The Role of Management
Management dynamism and commitment are crucial to a firm’s first step toward international operations. Managers of firms with a strong international performance typically active, aggressive, and display a high degree of international orientation. The issue of managerial commitment is a critical one because foreign market penetration requires a vast amount of market development activity, sensitivity toward foreign environments, research, and innovation.
To achieve such a commitment, it is important to involve all levels of management early on in the international planning process and to impress on all players that the effort will only succeed with a commitment that is companywide. The decision to export usually the owner, president, chairman, or vice president of marketing.
The first step in developing international commitment is to become aware of international business opportunities. Management must then determine the degree and timing of the firm’s internationalization. Management must decide the timing when start the internationalization process and how quickly it should progress. Planning and execution of an export venture must be incorporated into the firm’s strategic management process.
Management is often much too preoccupied with short-term, immediate problems to engage in sophisticated long-run planning. Management’s enterpreneurial spirit manifested itself by following through on the lead. Nonetheless, while such management by serendipity maybe useful in a start-up phase, it is no subsitute for effective planning when it comes to setting the long-term strategic corporate direction.
Motivations to Go Abroad
Profits are the major proactive for international business. management may perceive international sales as a potential source of higher profit margins or of more added-on profits. Profitability is often linked with international growth-yet many corporate international entry decisions are made based on expectations of market growth rather than on actual market growth. Unique products or a technological advantage can be another major stimulus.
A final major proactive motivation involves economies of scale. International activities may enable the firm to increase its output and therefore rise more rapidly on the learning curve.
Reactive motivations influence firms to respond to environmental changes and pressure rather than blaze new trails. Competitive pressures are one example. Similarly, overproduction may represent a reactive motivation. Declining domestic sales, whether measured in sales volume or market share, have a similar motivating effect. Goods marketed domestically may be at the declining stage of their product life cycle. The reactive motivation of a saturated domestic market has similar results to that of declining domestic sales. In this context, the concept of psychic or psychological distance needs to be understood. Geographic closeness to foreigan markets may not necessarily translate into real or perceived closeness to foreign customer.
Strategic Effects of Going International
Going international presents the firm with new enrivonments, entirely new ways of doing business, and a host of new problems. The problems have a wide range. They can consist of strategic considerations, such as service delivery and compliance with government regulations. The firm needs to determine its preparedness for internationalization by assessing its internal strenghts and weakness.
Entry and Development Strategies
Exporting And Importing
Firms can be involved in exporting and importing in a indirect or direct way. Indirect involvement means that the firm participates in international business throught an intermediary and does not deal with foreign customers or firms. Direct involvement means that the firm works with foreign customers or markets with the opportunity to develop a relationship.
Many firms are indirect exporters and importers, often without their knowledge. As an example, merchandise can be sold to a domestic firm that in turn sells it abroad. At the same time, many firms that perceive themselves as buying domestically may in reality buy imported products. They may have long-standing relations with a domestic supplier who, because of cost and competitive pressures, has begun to source products from abroad rather than to produce them domestically. in this case, the buyer firm has become an indirect importer.
The intermediaries also can identify foreign suppliers and customers and help the firm with long or short term market penetration efforts. Major types of international intermediaries are export management companies and trading companies.
Export Management Companies
Firms that specialize in performing international business services as commision representatives or as distributors are known as export management companies (EMCs). EMCs have two primary forms of operation: they take title to goods and distribute internationally on their own account, or they perform services as agents. When working as an agent, the EMC is primarily responsible for developing foreign business and sales strategies and establishing contacts abroad.
EMCs that have spesific expertise in selecting markets because of language capabilities, previous exposure, or specialized contacts appear to be the ones most successful and useful in aiding client firms in their international business efforts. When operating as a distributor, the EMC purchases products from the domestic firm, take title, and some assumes the trading risk.
Compensation of EMCs
The mechanism of an EMC may be very useful to the domestic firm if such activities produce additional sales abroad. However, certain activities must take place and must be paid for.
Power Conflicts between EMCs and Clients
The EMC faces the continous problem of retaining a client once foreign market penetration is achieved. Many firms use an EMC’s services mainly to test the international arena, with the clear desire to become a direct participant once successful operations have been established.
Today, the most famous trading companies are the sogoshosha of japan. Names such as mitsubishi, mitsui and c. itoh have become household words around the world. The nine trading company giants of japan act as intermediaries for about one third of the country’s exports and two fifths of its imports
Expansion of Trading Companies
For many decades, the emergence of trading companies was commonly believed to be a japan-spesific phenomenon. In countries as brazil, korea and turkey, trading companies handle large portions of national exports. The reason these firms have become so large is due, in good measure, to special and preferential government incentives, rather than market forces alone.
Private Sector Facilitators
Facilitators are entities outside the firm that assist in the process of going international. They supply knoeledge and information but do not participate in the transaction. Such facilitators can come both from the private and the public sector.
A second influential group of private sector facilitators is distributors. To increase their international distribution volume, they encourage purely domestic firms to participate in the international market.
Public Sector Facilitators
Increasingly, organizations at the state and local level also are active in encouraging firms to participate in international business. Many states and provinces have formed agencies for economic development that provide information display products abroad, conduct trade missions, and sometimes even offer financing.
Under a licensing agreement, one firm permits another to use its intellectual property for compensation designated as royalty. The recipient firm is the licensee. The property licensed might include patents, copyrights, technology, technical know-how, or spesific business skills. Licensing has intuitive appeal to many would-be international managers. Licensing may help to avoid host-country regulations applicable to equity ventures. A special form of licensing is trademark licensing, which has become a substantial source of worldwide revenue for companies that can trade on well-known names and characters.
Franchising is the granting of the right by a parent company to another, independent entity to do business in a prescribed manner. Usually franchising involves a combination of many of those elements. Typically, to be successful in international franchising, the firm must be able to offer unique products or unique selling propositions. Franchising has been growing rapidly, but government intervention is a major problem. Although the local franchisee knows the market best, the franchisor still needs to understand the market for product adaption and operational purposes.
- Reasons for Interfirm Cooperation
strategic alliances are used for many different purposes by the partners involved. Market development is one common focus. Penetrating foreign markets is a primary objective of many companies. The most successful alliances are those that match the complementary strenghts of partners to satisfy a joint objective.
- Types of Interfirm Cooperation
o Informal Cooperation
o Equity Participation
o Managerial Considerations
A Comprehensive View of International Expansion
the central driver of internationalization is the level of managerial commitment. This commitment will grow gradually from an awareness of international potential to the adaption of international business as a strategic business direction. Management’s commitment and its view of the capabilities of the firm will then trigger various international business activities, which can range from indirect exporting and importing to more direct involvement in the global market.