International Entrepreneurship - Internationalization theories

International
Entrepreneurship
Module 3 – Internationalization strategy
relationships and lessons from emerging market
Winter 2012
Senthil Mukundakumar
smukunda@sce.carleton.ca
Technology & Innovation Management
Supervisor: Steven Muegge

Licensed under a CC BY-SA license

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

smukunda@sce.carleton.ca Slide 2 Licensed under a CC BY-SA license

Agenda

1. Introduction

2. Internationalization strategy - Relationship

3. Level of mimicry

4. Key lessons from emerging market

5. Key concepts

6. Questions

7. References


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 don't 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


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

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

Factors determine risk in process
Knowledge
• 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.


Resources
• 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.



Mimicry
• 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.



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.


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


Influence 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.


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)



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).



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



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


Slow

Merger/Green Joint
field venture
Timing of entry

Contract
manufacturing

Licensing Exporting
Fast

Nearby Choice of market Far away



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

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


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?


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.


Level of mimicry

Morality 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.


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

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


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

5. Key concepts

• Timing of entry
• Entry mode
• Market selection
• Product strategy and range
• Mimicry level


6. Questions


7. References
M. 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):57-87
Eriksson, 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, 17:373
Joseph.J & Gerad.J.T. 2008. Drivers of success for market entry into china and india. Journal of marketing, 72:1 - 13
J.Roberta Minifie & Vicki West. 1998. A small business intermational market selection model. International Journal of
Production Economics, Vol. 56–57:451-462
Levesque. M & Shepherd.D.A. 2004. Entrepreneurs choice of entry strategy in emerging and developed markets.
Journal of business venturing, 19:29-54
Sakarya.S, Eckman.M & Karen.H.H. 2006. Market selection for international expansion: Assesing opportunities in
emerging markets. International marketing review,24(2):208-238
Stewart, 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):117
Xinming, He & Yingqi Wei. 2011. Linking market orientation to international market selection and international
performance. International Business Review, October 2011, 20(5):535-546
Westhead, P., Wright, M. and Ucbasaran, D. 2002. International market selection strategies selected by “micro” and
“small” firms’. Omega The International Journal of Management Science.


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