Internalization of Web-Based Product - Literature review Example

For Small and Medium Enterprise and Web-based Product: Chinese Market Entry and Internalisation Ventures

In the context of globalization and increasing international competition, more and more domestic enterprises begins to feel the limitations of domestic markets and factors of production of their states. To maintain competitiveness and the expansion of production scale, their business activity acquires an international focus. In economics, this process is usually called internationalization of the business activity of the enterprise or the internationalization ventures.

By definition, the internationalization of entrepreneurship (internationalization ventures) - is the production relations that develop between a particular company and its business overseas partners about the organization and implementation of foreign economic activity of the business in the form of exports of goods, services and foreign direct investment (Keupp & Gassmann, 2009, p.600).

Researchers in the field of internationalization of business at this stage point out that the formation of business goals and objectives of the entrepreneur needs to weigh the “pros” and “cons” in the international market. Benefits (if possible) related to the internationalization of obtaining additional benefits, are connected with a number of factors and the main reasons for the international business motivation (Mason & Pauluzzo, 2009; Delios & Henisz, 2000). Engelen and Heinemann come to the correct conclusion that the internationalization of business activities provides the following capabilities: to preserve and increase sales volumes in case of decrease in domestic demand; to smooth out sharp fluctuations in demand and prolong the life cycle of the product; to gain recognition abroad and gain international prestige for the company and its products; to recoup the costs of market research and innovation more quickly and efficiently than it could be done on the domestic market; to learn the best practices of international business, to form and raise the competence of company personnel; to improve the liquidity of the company's assets through the use of foreign sources of cash currency (Engelen & Heinemann, 2009).

With the development of technology and the expansion of international economic relations, small businesses received the opportunity to realize the internationalization strategy - start operations abroad and to expand their activities beyond the national market. Interest to this in Executives of small and large businesses is associated with the enormous opportunities that internationalization can bring but they have to overcome significant obstacles in the implementation process; S. Zaheer among such obstacles calls “the vulnerability of small size” or “foreigner’ vulnerability” (Zaheer, 1995). This makes it possible to characterize the internationalization as a true entrepreneurial step for companies, small and medium-sized businesses.

Speaking on the activities of small and medium-sized companies in the field of internationalization of business, it should be remembered that the institutional environment is different for each country. It creates the “rules of the game” (Khanna & Palepu, 1997) that impact on business development and the behavior of firms adjusting their interaction and determining the context for decision-making. Thus, firms are dependent on that national institutional environment in which there were “born” and are developing at the moment, and this dependence is particularly true for small firms, since in view of the limited resources they have no opportunity to change it. It is estimated that in developing economies the institutional environment plays an important role in terms of speed and dynamic changes occurring in it, which may have unpredictable consequences for the business (Laspita et al., 2012). However, the existing knowledge in this area is fragmented. To date, there is no single opinion, what impact the national institutional environment has on the development of the internationalization of the companies of small and medium-sized businesses and institutional factors which play a decisive role.

In the literature, despite the significant theoretical developments on the international and strategic management, there is insufficient theoretical and empirical basis for the management of issues of internationalization strategy of firms of small and medium-sized businesses. In particular, there is no understanding of the national institutional environment that surrounds them, and the factors which may be decisive in making management decisions about internationalization.

Issues related to the problem of internationalization were raised in the works of Adam Smith and David Ricardo. For a long time the countries served as the unit of analysis, and only to the mid-1950s scientists began to pay the attention to large multinational corporations. This led to the development of the theory of monopolistic advantage of S. Hymer, product life cycle theory of Vernon R., D. Dunning’ Eclectic Paradigm. In the 1970s, small and medium business gradually began to play an increasingly important role and act as a separate research facility. There was occurring of models allowing a better understanding of the development of international operations of small firms, such as the evolutionary model of J. Valhne and J. Johanson and innovative model. Actively began to develop resource-based approach in the writings of John Barney, B. Wernerfeild, R. Rumelt, as well as network-based approach in the work of J. Johansson and L. Mathsson. In the late 1990s, there was emerging of a separate line of research with a special focus on the international operations of small and medium-sized enterprises, known as “international business”. Its ideologists were Anderssen, S. Zahra, T. Madsen, B. Oviatt, P. H. Etemad and others.

In terms of micro-economic positions, internationalization is a process in which the firm “starts to take into account the direct and indirect impact of international transactions on their future” and “establishes communications and performs transactions with other countries” (Reuber & Fischer, 1997). In other words, this means that for the internationalization of companies it is expressed not only in the concrete steps taken towards the realization of foreign economic activity (Rugman, 1980), but a careful analysis of the possibility of its implementation. And here information becomes essential.

