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Evaluation of the 4W’s of International Business Strategy:

Evaluation of the 4W’s of International Business Strategy:
Why, When, Where and for What Purpose do Businesses Seek International Markets as Pertaining to New Hampshire Businesses?

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4 Ws Intl Strategy Rf 4 Ws Intl Strategy Rf Document Transcript

  • Evaluation of the 4W’s of International Business Strategy:Why, When, Where and for What Purpose do Businesses Seek International Markets asPertaining to New Hampshire Businesses?Ryan FlynnNovember 7, 2011SNHUAdvisor: Dr. Massood Samii
  • ABSTRACT: This paper explores the evolution of New Hampshire business internationalization andthe development and implementation of the various strategies these businesses employ tosuccessfully operate in the international marketplace by asking four simple questions, referred toas the 4 W’s of International Business Strategy: When, Where, Why, and What are the reasonsbusinesses decide to seek internationalization. A presentation of strategic theories and modelsconstitutes a brief literature review, evaluating prominent contemporary strategists PankajGhemawat, Mike Peng, Michael Porter and Massood Samii. Businesses often internationalize as a result of external pressures rather than establishinga predetermined course of action for internationalizing. Regardless of how a business entersinternational markets, it is forced to develop a strategy for acting in the internationalmarketplace. After a company establishes an initial international presence, it will begin seekingother opportunities. This argument will be proven by the survey responses.Thesis Internationalization occurs as a result of perceived necessity. Because a lack ofinternational experience may exist within a firm, or because the perceived risks and costs ofinternationalization may be a hindrance or even a deterrent from internationalizing the firm, asound, robust market entry strategy is required to assess the risks, costs, and opportunities.
  • Table of ContentsIntroduction ……………………………………………………………………………. 1Reasons why Companies Internationalize: Why, When, Where and for What reason? 3Market Entry: Activities and Methods of Internationalization ………………………. 4Strategies of International Business ………………………………………………….. 5Peng: The Strategy Tripod and Five Entrepreneurial Strategies ……………………. 6Ghemawat: The CAGE Distance, ADDING Value, and AAA Frameworks ……….. 8Conclusions for Literature Review ……………………………………………………. 12Case Studies …………….…………………………………………………………….. 14 NEMO Equipment ……………………………………………………………. 14 Hitchiner Manufacturing .……………………………………………………. 19 Flynn Systems Corporation .…………………………………………………. 24 MultiNational Resources ..……………………………………………………. 28Survey Results …………….………………………………………………………….. 33 Analysis ..……………………………………………………………………… 33 Survey Responses …………………………………………………………..… 39Appendix A: Complete Graphs and Charts ………………………………………... 43
  • Introduction International trade presents several complexities to a business or firm interested inexpanding beyond its domestic borders. This is especially true where new entrepreneurialcompanies are “born global,” perhaps without ever considering the possibility of internationaloperations at the outset of establishing the new venture. This begs a series of four vital questionsthat need to be answered to better understand how businesses use international markets to gainprosperity. The four questions to answer are: Why did/does the firm (want to) enter internationalmarkets? When did the firm decide to expand to international markets? Where did the firm startin international markets – a local and/or similar country, or a foreign and different country andculture? What were and are the experiences of operating internationally? Sooner or later, a firmwill need to develop a strategy to effectively and efficiently operate in the markets it has enteredin order to optimize its presence in those markets. Of course, these four basic yet vital questions,if answered correctly, can open the gates to acquire more information about how firms developand implement strategies for operating in international markets. Some firms happen to find themselves operating in international markets by chance,while others wrestle with the prospect of moving some, several, or all aspects of their businessactivities from purely domestic to international markets as part of their growth or sustainabilityplans. While some find that the transition to international markets occurs rather naturally, as inthe case of “born global” firms, others will find it takes prolonged planning. It is well known thatthat some motivators for moving to international markets include reducing costs, seeking newmarkets (sales and development opportunities), seeking capital and increased competiveness. Inorder to answer the 4 W’s -- Why, When, Where, and What—and to better identify the Evaluation of the 4W’s of International Business Strategy 1
  • motivators New Hampshire businesses have for seeking international markets, a series ofresearch activities have been undertaken with a sample of New Hampshire businesses. New Hampshire is a diverse and attractive economy offering an interesting cross sectionof firms and strategies. In this unique market, one can find small and medium sizedentrepreneurial firms born into international markets. Of the medium and large firms that havestarted in New Hampshire, some have stayed domestic, while others have accessed internationalmarkets, and others still, have attracted international investment directly to the state. It providesan interesting research base from which we are able to evaluate the strategies employed to accessand operate in international markets. The sample is taken from a broad, quantifiable survey ofNew Hampshire businesses and personal interviews with several New Hampshire businessesranging from textile makers to manufacturing, and high tech software companies. Theinterviews are reflected as mini case studies which include Nemo Equipment, HitchinerManufacturing, Flynn Systems Corporation and MNR. Prior to the presentation of the research and case study analysis of the 4 W’s, this paperwill address the important question of what exactly strategy is and what it means. To accomplishthis, the paper will review the modern theories of business strategy through a brief evaluation ofthe basic, common tools that contribute to a strategist’s tool-box, and will expand to include abrief evaluation of Mike Peng’s Strategy Tripod and Five Entrepreneurial Strategies and PankajGhemawat’s CAGE Distance Framework, ADDING Value Scorecard and AAA Scorecard ofmodern business strategy, assisting firms in developing stronger global positioning andincreasing a firm’s prosperity. Evaluation of the 4W’s of International Business Strategy 2
  • Reasons why Companies Internationalize: Why, When, Where and for What reason? The trade theory of absolute advantage presented by Adam Smith in 1776 and the theoryof competitive advantage presented by David Ricardo in 1817 have been modified to fit therealities and needs of modern corporations. Businesses seeking to increase their profitability willnaturally begin to innovate and develop new approaches to positioning their company and theirproducts. Businesses may find that reducing costs by entering a market with a large pool ofcheap labor can reduce costs for manufacturing or service type activities. While others may findthat moving to international markets expands the horizons of existing, new or prospectiveproducts and services that are either feigning in dominance in the home market, or have nopotential at market penetration, or are burdened by regulations not faced in some internationalmarkets. While others still find internationalization by either pushing out into host countrymarkets or drawing foreign investment as a method for raising capital. Regardless of the reason,the core motivation is to find new ways to increase revenue and profit and remain relevant andcompetitive. In some cases, this may even reduce risk. According to Mike Peng (2009), internationalizers are made up of three major groups:enthusiastic, followers and slow. Enthusiastic internationalizers are leaders and see opportunitiesand use various methods to increase profitability. Massood Samii (2011) indicates the methodsare typically based around knowledge acquisition, lowering costs, or increasing competitiveposition through internationalization. Conversely, there are the followers. These are thecompanies that follow their customers, distributors, suppliers and even competitors to theinternational market place. Aside from the two poles of enthusiastic and followers, there are alsoslow internationalizers. These typically are larger organizations with strong and dominant holds Evaluation of the 4W’s of International Business Strategy 3
  • on domestic markets that are slow to enter the foreign market because they are waiting to exhausttheir domestic options.Market Entry: Activities and Methods of Internationalization According to Massood Samii (2011), once the decision to internationalize has been made,it is time to decide which activities will be internationalized and where they will be located.Then, it is up to the firm to decide how the business will be internationalized. See Figure 1below. Ultimately, there are two approaches to internationalization: equity and non-equity. MikePeng describes the equity approach as based on FDI to the host country, where theinternationalizing firm will make some direct investment either through a joint venture, merger,acquisition, a subsidiary, or just green field investment, or FDI in a project that will be whollyowned and built from the ground up to the parent company’s exact specifications. The non-equity approach is based on strictly importing or exporting, contractual agreements, i.e.licensing, R&D contracts, turnkey projects, sales/marketing channel and distributorships. Figure 1. Internationalization Tripod. Chapter 8. Massood Samii Evaluation of the 4W’s of International Business Strategy 4
  • Strategies of International Business The practice of strategy development and execution is something that cannot be takenlightly. International business strategy has been heavily influenced by four fundamental ideas.Two of which are the primary and common tools that have been used to build new ideas anddevelop new, more sophisticated tools for the practice of international business strategy. Thecommon and primary basic tools employed in international business strategy development arethe S.W.O.T analysis, an internal and external survey of Strengths, Weaknesses, Opportunitiesand Threats and the V.R.I.O. method, a complementary survey of Value, Rarity, Imitability, andOrganization. To enhance these tools, Michael Porter (Porter, 1980) developed the five forcesmodel of industry competition, dubbed Porter’s Five Forces. The model enables a business toexplore and identify risks and opportunities by responding to the five criteria in the Five Forcesframework. Those criteria are: Threat of new entrants, bargaining power of buyers, threat ofsubstitute products or services, bargaining power of suppliers, and the rivalry among existingcompetitors. Porter’s framework, coupled with the VRIO and SWOT analysis, develop a robustand convincing case for internationalization in targeted markets. Also, together they can provideevidence to refrain from entering particular markets because limited visibility exists, and the firmmay not be able to compete on an even playing field. This tool is perhaps the most commonlyemployed in addition to the S.W.O.T. analysis and V.R.I.O method in business strategy andplanning, but Porter’s tools also have some deficiencies, namely compensating for industryfactors such as clusters and complementary products and services. Due to these deficiencies,more specialized theories and tools offered by Mike Peng and Pankaj Ghemawat further enhancethe practice and effectiveness of international business strategy. Evaluation of the 4W’s of International Business Strategy 5
