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International Entrepreneurship - Internationalization theories

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International Entrepreneurship - Internationalization theories

  1. 1. International Entrepreneurship Module 3 – Internationalization strategyrelationships and lessons from emerging market Winter 2012 Senthil Mukundakumar Technology & Innovation Management Supervisor: Steven Muegge Licensed under a CC BY-SA license
  2. 2. Objectives Upon completion of the module, you will know about • Relationships between internationalization strategy • Strategies implemented in emerging market and you will be able to • How timing of entry impact your entry mode and market selection • What kind of internationalization strategy could be implemented in emerging market • When should I enter earlier or later and with what level of mimicry Slide 2 Licensed under a CC BY-SA license
  3. 3. Agenda 1. Introduction 2. Internationalization strategy - Relationship 3. Level of mimicry 4. Key lessons from emerging market 5. Key concepts 6. Questions 7. References Slide 3 Licensed under a CC BY-SA license
  4. 4. 1. Introduction Need for Internationalization Canadian SME’s requires more global strategies • “Despite Canada’s world-leading funding of research and development at universities, our highly educated population and our favourable business climate, we produce too few successful companies that shine globally” Research on Public Policy, September 2011 Go Global Mantra for Indian SME’s • “Indian SME’s has inadequate managerial and technical skills, lack of information market to go global. They need to change the mindset of common misconception SME’s dont consider going globally as they feel they are unable to compete with large well established companies. Many schemes initiated by Indian government to help SME’s” – News, Budget 2011 India Slide 4 Licensed under a CC BY-SA license
  5. 5. 2. Internationalization strategies relationships Knowledge Process Innovation Product Entry range mode Strategy Timing of Growth entry strategy Industry life Market cycle selection Mimicry Uncertainty Resources Slide 5 Licensed under a CC BY-SA license
  6. 6. Internationalization strategies relationships• Timing of entry, market selection and entry modes are the important dimensions to understand the internationalization process.• Timing of entry is the first decision to expand abroad, so timing of entry is considered as key variable to understand the relationship between the other dimensions.• The following factors are important to determine the amount of risk that process holds for the firms internationalization strategy: • Knowledge • Resources • Product and process Innovation • Mimicry • Situational uncertainty Slide 6 Licensed under a CC BY-SA license
  7. 7. Factors determine risk in processKnowledge• Knowledge is one of the main factors of a company’s international behaviour and plays central role in deciding internationalization strategy. Opportunity in international market is recognised by having prior knowledge which comes from experience. Prior knowledge consist of objective knowledge and experiential knowledge. • Objective knowledge is acquired through standardized methods of collecting and transmitting information i.e. market research etc. • Experiential knowledge is country-specific and cannot be transferred between firms or business units i.e. experiential knowledge of market, clients, government institutional framework, rules, norms and value, experiential knowledge of firms capability and resources engage in international operations.• Entrepreneurs plays key role in bringing the international experience which reduce the perception of risk in internationalization process. Slide 7 Licensed under a CC BY-SA license
  8. 8. Factors determine risk in processResources• The degree of firms control over and greater the availability of resources reduces the risk in the internationalization process.• Firms develop different formulae for accessing resources like external financing, associations, alliances, mergers, acquisitions or takeovers etc.Product and process innovation tendency• This doesn’t directly reduce the risk in the process, but rather is a feature reflected in decisions taken by firms for whom their innovation strategy is paramount in their overall business plan.• Usually firms trying option of fostering innovation requires an assumption of greater risk from the outset. Slide 8 Licensed under a CC BY-SA license
  9. 9. Factors determine risk in processMimicry• Mimicry entry mechanisms is that where firms copy others in order to minimize their costs of experimentation or discovery. Level of mimicry can be high or low which can be related directly to the risk involved in the internationalization process.Situational uncertainty• It is a continuous unforeseen changes that may arise during the internationalization process which reduce the firms possibilities of acquiring knowledge about the opportunity. This results in longer time and greater caution in making decision that can be applied regarding internationalization strategy. Slide 9 Licensed under a CC BY-SA license
