The Use of Internationalization Strategies in Traditional Business Practices - Essay Example

?Managers need to master the ‘rules of the game’ that appear to determine success or failure of alliances and acquisitions around the world. Critically discuss the key factors, which you consider are involved in reaching a strategic decision that is ‘right’ for an organization. Alliances and acquisitions are critical approaches employed by organisations that have internationalisation ambition. It is one of the most important tactics in order to deal with the barriers of emergent multinational companies. Three of the most important of these that the managers of these organisations are required to address include: 1) the difficulty in securing a brand name that has a truly global reputation; 2) the challenge in surviving and thriving in a global marketplace; and, 3) the necessity to attract and maintain a diverse and global workforce capable of running an international organization (Liu, 2007,pp.574). Being a master of the ‘rules of the game’ or, more specifically, the rules in the alliances and acquisition entails an ability to navigate, solve and work around these variables otherwise the objective of globalising the organizational operations is doomed to fail. This paper will explain some of the most important variables why forging alliances or partnerships and the acquisition of foreign companies are legitimate and effective strategies. Leveraging Reputation Alliances and acquisition are tools for companies to leverage their brand and their reputation (Kotler and Pfoertsch, 2006, pp.255). For example, when Lenovo acquired IBM’s personal computer (PC) business, the organization was able to enhance its reputation, establishing its own global brand in the process. IBM is a global leader in the technology industry and its products such as the ThinkPad laptop series, enterprise technologies, and other patented technologies are popular the world over and equated with quality, premium branding and innovation (Gupta, Wakayama and Rangan, 2012, pp.195). This is explained by the theoretical model called “springboarding”. The idea is that for companies to effectively expand overseas, it is necessary to design a strategy that is typified by activities that can capitalize on the reputation of others in order to compensate for its absence in the organization, its products and its global brand. It is equivalent to the concept of exporting of goods through “piggybacking” or taking advantage of the “carrier”, in order to successfully enter a market, survive in it and claim sizable market share (Gilligan and Hird, 1986, pp.103). “Springboarding” or “piggybacking” work during an acquisition and is also achieved when forging alliances with established companies in a location that the organization intends to penetrate. This strategy is more important for companies located in non-traditional FDI countries. The reason is that these economies do not have well developed institutions as well as a viable domestic market necessary to support an outward expansion. China has recognized this dilemma especially when it took into consideration the fact that it lags behind major global economic players in terms of outward FDI (Taylor 2002 and Zhang and Filippov 2009). What distinguished the country from other non-traditional investing states is the manner by which the country aggressively pursued a policy of internationalisation for its national firms (Bell 2008, pp.254). Favorable business, political and financial landscapes, featuring state support, has lead to a conducive environment that fosters the growth of MNCs. Other developing economies do not have this advantage. That is why there is huge opportunity for MNCs coming from these countries because the strategy allows the high degree of exploitation of the ownership-specific competitive advantages in foreign countries (Luo and Tung, 2007, pp.485). When Lenovo started expanding in Japan, its market share was estimated to be around 5 percent but when the forged an alliance with the Japanese firm NEC, which commenced in January of 2011, the figures changed dramatically (Peng, 2009, pp.354). Lenovo made sure that it had the controlling stake, enabling the company to maximize the benefits of the joint venture. It controlled 51 percent of the shares while NEC retained 49 percent out of the alliance (Xing 2011). The result was extremely favorable. Today, Lenovo is claiming to be the number one PC company in Japan toppling NEC’s performance in the process (Lenovo 2012). Lenovo continues to use the alliance and acquisition strategy in its expansion in several other locations around the world with varying versions or differing mix of approaches to this internationalization model, leading to varying degrees of success. This particular aspect highlights another related area that is an equally important consequence of alliances and acquisitions: technology transfer. This area will be explored further later on. All in all, however, through acquisition and alliances, a firm undergoing internationalisation can penetrate markets that would normally be difficult to enter for an emergent multinational company. In the