  • The Strategy Tripod developed by Mike Peng is a simple, streamlined, yet robust toolthat neatly complements the other tools. It leverages the time tested tools, SWOT, VRIO andPorter’s 5 Forces to increase coverage of deeper international strategy issues. Peng’s modelenables users to evaluate the impact and the effectiveness of firms to operate in foreign marketsby framing strategy through the Strategy Tripod, see figure 2. The three elements of the tripodseek to create both an introspective understanding and an external understanding of the marketsa firm intends to enter on the belief that a good international strategy rests on 3 legs, each ofwhich have to be developed in detail. Figure 2. Peng’s Strategy Tripod The base of the tripod consists of: Industry based competition, Firm-specific resourcesand capabilities, Institutional conditions and transitions. Peng describes how he uses the othertools, such as the VRIO, SWOT and Porter’s 5 Forces to manage the Strategy Tripod, and thatthe other tools are necessary for building the basic framework of a good strategy. But, theStrategy Tripod is a complementary framework that draws in elements of the other tools in amore comprehensive manner. After addressing the criteria in the previous frameworks, astrategist will have developed a strong understanding of the forces at play in the international Evaluation of the 4W’s of International Business Strategy 6
  • market place. Evaluating industry based competition is a step that requires deep knowledge ofthe market and the competitive forces at play both domestically and internationally. Developinga strong response to this criterion is necessary to paint a detailed picture of the competitivelandscape. This is where elements of the SWOT and VRIO frameworks are helpful. Likewise,in addressing the leg of firm specific resources and capabilities, a strategist will need todetermine the critical resources to sustainable business development and growth, and will alsoneed to determine the critical weaknesses. This will help determine where, geographically, thebusiness can be located. Finally, the evaluation of institutional conditions and transitions helpsthe strategist develop crucial perspective on the political environment, as well as the macro andmicro-economic conditions and policy actions that will either facilitate or deter sustainability.This aspect of the tripod will no doubt rely heavily on information collected during the Porter’sFive forces exercise. In addition to the Tripod, Peng presents the Five Entrepreneurial Strategies (Growth,Innovation, Network, Financing/Governance, Harvest/Exit). He explains how to use these toolsin “dynamic environments” and when managing cultural differences, another critical element todeveloping international strategies. The Five Entrepreneurial Strategies are useful for all typesof business, but target new firms that intend to launch straight into international markets, theseare “born global’ firms. The points of this strategy are different in that they apply to theentrepreneur with an eye to starting an international business. The five strategy points are aseries of criteria for evaluating a combination of both governmental/administrative/institutionalinfrastructure and industry competition and support. Peng identifies growth as the exciting partof entrepreneurial ventures, and encourages the entrepreneurial strategist to investigate thegrowth potential of new markets. Next is innovation. By assessing the growth potential of new Evaluation of the 4W’s of International Business Strategy 7
  • markets, the entrepreneur should also evaluate supporting industries and innovative processesand products in the target market(s). Network is a critical aspect of strategy because this iswhere the entrepreneur looks for support and guidance – both financial and developmental andgrowth. Financing and governance is also critical as it is the framework for structure of theorganization. It determines the sustainability of the organization, and requires a hard look at thehost country’s governmental structure and policies for business operations. Harvest and exit is arequirement for long term planning and contingencies. This aspect of the strategy helps for goalsetting and will enable the strategist to identify milestones and opportunities. It also helps thestrategist know what to do when the time comes to exit the market. Another critical element ofinternationalization is culture. Peng points to his contemporary, Pankaj Ghemawat, in his text asa leader in cultural understanding. Pankaj Ghemawat has developed a more complete tool set that further enables theinternational strategist with a different and perhaps deeper perspective. The CAGE DistanceFramework, an evaluation of the impacts of Cultural distance, Administrative/Governmentaldistance, Geographic distance, and Economic distance developed by Pankaj Ghemawat1 presentsa unique and interesting tool for international business strategy. Ghemawat claims the obstaclethat most firms face when they decide to internationalize is “distance.” In other words, the gapthat exists due to lack of understanding, comprehension, and willingness to accept, understand,and work through the obstacles and barriers that exist between two starkly different cultures, andeven two relatively similar cultures. Developing an understanding and managing distance so thatit can be used as an advantage is Ghemawat’s reasoning for “rethinking” global strategy. This,1 *Important to note about Ghemawat is that he believes the world is only semi-globalized at best. Claiming only 10% of theworld is truly using world markets to their full potential. Evaluation of the 4W’s of International Business Strategy 8
  • in many ways, is an answer to Porter’s Five Forces Framework. Ghemawat’s primary argumentis through rethinking and understanding the varieties of distance, future strategists will have thetools to foresee issues and scenarios before they arise; making their strategies more effective andmore efficient, thereby making the strategist more proficient in this practice. By firstacknowledging there is a gap between two countries, regardless of how similar they may appear,the strategist can initiate a deeper investigation into the reasons for the distance in four veryspecific, targeted areas critical to the sustainable internationalization of the firm. Ghemawat’sadditional major contributions are the ADDING Value Scorecard and the AAA Strategy Triangle. The ADDING Value frame work is designed to explain actual business activities anddifferentiators, really a robust expansion of the four key motivators for internationalization,expounding on Porter’s Five Forces and Peng’s Tripod and 5 Entrepreneurial Strategies. Theacronym stands for: Adding volume, Decreasing costs, Differentiating, Improving industryattractiveness, Normalizing risks, Generating and deploying knowledge and other resources.This tool is used to dig deeper into the business activities by developing a comprehensive anddetailed picture that accounts for nearly all the elements of strategy development through onesimple framework. The ADDING Value Framework forces the strategist to dig and investigatehow, when, where and why it can add value by internationalizing. Each letter of the acronymforces deeper investigation into a core element of business operations. For example, A – adding volume, asks the strategist to identify not only the ways inwhich the firm can grow, but what aspects of the new market will facilitate growth. Decreasingcosts is a common goal for firms, and it is necessary for the strategist to identify the variousways internationalization will add value by decreasing costs. Differentiation is another keyaspect to internationalization, and this may be answered simply by being the first firm in an Evaluation of the 4W’s of International Business Strategy 9
  • industry to seek international markets, or by offering a product tailored to international markets.Improving industry attractiveness is a means for evaluating the overall industry, the operatingconditions, the supporting and competing industries, substitutes and threats, and the opportunitiesto develop and grow. Identifying ways to improve the industry can greatly assist the strategist indeveloping the other aspects of the framework, and also identify ways in which the firm canimprove its position within the industry. Normalizing risks is an element not found explicitlydescribed in the other strategy frameworks. This element of strategy development is required to provide an opportunity to identify notjust the ways to minimize risks, but also to identify ways to capitalize on increasing risk andoptionality. Finally, generating and deploying knowledge and other resources is a way for thestrategist to identify channels for promoting the firm in a new market by leveraging the resourcesof the host country(s) and expanding the firm’s reach. Consider this the yardstick of the strategydevelopment. This gives the strategist a way to measure knowledge (and other capabilities andresources) development and transfer from the home market to the host market(s) and vice-versa.In addition to the ADDING Value framework, there is Ghemawat’s final significant tool for theinternational strategist, the AAA Strategy Triangle, see figure 3. Evaluation of the 4W’s of International Business Strategy 10
  • Figure 3. AAA Strategy Triangle. The A, AA and AAA scorecards help strategists better identify how a firm enters andoperates in a foreign market. The A’s stand for Adaptation, Aggregation or Arbitrage. A single“A” based strategy will utilize just one strategic entry method. This mode of entry is typically afirst step to internationalization, where the firm is interested in testing the waters ofinternationalization, or where only one aspect of the AAA scorecard is truly necessary toestablish a presence in an international market. “AA” strategies incorporate two AAs, makingthem more dynamic, more flexible, and less risky. Typically this is where a firm is increasing itsmarket presence and/or looking for additional means of adding value and reducing costs, orcapitalizing on risks. While AAA strategies actually optimizes all three to create a deeper, morerobust market entry strategy for the firm making a total commitment to development and growthin international markets. Evaluation of the 4W’s of International Business Strategy 11
