Evaluating Internationalization Strategy: Boffi Spa - Case Study Example

Evaluating Internationalization strategy: Boffi Spa Module Leader Executive Summary This research paper effectively assesses the impact of internalization in Boffi Spa’s case and recommendations that are suitable for its growth. This report has created awareness on the factors involved in expanding a business to international heights as projected by this case. Its’ main focus was to highlight the opportunities and challenges a business faces when it decides to venture into the international market. The methods used in getting the required findings included observation which entailed consulting various people and records and interviews which were conducted on relevant people in respect with the case. The cumulative findings are that Boffi Spa is not able to fully comprehend the concept of internalization due to lack of proper research. They ventured into production of new products without grasping the new technological trends and preferences of the consumers. I recommend a thorough analysis of all the related factors in expansion of the business especially embracing the different cultures of various countries so as to properly calculate the risks involved and if it is worth it in the long-run. Table of Contents 1.0 Introduction………………………………………………………………………………4 2.0 Summary of Environmental Audit………………………………………………..………5 2.1 Findings from the Environmental Analysis……………………………….………5 2.2 Recommendations…………………………………………………………...……5 2.3 Lifecycle Analysis……………………………………………………………..….7` 2.4 SWOT Analysis…………………………………………………………………..7 3.0 Internalization……………………………………………………………………………..8 3.1 External Analysis………………………………………………………….……....8 3.1.1 Macro analysis…………………………………………………..……..8 3.1.2 Micro analysis…………………………………………………...……..9 3.1.3 Lifecycle analysis………………………………………………………9 3.2 Motive for Internationalization……………………………………………………10 3.3 Evaluation of National Competitive Advantage……………………………..……10 3.4 Evaluation of mode(s) of entry……………………………………………………10 4.0 Conclusion………………………………………………………………………………....11 5.0 Recommendations………………………………………………………………………....11 References…………………………………………………………………………………..…12 1.0 Introduction Internalization is the ability to be open-minded in the on-going global business trends and being aware of the diverse cultures worldwide. By being able to appreciate different beliefs, cultures and practices in various countries businesses have the chance to venture into new markets successfully (Elgar 2003). A business must be interested in innovation and produce goods of high quality so that it can be able to compete in new markets (Gandolfo 1998). This is an evaluation of Boffi Spa’s internalization strategy and how it will achieve its objectives by discussing the benefits and risks involved by adopting this strategy. This report focuses on the impact internalization will bring on the production of new goods and increase in sales of existing products. Interviews conducted in the respective departments and observation of the companies records were utilized in acquiring the relevant information. It took quite a number of weeks to accumulate the whole data so as to create a definitive report. It was realized that businesses are embracing internalization because they believe that it increases the sales despite the number of risks involved. In this case study, it is established that Boffi has still a long way to go in terms of fully implementing its’ internalization strategy and therefore it needs to do a thorough analysis on this topic. 2.0 Summary of Environmental Audit 2.1 Findings from Environmental Analysis An audit of the business external environment was done using two other businesses of similar nature from two neighboring countries. This audit provided the prospects Boffi had in increasing its’ chances of a successful internalization strategy. Boffi being in Italy, Austria and Slovenia were selected as comparisons because they are neighboring countries to Italy. The report focuses on Blum Company in Austria and Gorenje Company in Slovenia. These two companies also operate in the international market and have established their brands in other neighboring countries (McDonald et al, 2007). Fig 1 2008 Boffi Spa (Italy) Blum (Austria) Gorenje(Slovenia) Turnover (Euros) 70,000,000 60,354,785 15,899,680 Export Sales 36,391,669 45,840,170 6,987,450 Using the statistics in the table above, it appears that Boffi Spa performed the best in terms of sales revenue compared to the two companies. In terms of export sales, Blum Company performed the best despite Boffi Spa having the highest recorded turnover. 2.2 Recommendations a) Willingness to embrace other cultures. Boffi Spa claims it does not need to adapt to the practices of the various countries because they believe their products are of exclusive design and people would automatically want to try them. This attitude made them not to perform according to their expectations in neighboring countries. The remedy would be to research and learn the taste and preferences of potential customers in these countries. This would obviously lead them to produce desired goods. b) New host country. Another strategy would be to engage in thorough research to find out if there are other countries that have similar preferences and are enthusiastic about new trends in the market (Hoy 2003). By trying out this new strategy they can be able to increase their customer base and in the