  10. 10. Internationalization strategies relationships Timing of entry • The moment when the initial decision taken by the firm whether to internationalize or not is defined as `Timing of entry` in to international market. Two important factors that decides the timing of entry are Growth strategy and Industry life cycle. Growth strategy • The degree of emphasis that firms place on growth strategy has direct influence on timing of entry. Firm does not need to internationalize in order to grow, but forced to do in some case. Example saturated domestic market. Industry life cycle • Firm decides to internationalize when the whole sector grows and consequent intensity of competition. Slide 10 Licensed under a CC BY-SA license
  11. 11. Internationalization strategies relationships Verdict on Timing of entry Young firms with a low Firms that operate in mature emphasis on growth strategy sectors, have greater interest will take longer to reach the in growing will accelerate their decision to internationalize decision to internationalize Slide 11 Licensed under a CC BY-SA license
  12. 12. Internationalization strategies relationshipsInfluence of timing of entry on entry mode• Entry mode option can vary from indirect or direct exporting, contract manufacturing to greenfield. Earlier or later entry timing influence the method of entry mode. The two variables that influence this relationships are product strategy and product range.Product strategy• When the firm choose differentiation strategy, it requires to have sufficient knowledge about new markets to be able offer consumers something new and choose subsidiaries over exporting. When the firm choose cost leadership strategy, it offers standardized product that can be produced cost effectively in centralized location and more likely to choose export entry mode.Product range• Broader the range of product, lowers the risk of unsuccessful in the new market and company more likely to engage more resources in the target market with more commitment. For fewer range of product it is vice versa. Slide 12 Licensed under a CC BY-SA license
  13. 13. Internationalization strategies relationships Verdict on Timing of entry vs Entry mode Firm opt for cost leadership and Firms opt for differentiation and have restricted product range have wider product range will will establish themselves with enter with more committed fewer resources in new market resources in new market (Joint (Exports, licenses) venture, green field) Slide 13 Licensed under a CC BY-SA license
  14. 14. Internationalization strategies relationships Influence of timing of entry on market selection • Earlier or later entry timing influence the market selection strategy. The two variables that influence this relationships are geographical distribution of product, repetition of sales and also product strategy, product range as seen before. Geographic distribution of product • Products with greatest geographical distribution tend to be universally accepted. Psychic distance between market is not important with greater geographical distribution product. Repetition of sales • Firms will opt for franchise method if the product has high rate of repeat sales (hamburgers) and opt for greenfield or exporting if the product has less repeat of sales (cars). Slide 14 Licensed under a CC BY-SA license
  15. 15. Internationalization strategies relationships Verdict on Timing of entry vs Market selection Earlier the timing of entry closer the destination market and vice versa Company with same timing of Company with same timing of entry entry that do not pursue cost with cost leadership strategy and leadership strategy and have wider have limited products range will range of products are willing to choose destination close to home choose more distant destinations Note: Differentiation product strategy does not directly influence the market selection. Firms can select differentiation strategy in one market and also be successful with same differentiation strategy in another market Slide 15 Licensed under a CC BY-SA license
  16. 16. Internationalization strategies relationships Verdict on Market selection vs entry mode Firm that choose closer market has Firm that choose faraway market less risk, as the amount of will have more risk, as the amount knowledge about it is more and of information the firm has is more likely to commit more restricted and more likely commit resources and opt for subsidiaries less resources and opt for joint or green field strategy venture or exports Slide 16 Licensed under a CC BY-SA license
  17. 17. Internationalization strategies relationships Slow Merger/Green Joint field venture Timing of entry Contract manufacturing Licensing Exporting Fast Nearby Choice of market Far away Slide 17 Licensed under a CC BY-SA license
  18. 18. Internationalization strategies relationships Findings on relationship between timing of entry, entry mode and market selection • When entry timing is slow and the destination market is near the firm will opt for Subsidiary entry mode • When entry timing is fast and the destination market is far away the firm will opt for exporting entry mode • When entry timing is fast and the destination market is near the firm will opt for licensing entry mode • When the timing is fast and the destination market is far away, the firm will opt for joint venture entry mode • When entry timing and distance from the destination market is intermediate the firm will opt for contract manufacturing entry mode Slide 18 Licensed under a CC BY-SA license