  • Conclusions The field of international business strategy has developed slowly and methodically overthe past thirty years. This is in part due to the low-level of internationalization of firms. Porter’scontributions are, no doubt, significant and have paved the way for other strategists to expoundon the Five Forces model of industry competitiveness. The theories and frameworks developedas a result of international business theory and practical application are significant contributionsand necessary guides for new start-ups and existing businesses alike. Through the application ofat least one framework, there is evidence enough that a business can better understand theinternationalization process. As businesses perceive a need to internationalize, it is critical they avoid the two largestmistakes: overzealous growth without clear understanding of internationalization, and beingparalyzed, or at least responding too slowly because of a fear of internationalization. The toolsoutlined and discussed in this text provide simple frameworks with which businesses can fairlyevaluate the risks, costs, and opportunities of establishing international operations. For small andmedium sized firms either “born global” or rapidly drawn into the international marketplace as aresult of customer demand, it may seem that developing an international strategy is irrelevantsince business opportunities are clear and present. For the established firm, it may seem thatstrategy development is marginal because internationalization may start with an experimentalprocess of licensing or distributorship. However, complete strategy development is vital tosuccess over time, and must be built into the international business plan for all firms seekinginternational markets. As Porter, Peng, and Ghemawat all prove in their frameworks, a thoroughassessment of the market will rapidly expose the risks and opportunities a firm can expect toface. This will ensure success over the long term. Evaluation of the 4W’s of International Business Strategy 12
  • References:Samii, M. (2011) International Business SDPorter, Michael E. (1980) Competitive Strategy, New York, Free Press.Peng, Mike W. (2009) Global Strategy 2ND Edition. Mason, OH: South-Western CengageLearning.Ghemawat, P. (2007). Rethinking Global Strategy: Crossing borders in a world where differencesstill matter. Cambridge, MA: Harvard Business School Press. Evaluation of the 4W’s of International Business Strategy 13
  • CASE STUDIESCase Study: NEMO Equipment http://www.nemoequipment.com/Interview: Special thanks to Nicole Chretien, Director of Customer Service; Tom Reynolds,Director of Operations; Ryan Mateyko, Director of Sales Strategy; and Kate Ketscheck, Directorof Marketing and Public Relations World-wide leader in innovative tent and outdoor gear design, NEMO Equipment is asmall design, research and development firm based out of Nashua, New Hampshire. NEMOEquipment, designer of tents and other stitching intensive products, does not manufacture or sewa stich of fabric for production and sales in the United States. New Hampshire’s, textileindustry is all but a fading memory. Some small, niche and specialty products still exist in theU.S., but design firms like NEMO Equipment are the new face of success in textile production. In 2002, Cam Brensinger founded NEMO Equipment with the intention of deliveringhigh-level design and engineering to the outdoor industry. Nashua, NH was an ideal locationdue to the proximity to Boston and the Boston design community, and also offered a favorablebusiness climate for small businesses and start-up ventures in the state. Delivering quality is oneof NEMO’s highest values, which is stated directly on the website and is also the mantra of theemployees. The designs and finished products are innovative and of the highest quality, as wasdemonstrated during a visit to the design center in Nashua, NH. From the outset and sale of thefirst tent in 2006, the designs and quality were certainly innovative and captured great interestand some high-profile customers including team NIKE/Balance Bar and the U.S. Navy SEALs.As customer service director, Nicole Chretien stated, “The tents are consistently selected forsome of the most extreme conditions, and consistently out-perform other tents in their class.”She conveyed a story of a professional snowboarder on a back country expedition in BritishColombia with other riders using larger brand equipment, and the NEMO tent was the envy ofthe group for its strength, light-weight, and reliability in extreme wind and snow conditions. In eight years, NEMO has grown to be a profitable company with strong networks ofproduction and distribution for the Asian and Austral-Asia markets, experiencing growth during Evaluation of the 4W’s of International Business Strategy 14
  • the recession. NEMO offers two types of products: tents and sleeping pads and pillows.Leveraging its numerous features, awards, and accolades from outdoor industry publications andindustry organizations, NEMO equipment is effectively using its strength as a patterned designand research and development firm to optimize its operations. Given the exacting precision andthe demanding quality standards NEMO strives to deliver to its customers, it has developed astrong, reliable production network capable of matching NEMO’s design standards with highquality materials and manufacturing processes.Internationalization Upon entering the Nashua, NH mill building NEMO headquarters, something seemsamiss. The old tables on which the looms once rested are in instead an antique Singer sewingmachine is bolted to a now design desk. But, not a single stich for production products is made inthis facility. Instead, a 3D printer and a giant room, half the length of a football field, filled withproprietary tools and products is what one sees. Why, What reason?: According to Tom Reynolds and Ryan Mateyko, Director ofOperations and Director of Sales Strategy, respectively, domestic production costs for tents andother outdoor equipment is prohibitive for large companies with deep reach and pockets, letalone a small company focused on high quality and already using expensive materials andprocesses. In fact, as Tom, Ryan, and Nicole point out, material production and stitching ofoutdoor equipment, i.e. tents, backpacks, and sleeping bags has not been done, on a large scale,in the United States since the 1950’s because of the soaring labor costs; and foreign countrieshave offered abundant and inexpensive labor which has attracted U.S. businesses away from theU.S. Moreover, they point out the quality of the stitching and access to a variety of materials isfar greater than what can be found in the U.S. That is a result of the stitching and textileproduction industry shifting away from the U.S. over 60 years ago. Where, What reason?: As a result, nearly all of outdoor equipment manufacturing isdone in the Pacific Rim, including NEMO Equipment’s. Just as suggested by Adam Smith andDavid Ricardo in the theories of absolute and comparative advantages, different countries in thePacific Rim have developed highly specialized and efficient approaches to manufacturing very Evaluation of the 4W’s of International Business Strategy 15
  • specific pieces of outdoor equipment. And, as a result, clusters of manufacturers and textiledevelopment have emerged2. For example, tent textile manufacturers and stitching companieshave developed a strong cluster in China. It is here that most of the world’s tent material andstitching is sourced. There are varying levels of material and production, ranging from the basicto the highly specialized and innovative that top tier and niche brands, such as NEMO use. When, for What reason?: Because of the specialization and competition, it is easy tokeep costs down, and quality up. NEMO Equipment was able to access these networks ofmanufacturers from the outset of its manufacturing operations. However, one major drawback toPacific Rim production is that shipping times and costs are not always definite, and can changewith little notice. Other difficulties include a lack of oversight and on-the-fly changes in theevent something needs to be addressed. And, there is always the looming fear that a design canbe copied and reproduced without consent or licensing. Yet, the low costs and specializationprovide a highly competitive manufacturing environment, enabling the design firms, such asNEMO, to take advantage of the experience in the market place and to pass along the savings totheir customers. In addition to the manufacturing benefits NEMO realizes through Pacific Rimproduction, they are also able to leverage drop shipping from their high quality manufacturers.Much of the finished product is returned to the Nashua, NH headquarters for distribution to retailstores throughout the U.S. and Canada. However, orders destined for large distributors, such asREI can receive large quantity drop-shipments direct from the manufacturer. Also, as a means ofreducing costs and carbon-footprint, NEMO can also ship directly from the manufacturer to itslargest market outside the U.S. : Japan and Australia/New Zealand. Having the advantage ofChinese production brings NEMO closer to the Japanese and Australian markets, and to somedegree the European market.2 Because one city or country develops specialization in a particular element of a piece of equipment, it does notnecessarily follow that the city and/or country specializes in other pieces of equipment or the equipment as a wholeunit, in the case of tents. For example, the best tent poles are made in Korea and Taiwan, but the tent fabric andstitching is done in China for the best quality and price. However, sleeping pads are stitched entirely in Taiwan, andbackpacks are produced in Vietnam. This specialization is attractive Evaluation of the 4W’s of International Business Strategy 16