experience of Lenovo, for example, IBM’s brands like ThinkPad allowed the company to create the impression that Lenovo is IBM, or at least, an organization with comparable capabilities. Lenovo continued to manufacture the ThinkPad product line in order to reinforce this goal (Gupta, Wakayama and Rangan, p.195). In its marketing campaign, its message was consistent: IBM technology is equal to Lenovo technology, subtly modifying the message as it underscored how the new brand is an improvement in the area of innovation and technological creativity (Gupta, Wakayama and Rangan, p.195). As a result, it was able to seize IBM’s growth trajectory in its PC business, augmenting its global presence as a result. Technology and Skills Transfer In the event of acquisition, the acquiring organization gains both physical and intangible assets of the acquired company. In addition to the facilities and reputation, an organization absorbs the manpower and the knowledge base that came with it. Technologies, operational information, data, products, patents, innovations, and so forth – these are transferred upon acquisition. For example, when Google bought Motorola Mobility, it acquired a host of patented technologies it was able to use for its own organizational objectives and activities (Google 2012). When Lenovo partnered with the Japanese firm NEC, the organization not only gained access to Japanese market but also experienced technology transfer since the nature of the partnership required NEC to provide technology when Lenovo’s contribution was the provision of financial capital (Lenovo 2011). This is an important aspect to internationalisation. Building a Global Workforce Another component in the ‘rules of the game’ is how managers of emerging global or multinational company are able to attract and maintain a diverse workforce. This area is important because an international company requires the type of management that can deal with the diversity and multiculturalism of an international organization. A study undertaken by the Brookings Institution found that an organization, planning to expand internationally will require thousands of global managers – those that can speak several languages and have multicultural backgrounds – in order to be successful. With acquisition or alliance, this problem can be addressed. Say, an electronics company located in South Korea plans to expand in Europe. Its managers are predominantly Koreans. Therefore, it will not do to have these executives lead subsidiaries in English-speaking or German-speaking countries. If the company acquires a local counterpart or contracted it in a joint partnership, then the acquisition or the alliance can provide for the managerial team with the appropriate cultural and skill sets necessary to effectively lead the local subsidiary. Furthermore, the acquisition or the partnership can offer the least disruption to the organization’s global operation. In this circumstance, the old company can take care of the domestic market, while the acquired company manages the overseas expansion (Liu, pp.576). Being able to achieve a global workforce can lead to a more responsive and flexible organization, creating opportunities for wider control. This is considered the ideal global company. According to Moon (2010, pp.283), it is imperative for a globalising company to be on top of the situation that is typified by wide dispersal, multiculturalism and interdependence. As previously mentioned acquisition offers a managerial paradigm that effectively eliminates the problem of employee redundancy while ensuring qualified workforce are running the global company. Conclusion It is clear, hence, why acquisition and alliance are critical strategies in internationalisation. They address three core problems that are inherent in attempts to expand overseas. First, it aids branding. Emerging MNCs need strong global brands that can only be achieved fast through piggybacking or springboarding in the manner by which it exports goods. Secondly, the organization benefits from skills transfer. Third, acquisition and alliances enable an organization to gain diversity and multiculturalism in the workforce, which is crucial in running a global company. A manager that understands these variables is able to navigate the complexities entailed, seize opportunities and minimize risks, improving the chances of the organisation to survive and thrive in the global market. Such manager is in a better position to achieve those targets if he or she has a multicultural background or, at least, guided and informed by a multicultural perspective. References Bell, S., 2008. International Brand Management of Chinese Companies: Case Studies on the Chinese Household Appliances and Consumer Electronics Industry Entering US and Western European Markets. Berlin: Springer. Brookings Institution, 2012. Are China's Multinational Corporation Really Multinational? East Asia Quarterly, 4(2), April-June 2012 issue. Gilligan, C. and Hird, M., 1986. International Marketing: Strategy and Management. New York: Routledge. Google., 2012. Facts About Google’s Acquisition of Motorola Mobility. Google.com. Available at: [Accessed 1 December 