In operation of the company on the international market, one of the key activities faced by the management is the need to conduct market research. Namely international marketing research allows the researcher to obtain valuable information regarding the habits and needs of customers on each local market, to overcome cultural and language barriers, to understand the basic direction of competition. As well as local market research, international studies generate information for sales forecasting, to identify customer loyalty, customer satisfaction, optimal price range in relation to the enterprise’ products with the required accuracy and confidence level. It is important to remember that the research conducted at the international level is more problematic than local market research. Among the main problems that can confront a company in conducting international marketing research, scholars have identified (Terziovski, 2010; McLeary & Anderson, 2010):

- Language differences. In the survey of respondents, the questionnaire should be translated into the official language of the country where the study of consumers takes place. After the end of the study the respondents' answers are translated back to the original language. This double transfer often leads to an incorrect interpretation of the results and increases the risk of errors;

- Cultural differences. Consumers in different countries have different attitudes to marketing research. The respondents of one country will be happy to answer the questions of the interviewer. In other countries, the investigator may face the problem of reluctance to stop on the street and to respond to the questionnaire. Depending on the cultural characteristics of different countries, some of the survey questions may be considered too personal. For example, it may be a question about the choice of shampoo, deodorant and other personal care products in Latin America; or in most Muslim countries focus groups between people of the opposite sex are prohibited, as well as video recording focus groups composed of women is prohibited (Knight, 2000);

- Problems with obtaining primary information. Working on the international market without knowing the specifics of consumer behavior, the researcher may have difficulty establishing contact with the respondent, and sample content formation, respectively.

Despite these challenges, companies are using international marketing research increasingly. Cost of international marketing studies is undoubtedly high. However, the costs associated with the loss of profits and future errors of the enterprise in the unstudied market may be much higher.

The available resources, knowledge and experience of small and large businesses are often not sufficient for the active development of operations in new foreign markets. This problem is called “vulnerability novelty / small size” (liability of newness / smallness) (Stinchcombe, 2012). This means that, starting activities abroad, the firm faces the same problems as the “start-ups”: they need to find the necessary resources to build relationships with all stakeholders and establish its legitimacy (Barringer & Greening, 1998). Faced with a high level of risk in this new environment and the role of (Delios & Henisz, 2000), companies of small and medium businesses are looking for ways to avoid or minimize.

Considering the entrepreneurial component in the activities of companies of small and medium-sized businesses, we can summarize that for these firms internationalization is more related to a risky and proactive behavior. These characteristics are two of the three components of the entrepreneurial orientation of firms (Covin & Slevin, 1991; Wiklund, 1999). The third characteristic of acts of innovation, which means the company's penchant for experimentation and development of new ideas, practices, products, processes, which help it to achieve competitive advantage (Hitt et al., 2006). These three characteristics are also considered within the framework of the concept of international entrepreneurial orientation (Covin & Miller, 2014).

In the process of acquisition of information an important role is played by the content of information received (for example, information on barriers and measures to support international operations) and its sources (official and unofficial), as well as cognitive skills of the head (attention, logic, mental models, and so forth). These factors determine his ability to timely identify opportunities related to internationalization, and attempt to implement them, which, in turn, can lead to the beginning of the internationalization or expansion (Johanson & Vahlne, 2009, p.1411). Thus, the subjective perception of information managers (decision makers in an organization) is a key factor for explaining the strategic behavior of small and medium business firms.

The fact that the companies of small and medium-sized businesses have limited management resources (knowledge and skills) and information was found in one study on the example of small technology firms (Karagozoglu & Lindell, 1998). These constraints lead to the fact that the leaders are trying to take their own decision within a limited period of time, based on readily accessible information that can lead to extremely negative consequences. Thus, the internationalization of the firm makes small and medium businesses closely related to improving coordination of operations and the development of communication and the distribution of available resources, including management.

The theory of internalization in international activities got good theoretical and empirical evidence, but despite this, these studies focused on large TNCs, being sometimes unable to explain the behavior of SMEs. The reasons for this, along with limited resources, is the fact that the decisions of SMEs are often based on other strategic goals, personal preferences or management, such as proximity to a particular culture (Prasad, 1999).

Using the theories developed and passed an empirical test on the example of large corporations, is resulting in a fairly inaccurate results when applied to the context of small and large businesses, and sometimes they are not applicable.

Since 2002, China has become one of the world leaders in attracting foreign entrepreneurs (Kshetri & Dholakia, 2011). Foreign entrepreneurs are attracted to the possibility of penetration of China in the huge market of the country, development of natural resources and the use of local cheap labor force. The project will be devoted to the possibilities of Chinese market entry for SMEs, factors that should be taken into account by internalization ventures, with the use of Mettletest company as the research case.

One of the key factors that should be taken into account in the development of internationalization strategy, is the web-nature of the potential Mettletest’ product. The undeniable advantage of web-product marketing is the ability to conduct a dialogue with the customer. Feedback becomes simpler and more accessible, the customers in real time can express their views and suggestions, ask questions, which will allow tracking changes in the attitudes of consumers of goods and / or services and promptly respond to them.

Moreover, for the advertiser it is much easier to assess the effect of the implementation of certain Internet marketing tools than of the off-line advertising. Analysis of values and the dynamics of change of indicators such as traffic, subscribers, views, links, comments, and so forth allow optimization of the advertising costs, reducing the costs of inefficient tools.

The World Wide Web is largely facilitating globalization, blurring the boundaries, eliminating the strict framework, expanding the possibilities and prospects of development. It offers a variety of tools, use of which will provide successful promotion in foreign markets. However, we should state the virtual absence of serious research on the specifics of the promotion web products in the Chinese market. One of the objectives of the proposed study is to fill this gap.