process, learn new methods of improving their business. c) Entry mode. Before entering a new type of market, the targeted customers should be shown samples of the products so that they can give out their views. Their say is very critical in determining the success of the products because they want something they can relate to. With this information plus the research on similar products in the particular country, will give a clear view on how to improve their products and find new ways to entice new customers. d) International Development. A successful business is the one willing to take risks in the process of expansion. One of the new trends in the business world is international development (Vernon 1966). Benefits accrued from this practice provide merits in the long-run despite challenges in the beginning. In order to increase their export sales, Boffi Spa should not stop at the countries it has already ventured into but try different avenues where there seems to be great potential. Despite the unsuccessful growth in a number of countries, it should try to be open-minded and indulge in production of high quality goods. 2.3 Life cycle Analysis Life cycle analysis is used by businesses today to review policies, calculate risks, protect their products’ identities and increase their sales. The lifecycle analysis includes three stages namely the rising phase, shakeout phase and customer orientation phase. The rising phase includes the entry of a business into a new market where the products do well for a period of time. The businesses with the required products dominate the market for longer periods. The shakeout phase entails increase in competition and companies may decide to form mergers therefore gaining an advantage over the others. The last phase is about customer orientation evaluate the customers’ preferences thereby increasing the quality of their goods to suit customer satisfaction (Reynolds 2003). Boffi Spa seemed to do pretty well the first time they entered into new markets but after a while they competitors upgraded because they were more aware of what the customers needed. Boffi Spa was over confident that their Italian designs would woo the new customers without realizing that customers might resign to what they were accustomed to. After a short period of time, the sales started to diminish which led to some stores being closed. 2.4 SWOT Analysis SWOT is an abbreviation for Strengths, Weaknesses, Opportunities and Threats (Foley1999). In this case, Boffi Spa had a share of all these factors. Strengths include successful entry into the new markets, winning a coveted award which improved its image, expanding their business into 60 countries, increase in sales, and enviable change in management. Weaknesses include failure of a number of the mono-brand stores, lack of qualified personnel, lack of proper research and egoistic beliefs of their products. Opportunities presented to them include a large avenue for improving their products using various workshops and seminars. Getting into mergers is also another viable option because it will mean better financial base, increase in the number of employees and competitive gain against related companies. Threats include high competition from other companies, technological trends, mergers of other companies, decline in customer base, increase in expenditure, decline in availability of resources and change in customer taste and preferences. 3.0 Internalization Internalization is the ability of a business to expand its’ operation by venturing into the international market so as to increase its’ customer base. This is done by establishing its’ brand in stores in other countries so that it can be recognized as an international business. Before entering a new market, a company has to do extensive research on its’ competitors and the preference of the customers (Yadong et al 2005). The company must be willing to adapt to the practices found in these cultures so as to win the trust of these new customers. 3.1 External Analysis This is an analysis done on how Internalization affects the growth of a business and how it should be implemented to get the desired results (Sherman 2004). It consists of three different aspects which include macro, micro and lifecycle analysis. 3.1.1 Macro Analysis This is the analysis of a firm at the country level whereby economic policies are studied according to the regulations of the country. However, it is quite difficult and tiresome to study a country’s economic growth over a long period of time because of underlying factors. Given the cases of Blum Company in Austria and Gorenje Company in Slovenia, we can compare the position of Boffi Spa in adapting internalization. Italy, Austria and Slovenia have similar rules and regulations concerning internalization of businesses. They advocate for foreign investments so as to enhance economic growth in their countries and also offer subsidiaries to companies willing to invest in other countries so as to promote trade in various countries. There are also sanctions on goods that are deemed harmful to the society therefore considered illegal due to their various beliefs and cultures. However, Boffi Spa has not done well as it expected in terms of diversifying its’ products. 