GLOBALIZATION Globalization reflects the trend of companies

GLOBALIZATION • Globalization reflects the trend of companies buying, developing, producing and selling products and services in most countries and regions of the world • Internationalization = doing business in many countries of the world, but often limited to a certain region • Deglobalization = moving away from the globalization trends and regarding each market as special, with its own economy, culture and religion

COMPARISON SMEs and LSEs • SME Small and Medium-sized Enterprise ü EU: companies with fewer than 50 employees small and with fewer than 250 medium, in EU SMEs comprise about 99 per cent of all companies • LSE Large Scale Enterprise ü Companies with more than 250 employees, provide almost one-third of all jobs in the EU

• Main differences between management and marketing styles in SMEs and LSEs 1. Resources: financial, business education/specialist expertise 2. Formation of strategy/decision-making processes 3. Organization 4. Risk-taking 5. Flexibility 6. Economies of scale and economies of scope 7. Use of information sources

TO BE DISCUSSED: ØIs it beneficial for nations to become dependent on each other? ØDoes increased international business mean increased risk?

SHOULD THE COMPANY ’STAY AT HOME’ OR ’GO ABROAD’ Figure 1. 6 page 18 ”The nine strategic windows”

• Industry globalism ü Mainly determined by the international marketing environment ü High degree of industry globalism: many interdependencies between markets, customers and suppliers, the industry dominated by a few large powerful global players • Preparedness for internationalization ü Mainly determined by the company ü Depends on the company’s ability to carry out strategies in the international marketplace, i. e. the skills in international business operations

• Internationalization occurs when the company expands its R&D, production, selling and other business activities into international markets • Differences between LSEs and SMEs • Internationalization motives: • Proactive motives represent stimuli to attempt strategy change, based on the company’s interest in exploiting unique competences or market possibilities • Reactive motives indicate that the company reacts to pressures or threats in its home market and adjusts passively to them by changing its activities over time

INTERNALISATION MOTIVES Proactive motives • Profit and growth goals • Managerial urge • Technology competence/unique product • Foreign market opportunities/market information • Economies of scale • Tax benefits Reactive motives • Competitive pressures • Domestic market: small and saturated • Overproduction/excess capacity • Unsolicited foreign orders • Extended sales of seasonal products • Proximity to international customers/psychological distance

PROACTIVE MOTIVES 1. Profit and growth goals ▶ ▶ ▶ The perceived profitability, when planning to enter international markets, is often quite different from profitability actually attained Initial profitability may be quite low, particularly in international start-up operations Despite thorough planning, sudden influences often shift the profit picture substantially e. g. sudden shift in exchange rates

2. Managerial urge Ø Ø Ø Motivation that reflects the desire, drive and enthusiasm of management towards global marketing activities In SMEs may be a single decision-maker, in LSEs a decision-making unit ; in both cases the choice of a foreign market entry strategy is dependent on the decision-maker’s perceptions of foreign markets, expectations concerning these markets and the company’s capability of entering them Cultural socialization of the managers

3. Technology competence/unique product Ø real and perceived advantages should be differentiated Ø unique competences in domestic market the possibilities of spreading unique assets to overseas markets may be very high as the opportunity costs of exploiting these assets in other markets will be very low

4. Foreign market opportunities/market information ▶ Act as stimuli only if the company has or is capable of securing the resources necessary to respond to the opportunities ▶ Certain overseas markets grow spectacularly providing tempting opportunities for expansion-minded companies ▶ Specialized knowledge or access to information can distinguish an exporting company from its competitors, e. g. knowledge about foreign customers, marketplaces or market situations

5. Economies of scale – learning curve ▶ Becoming a participant in global activities may enable the company to increase its output ▶ Through exporting, fixed costs arising from administration, facilities, equipment, staff and R&D can be spread over more units 6. Tax benefits Ø Allow the company either to offer its products at a lower cost in foreign markets or to accumulate a higher profit Ø Anti-dumping laws enforced by WTO punish foreign producers for selling their products on local markets at very low prices in order to protect local producers

REACTIVE MOTIVES 1. Competitive pressures ▶ Fear of losing domestic market share/losing foreign markets forever ▶ Knowing that other companies are internationalizing provides a strong incentive 2. Domestic market: small and saturated. Ø Domestic market unable to sustain efficient economies of scale Ø Instead of attempting to push-back of the life-cycle process, companies may opt to prolong the product life cycle by expanding the market (industrialized – developing countries)

3. Overproduction/excess capacity ▶ Inventories above desired levels exporting, when domestic market demand returns to previous levels exporting curtailed or terminated ▶ Possibility for achieving broader distribution of fixed costs 4. Unsolicited foreign orders Ø New opportunities in export markets as products generate enquiries from overseas

5. Extended sales of seasonal products ▶ Seasonality in demand conditions may be different in domestic and international markets 6. Proximity to international customers/ psychological distance ▶ Shock effects – managers believe they know everything about the local market, but realize later that they do not

The most successful companies in international business are usually motivated by proactive, internal factors ▶ More service oriented than reactive firms ▶ More marketing and strategy oriented than reactive firms ▶ More likely to have solicited their first international order, whereas reactive firms frequently begin international activities after receiving an unsolicited order from abroad © John Wiley & Sons Ltd. www. wileyeurope. com/college/czinkota 17

TRIGGERS OF EXPORT INITIATION 1. Internal triggers ▶ Perceptive management/personal networks ▶ Specific internal event , e. g. overproduction or a reduction in domestic market size ▶ Inward/outward internationalization 2. External triggers ▶ Market demand ▶ Network partners ▶ Competing companies ▶ Outside experts, e. g. export agents, governments, Chambers of Commerce, banks

INTERNATIONALISATION BARRIERS/RISKS 1. Barriers hindering internationalization initiation 2. Barriers hindering the further process of internationalization ▶ ▶ ▶ General market risks Commercial risks Political risks

STRATEGIC EFFECTS OF INTERNATIONALIZATION New environments, new problems: ▶ Consisting of strategic considerations, such as service delivery and compliance with government regulations. Preparedness for internationalization: ▶ Assessing strengths and weaknesses in the context of the globalization ▶ It will affect the competitive position and strategic options available to the firm © John Wiley & Sons Ltd. www. wileyeurope. com/college/czinkota 20

Profit and risk during early internationalization: ▶ In the short term, rising risk accompanied by decreasing profitability. ▶ In the longer term, increasing familiarity with international markets and the diversification benefits of serving multiple markets will decrease the firm’s risk and increase profitability. Satisfactory performance can be achieved in three ways: ▶ Effectiveness - the acquisition of market share abroad and increased sales ▶ Efficiency - rising profitability ▶ Competitive strength - the firm’s position compared to other firms in the industry © John Wiley & Sons Ltd. www. wileyeurope. com/college/czinkota 21

Hollensen: Global Marketing – A Decisionoriented Approach Czinkota, Ronkainen, Moffett: International Business