selecting a product for international expansion
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Selecting a target country/market for
international expansion
I STAGE Preliminary screening

II STAGE Estimating the growth rate
of the individual 15 markets

• Customer profile
• Selecting 15 countries
• with the largest
• markets for a given
• product at present

III STAGE Estimating a company sales
potentials
Selecting 5 countries out of the 15 with highest
market growth rate
Selecting a country/ market regarding a
companys highest sales. Porters Five
Forces Method for estimating
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II stage selecting 5 countries/markets with
the highest dynamics
Accept 3
2?
1?
large
Current market size
4?
5?
6?
medium
Reject 7
8?
9?
small
high
low
moderate
Annual growth rate
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Business Internationalization modelsbarriers in
internationalizing SME

• Small and medium-size firms encounter specific
  for them barriers of internationalizing
• Barriers resulting from their size
• - limited finance and human resources,
• - the lack of scale economies
• Barriers of managerial competences
• - the lack of or little international
  experience,
• - reluctant attitude towards international
  expansion,
• - perceiving international operations as too
  risky, expensive and complex,
• - the lack of foreign markets knowledge and
  unawareness of international business
  functioning
• - psychological barriers connected with stress
  and bigger mobility,
• - a poor command of foreign languages

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Business Internationalization models

• The processes of internationalizing small and
  medium-sized firms can proceed according to two
  models
• The traditional stage model ( process theory of
  internationalization Johanson Vahlne
  1970,1990 )
• The global model ( new venture internationalizatio
  n theory - Oviatt McDougall,1994 )

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Business Internationalization modelsthe
traditional model

• Business internationalization has for long been
  regarded as an incremental process, wherein firms
  gravitate towards psychologically close foreign
  markets and increase commitment to international
  markets in a gradual, step-wise manner through a
  series of evolutionary stages.
• As time goes by, they commit greater resources to
  overseas markets and tend to target countries
  that are increasingly psychically distant.
• The assumption of such a model of
  internationalization is that firms are well
  established in their domestic markets before
  venturing abroad.

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Business Internationalization modelsthe
traditional model
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Business Internationalization modelsthe
traditional model
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Business Internationalization modelsthe global
model

• The emergence of born global firms at the end of
  the eighties challenges the stage model.
  Typically, global born firms are smaller
  entrepreneurial firms that internationalize from
  inception (the outset) or begin doing it shortly
  thereafter.
• These firms often possesses a knowledge-based
  competitive advantage that in turn enables them
  to offer value-added products and services (a
  high added value of scientific knowledge
  embedded in both product and process).
• The firms are set up by active entrepreneurs,
  often due to a significant breakthrough in
  process or technology.

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Business Internationalization modelsthe global
model

• Major conditions to be met for
  internationalizing at the early stage of business
  development
• New technology (knowledge),
• An entrepreneurs competences and global vision.

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Business Internationalization modelsthe global
model

• Circumstances supporting business
  internationalization at the early stage of
  development
• accelerating rate of technological changes,
  particularly in knowledge-intensive sectors,
• highly mobile nature of knowledge-intensive
  assets,
• advances in communication technology, such as
  e-mail, WWW,
• trends towards global networks,
• the increasing role of niche markets and greater
  demand for specialized or customized products,
• the inherent advantage of small firms in terms of
  quicker response time, flexibility and
  adaptability.

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Business Internationalization modelsthe global
model

• BORN GLOBAL
  FIRMS
• knowledge-based firms knowledge or
  service-intensive
• 
  firms
• 
  innovators adopters

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Foreign, target country/market entry modes

• Export
• - indirect export ( home middlemen )
• - direct export ( a foreign agent or
  distributor )
• - direct export ( own trade subsidiary
  located in a target country )
• Contractual entry modes
• - licensing ( franchising as a special form of
  licensing )
• - management contracts
• - construction contracts ( turnkey contracts )
• - contract manufacture
• - countertrade arrangements
• Investment entry modes
• - joint venture, ( greenfield-new
  establishment, acquisition ),
• - sole venture ( greenfield-new establishment,
  acquisition ).