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Learning objectives
Analyse and compare the three theories explaining a firm’s internationalization process
Explain the most important determinants for the internationalization process of SMEs
Internationalization theories
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The Uppsala Internationalization model
Internationalization/ transaction cost approach
Dunning’s eclectic approach
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Traditional marketing approach: The Penrosian tradition reflects the traditional marketing focus on the firm’s core competences combined with opportunities in the foreign environment. The cost-based view of this tradition suggested that the firm must possess a ‘compensating advantage’ in order to overcome the ‘cost of foreignness’. Thus, technological and marketing skills became the key elements necessary for a successful foreign entry.
Vernon’s product life cycle hypothesis is that producers in advanced countries are closer to markets than producers elsewhere. This results in the first production facilities for products being located in those advanced countries. However, as products become standardized, less developed countries (LDCs) offer competitive advantages as production locations.
Dunning’s eclectic approach states that the propensity of a firm to engage itself in international production increases if the following three conditions are being satisfied: 1) ownership advantages, 2) locational advantages, and 3) internationalization advantages.
The remaining theories, the Uppsala Internationalization model, the transaction cost approach, and the network approach are discussed in the following slides.
Hollensen, Global Marketing 4e, © Pearson Education 2008
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Stage 4: Foreign production/manufacturing units
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Figure 3.1 implies that additional market commitment as a rule will be made in small incremental steps, both in the market commitment dimension and in the geographical dimension. Though there are exceptions (discussed on the following slide).
The geographical dimension in Figure 3.1 shows that firms enter new markets with successively greater psychic distance. In other words, firms begin to internationalize by going to those markets they can most easily understand.
Hollensen, Global Marketing 4e, © Pearson Education 2008
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Firms with large resources can take larger internationalization steps
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Organizational
capacity
Finance
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Transaction cost analysis (TCA) model
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Excluding ‘internal’ transaction costs
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The network model
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an international network
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In Figure 3.5, it appears that one of the subsuppliers established a subsidiary in Country B. Here the production subsidiary Is served by the local company of the subsupplier. Countries E and F, and partly Country C, are sourced from the production subsidiary in Country B. It can be assumed that direct or indirect bridges exist between firms and different country networks The bridges are important initial steps abroad and in the subsequent entry of new markets.
Hollensen, Global Marketing 4e, © Pearson Education 2008
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The early starter
The late starter
Low
High
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Entrepreneurial orientation
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Internationalization
preparation
Adapting products to target foreign markets
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Fundamentally, there are four ways of using information to create business value
(Marchand, 1999):
1 Managing risks. In the twentieth century the evolution of risk management stimulated the growth of functions and professions such as finance, accounting, auditing and controlling. These information-intensive functions tend to be major consumers of IT resources and people’s time.
2 Reducing costs. Here the focus is on using information as efficiently as possible to achieve the outputs required from business processes and transactions. This process view of information management is closely linked with the re-engineering and continuous improvement movements of the 1990s. The common elements are focused on eliminating unnecessary and wasteful steps and activities, especially paperwork and information movements, and then simplifying and, if possible, automating the remaining processes.
3 Offering products and services. Here the focus is on knowing one’s customers, and sharing information with partners and suppliers to enhance customer satisfaction. Many service and manufacturing companies focus on building relationships with customers and on demand management as ways of using information. Such strategies have led companies to invest in point-of-sale systems, account management, customer profiling and service management systems.
4 Inventing new products. Finally, companies can use information to innovate – to invent new products, provide different services and use emerging technologies. Companies such as Intel and Microsoft are learning to operate in ‘continuous discovery mode’, inventing new products more quickly and using market intelligence to retain a competitive edge. Here, information management is about mobilizing people and collaborative work processes to share information and promote discovery throughout the company.
Hollensen, Global Marketing 4e, © Pearson Education 2008
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What is this?
What term refers to a firm that from its ‘birth’ globalizes rapidly without any preceding long term internationalization period?
Born global
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Annual sales under $100million
Reliance on cutting-edge technology
Managed by entrepreneurial visionaries
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