2012]. Gupta, A., Wakayama, T., and Rangan, S., 2012.Global Strategies for Emerging Asia. Hoboken, NJ: John Wiley and Sons. Kotler, P. and Pfoertsch, W., 2006.B2B Brand Management. Berlin: Springer. Lenovo, 2012.About Us. Available at: [Accessed 28 October 2012]. Lenovo, 2011.Lenovo and NEC Form Joint Venture to Create Japan's Largest PC Group. Available at: [Accessed 29 October 2012]. Liu, C., 2007. Lenovo: An Example of Globalization of Chinese Enterprises. Journal of International Business Studies, 38(4), pp.573-577. Luo, Y. and Tung, R., 2007. International Expansion of Emerging Market Enterprises: A Springboard Perspective. Journal of International Business Studies, 38(4), pp.481-498. Moon, H., 2010. Global Business Strategy: Asian Perspective. Hackensack, NJ: World Scientific. Peng, M., 2009.Global Business 2009 Update. New York: Cengage Learning. Taylor, R., 2002. Globalization strategies of Chinese companies: Current developments and future prospects. Asian Business and Management, 1(2),pp. 209-225. Xing, W., 2011. Lenovo and NEC plan joint venture. China Daily. Available at Zhang, Y. and Filippov, S., 2009. Internationalization of Chinese Firms in Europe. UNU-Merit Working Paper Series No. 2009-041. CHINA’S OUTWARD FDI In the recent global FDI ranking, China made it to the top ten sources of FDI outflows (UNCTAD, 2012, pp.7). While the inclusion in the global top ten ranking appears impressive on paper, the actual numbers paint a rather bleak statistics for a country that is intent in becoming a major world economic power. The reason for this is that China currently claims a meager 4 percentage of the total global FDI outflows, a paltry contribution to the global investment output especially when compared to countries like the United States and Japan and considering the immensity of the country’s economy (UNCTAD, pp.7). This was a slight improvement from the 2.3 percent share in 2006 (Morck et al., 2007, pp.338). This is the reason why China has embarked on an ambitious goal of improving its outward FDI performance (Deng 2004; Liu and Li 2002). The aggressiveness by which the country pursues this goal makes it interesting to study, particularly the manner by which domestic companies are exhorted to undertake international expansions. The encouragement and support for homegrown multinational companies became a matter of public policy. During the past decade, China adopted this position, mandating local companies to “go global” (Bell 2008, p.254). For this purpose, China has enacted laws and established institution in a bid to provide a conducive business environment for organizations willing to expand overseas. For example, China created new institutions that will regulate, approve and facilitate the export of goods and overseas investment process. The State Administration for Foreign Exchange also known as SAFE is a case in point. Then, there is the State council’s provision of sizable venture capital to the China International Trust and Investment Corporation (CITIC), which assumed a major role in China’s opening to the outside world (Lardy, 1998, pp.73). These agencies are backed by financial institutions, especially by state controlled banks, which, for their part, play an important part in launching MNCs. The governmental funding funneled through these financial systems was the key that enabled the government to influence and steer many domestic and national firms’ internationalisation ambitions. This policy position makes the case of China and its MNCs unique. The internationalization model that emerged out of the country appears to be a hybrid model, with traditional Chinese organizational practices on one hand, complemented by conventional internationalisation strategies on the other. This is demonstrated in the identified market imperfections present in China and how they are perceived, treated and addressed. The favorable Chinese policies encourage and nurture certain capital market imperfections. To cite an example, there is the case of the proliferation of China’s state-owned companies, conglomerate firms and family owned companies, which could secure loans below market rates or cheap capital (Sauvant, 2008, pp.116). Buckley et al. (pp.501) observed that it is a conventional business practice for each of these companies to proceed with an “acquisition” with state support and with the financial capital involved to be part of the governmental budget. For example, part of the reason why Lenovo’s purchase of the IBM PC business took place was because it was underwritten by the Chinese government (Garrick, 2012, pp.134). Companies from competing countries like the United States or those in Europe do not have this absolute advantage. This variable is part of the uniqueness of the Chinese experience and highlights an advantage for Chinese companies pursuing an outward expansion. All this discourse regarding the Chinese experience and the manner by which domestic firms “go global” is aligned with internationalisation theories such as the one espoused by Dunning. This was the theorist’s eclectic approach to international production theory. According to Dunning (2002, pp.77), national firms that dominate their