The Stages Approach to Internationalisation - Case Study Example

International business strategy BY YOU YOUR SCHOOL INFO HERE HERE International Business Strategy The Stages Approach to Internationalisation Referencing the Uppsala model of internationalisation, the key assumption is that companies must make incremental changes in order to gain the appropriate knowledge and competencies necessary to operate in culturally and/or geographically different markets from that of the home country. It is knowledge acquisition and a significant learning process that is required in order to be able to find market success in a foreign location (Nordstrom 1991). The Uppsala model illustrates a type of experiential learning which is necessary to align business resources, human capital and strategic development to the unique characteristics of a foreign business environment. Under the stages approach, learning occurs first within the domestic market and then the business seeks opportunities in culturally-similar markets before ultimately expanding into a foreign market and developing the appropriate market entry strategy for this new foreign environment. Virgin Group, founded by Richard Branson, is an excellent example of a conglomerate that has utilised incremental foreign market entry strategies. The Virgin group first gained market experience in the United Kingdom, then selected entry into the United States, a location with similar culture to find market success utilising knowledge gleaned through UK business practices. Today, Virgin Group has built considerable marketing prowess and human capital advantages that allow the company to align strategy with foreign market characteristics. Common practices and metric within a variety of subsidiaries was gained through knowledge management and knowledge transfer that could, in the long-run, be applied to new and innovative business practices aligned with foreign culture and market characteristics. The Validity of the Stages Approach The Uppsala model is a rather common sense business model that strongly reinforces the necessity for knowledge management. Learning occurs through social, technological, organisational and marketing-based conceptions that build competencies, performance, and determine the appropriate market entry strategy required to meet foreign market demands in the pursuit of becoming a global corporation. Wal-Mart is a relevant example lending support to the Uppsala model, as this business determines a variety of unique market entry strategies, including joint ventures and acquisitions, in order to build knowledge about foreign culture preferences before ultimately determining an appropriate strategic policy aligned with foreign market characteristics. For instance, in Canada, consumers are “socially conservative”, a strong cultural distinction from the UK and US markets (Arnold and Fernie 2000, p.421). Without first gaining appropriate knowledge of what drives Canadian culture, as the relevant market of choice for entry, the business would be unable to develop effective marketing and inter-organisational strategies that are aligned with unique characteristics of the Canadian culture. Thus, incremental changes to the business model both pre- and post-entry into this foreign market territory are necessary and lend considerable support to the validity of the stages approach to internationalisation. Criticism of the Uppsala approach to internationalisation are that this model does not always explain practical and realistic market entry strategies due to the rapidly-increasing speed by which firms must internationalise. Globalisation efforts with powerful competitive forces and the speed by which technology evolves, theoretically, puts new demands for rapid market entry in order to tap new markets before they become saturated. Thus, there is little time for extended and time-supported learning in order to achieve market success. A Global Strategy for an MNE Tesco, the multi-national foods retailer, has many opportunities to develop an effective global strategy. Tesco, unfortunately, cannot standardise product as it must maintain a localised strategy to ensure the supply network is diversified and unique to each operating region. Because standardisation is not appropriate for cultural disparities from the home country of operations, the business is able to achieve competitive and cost advantages by exerting pricing controls over its many international suppliers (Coe and Lee 2006). This serves as the foundation for its global strategies in an oligopolistic market structure where homogenous product offerings would be rejected due to cultural differences that drive consumption needs and consumption behaviours. Thus, to maintain these cost and competitive advantages, Tesco should focus on establishing strategic alliances along its global procurement network, something that Copacino (1996) reinforces is critical to facilitate a non-redundant procurement strategy and exploit advantages (whether cost-related or resource efficiency-related). Tesco maintains opportunities to establish global customer relationship management practices so that the resources, competencies, and supplier expertise can be effectively exploited and give this retailer more buying power by raising switching costs for suppliers as it relates to defection to other powerful, large competition