Internationalization and entry modes

Extract

[...] They are seeking to raise the value more than to minimize uncertainty. (Foreign direct investment) Mode of operation Market (country) No regular exports ) ( sporadic exports Independent representatives Foreign sales subsidiary Foreign production and sales subsidiary Market A Market B Market C Market D I Market N Increasing market commitment Increasing geographic diversification Increasing internationalisation Entry mode types % OWNED 100 SUBSIDIARY EXTENT OF INVESTMENT RISK LEVEL INVESTMENT ENTRY MODE JOINT VENTURE STRATEGIC ALLIANCE FRANCHISING CONTRACTUAL ENTRY MODE LICENSING EXPORTING EXPORT/IMPORT ENTRY MODE DEGREE OF OWNERSHIP AND CONTROL Export entry modes Entry Main specifiers Benefits Drawbacks Direct export Selling directly to the local clients/customers Simple, easy, accessible to a small firm Can be a market test Low cost - Low risk Additional revenues Business keeps all the profit earned Market information Non-payment Potentially bureaucratic Some adaptations can be necessary customer service in foreign language) Risk of tariffs, quotas Regulation is difficult to master Export through an intermediary Selling via an agent or a distributor Spares time and more efficient (if good market knowledge of the Agent/Distributor) Local network of the Agent/Distributor Costs are variable (commission) Risk to select a bad agent or distributor Loss of profit: a commission is to be paid If not exclusive agent: which commitment? [...]

[...] The LOF arises from the unfamiliarity, relational, and discriminatory hazards that foreign firms face over and above those faced by local firms in the host country. Multinational firms have been studied generating theories on the internationalization stages. - Concentration in one country: the home market - Sporadic business - Regular cross-border trading flows - Set up a subsidiary in a foreign country multinationalisation - Grow worldwide The Uppsala model According to the Uppsala model, internationalization is a step-by-step process which goes from simple to more complexity, from known to unknown, and from safe to riskier. [...]

[...] Internationalization with growing relationship commitment: Step mostly customer-supplier relationship and development of an existing relationship. Learning of the other's positions, reactions, adaptation, coordination strengthen the actors. Step learning of skills which can be used in other relationships (relationship development experience). Enables to go faster in new relationships of the same kind Step learning how to coordinate activities in the relationship with other relationships, e.g., payment terms, ways to negotiate Step learning how to build new business networks and connect them to each other Limits of the Network model: - Not contradictory but complementary to Uppsala model - Does this way foster innovation or kill it? [...]

[...] In order to be efficient, a network must fill several conditions: the members must have a common interest they must dedicate time and energy to the network they learn one from the other the experience makes the value of the knowledge trust between members is a key. Being inside the network gives a competitive advantage: the network provides to the insiders market knowledge this enables the insiders to have less uncertainty on the market in the end, the experience on one market helps entering others. Outsiders don't have an easy access to the information, and it will be more difficult for them to enter the market. from liability of foreignness to liability of outsider-ship. [...]

[...] Internationalization with growing financial commitment: Step no regular export activities (sporadic exports) Step export via independent representative Step Establishment of a foreign sales subsidiary Step Foreign production/manufacturing Limits of the Uppsala model: Why should a firm invest abroad to internationalize? All competitors in a country should internationalize in the same countries The network model Technology and globalization have made the distances less import, therefore the Uppsala model is not always true. A network is about the relationships between different stakeholders involved in the value creation process in a foreign market. It can be relationships of all kinds: inter-organizational (institutionalized), inter-personal (informal) commercial, economical, technical, financial, legal A network is flexible and suitable to a changing environment. [...]