  • At this point, NEMO relies solely on direct and wholesaling to its retail-outlet customers,and incorporates some channel partners for sales in Asia, as that market is too far out of directreach. The Asian sales representatives better understand the needs and wants of the markets, aswell as the culture of the markets, enabling NEMO to focus on delivering the best possibleproducts to those markets, while focusing on developing their North American and Europeanmarkets.Foreign currency risk Exposure to foreign currency movement is always a concern when a firm has investmentsof one form or another in a foreign country. NEMO limits its exposure to foreign currency riskexposure because it does not have direct investments in other countries, and is able todenominate payments in U.S. dollars. Despite having off-shore production, it is not directlyexposed to fluctuations as contracts are signed and executed in dollars over periods of time. Thisis a nice luxury for a small company spread around the world. Relying on UPS freight logisticsalso helps keep costs in dollars, at the NEMO accounting end.Strategy NEMO Equipment has established an effective international strategy by keeping costs toa minimum and leveraging the over 60 years of development in off-shore outdoor equipmentmanufacturing clusters. Born global, NEMO is a follower in the internationalization approach ithas pursued, following other, larger outdoor equipment manufacturers to their manufacturingclusters. However, it has also found ways to rapidly overcome the CAGE distances described byGhemawat (2007), and is successfully outsourcing its development (Ghemawat, 2007). Byunderstanding the competitive forces at play between various manufacturers in China, Taiwan,and Vietnam as well as the competitive forces within the outdoor equipment industry, NEMOrapidly and readily identified the opportunities on which it could capitalize. Understandinginstitutional challenges and making transitions into the Pacific Rim manufacturing were all partof the initial business plan and development strategy. By addressing all of these elements in theearly planning stages, NEMO moved forward with its internationalization plans effectively, anddevelop itself into a top performer in the industry. In retrospect, it appears that NEMOeffectively managed at least the basics of Peng’s Strategy Tripod (2009). The next stages of Evaluation of the 4W’s of International Business Strategy 17
  • NEMO’s internationalization may include some foreign direct investment in sales and supportoffices, which will complicate their strategy and increase the exposure to different forms of risk.However, in NEMO’s short time, it has been highly effective at reducing its exposure tointernational risk, while capitalizing on opportunities provided by the larger firms in the industryabsorbing more of the risk in the market place. Evaluation of the 4W’s of International Business Strategy 18
  • Case Study: Hitchiner Manufacturing http://www.hitchiner.com/Interview: Special thanks to John H. Morison III, Chairman; Marc Riquleme, Vice President,Sales and Marketing; Tim Sullivan, Vice President Corporate Affairs and ServicesCompany and description/bio Leveraging his knowledge from his experience at the War Production Board workingwith a 5,000 year old lost wax metal casting process, A. Fred Hitchiner saw an opportunity tocommercialize the process for use in jet engine blades. Because of its high-precision, the castingprocess was ideal for the new developments in post-war aeronautics and other precision castingneeds. Hitchiner founded the company, Hitchiner Manufacturing on Long Island, NY in 1946,and quickly relocated to Manchester, New Hampshire to reduce costs. Soon after the relocation, and as a result of Hitchiner’s specialty limited-productionapproach, he soon found himself in financial difficulty. By 1949, Hitchiner had taken on aninvestor and restructured the company so that he was left to sell the process and service to hiscustomers, while George Abbott Morison and his son John H. Morison were responsible formanaging and expanding business operations. George Morison had invited his son, John, whohad been working in South America back to partner in the Hitchiner venture. It is important tonote because South America and Latin America are critical to Hitchiner Manufacturing’sinternationalization story. By 1956 the Morison management team had catapulted Hitchiner Manufacturing to a pre-eminent place in investment casting and lost wax casting with sales reaching over $2 million.John H. Morison said of the organization, “Private ownership has been a key to the company’sgrowth and, more important, to serving the purposes for which my father and I acquired thecompany in 1949 – to provide healthy employment opportunities and build a sound economicbase in the State of New Hampshire.” A sentiment also shared in an interview with John H.Morison III, who also spent time working in South America. While Hitchiner Manufacturing rapidly established itself in the thin wall investmentcasting and lost wax casting market as a formidable leader in innovative processes by the early Evaluation of the 4W’s of International Business Strategy 19
  • 1960’s, it was attracting attention from manufacturers of high quality, high tolerance metalproducts. This helped draw Hitchiner to international markets and attract the attention of up-and-coming firms in need of a high quality, high tolerance, precision process for shaping metal.Internationalization for Hitchiner Manufacturing reflects nearly all methods ofinternationalizations ranging from joint ventures to licensing, to reseller agreements, and toforeign direct investment. Hitchiner Manufacturing maintains international operations to someextent in Latin America, Europe and Japan.Internationalization Why, What reason?: Hitchiner Manufacturing had begun exploring international marketsbecause it was constantly pursuing new growth markets. Starting with purely domestic marketsin 1949, it established a global footprint by the 1960’s. Selling a proprietary manufacturingprocess and service, rather than its own product, forced Hitchiner sales teams to locate anddevelop new channels of business. As a result, foreign manufacturers were sold on the value andquality improvements in the more expensive Hitchiner process. Some of these new convertsbecame interested in adopting the technology and the process for their own foundries. Again,not having an actual product, Hitchiner was able to license and sell its process and technology toexecute the process. Licensing started in the 1960’s with Nokia in Finland. Through the 1960’sand 1970’s Hitchiner expanded to companies in France, the U.K., Australia, even Japan withNido Steel; and in the 1980’s, the Morison’s returned to their South American past andestablished a joint venture with a Brazilian company. In just over 10 years of its founding,Hitchiner Manufacturing had laid the ground work and had developed into a truly globalorganization from its humble New Hampshire roots. When, What reason?: Hitchiner Manufacturing had truly been internationalized since the1960’s, but it was in 1986 that the internationalization strategy experienced a majordevelopment: expansion into Mexico via joint venture. According to John Morison III, HitchinerManufacturing was producing nearly every single golf club head in the world during the 1970’sand into the 1980’s. Comparatively, golf clubs are more expensive to produce than other highprecision parts, requiring in some cases up to 150 touches by a human before completion, versusother products, such as jet engine blades, requiring only a handful of touches by a human. Evaluation of the 4W’s of International Business Strategy 20
  • Because of the intensive labor, and added costs, Hitchiner began looking at alternativeproduction facilities. They launched Hitchiner S.A. de C.V. in Santiago Tianguistenco, Mexico,signing a joint venture with a Mexican firm while other competitors were seeking Pacific Rimmanufacturing. Not convinced Pacific Rim manufacturing was the best possible way forward.Hitchiner leadership invested heavily in modern, high quality tools and training to bring theMexican venture up to speed enough to support U.S. production with the same exacting quality,but with reduced labor costs. Ultimately, Hitchiner S.A. de C.V. bought out their partner, andnow invests directly in Mexico. Where, What reason? When asked why they decided against China and other PacificRim opportunities, John Morison III and Marc Riquelme, Vice President of Sales and Marketing,explained that the decision to expand in the Americas was simple because it is a true costsavings. They stated there is too much risk and exposure in China and other Pacific Rim marketscoming from a variety of directions, and the cost savings on paper are not actual savings. At thetop of the list of reasons to not enter Asia were lack of direct oversight and shipping. The natureof the Hitchiner process requires shipping of proprietary alloys for production, and the waste tobe returned to the factory of origin and melted down for recycling. Shipping costs coupled with,perceived and real, unreliable delivery, decreased security and a magnified distance barrier –cultural, administrative, geographic, and economic – really made the proposition of entering thePacific Rim less attractive than staying and developing a high quality facility in Mexico. BothMorison and Riquelme are confident this decision has enabled Hitchiner to further the qualitygap between it and its competitors using Pacific Rim manufacturing. So much so, they havenoticed some customers coming back to the U.S. and even embracing Mexican production as aquality upgrade, with the added benefit of close proximity to the United States, predictabledelivery schedules, more direct control and input over product development and production, andsecure manufacturing with stronger protections for patents and proprietary designs.Foreign currency risk Foreign currency exposure risk plays a critical role in Hitchiner Manufacturing’sinternational business. Because Hitchiner has operations in Mexico, Europe, and Japan, withcustomers world-wide, terms are often negotiated in foreign currencies. Fluctuations in currency Evaluation of the 4W’s of International Business Strategy 21
  • can have dramatic impacts on the cost of goods and services being delivered to the customer.While aggressive hedging strategies are not actively employed to mitigate the currency exposure,some hedging is employed. Ultimately, being acutely aware of the fluctuations of the currenciesand the effects currencies have on raw materials from one country, production in the U.S. and/orMexico; shipping to foreign ports, and distribution in another country over extended periods oftime, invites risk to making or losing a deal based on fluctuations of the home and foreigncurrencies. Of course, that is all part of risk inherent in transacting international business.Strategy Hitchiner manufacturing’s strategy has developed to include every method ofinternationalization identified by Peng (2009), and has successfully, if unknowingly employedGhemawat’s CAGE Distance frame work (2007), to gauge the types of internationalizationstrategy appropriate for different periods in its development and different locations around theworld (Peng, 2009; Ghemawat, 2007). Given the proprietary process and Hitchiner’scommitment to quality, a higher level of control over the process was and is necessary to ensuretheir continued success. As a young company and to this day, licensing and reseller agreementshave played an important role in Hitchiner’s ability to develop overseas revenue. It certainlyprovided the groundwork to begin expanding operations into new markets. Then, of coursewere the joint-ventures with the Brazilian and Mexican companies for actual manufacturingproduction. The success of the joint-venture in Mexico, led Hitchiner to foreign directinvestment. From Hitchiner’s perspective, investing in Mexico made near perfect sense.Retrospectively, the CAGE Distance framework clearly explains the decision (Ghemawat, 2007).In the mid-1980’s getting to the Pacific Rim to establish a manufacturing facility of exactingquality was a rather complex proposition. Shipping costs were high, infrastructure was poor, andsecurity, safety, control, and reliability were all questionable. Travel costs were high and thecultural and language barriers were also high. Rather than investing in the Pacific Rim, on theother side of the world with limited oversight and investment security, Mexico offered anappealing alternative. Culturally, Mexico is certainly different than the U.S., but Morison II andIII had experience with South American businesses, reducing that distance. Administratively,Mexico’s government was coming more in tune with U.S. as NAFTA discussions loomed andtrade between the two countries was increasing. Geographically, the two countries are Evaluation of the 4W’s of International Business Strategy 22