domestic market are poised to be successful internationally because it is capable to grow horizontally or laterally. These types of organizations are considered empowered because they have the resources to acquire existing businesses and diversify, among other strategies that need to be sustained in the long-term so that the international market can be exploited effectively. As an organisation capable of acquisition, diversification and exploitation, it becomes international in coverage and in character (Dunning, pp.77). To contextualize this, there is the case of one of China’s most successful multinational companies, Lenovo. The company steadily dominated the Chinese domestic PC market. Such dominance left no other alternative but to expand overseas. According to its CEO, Chuanzi Liu (pp.574), “With a 30 percent share of the Chinese PC market, Lenovo realized that its opportunity for further domestic expansion was limited. Since the global PC market was estimated at around $200 billion, it could pose huge potential for us.” This marked the beginning of Lenovo’s international expansion. What the Lenovo experience demonstrated was that its dominance of the domestic market provided the resources that supported an outward expansion. Such resources are used in internationalization activities such as acquisitions, joint ventures, marketing, and a host of other activities. Dunning’s eclectic theory further emphasized that such resources are not exclusively consisted of the Ricardian endowments like the proximity to the market and the availability of or access to natural, human, and financial resources. The theory included the entire business landscape, including the type of market structure and the amount of governmental support, regulations and policies (Wall, Minocha and Rees, 2010, pp.70). Lenovo did have the resources, endowments and the favorability of the business landscape. Collectively, they enabled the organization to take advantage of opportunities, minimize risks or immediately recover in cases of failure. This is the reason why it is truly a global company: one that emerged out of China. Conclusion As previously mentioned, China has a big economy. But the amount of outward FDI does not reflect the country’s economic capabilities. It has been small so far. This is not to say that there is a discrepancy. It must be underscored that China’s economic growth has transpired in the past three decades or so. Hence, it is a young global economic player. The fact is that the country only began to lay the groundwork for outward investment since the year 2000. The policies that encourage domestic companies to expand overseas were only adopted recently. So the trajectory of its outward FDI is just about to takeoff. Indeed, the statistics show a gradual increase in figures (Song and Golley, 2011, pp.101). The forecast also reflect this trend (Cheng and Ma, 2007, pp.31). The most important point here is that the country’s potential as an investor is present. This is where Dunning’s eclectic theory can be applied but on a grander scale: China has resources; it has endowments back home. It has the capability to acquire. It is similar to Lenovo in this respect. But, in order for the country to perform better in its internationalisation ambition, it must emulate companies like Lenovo. This organization has effectively made use of internationalisation strategies and has done away with traditional business practices. The process by which it attained the status of MNC has been systematic and also typified by daring and vision. References Bell, S., 2008. International Brand Management of Chinese Companies: Case Studies on the Chinese Household Appliances and Consumer Electronics Industry Entering US and Western European Markets. Berlin: Springer. Buckley, P., Clegg, J., Cross, A., Liu, X. Voss, H. and Zheng, P., 2007.The Determinants of Chinese Outward Foreign Direct Investment. Journal of International Business Studies, 38(4), pp.499-518. Cheng, L., and Ma, Z., 2007. China's Outward FDI: Past and Future. Available at [Accessed 2 November 2012]. Deng, P. (2004). Outward investment by Chinese MNCs: Motivations and implications. Business Horizons, 47, 8-16. Dunning, J., 2002. Theories and Paradigms of International Business Activity: The Selected Essays of John H. Dunning. Cheltenham: Edward Elgar Publishing. Garrick, J., 2012. Law and Policy for China's Market Socialism. London: Routledge. Lardy, N., 1998. China's Unfinished Economic Revolution. Brookings Institution Press. Liu, C., 2007. Lenovo: An Example of Globalization of Chinese Enterprises. Journal of International Business Studies, 38(4), pp.573-577. Sauvant, K., 2008. The Rise of Transnational Corporations From Emerging Markets: Threat Or Opportunity. Edward Elgar Publishing. Song, L. and Golley, J., 2011. Rising China: Global Challenges and Opportunities. Canberra: ANU E Press. UNCTAD., 2012. Global FDI Outflows Continued to Rise in 2011 Despite Economic Uncertainties; However Prospects Remain Guarded. UNCTAD Global Investment Trends Monitor, (9), pp.1-8. Wall, S., Minocha, S. and Rees, B., 2010. International Business, 3rd edition. Financial Times/Prentice Hall. Read More