such as ASDA and Morrison’s that also operate along a global procurement network. By establishing appropriate alliances in the aforementioned fashion, Tesco will be able to nurture all of its market-based assets and ensure that the supply strategies create an interconnectivity between internal profitability expectations and also provide consumer constituency with the value and product variety that is demanded due to disparate cultural needs from the home country of operations. Is Global Strategy a Myth? Global strategy is definitely a myth, which was illustrated by the case study of Tesco in South Korea that could not rely on a standardisation methodology in order to adequately serve its target consumers. Theorists that describe global strategies do not take into consideration the sociological elements of business strategy that are relevant and critical to maintaining appeal with foreign consumer target markets. Rather, those that applaud the notion of a global strategy tend to view its relevancy from a cost and managerial practice perspective in an attempt to homogenise product offerings and procurement strategies. Take into consideration Wal-Mart: It has very little brand recognition and brand relevancy in Europe (Rugman and Girod 2003). However, in the triad of its most significant operational presence, Wal-Mart is a leader in providing consumers with value by regionalizing, rather than standardising for a global consumer audience, its product procurement strategies and marketing processes. Within this triad, including dominance in North America, Asia, and the European Union, Wal-Mart maintains many different perceptions of its ability to provide value to consumers, thus driving heterogeneity in unique marketing strategy developments that would not be considered pertinent in all regional markets. It is only through the development of localised strategies in brand-building, promotion and product procurement strategies (which are diverse for each operating region) that companies like Wal-Mart can thrive and gain market share against competition. A global strategy would be self-defeating in this scenario because of the dynamics and diversity of mass market lifestyle and social characteristics that differ substantially from home market environment and market characteristics. Therefore, global strategy is a myth if the company operating in multiple international locations is unable to homogenise its product offerings without imposing risks of culturally-related failures. A British Company with Diverse Entry Mode Strategies Starbucks UK, the British subsidiary of the North American-based coffee business, has entered many international markets using diversified entry strategies. Starbucks UK recognised that there were cultural and lifestyle trends associated with Chinese consumers that would give coffee, perhaps, a limited life cycle. Market research conducted illustrated the Chinese consumers consume 16 times more tea than coffee products as part of the social condition in this country (Patton 2012). However, Starbucks UK lacked the appropriate knowledge of Chinese consumption behaviours and appropriate promotional strategies in order to give the business a more powerful brand reputation and achieve creation of market demand in this country. Therefore, Starbucks UK established a joint venture with Tata Global Beverages Ltd. in an effort to exploit more effective knowledge exchange about Chinese market preferences and cultural attitudes so that its new tea division could successfully market its products to these unique consumers with different attitudes, values and principles than in its triad markets where sales results have been significant. “Foreign investment decision process is a very complicated social process, involving an intricate structure of attitudes and opinions…and social relationships” (Aharoni 1966). Starbucks UK lacked the appropriate competencies to successfully service and market to Chinese consumers that were not interested (or rather not wholly interested) in coffee products and consumption. Coffee, however, had been the trademark of its premium pricing strategies that brought the business considerable brand presence and profitability in its other operating markets such as the United Kingdom and the United States. In this scenario, joint venture strategies provided the business with the talent and expertise necessary to achieve market growth upon entry. In an effort to enter the Middle East, a market where little brand recognition exists for the coffee company, the business selected a strategic alliance as the short-term advantage to gain ground with this unique culture. The business was seeking a diversification strategy as a risk management effort to ensure that the company maintained longevity in the event of a decline in the life cycle of its main coffee products. Acquisition of Teavana Holdings involved a short-term strategic alliance with Alshaya, a franchise conglomerate with experience in food services, fashion, and even home furnishings in countries such as Lebanon, Russia and Turkey. The company sought the alliance to ensure that knowledge could be disseminated from its allied partner about market characteristics, social lifestyles, and general consumption preferences from a diverse market of Middle Eastern buyers; of which Starbucks maintained very little experience and