  • neighbors, which reduced travel times and enabled Hitchiner leadership to keep better watchover the production and their investment, ensuring that their investment would flourish into alower cost, high quality facility that could handle more of the human labor intensive products.Finally, economically, while Mexico is an emerging market and has its own struggles, itseconomic distance is not too far from the U.S. to surprise keen investors. Overall, Hitchiner’s internationalization and growth strategy has been very consistent,following in line with their corporate mission, “To be the performance leader in investmentcastings by extending the benefits of counter gravity casting via continuous processimprovement, unmatched operations efficiency and exceptional customer service.” Over fivedecades, Hitchiner has proven its success in international markets through careful considerationand resisting the temptation to follow its competitors for a couple of cents savings. As a result,Hitchiner truly has established a sustainable growth plan that makes it the pre-eminent thin-wallinvestment casting and counter gravity casting manufacturer in the world. Evaluation of the 4W’s of International Business Strategy 23
  • Case Study: FSC www.flynn.comInterview: Special thanks to Hank Flynn, Owner and PresidentCompany and description/bio Founded in 1986, Flynn Systems Corporation [FSC] is a small specialty softwaredeveloper serving the needs of the niche Automatic Test Generation and JTAG/boundary-scantest and programming communities in the greater electronic test and measurement industry.Flynn Systems Corporation was founded by Hank Flynn in Nashua, N.H. as a response to a needfor inexpensive, thorough, robust and well supported tests by manufacturers of electronicdevices. Realizing the need for accurate, robust, and flexible tests, Flynn left behind a career inengineering and marketing with several large multinational corporations to establish his newventure. By the mid 1980’s Flynn had developed a strong international network of design and testengineers. Leveraging that network was a key to the success of the company. Given the smallecosystem in which FSC lived, it was necessary for the company to immediately tap into acustomer base outside the U.S. in order to increase its market size. FSC was also being drawn tothe international market by its customers. Through trade shows and customer inroads, it became apparent that FSC needed supportand representation in Europe. By 1990 FSC had established a reseller agreement with Seriem, aFrench communications manufacturer. Later in the 1990’s, Flynn took on resellers in Germanyand Sweden. International markets account for nearly 30% of the business conducted by thecompany, and FSC now has reseller agreements with sales and support teams in Germany,France, India, China, Israel, and Russia.Internationalization Why, What reason?: FSC was developed in response to a known need for its type ofcustomized products and services from international connections identified through Flynn’snetwork. France and Germany were two areas in which Flynn had spent significant time withpast companies, and maintained his connections to management teams in the US and abroad. As Evaluation of the 4W’s of International Business Strategy 24
  • customers have transitioned stages of projects from design and development in the US andEurope to manufacturing stages in China and Malaysia, FSC has been pulled along. When, Where, What reason?: Internationalization started almost immediately with salesto GenRad, Teradyne, Digital Test Equipment and their customers. The first foray intointernational representation occurred in 1990/1991 with the French company, Seriem. Signing areseller agreement, Seriem began selling FSC’s test tools and services to mostly French andGerman Europe based corporations. As FSC’s products developed and evolved, a Swedishcustomer, Kontest, approached FSC to enter into a reseller agreement for Scandinavianelectronics developers in 1998. FSC maintained the two relationships, then continueddevelopment of new tools and services to meet changing needs. This brought the transition ofATE Care from a valued customer to a valued reseller in early 2000. ATE Care recognized theopportunity to complement their platform, and was eager to offer a product and service inGermany and German speaking countries to compete with expensive European based tools. While the relationships were developing and maturing, the paradigm of communicationwas shifting from mailers, trade shows, magazine ads, phones, and face-to-face visits towardsinternet advertising and telephone contact and follow up. By 2003, internet marketing hadbecome a central tool for FSC, reaching out to the world and any potential engineers shoppingfor information and the types of boundary scan tools and services offered by FSC. This furtherenabled the FSC direct sales method in the regions without an active reseller. During this time,China and Russia also came online as strong and more trusted markets for proprietary electronicsmanufacturing, as well as research and development. In late 2008 and early 2009 FSC expanded beyond a traditional reseller agreement, andentered into a strategic partnership which was part joint venture with 70/30 terms and a licensingagreement with an Israeli test and development firm, StarTest, interested in bundling FSC’sproprietary tools with their own tools to deliver complete solutions to the Israeli and Russianmarkets. This was really a first for FSC, having been leery of the Russian market for a very longtime. This new partnership represented an interesting opportunity to enter a new and rapidlydeveloping market through the guidance of a trusted partner. Evaluation of the 4W’s of International Business Strategy 25
  • The most recent development in FSC’s internationalization has been to add a reseller forChina and Hong Kong, Keyware Technology, Co. This addition provides representation foranother rapidly growing test and development market. Given the unique cultural and languagecharacteristics of the Chinese market, adding Chinese some aspect sales and support is anecessary strategic move to better connect with existing and potential Chinese customers. What benefit?: Internationalization has enabled FSC to remain competitive in its industryand connect with new customers around the world. While the U.S. remains its largest market,having and maintaining a global sales network grants FSC to new markets and customers whootherwise may not be aware of the tools and services offered by FSC. Because the competitivelandscape is global for boundary scan industry, it is important for FSC to have some presence inmajor and developing markets around the world.Foreign currency risk Understanding and identifying foreign currency risk is critical for any internationaloperation. Minimizing exposure to foreign currency risk is critical for large and small firmsalike. When asked how they handle orders from international companies, the answer was that allorders are transacted in US dollars. Early on in the company’s history, it became apparent thatselling goods and services in a variety of currencies was going to be too complex. FSC’s focuswas and is developing software solutions, and therefore, has requested all customers to makepayments in USD. This eliminates FSC from having to convert foreign currencies to USD andfrom having to worry about fluctuations in relative dollar values during the net payment terms ofthe sale.Strategy Born global, FSC’s internationalization strategy has been to develop and maintain aglobal presence in critical areas where there is a high density user population. Through the useof customers-cum-reseller, reseller agreements with strategic partners – those where the FSCproduct offerings complement the partners’ offering, joint venture engineering projects, andlicensing agreements to resellers, FSC has been successful in establishing a presence ininternational markets. As a small software company, FSC does not stand to gain much, if Evaluation of the 4W’s of International Business Strategy 26
  • anything, by equity approaches, but rather realizes great benefit from non-equity approaches,such as those described above. FSC displays all three of Peng’s (2009) market entry types: enthusiastic, follower andslow (Peng, 2009). While enthusiastic to embrace and enter international markets, FSC is moreso a follower when it comes to establishing a market presence vis-à-vis reseller agreements,strategic partnerships, and licensing agreements. It is typically led into markets by customersshopping and price comparing, and has been slow to penetrate many markets compared to itscompetitors. However, it has been effective at establishing and managing internationalrelationships with distributors and customers through its transitions from a legacy product to adeveloping product. By overcoming cultural distances and displaying openness to variouscultures, FSC has been able to slowly, but effectively navigate the channels of distributionwithout becoming encumbered by the administrative obstacles of direct investment and equityapproaches to investment in foreign countries (Ghemawat, 2007). FSC’s strategy of maintaininga safe distance and taking conservative steps towards internationalization, while conducting allbusiness in U.S. dollars has been ultimately effective. Further, it has enabled FSC to continueservicing international markets with minimal overhead costs and very limited exposure totransactional risks, and has kept FSC shielded from political and economic forces. Evaluation of the 4W’s of International Business Strategy 27
