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teacherslideforinternationalisationtheories.pptxInternational Business and Management MARK5054 welcome to: International marketing
LEICESTER BUSINESS SCHOOL
NIELS BROCK
With: Ali Gamaleldin [email protected]
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Session 4’s Learning Objectives
To acquire in-depth knowledge on Internationalisation Theories.
To apply a internationalisation theory in describing a firm international expansion.
To be competent in making recommendation to a local firm on an appropriate internationalisation theory.
Quick introduction to Modes of Market Entry and terminology
Global Market Entry Methods
Investment Methods (Internalise)
High Control
High Risk
Low Flexibility
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Intermediate Modes (Contractual)
Shared Control and Risk
Split Ownership
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Low Control
Low Risk
High Flexibility
Export Methods (Externalise)
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Internationalisation Theories
These are models that helps to explain the process in which firms expands across different foreign markets.
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Types of Internationalisation Theories
The Uppsala Internationalisation Model (Scandinavian stages model).
The Internationalisation and Transaction Cost Approach.
The Network approach.
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The Concepts of Psychic and Cultural Distance
Cultural Distance: This is defined as the degree to which factual cultural values in one country are different from those in another country.
Psychic Distance: This is the individual manager’s perception of difference between two markets, in terms of differences in ‘country’ and ‘people’ characteristic, which disturbs the flow of information, goods and services between the firm and the market.
Source Hollessen 2020 (p.78)
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Two Main Dimensions of Psychic Distance
Country Characteristics Distance: level of economic development, communication infrastructure, market competitiveness, legal regulations, and technical requirements.
People Characteristic Distance: per-capita income, customer life style and preferences, level of education, language and cultural values
Source Hollessen 2020 (p.78)
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Task: What is your perceived distance levels for these countries?
Denmark and Norway.
Bangladesh and South Africa.
Australia and the UK
Would you adjust your entry strategies to any of these different markets?
Use these Parameters:
Country Characteristics Distance: level of economic development (GDP)
People Characteristic Distance: per-capita income
Hofstede’s Cultural Dimensions
Useful links:
https://www.hofstede-insights.com/country-comparison/
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Marketing Implications of Perceived Distance (Cultural and Psychic)
Based on perceived distance level;
Market entry level is adjusted accordingly, because higher distance increases risks and therefore, intermediate or externalisation would be preferred.
Marketing mix (price, product, place and promotion) is expected to be adapted.
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Marketing Implications of Perceived Distance (Cultural and Psychic)
The closer the perceived distance, the more the company can perform a straight extension (Standardised market mix and market offering).
When the perceived distance is massive companies prefer finding local help and benefiting from their expertise.
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The Uppsala Internationalisation Model (Scandinavian stages model).
The Uppsala researchers interpreted the patterns in the internationalization process in Swedish manufacturing firms
Companies appeared to begin their operations abroad in fairly nearby markets.
It appeared that companies entered new markets through exports.
Wholly owned or majority owned operations were established only after several years of exports to the same market.
The Uppsala Internationalisation Model (Scandinavian stages model).
Underpinned by sequential pattern of entry into successful foreign markets, coupled with a progressive deepening of commitment to each market (Hollensen 2017).
Slow and well considered approach.
Less aggressive.
Less risky.
Typical for SMEs
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Internationalization of the firm: an incremental (organic) approach
Source: Adapted from Forsgren, M. and Johanson, J. (1975) International føretagsekonomi. Norstedts, Stockholm.(p. 16).
Criticisms to Uppsala Model
Does not take into account Interdependences of countries. For example, countries within the EU.
Difficulty to measure this in terms of service industries.
Not valid for internationalised and competitive firms and industries.
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The Transaction Cost Approach
Internationalisation is underpinned by the firms consideration of its business capacity to operate in foreign markets and most efficient way of cost minimisation.
considers going into a new foreign market through its own subsidiary if the cost of externalisation is higher than internalisation.
Internalisation: Doing business through own internal system (own subsidiaries).
Externalisation Doing business through an external partner (importer, agent, distributor).
Typical of Multinational organisations.
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Transaction costs can be divided into different forms of costs related to the transactional relationship between buyer and seller
Transaction cost = ex ante costs + ex post costs = (search costs + contracting costs)+ (monitoring costs + enforcement costs)
Search costs: include the cost of gathering information to identify and evaluate potential export intermediaries.
Contracting costs: the costs associated with negotiating and writing an agreement between seller (producer) and buyer (export intermediary)
Monitoring costs: the costs associated with monitoring the agreement to ensure that both seller and buyer fulfil the predetermined set of obligations.
Enforcement costs: the costs associated with the sanctioning of a trading partner who does not perform in accordance with the agreement.
Criticisms to TCA
Not very relevant to SMEs.
Underestimated of production process.
Lack of consideration on social capital, leading to intermediate modes.
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The Network Approach.
The basic assumption is that the international firm is not analysed in isolation but part of a larger connection in the international market environment in order to access to external resources.
A firm may depend on the resources controlled by others.
Typical example is the location of plant or manufacturing unit where there is cheap labour, raw materials or availability of technology.
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The Network Approach
The relationships of a firm in a domestic network can be used as bridges to other networks in other countries.
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The Network Approach
Denmark
Germany
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Producer
Distributor/
Agent
Retailer
Producer
???
Retailer
Summary of the three models explaining the internationalization process of the firm
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Task
Under today’s session on Moodle, find the Expansion Stories tab and read the three articles. Which Internationalisation theory is evident in each story?
Born Global Firms
A firm that from its birth globalizes rapidly without any preceding long-term Internationalization period.
Operates in “time-space” compression and leads to right “here” and “now” phenomenon.
Internet place a crucial role in the spread of born global companies.
Examples
K-Pop Culture.
Amazon
Firefox
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K-pop – a ‘born global’ phenomenon has worldwide success
Members of the South Korean K-pop girl group Red Velvet leave for Pyongyang, North Korea at the international airport in Seoul, South Korea, 31 March 2018
Source: Kim Hong-Ji/REUTERS.
Two Extreme Pathway of Internationalisation Model by Hollensen 2017 (p.98)
Source: Piotr Swat/Shutterstock.
Task:
Research into Bumble (dating) company's profile and answer the questions on next slide
Factors Influencing the Choice of Entry Mode (Hollensen, 2017, p.352)
The highlighted circles are some of the factors you need to consider in determining market entry mode in your CW1 report
Reference List
Hollensen, S. (2020) Global Marketing, 8th Edition: Pearson - UK or 7th Edition (2017).
Original slides By Dr Mark Ojeme.