knowledge. Switching to a strategic alliance rather than joint venture had to do with the liabilities of establishing long-term, legally-binding agreements between both parties. Starbucks UK intended on expanding its store presence deeply into China, including also coffee product offerings as well as tea products, therefore a long-term contract maintained the ability to fuel much more in-depth market knowledge. The strategic alliance avoided the complexities of establishing such contractual agreements whilst still being able to exploit the talent and competencies of the allied partner. Starbucks UK maintained much more control by choosing a strategic alliance in the event that rapid exit from the country was necessary due to failures both culturally-driven and market-driven as many leaders had experience working with Middle Eastern business partners that could translate into much better planning and marketing development for an entirely new culture disparate from the British business environment. British MNE Example with a Recent Joint Venture in Foreign Markets Boundary Capital, a British-based investment company, recently established a joint venture with Arnotts, a Dublin-based department store, which created a new holdings company that would take over 100% of Arnotts operations. In previous years, the Dublin City Centre was underdeveloped and existing businesses operating in this commercial centre were unable to maximise profitability in a country plagued with significant economic problems and increasing unemployment problems. Boundary Capital, maintaining the appropriate capital resources to assist Arnotts in expanding its market presence and brand reputation, served as the foundation for this important joint venture investment. In 2007, Arnotts experienced revenue losses of over €4.7 million (Finfacts Ireland 2007). In 2010, Arnotts was in such poor financial condition that it was taken over by the Anglo Irish Bank for failing to make appropriate payments on its Dublin Northern Quarter properties. This represented a tremendous opportunity for Boundary Capital to take the reins and redevelop the business model of Arnotts. The motivation, therefore, for this joint venture was to diversify the holds of Boundary Capital and take advantage of recent urban redevelopment in the Dublin City Centre designed to create more market demand and consumer interest in its business model. Boundary Capital, having multitudes of executive experience and human capital advantages, understands the dynamics of marketing function to gain consumer attention and build a positive brand, something lacking at Arnotts. Youth markets, those most likely to be attracted to Arnotts’ clothing products, find group membership and self-identity through fashion attire (Fernie, Moore, Lawrie and Hallsworth 1997). Utilising its diverse talent of investment professionals, Boundary Capital knew it could better serve market needs than Arnotts could, thus establishing the foundation of its marketing-based motivations for joint venture establishment. Discussion of Unilateral Management Control One-sided, independent management controls provide an effective risk management tool by establishing these unilateral controls. There is no guarantee that a joint venture is going to find anticipated successes, either due to management incompetency in the JV partner or inefficiencies in the operational components or capital investment strategies by the JV partner. If the executives, as one relevant example, require a board of directors for the newly established joint venture entity, unilateral management controls can ensure that the majority of decision-making is provided by the first partner so that effective risk avoidance can be all-inclusive in the new business model. Superior performance is achieved by ensuring that knowledge professionals with the talent and expertise to build an effective series of joint venture outcomes are aligned properly as majority decision-makers. JV partners are known to sometimes become lazy as the JV partnership evolves, even when the partner first exhibited competencies at the launch of this new JV entity (Al-Khalifa and Peterson 2004). When this occurs, the majority of the burden of carrying the new joint venture agreement falls on the more motivated and enthusiastic partner. The partner, also, may be deceitful which becomes an unforeseen risk, thus giving the new joint venture independent control ensures that the new business opportunity succeeds regardless of partner duplicity or guile. If it is determined that there are factors associated with executive leadership that could jeopardise the life cycle of the joint venture project, establishing a contracted agreement to maintain unilateral controls ensures that the direction of the JV is not endangered. Unilateral controls avoid gambling when one partner that demands more independent control recognises they maintain superior competencies in planning, organisation, and marketing proficiency that supersede the knowledge and experience of the JV partner. Merits and Disadvantages of Using Local Nationals The first advantage of staffing using host market nationals is for cost advantages. It is costly to train, develop and absorb cost of living expenses for expatriate managers sent from the home country. By recruiting local talent, these costs are removed (Gamble 2000). This