  • Case Study: MNR http://mnres.com/home.htmlInterview: Special thanks to Christopher Wolfe, Owner and PresidentCompany and description/bio Exeter, NH based MultiNational Resources (MNR) was founded in the early 1990’s byChristopher Wolfe in response to what he calls a “push-pull” scenario. After a buy-out andchange in strategic direction by his employer, Wolfe found strategic opportunity where formercustomers were contacting him directly to maintain the connections Wolfe had developed withthe Chinese and Taiwanese manufacturers. That was the “push” part of the equation. At thesame time, Wolfe’s Chinese and Taiwanese manufacturer and distributor contacts werecontacting him to seek out leads and ways to continue selling the products they had beenmanufacturing previously. Wolfe found himself in the middle of a great opportunity to leveragehis knowledge of Asian resources, Electro-Mechanical Design and Industry trends to create anew company which provided high value added engineering together with low cost Asianmanufacturing. MNR is a value-added engineering design and manufacturer of Human Machine Interface(HMI) devices for original equipment manufacturers (OEMs). Examples of commonly usedHMI include cell-phones, remote controls, computer keyboards, keypads and I/O devices of allkinds. These are critical to the effective operation of simple to complex machines alike that playa fundamental role in our daily lives. Wolfe stated in an interview that the growing need toconnect the best aspects of U.S. engineering, research and development with the best attributesof Asian production capabilities was really what got MNR going. Since its start in the early-late1990’s, MNR has developed a strong presence in the HMI business. According to Wolfe, therapid developments and expansion of the cell phone market provided a lot of the early energyand facilitated the rapid expansion of the business. Boasting consolidated (with Taiwanese partner) revenue over $30 million, MNR hassuccessfully leveraged the best attributes of both U.S. research and development and Asianproduction. Wolfe has maintained a privately owned operation with only six full-timeemployees in the Exeter, NH headquarters, but over 400 employees in off-shore sites, Evaluation of the 4W’s of International Business Strategy 28
  • responsible for manufacturing, quality control, sales and distribution. This is a very interestingexample of a company using international markets to the fullest possible potential in order todeliver customers the best possible products and service.Internationalization Why, What reason? Established as a small business focused on providing value addedengineering consulting services while connecting buyers in the U.S. and Europe withmanufacturers in China and Taiwan, MNR was born global, and forced to optimize internationalrelations. Wolfe explained that today, MNR supports over 250 customers in 28 countries on 5continents, using a combination of direct investment, outsourcing and joint-venture resellerchannel partners. But, it started as a simple off-shoring operation. Wolfe had the advantage ofworking directly with Asian manufacturers at his position with a major US electronicscontractor, and was able to easily bridge the cultural distance that others found too difficult. Where, What reason? As original equipment manufacturers (OEM’s) are MNR’s maincustomers, Wolfe’s ability to deliver high-value added engineering consulting services and pairthe proprietary design efforts with the right manufacturer saves customers money and energy indevelopment and sourcing. This capability was developed in the early stages of MNR’s launch,as the development aspect of the business was the first to be internationalized. Most of MNR’scustomers were domestic U.S. companies looking for assistance in development andmanufacturing of HMI’s. Wolfe started by controlling design in the USA and outsourcingproduction to vendors with whom he had developed relationships in his previous position. AsMNR’s business expanded, so did its interest in the vendors and the ability to obtain morecontrol over the processes and finished product. These levels of involvement led to MNRgaining equity ownership with the vendors, and ultimately to the investment in and constructionof factories in China and Taiwan; ensuring MNR’s customers and designs were able to bemanufactured to the exacting standards on which MNR has and was building its reputation.Now, MNR has manufacturing facilities in China and Taiwan. When, What reason? The sales aspect of MNR followed a slightly different route tointernationalization. Where MNR was a leader in manufacturing internationalization, it was Evaluation of the 4W’s of International Business Strategy 29
  • more of a follower in the sales side of operations. MNR’s internationalization of the salesoperations was the result of MNR customers expanding to international markets, which drewMNR to downstream customers as a response to filling additional needs and providing technicalservice and knowledge for future developments. This organic process enabled MNR to carefullyselect trusted technical sales people to interface with both domestic and international customers.It also enabled MNR to better evaluate the competitive forces in the industry and identify thebest possible sales channels. Once MNR identified the sales channel resellers that bestrepresented MNR and the services it offered, MNR began investment into the channel partnerrelationships. Now, MNR has sales offices in UK, serving Europe and Hong Kong, serving theAsian markets. What are the benefits?: Internationalization has enabled MNR to achieve its mission ofdelivering the best possible engineering solutions at the lowest possible costs. Wolfecommented, “by diversifying internationally we have successfully experienced a “smoothing” ofmarket variables as regions change (up/down/stagnant) they counter act each other, creating avery smooth growth path and therefore saving the company from wild gyrations in sales andprofit.” According to Wolfe, MNR intends to maintain its internationalization efforts, as that isthe most effective and efficient way to remain the leader in the HMI industry. The type ofmanufacturing and the human labor involved is not conducive to domestic markets, as domesticlabor costs are exponentially higher than what can be found in foreign markets.Foreign currency risk With global operations and investments, MNR is certainly exposed to foreign currencyrisks. However, MNR manages the risk by making all transactions in U.S. dollars. They offerpricing with a foreign currency conversion, or in RMB (Chinese Yuan), leaving the opportunityfor future negotiations open in the event there are fluctuations in either currency quoted. But,ultimately, all sales are completed in US dollars. Wolfe says they also will quote commodityvalues when applicable. But, more often than not, their exposure to foreign currency fluctuationsis completely mitigated by conducting all operations in US dollars. Evaluation of the 4W’s of International Business Strategy 30
  • Strategy Maintaining global operations from MNR’s Exeter, NH head-quarters provides deepinternational reach and the ability for MNR to ensure the highest level of quality – both inengineering services, and manufacturing – with the least amount of exposure and risk in foreignmarkets. MNR has certainly developed a strong relationship with its Taiwanese partner thatrelies on proven success and effective management and execution of MNR’s interest in itsinvestments in China and Taiwan. Because Wolfe was able to develop relationships through aprevious capacity, he was enabled to gain first hand understanding of the manufacturer andproduction markets in China and Taiwan. The relationships he nurtured, which resulted in thesuccess of MNR have also been the channels by which he was able leverage his entrepreneurialnetwork to evaluate and harness the competitive forces in Asia. As an early starter in the AsianHMI manufacturing market, he was also able to control developments in the manufacturingindustry to meet his and his customers’ needs. Coupled with a deep understanding of thespecific resources and capabilities required to excel, and the resources to fill his specific needs,Wolfe was setting himself up for success in the HMI field. Additionally, Wolfe had enoughexperience and knowledge of the market and obstacles he would be presented with to avoid thepitfalls of internationalization. Maintaining global operations will further enable MNR todevelop new business in additional markets while bypassing some of the institutional problemsthat can arise in foreign investment situations. Moreover, Wolfe’s success is due in large part to his ability to close distance gaps thatothers were unwilling to do on their own, or were unaware of processes and resources required toreduce or eliminate particular distances. Wolfe was able to move right in and operate with theTaiwanese and Chinese, as well as the Americans and Europeans. As the business developed, sotoo did the relationships with the vendors and customers. These developments further improvedWolfe and MNR’s position with vendors and customers alike. The most important relationshipsare those with the vendors. Wolfe’s ability to overcome cultural distance with the Taiwanesecertainly led to his good fortune that has endured more than two decades. The relationship withthe Taiwanese has been the facilitator that has enabled MNR to limit the administrative andeconomic distances faced by operating in Asia. The geographic distance has not been much of aproblem for Wolfe, as he describes it, because of the near vertical integration, exclusive design Evaluation of the 4W’s of International Business Strategy 31
  • and the close connection to the vendors in Asia, MNR has a fair amount of control over deliveryof finished goods. Overall, MNR has developed and implemented a successful international strategy thatstarted at the very inception of the firm. In retrospect, it is clear that MNR has followed the PengStrategy Tripod and Ghemawat’s CAGE distance framework (Peng, 2009; Ghemawat, 2007),and proven that both frameworks are effective in developing, establishing, and maintaininginternational operations. The global strategy MNR has developed is certainly one that has beeneffective and one that seems to provide the flexibility and structure that MNR requires. Evaluation of the 4W’s of International Business Strategy 32
  • SURVEY RESULTSMethod and DataData The data analyzed in this study are returns from a 30 question survey distributed to 2100businesses in New Hampshire, thanks to the New Hampshire International Trade ResourceCenter (NHITRC) and the New Hampshire Manufacturing Extension Partnership (NHMEP).The New Hampshire International Trade Resource Center (NHITRC) and New HampshireManufacturing Extension Partnership (NHMEP) distributed the survey to their databases. TheNHITRC distributed the survey to 2000 people and the NHMEP distributed the survey to 100people, for a total distribution of 2100 people during the month of August, 2011. There are 17respondents at the time of writing, making the sample very small. The survey consists of 30 questions, 20 of which pertain directly to internationaloperations and strategy. The key points the survey investigates are: When and why NewHampshire companies decided enter foreign markets, what type of operations a company has inthe U.S. and foreign markets, whether or not there the New Hampshire based company isinvesting in a foreign market or receiving investment from a foreign market, and identification ofthe regions companies select for foreign operations. These respondents represent a diverse sample of manufacturers, service providers, salesand marketing organizations, agriculture, and high technology firms. The firms all have NewHampshire operations, and are active in or are seeking to become active in some or all of theworld markets, such as Europe, Latin America, Asia, and Africa. Evaluation of the 4W’s of International Business Strategy 33