  19. 19. Discussion Identify your company product strategy, product range and other factors and discuss which entry mode, market selection and entry timing will be opted Optimum solution Slide 19 Licensed under a CC BY-SA license
  20. 20. 3. Level of mimicry Level of mimicry vs entry timing Should I enter now or later and to what degree should I mimic the entry mechanism of other firms? Slide 20 Licensed under a CC BY-SA license
  21. 21. Level of mimicry• Mimicry refers to the degree to which new ventures imitate the key practices of other referent firms. Referent firms can be competitors with the targeted industry or be from other related industries.• An organization can enter a high-technology industry by reverse engineering the technology of the market leader’s product as well as imitating the leader’s marketing strategy including its target market, distribution outlets, price, advertising campaign, and packaging.• Level of mimicry and entry timing depends on morality risk and ignorance. Slide 21 Licensed under a CC BY-SA license
  22. 22. Level of mimicryMorality risk and Ignorance• From a firm level of analysis, mortality risk refers to the probability that a firm will become insolvent and be unable to recover from that insolvency before being bankrupted and ceasing operations.• Magnitude of morality depends on firms choice of when to enter. Later entry Waiting may lower the mortality risk, as the firm has the opportunity to reduce its ignorance by learning from the mistakes of earlier entrants. Slide 22 Licensed under a CC BY-SA license
  23. 23. Level of mimicry Level of mimicry Initial morality Delay entry risk with high Do not mimicry enter Morality risk Enter with high mimicry Lower Delay entry Do not morality enter Enter with low risk mimicry Low Medium High Ignorance Slide 23 Licensed under a CC BY-SA license
  24. 24. Level of mimicry Verdict on Timing of entry vs Level of mimicry Delay entry if the Enter with high Delay entry if initial morality risk mimicry if morality morality risk and is high and risk is below is ignorance is low ignorance level is acceptable live and enter with low low and enter with ignorance are mimicry high mimicry medium Do not enter if the ignorance level is very low Slide 24 Licensed under a CC BY-SA license
  25. 25. 4. Key lessons Lessons from research in emerging market strategies • Firm entering an emerging market is more likely to delay market entry, than if it were entering that market in a developed country • Firm with higher control of resources are more successful in emerging market • Firms with closer cultural distance enjoy success • Marginal loss in potential profit due to mimicry is less for a firm entering in to emerging market • Firm more likely to delay entry in to emerging market using low mimicry mechanism • Firm entering an developed market is more likely to delay market entry and use high mimicry entry mechanism smukunda@sce.carleton. Slide 25 Licensed under a CC BY-SA license ca
  26. 26. 5. Key concepts • Timing of entry • Entry mode • Market selection • Product strategy and range • Mimicry level Slide 26 Licensed under a CC BY-SA license
  27. 27. 6. Questions Slide 27 Licensed under a CC BY-SA license
  28. 28. 7. ReferencesM. Ángeles Gallego, Encarnación Ramos Hidalgo, Francisco J. Acedo, José C. Casillas, and Ana M. Moreno. 2009. The relationship between timing of entry into a foreign market, entry mode decision and market selection. Time & Society, September, 18: 306-331,Driscoll, Angie M, Paliwoda & Stanley.1997. Dimensionalizing International Market Entry Mode Choice. Journal of Marketing Management, Jan-Apr1997, 13(1-3):57-87Eriksson, K., Johansson, J., Majkgard, A., & Sharma D.D. 1997. Experiential Knowledge and Cost in the Internationalization Process. Journal of International Business Studies, 28(2):337-360.Evans.J., Treadgold,A & Mavondo,F.T. 2000. Psychic distance and the performance of international retailers: A suggested framework. International marketing review, 17:373Joseph.J & Gerad.J.T. 2008. Drivers of success for market entry into china and india. Journal of marketing, 72:1 - 13J.Roberta Minifie & Vicki West. 1998. A small business intermational market selection model. International Journal of Production Economics, Vol. 56–57:451-462Levesque. M & Shepherd.D.A. 2004. Entrepreneurs choice of entry strategy in emerging and developed markets. Journal of business venturing, 19:29-54Sakarya.S, Eckman.M & Karen.H.H. 2006. Market selection for international expansion: Assesing opportunities in emerging markets. International marketing review,24(2):208-238Stewart, David B. 1997. Domestic Competitive Strategy and Export Marketing Strategy: the Impact of Fit on the Degree of Internationalisation of SMEs. Journal of Marketing Management, Jan-Apr1997, 13(1-3):117Xinming, He & Yingqi Wei. 2011. Linking market orientation to international market selection and international performance. International Business Review, October 2011, 20(5):535-546Westhead, P., Wright, M. and Ucbasaran, D. 2002. International market selection strategies selected by “micro” and “small” firms’. Omega The International Journal of Management Science. Slide 28 Licensed under a CC BY-SA license
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