maintains many advantages in keeping costs low. A secondary advantage is associated with organisational culture. Local employees require either collectivist or individualistic remuneration strategies or reward systems depending on the hedonistic or benevolent characteristics of the employee population. Expatriate managers, without adequate training, do not understand these cultural characteristics to the degree of local managers that have experience working with the social condition. It will create more effective leadership policies and control systems by adopting local customers and social order to the organisational model that is difficult to predict and plan for expatriate managers. Potential disadvantages of this local talent strategy include too much of a local set of beliefs, ethnocentrism, that could complicate maintaining a global strategy needed for the parent company operating in the hose country. Ethnocentrism is best defined as having a set of principles and values that are associated with home country superiority which could, when using local talent managers, translate into ineffective strategy development that takes into consideration more than simply the needs of local workers and business practices. For a company seeking a global presence and global strategy to facilitate standardisation, as one example, local managers with ethnocentric values could complicate business negotiations. If ethnocentrism appears when working with diverse business partners, relationship development could be complicated and reduce competitive advantages associated with the human resources model. Reasons why Expatriate Management Can Fail First, family members and spouses of expatriates are not always able to adapt to local customs and cultures, conflicting the process of motivating expatriate managers sent from the home country. In the event that there are personal problems within the family dynamic, expatriate managers can be less enthusiastic about their assignment when having to deal with complicated psychological and sociological problems within the home. This is relevant especially for long-term assignments requiring a physical transfer to a foreign nation. Additionally, failure to establish culturally-relevant policies and procedures due to expatriate ethnocentrism could cause problems in the host country. For instance, collectivist cultures demand more group-oriented reward systems since collectivist societies often find their personal identity and self-value in group membership. An ethnocentric manager holding strong convictions about home country superiority could create reputation problems with workers in the host country. Failures would occur by not utilising a cross-cultural set of competencies in the human resources and management control systems in place, thus creating inefficiencies both psychologically and motivationally. Finally, expatriate managers may have problems, themselves, adapting to the host country values and worker characteristics. When this occurs, a longing for return to the home country could significantly complicate ensuring dedication and cohesion between the expatriate and the demands of the multi-national business. Failures could be witnessed in a variety of different managerial processes and practices, alongside with emotional problems, which would lead to ineffective management and leadership. References Aharoni, Y. (1966). The Foreign Investment Decision, cited in Al-Khalifa, A.K. and Peterson, S.E., On the relationship between initial motivation, and satisfaction and performance in joint ventures, European Journal of Marketing, 38(1/2), pp.150-174. Al-Khalifa, A.K. and Peterson, S.E. (2004). On the relationship between initial motivation, and satisfaction and performance in joint ventures, European Journal of Marketing, 38(1/2), pp.150-174. Arnold, S.J. and Fernie, J. (2000). Wal-Mart in Europe: Prospects for the UK, International Marketing Review, 17(4/5), pp.416-432. Coe, N.M. and Lee, Y. (2006). The strategic localization of transnational retailers: The case of Samsung-Tesco in South Korea, Economic Geography, 82(1), pp.61-88. Copacino, W.C. (1996). Seven supply chain principles, TraBc Management, 35(1), p.60. Nordstrom K.A. (1991), The Internationalization Process of the Firm – searching for new patterns and explanations, Stockholm: Stockholm School of Economics Fernie, J., Moore, C., Lawrie, A. and Hallsworth, A. (1997). The internationalisation of the high fashion brand: the case of central London, Journal of Product & Brand Management, 6(3), pp.151-162. Finfacts Ireland. (2007). Boundary Capital buys 45 percent of Arnotts, the Dublin Department Store group. [online] Available at: http://www.finfacts.com/irelandbusinessnews/publish/article_1011115.shtml (accessed 26 January 2013). Gamble, J. (2000). Localizing management in foreign-invested enterprises in China: practical, cultural and strategic perspectives, International Journal of Human Resource Management, 11(5), pp.883-903. Patton, L. (2012). Starbucks with Teavana moves Schultz beyond Coffee Roots, Bloomberg News. [online] Available at: http://www.bloomberg.com/news/2012-11-14/starbucks-to-buy-teavana-for-620-million-to-add-tea.html (accessed 24 January 2013). Rugman, A. and Girod, S. (2003). Retail multinationals and globalization: The evidence is regional, European Management Journal, 21(1), pp.24-37. Read More