  • Method: Qualitative Survey Returns from the survey are analyzed on question-by-question basis. The teninconsequential questions, such as name and contact information have been excluded from theresults and analysis.Results Company size: 57% of respondents worked at companies with over $10 million in revenue, 24% were in the $1 - $5 million range, and 29% are under $1million. Of those, only 6% of respondents have 250 – 500 employees, while 83% of respondents are in the 1 – 100 employee category. And, only one company is a not for profit company. Company Types: Manufacturers are the dominant group of respondents, accounting for 76% of respondents, while service businesses account for 24%. The breakdown for manufacturers encompasses precision manufacturers (13%), green technology (7%), food (7%), and biotechnology (7%). The remaining sectors include paper, printing, software, geotechnical, natural cosmetics/USDA organic body care, telecommunications, building products, and health security/access control. Respondents indicate that 73% of business is derived from US government contracts, and the same percentage is derived from foreign government contracts. Telecommunications respondents indicate that 80% of their business is foreign government contracts, while only 5% is U.S. government contracts. And, geotechnical firms indicate that 40% of their business is foreign government contracts, while only 3% is domestic government contracts. Evaluation of the 4W’s of International Business Strategy 34
  • Service industry respondents account for 32 per cent of the total respondents and include financial services (8%), management/strategy consulting (8%), education (8%), and engineering (8%). Only one respondent identified themselves as a research and development firm in the engineering industry.Internationalization: Of the 17 respondents, 16 replied that their firms include some levelinternational business, representing 94%. One respondent indicated while they do notcurrently have any international activity, they are actively pursuing international sales.Nearly one third (5 of 17) of the respondents indicate there business was “born global.” Theremaining twelve indicate their businesses entered international markets as a naturalprogression of business demands and to remain competitive and/or seek new opportunities.Of those twelve, only one entered because it was pulled into the international space. Most respondents (76 per cent) are market leaders, delivering highly focused, uniqueniche products and services. Four respondents operate on differentiation, that is low volumeand high margins, and just two operate on price, offering low prices and high volume.International Activities: Eighty-two per cent of the respondents indicate that havinginternational operations increases their competitive advantage in their industry. Theremaining 18 per cent engage in international activities because it is necessary to remaincompetitive within their industry. Almost half of the respondents, 9 of 17, import goods and Evaluation of the 4W’s of International Business Strategy 35
  • services. All 17 export goods and services. Interestingly, only 3 of 17 have internationalinvestments, and only 2 of 17 have off-shore operations. Two companies receive foreigninvestment, and only 3 are foreign owned. Of the 17 respondents, only two are activelyseeking investments in international markets. The most significant international activity is sales and marketing, accounting for 76 percent of international business activity. The next most important international activity isresearch and development at 35 per cent, followed by manufacturing at 29 per cent ofinternational operations. Customer support, service and warranty only accounts for 24 percent of international activity, and final production only represents 18 per cent of internationalactivity. With regard to sales and marketing, 13 respondents identify sales and marketing as animportant aspect of their international strategy. Expanding into international sales andmarketing, responses cover a multitude of reasons, including strategic sales and marketingrelationships, capitalizing on a market’s potential upswing, and generally increasing revenue.Research and development is the next most internationalized business activity. Reasons forusing international markets to conduct research and development and prototyping includeusing other countries specialization in knowledge and tools to develop new and diverseproducts, to relying on foreigners to know the market and regulations to best guidedevelopment projects, to funding was offered in a foreign country. Most respondentsindicate they use a strategic partnership either a licensing agreement with a distributor or ajoint-venture. Evaluation of the 4W’s of International Business Strategy 36
  • Respondents who indicated manufacturing was internationalized cited closeness tocustomers, reduced costs, and making products that are universally accepted as the primaryreasons for entering international markets. One respondent indicated that “the weak USdollar makes buying American products attractive even with a VAT.” Customer service and warranty activities in the international market were moved tointernational markets to better serve international sales and marketing operations, and to becloser to the customer. One respondent stated internationalized service is critical becauseservice is how they differentiate themselves from cut rate Asian manufacturers.Why internationalize: Every respondent cites expanding markets and increasing sales was thenumber one reason for entering international markets. Secondly, keeping up withcompetitors and meeting customers demand accounts for 47 per cent of respondent’sresponses. Only five respondents indicate internationalization as a way to create acompetitive advantage, and interestingly only one respondent internationalized to reducecosts.Where companies are internationalizing: New Hampshire companies are predominantlyinvesting in Europe (71%) and Asia(59%) is the second most sought after market. LatinAmerica and Caribbean countries represent only 29 per cent of international investment.Other specific countries include Canada (12%) and Australia/New Zealand (12%), and theMiddle East (6%). Evaluation of the 4W’s of International Business Strategy 37
  • Conclusion and Findings Internationalization, according to the results from this small sample, is a critical aspect ofNew Hampshire businesses. The predominant responses to current and futureinternationalization plans center around expansion of market size and sales opportunities. Everyrespondent is interested in increasing sales in the international market, and 76 percent have takenmeasures to establish some level of international sales presence through strategic alliance and/orjoint-venture. Interestingly, for a heavy bias on manufacturing, there is only one respondentseeking international markets to increase market share based on price, and only one respondentseeking internationalization to reduce costs. Otherwise, most respondents indicate selling highquality, high value, low volume in niche markets is how they operate in international markets,with most production done here in New Hampshire. This indicates New Hampshire businesseshave developed a unique advantage that positions them well for operating in internationalmarkets. They are adding value and taking advantage of the market conditions here in NewHampshire to position their companies and products in strategic areas around the world. Evaluation of the 4W’s of International Business Strategy 38
  • SURVEY RESULTSFor a complete list of results, please see Appendix A.What is the approximate size of your company?# Answer %1 Less than $1 million 28%2 $1 - 5 million 24%3 $5 -10 million 10%4 Greater than $10 million 38%Approximately how many employees do you employ?# Answer %1 1 to 10 38%2 10 to 50 17%3 50 - 100 21%4 100 - 150 7%5 150 - 250 3%6 250 - 500 3%7 500 -1000 0%8 1000+ 10%Is your company a for profit or not-for-profit firm?# Answer %1 For profit 97%2 Not for profit 3%What is your business? Manufacturing, service, research anddevelopment?# Answer %1 Manufacturing 66%2 Service 41%3 Research and Development 3% If you are in a manufacturing business, is it (check all that apply): # Answer % 1 Precision Manufacturing 16% 2 Green Technology 8% 3 Agriculture 0% 4 Food 4% 5 Bio Technology 4% Evaluation of the 4W’s of International Business Strategy 39
  • 6 Chemical 0% 7 Other, please explain 52% Approximately what percentage of your 8 business comes from U.S government contracts? 68% Approximately what percentage of your 9 business comes from foreign government contracts? 68% 10 N/A 24%If you are in a service business, is it (check all that apply):# Answer %1 Financial Services 10%2 Management/Strategy Consulting 5%3 Logistics 5%4 Education 5%5 Engineering 14% Approximately what percentage of your business comes from U.S.6 government contracts? 29% Approximately what percentage of your business comes from foreign7 government contracts? 38%8 Other? Please explain. 29%9 N/A 48%If you are in a research and development business, is it (check all thatapply):# Answer %1 Financial Services 0%2 Management/Strategy Consulting 0%3 Engineering 15%4 Other 0% Approximately what percentage of your5 business comes from U.S. government contracts? 0% Approximately what percentage of your6 business comes from foreign government contracts? 0%7 N/A 85% Evaluation of the 4W’s of International Business Strategy 40
  • Does your company currently engage in any form of internationalbusiness? This includes importing and exporting goods and services,off-shoring, in-shoring, or foreign direct investment.# Answer %1 Yes. Please continue with the survey. 95%2 No. Please answer the next question only. 5%Does having international operations give your company anycompetitive advantage?# Answer %1 Yes 85%2 No 15%At what part of the value chain are businesses leveraging theinternational marketplace, what were and are their expectations fromgoing international, what advantages do they have by beinginternational? Please check all that apply and provide some input in theopen boxes as to why you use international markets for these activities.# Answer % Research and Development/Design &1 Prototyping 40%2 Manufacturing 40%3 Final production 25%4 Sales & Marketing 70%5 Support & Customer Service/Warranty 25%Why did your company decide to go international?(Choose all thatapply)# Answer %1 To create a competitive advantage 40%2 To reduce costs 15%3 To keep up with our industry/competitors 55% To expand markets/market share / increase4 sales 90%Why is the international marketplace attractive to your company?(Choose all that apply)# Answer %1 It enables us to expand to new markets 95%2 It enables us to reduce costs 20%3 It is more efficient 0%4 It provides increased opportunity for 75% Evaluation of the 4W’s of International Business Strategy 41