3.1.2 Micro Analysis This entails the improvement of the production processes and systems in the company (Root 1994). Boffi Spa’s internalization strategy was to first change the top management so as to have fresh ideologies and have different perspectives on management. The second step it took in revitalizing the business was to diversify its products to ensure it increases its’ customer base. This was done by launching new products. The other step was to change the design of the product so as to attract potential customers. Boffi Spa also decided to acquire ultra niche luxury brands so as to provide exclusivity to wealthy customers. 3.1.3 Life cycle Analysis Boffi is a reputable company and has been in existence for quite a number of years. This has obviously created an image of goodwill to the customer base and continues to do so despite the mishaps it has encountered along the way. When it decided to venture into the new markets, it was patient and hopeful that the business will bloom but in most cases this only had a short-term effect nevertheless they were still willing to go on. Despite all this, they were still motivated to increase its customer base by introducing their products in other markets. They have faced stiff competition by competitors who are using cutting-edge technology to develop their products which might be quite expensive for Boffi. These competitors are using the private information they have on the products to their advantage because they are more aware of what the consumers need. Finally, it seems that Boffi has still retained its’ old customers and won new ones by continually delivering products of exquisite taste. 3.2 Motive for Internalization The motivations for internalization can be categorized into two main groups namely push and pull factors. The push factors include domestic market restrictions in this case, utilizing the economies of scale by doing mass production and competition in the domestic market (Salomon 2006). The pull factors in this case include growth sustainability and profit realization of the firm. All these factors contributed to the internalization of Boffi Spa. 3.3 Evaluation of National Competitive Advantage National Competitive Advantage is basically the analysis of how a company is able to perform in international markets. Twomey (2000) argues that they are four important factors that are needed for a company to perform exemplary in the international markets. These include the research used in determining the opportunities available, availability of resources, the aims of the company and the investment pressure on the company. Boffi had to fully understand these factors so as to implement the internalization strategy. 3.4 Evaluation of mode of entry Boffi is able to use sales representatives, who go to the foreign markets to advertise their products and ensure they cover all the legal formalities. They are able to get credible information feedback thus develop good relationships with customers. The disadvantage of this method is that it requires a long time to market the goods hence higher investments of time and personnel. 4.0 Conclusion It is quite clear from the findings that Boffi still needs to fully grasp the notion of internalization because its’ sales are not impressive in terms of export sales. It can still do better with more determination and the will to change the mindset of individuals in the company. Diversification is a reliable process that if utilized well can bring about desirable results (Pitelis et al 2000). 5.0 Recommendations I highly recommend the use of proper planning and creation of relevant strategies to build up the chances of Boffi in the international markets. It also needs to embrace the practices of other cultures so that the new clientele can feel appreciated. By introducing workshops and seminars for their employees, it will create a creation of new ideologies and specialization of new and existing products. References Elgar, Edward. 2003. Learning in the Internationalization Process of Firms. Luostarinen (1979). p. 261. Foley, J. 1999. The Global Entrepreneur: taking your business international Age, Dearborn Publishers. Gandolfo, Giancarlo. 1998. International Trade Theory and Policy: With 12 Tables. Springer. p. 544. Hitt, A. 2009. Strategic Management Competitiveness and Globalization, Nelson Education Ltd. Hoy, F.; Stanworth, J. 2003. Franchising: an international perspective, Routledge Publishers. McDonald, F.; Burton, F.; Dowling, P. 2002. International Business, Cengage Learning EMEA Publishers. Pitelis, Christos; Roger Sugden .2000. The nature of the transnational firm. Routledge Publishers. p 224. Reynolds, F.2003. Managing Exports: navigating the complex rules, controls, barriers, and laws Age, John Wiley & Sons, Inc. Rogers, Everett M. 2003 .Diffusion of Innovations, 5th edition New York, NY: Free Press Root, Franklin R. 1994. Entry Strategies for International markets. John Wiley & Sons, Inc. Salomon, Robert .2006. Learning from Exporting: New Insights, New Perspectives, Edward Elgar Publishing Limited. Sherman, A. J. 2004. Franchising & licensing: two powerful ways to grow your business in any economy, AMACOM Div American Mgmt Assn. Twomey, Michael J. 2000. A Century of Foreign Investment in the Third World. Routledge Publishers. p. 8. Vernon, Raymond. 1966. International Investment and International Trade in the Product Cycle. : Quarterly Journal of Economics.. Cambridge. p. 191. Yadong Luo, John Hongxin Zhao, Jianjun Du. 2005.”The internationalization speed of e-commerce companies: an empirical analysis", International Marketing Review, Vol. 22 Issue: 6, pp.693 – 709. Read More