Chapter 2 Initiation of internationalization

Ch. 2: Learning objectivesDiscuss the reason (motives) why firms go internationalExplain the difference between proactive and reactive motivesAnalyse the triggers of export initiationExplain the difference between internal and external triggers of export initiationDescribe different factors hindering export initiationDiscuss the critical barriers in the process of exporting

Figure 2.1 Pre-internationalization: initiation of SME internationalization

Major motives for starting exportInternationalization motivesProactiveProfit and growth goalsManagerial urgeTechnology competence/unique productForeign market opportunities/market informationEconomies of scaleTax benefitsReactiveCompetitive pressuresDomestic market: small and saturatedOverproduction/excess capacityUnsolicited foreign ordersExtend sales of seasonal productsProximity to international customers/psychological distanceTable 2.1 Major motives for starting exportSource: adapted from Albaum et al. (1994, p. 31)

EXHIBIT 2.2 Internationalization of Haier proactive and reactive motives

What is this? Internal or external events taking place to initiate internationalization are known as ______.Internationalization triggers

Triggers of export initiationInternal triggersPerceptive management/personal networksSpecific internal eventImporting as inward internationalizationExternal triggersMarket demandCompeting firmsNetwork partnersOutside expertsTable 2.2 Triggers of export initiation

Figure 2.2 Inward/outward internationalization: a network example

Outside expertsExportagentsGovernmentsChambers of commerceBanks

Barriers hindering internationalization initiationInsufficient financesInsufficient knowledgeLack of foreign market connectionsLack of export commitmentLack of capital to finance expansion into foreign marketsLack of productive capacity to dedicate to foreign marketsLack of foreign channels of distributionManagement emphasis on developing domestic marketsCost escalation due to high export manufacturing, distribution and financing expenditures

Figure 2.3 Illustration of BTs internationalization 19942007Source: Hollensen, S. (2008) Essentials of Global Marketing, FT/Prentice Hall, p. 47

Figure 2.4 Global strategy optionsSource: Hollensen, S. (2008) Essentials of Global Marketing, FT/Prentice Hall, p. 48Global strategy options

Barriers hindering the further process of internationalizationGeneral market risksCommercial risksPolitical risks

General market risksComparative market distanceCompetition from other firmsDifferences in product usage Language and cultural differencesDifficulties in finding the right distributorDifferences in product specificationsComplexity of shipping services

Commercial risksExchange rate fluctuationsFailure of export customers to pay due to contract disputes, bankruptcy, refusal to accept product or fraudDelays and/or damage in the export shipment and distribution processDifficulties in obtaining export financing

Political risks (1)Foreign government restrictions National export policyForeign exchange controls imposed by host governmentsLack of governmental assistance in overcoming export barriersLack of tax incentives

Political risks (2)High value of domestic currency relative to export marketsHigh foreign tariffs on imported productsConfusing foreign import regulations and proceduresComplexity of trade documentationEnforcement of national legal codes regulating exportsCivil strife, revolution and wars disrupting foreign markets

Risk-management strategiesAvoid exporting to high-risk marketsDiversify overseas marketsInsure risks when possibleStructure export business so that buyer bears most risk

Video case study 2.3 (Toms Shoes)http://www.youtube.com/watch?v=UCN0MJHmfDg

Video case study (Nidek)mms://winmedia.leg.akamai.pearsoncmg.com/intl/ema_uk_he_hollensen_globmark_4e/nidek_256.wmv

Founded in 1971, NIDEK (www.nidek.com) has grown into the world's leading supplier of surgical and diagnostic products for vision care (machines for laser operations of eyes). In 1982, NIDEK established its first overseas base in Silicon Valley of the USA. Expanding next into France and Italy, NIDEK focuses on the local market for R&D, sales, and production.

Questions:What have been the key barriers in the early days of internationalization, e.g. when entering the US-market?What have been the drivers (motives) for the early internationalization?

Questions for discussion (1)Export motives can be classified as reactive or proactive. Give examples of each group of export motives. How would you prioritize these motives? Can you think of motives other than those mentioned in the chapter? What are they?What is meant by change agents in global marketing? Give examples of different types of change agent.

Questions for discussion (2)Discuss the most critical barriers to the process of exporting.What were the most important change agents in the internationalization of Haier (Exhibit 2.2)?What were the most important export motives in Japanese firms (Exhibit 2.1)?

******Here follows an explanation of some key terms:Coordinate its marketing activities: Coordinating and integrating marketing strategies and implementing them across global markets, which involves centralization, delegation, standardization and local responsiveness.Find global customer needs: This involves carrying out international marketing research and analyzing market segments, as well as seeking to understand similarities and differences in customer groups across countries.Satisfy global customers: Adapting products, services and elements of the marketing mix to satisfy different customer needs across countries and regions.Being better than the competition: Assessing, monitoring and responding to global competition by offering better value, low prices, high quality, superior distribution, great advertising strategies or superior brand image.

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