  • growth5 It keeps us competitive 70%6 It made us competitive 10%7 It increases/improves innovation 45%Where are your company’s international operations?# Answer %1 Asia 60%2 Africa 20%3 Europe 65%4 Latin America/Caribbean 35%5 Other 45%Where is your company planning to invest (check all that apply)?# Answer %1 Asia 40%2 Africa 5%3 Europe 40%4 Latin America/Caribbean 10%5 Other 60%Are these investments for (check all that apply):# Answer %1 Research and Development/Design and Prototyping 15%2 Manufacturing 25%3 Final Production 10%4 Sales and Marketing 75%5 Strategic Alliances/New Channel Partnerships 45%6 Joint Ventures 15%7 Support/Customer Service and Warranty 35%8 Greenfield investment 0%How do you compete within your industry (check all that apply)?# Answer %1 On price - low prices and high volume? 20% On differentiation - low volume and high2 margin? 25% As a market leader - highly focused, unique3 niche products/services? 80% Evaluation of the 4W’s of International Business Strategy 42
  • APPENDIX A. COMPLETE SURVEY RESPONSESWhat is the approximate size of your company? # Answer % Less than $1 1 29% million 2 $1 - 5 million 24% 3 $5 -10 million 0% Greater than $10 4 47% million Total 100%Approximately how many employees do you employ? Evaluation of the 4W’s of International Business Strategy 43
  • # Answer % 1 1 - 10 35% 2 10 - 50 24% 3 50 - 100 24% 4 100 - 150 6% 5 150 - 250 6% 6 250 - 500 6% 7 500 -1000 0% 8 1000+ 0% Total 100%Is your company a for profit or not-for-profit firm? # Answer % 1 For profit 94% 2 Not for profit 6% Total 100%What is your business? Manufacturing, service, research and development? Evaluation of the 4W’s of International Business Strategy 44
  • # Answer % 1 Manufacturing 76% 2 Service 24% Research and 3 0% DevelopmentIf you are in a manufacturing business, is it (check all that apply): # Answer % Precision 1 13% Manufacturing 2 Green Technology 7% 3 Agriculture 0% 4 Food 7% 5 Bio Technology 7% 6 Chemical 0% Other, please 7 67% explain Approximately what percentage of your business 8 73% comes from U.S government contracts? Approximately what percentage of your business 9 73% comes from foreign government contracts? 10 N/A 13% Evaluation of the 4W’s of International Business Strategy 45
  • Other, please explain Approximately what percentage of Approximately what percentage of your business comes from U.S your business comes from foreign government contracts? government contracts?not manufacturingPaper 0 0printing none noneSoftware 0 0Geotechnical 3 40Natural Cosmetics/USDA Organic 0 0Body CareSoftware 0% 0%Telecommunications 5% 80%Building Products 0 0Health Security/Access Control 5 0 5 5 0 0If you are in a service business, is it (check all that apply): # Answer % 1 Financial Services 8% Management/Strategy 2 8% Consulting 3 Logistics 0% 4 Education 8% 5 Engineering 8% Approximately what percentage of your 6 business comes from 23% U.S. government contracts? Approximately what percentage of your 7 business comes from 31% foreign government contracts? 8 Other? Please explain. 15% 11 N/A 69% Evaluation of the 4W’s of International Business Strategy 46
  • Approximately what percentage of your Approximately what percentage of your Other? Please explain.business comes from U.S. government business comes from foreigncontracts? government contracts?5% 2%0% 0%0 0 Import/Export Consulting 5 Distributor of heating equipment manufactured outside of the USIf you are in a research and development business, is it (check all that apply): # Answer % 1 Financial Services 0% Management/Strategy 2 0% Consulting 3 Engineering 11% 4 Other 0% Approximately what percentage of your 5 business comes from 0% U.S. government contracts? Approximately what percentage of your 6 business comes from 0% foreign government contracts? 7 N/A 89%Does your company currently engage in any form of international business? This includes importing andexporting goods and services, off-shoring, in-shoring, or foreign direct investment. Evaluation of the 4W’s of International Business Strategy 47
  • # Answer % Yes. Please 1 continue with 94% the survey. No. Please 2 answer the next 6% question only. Total 100%If you responded "No" to engaging in international business, this study is attempting to understand why. Is theinternational marketplace not relevant to your business? Are there perceived or real risks and obstacles thatinhibit your firm from conducting international business? Do you mind sharing what those may be? Evaluation of the 4W’s of International Business Strategy 48
  • # Answer % No. If you dont mind, please 1 0% explain why in the box below. Yes, international markets are interesting and attractive. Please provide some 2 20% input as to why you are not using international markets in the box below. 3 N/A 80% Total 100%No. If you dont mind, please explain why in the box below. Yes, international markets are interesting and attractive. Please provide some input as to why you are not using international markets in the box below. we do unable to make dealsDoes having international operations give your company any competitive advantage? # Answer % 1 Yes 82% 2 No 18% Total 100% Evaluation of the 4W’s of International Business Strategy 49
  • At what part of the value chain are businesses leveraging the international marketplace, what were and aretheir expectations from going international, what advantages do they have by being international? Please checkall that apply and provide some input in the open boxes as to why you use international markets for theseactivities. # Answer % Research and 1 Development/Design 35% & Prototyping 2 Manufacturing 29% 3 Final production 18% 4 Sales & Marketing 76% Support & Customer 5 24% Service/Warranty Evaluation of the 4W’s of International Business Strategy 50
  • At what part of the value chain are businesses leveraging the international marketplace, what were and aretheir expectations from going international, what advantages do they have by being international? Please checkall that apply and provide some input in the open boxes as to why you use international markets for theseactivities. (Continued)Research and Manufacturing Final production Sales & Marketing Support & CustomerDevelopment/Design & Service/WarrantyPrototypingStrategic Strategic sales and Support for sales andrelationships with marketing marketing effortsother vendors relationshipsUtilizing different Advantage tocountry’s equipment Creating products capitalizing on apreference, resulted that are universally countries economicin new and diverse accepted upswingproducts Done through our agents overseas but excellent service is 60% of our business very few parts are what we pride all production done in is done overseasall done in USA manufactured ourselves on and is USA through over 40 overseas what keeps us international agents competitive versus cut price Asian competition isfunded development market diversificationOur servicecommands they Our service is unique Extended educationknow the rules and in educating this on their product forregulations about a dept. of what they export regulationscountry and their can speak aboutrestrictions USD is attractive Our borrowers are usually well established before they start exporting. Then it can easily double their sales. Payment processing security Additional revenue closeness to proximity to customers, cost customers the weak US dollar makes buying American products Evaluation of the 4W’s of International Business Strategy 51
  • attractive even with VATWhat does your international business look like: a. Do you import goods and services? b. Do you export goodsand services? c. Do you have foreign investments? d. Do you have off-shore operations? e. Do you have foreigncompanies investing in your company? f. Is your company foreign owned? g. Is your company seeking foreigninvestment? h. If no to a & b, do you plan to open off-shore operations or make foreign investments? # Question a. b. c. d. e. f. g. h. Responses 1 YES 9 17 3 3 2 3 2 2 41 2 NO 8 0 14 14 15 14 15 9 89 Evaluation of the 4W’s of International Business Strategy 52
  • Why did your company decide to go international? (Choose all that apply) # Answer % To create a 1 competitive 29% advantage 2 To reduce costs 6% To keep up with our 3 47% industry/competitors To expand markets/market 4 100% share / increase sales Evaluation of the 4W’s of International Business Strategy 53
  • Why is the international marketplace attractive to your company? (Choose all that apply) # Answer % It enables us to 1 expand to new 100% markets It enables us to 2 12% reduce costs 3 It is more efficient 0% It provides increased 4 82% opportunity for growth It keeps us 5 65% competitive It made us 6 12% competitive It 7 increases/improves 47% innovation Evaluation of the 4W’s of International Business Strategy 54
  • Where are your company’s international operations? # Answer % 1 Asia 59% 2 Africa 24% 3 Europe 71% Latin 4 29% America/Caribbean 5 Other 47%OtherCanadasales only overseas no operationsCanadaAustralia/New ZealandnoneAustraliaWe are only located in US but have contacts in a variety of countriesMiddle East Evaluation of the 4W’s of International Business Strategy 55
  • Where is your company planning to invest (check all that apply)? # Answer % 1 Asia 41% 2 Africa 6% 3 Europe 47% Latin 4 12% America/Caribbean 5 Other 53%Otherunsure at this timeno overseas investments other than salesCanada and MexicoN/A - We only focus on Sales/Marketing, but through contracted distributors who share in the cost of marketing.noneAustraliaCanadaOnly invest in our operationMiddle East Evaluation of the 4W’s of International Business Strategy 56
  • Are these investments for (check all that apply): # Answer % Research and 1 Development/Design 6% and Prototyping 2 Manufacturing 18% 3 Final Production 0% 4 Sales and Marketing 76% Strategic Alliances/New 5 41% Channel Partnerships 6 Joint Ventures 18% Support/Customer 7 29% Service and Warranty 8 Greenfield investment 0% Evaluation of the 4W’s of International Business Strategy 57
  • How do you compete within your industry (check all that apply)? # Answer % On price - low prices and 1 12% high volume? On differentiation - low 2 24% volume and high margin? As a market leader - 3 highly focused, unique 76% niche products/services? Evaluation of the 4W’s of International Business Strategy 58
  • When did your company realize that it required some aspect of internationalization in order to remaincompetitive?Text ResponseOur company was international from the start.Many years agounsurethe company was founded with international markets in mind1999Market was growing at a lesser rate than planned expansion, wanted to increase brand awareness and marketshareright at the start because most of the potential market was internationalAlwaysI dont know.20102008Most of our businesses are looking for markets to expand, its a natural progression.Market pretty much found us first.when over concentrated customer base became riskyit wasnt to remain competitive it was simply to take advantage of growth opportunitiesFrom the start of my business 21 years agoLate 1990s Evaluation of the 4W’s of International Business Strategy 59