The Current State of Internationalisation - Essay Example

?An Assessment of Current Thinking Regarding Internationalisation for SMEs and Universities The Current of Internationalisation Hill states that the move towards globalisation began in the 1980s and the pace is increasing. Businesses can find many opportunities through operations‘ expansions, new revenue streams and cost reductions (ibid, p.4). It has fractured the jobs market and now jobs that once were unassailable are under threat from overseas competition. Hill defines globalisation as “the shift toward a more integrated and interdependent world economy” (ibid). Globalisation of markets and production are two of its many facets. Both will continue, with firms increasing globalisation by responding to changing macro and operational markets to increase both efficiency and profits. The primary globalisation drivers are the loss of barriers between nations, allowing new trading relationships to develop and change driven by technology. During the early stages of globalisation, companies actively made the decision to globalise, and did so in small steps. It is now assumed that all firms will globalise unless they have a good reason not to (Yip, 2001, p.358). One of the main reasons for globalising, is the increasing rate of change in technology, especially the Internet. Even the smallest organisation can trade globally as long as they have an appropriate web site and can set up the appropriate supply chain for delivery to the customers. Yip also identified three main forms of multinational companies (MNCs): internationalist, federalist and global maximiser (ibid, pp.359-362). The federalist is the traditional MNC. The global maximiser uses pure strategy when formulating growth plans. For an SME deciding to internationalise, the internationalist strategy appears most suitable. An internationalist strategy is used by a company with a secure position within its home market/nation. Foreign activities are opportunistic rather than strategically planned and intended. The test, according to Yip, is whether or not the company could survive purely on the revenue and profit streams of the domestic business (ibid, p.359). This would also be an appropriate approach for a university seeking to expand overseas for the first time, although the use of the Internet and well-constructed, culturally appropriate learning materials with well-trained teaching staff might negate the need to physically expand overseas at all. Kaarna (2010) makes use of the internationalisation framework when considering whether “different theories for explaining the accelerated internationalisation” (p.556). He found, as part of his initial investigations, other researchers’ work, undertaken in 2000-2003, identified two ways that enterprises attained international status by either starting as a global company or using multiple market entry modes simultaneously (ibid). Surprisingly he also identifies a study that found the use of theoretical models in peer-reviewed articles was evident in only 18% of them (32 out of 179 papers) (ibid, p.557). His research revealed that, despite its age, the internationalisation framework still held, some 34 years since its identification by Johnson and Vahlne in 1977 (ibid, p.560), although it is qualified by indicating that some of the underlying assumptions had changed, with new ideas being added based on other theories and models which, Kaarna claims, have enhanced “the understanding of [the] accelerated internationalisation phenomenon” (ibid). Other aspects affecting the increasing extent and pace of globalisation, are increasing amounts of investment from companies seeking to set up operations in different countries. Restrictions are being reduced and/or removed to facilitate this, increasing the abilities of nations to import and export required goods and services (Hill, 2011, pp.12-13). Trade barriers have also been progressively reduced, although there are often threats of imposing tariffs and quotas when nations disagree with policies and approaches of other nations, resulting in the threat of trade wars (this employs what Lynch (2009, p.807) calls trade barriers, defined as “the barriers set up by governments to protect industries in their own countries”). They are frequently used when war is declared to stop important technologies and other supplies reaching the enemy. Globalisation can be a response to new entrants (Porter, 1980) from overseas threatening the home nation’s industry, creating a self-perpetuating process that is gaining momentum. This requires any industry to consider globalisation as a standard strategy, including those who might not have thought they needed to consider such things, including SMEs and universities. SMEs and Internationalisation SMEs generally do not consider overseas markets until they reach a point when their market share in their home nation has reached a plateau, when they seek new markets and these may be overseas. When entrepreneurial firms consider international expansion, their approach tends to be opportunity discovery rather than any deliberate of systematic approach using searches for relevant niches and/or markets (Chandra et al, 2009, p.30). This is based on the lack of knowledge of the international arena. The study recognised that SMEs, unlike MNCs, do not have extensive resource bases but have products and services that other nations will find useful and for which they will pay premium prices, allowing further innovation and expansion. It also identified ways that business practitioners and export professionals could help SMEs looking to expand overseas. Such approaches may serve new firms especially if information technology is the means by which the product or service is provided. For existing companies, the approach may be more systematic as a decision to target overseas markets would need to be made first, before any actions could be taken to realise the strategy. One option for SMEs is to export their products and services. In this context, Westhead (2008) investigated SME exporters to develop a typology to see where they were along within the exporting experience. He identified four categories: the disinterested exporter, the disappointed exporter, the export capable and the committed exporter (Westhead, 2008, p.441). Most firms studied fell into the disinterested exporter category (84 out of 140). Among the remainder, the majority fell into the committed exporter category (25 out of 140). This would seem to indicate an “all or nothing” approach to exporting on the part of SMEs. This could be down to some organisations being “one-man bands” and therefore not needing or wanting to export. There would need to be a critical mass for a firm to export and for such exporting to be profitable for the firm. Most SMEs are profit-driven and in the private sector. This can affect availability of resources for overseas expansion. A non-profit organisation is potentially likely to have fewer resources, thus must deploy them prudently, meaning overseas expansion is likely to be restricted. Huarng and Yu (2011) looked at an e-book supplier to determine how they used process innovation and value creation. Process innovation might be required if expanding overseas,. They used the three key factors of funding, stakeholders and legitimacy to analyse successful entrepreneurial experiences. This might be a useful framework to consider any export/expansion activities prior to actually undertaking them. O’Cass and Weerawardena (2009, p.1325) considered SMEs to find out how international entrepreneurship and innovation affected firm behaviour. They found that “international SMEs differ from non-international SMEs in terms of international entrepreneurship, organisational innovation intensity and firm size”. This is a key consideration for any firm looking to expand overseas as they will need some entrepreneurial skills and potentially the ability to innovate to undertake overseas expansion. Learning about both entrepreneurship and innovation would pay dividends for the firm on this basis. McAuley (2011, p21) reviewed the research undertaken into the SME internationalisation process and found that, within the research domain, “progress had been made in some areas ... but in other ways there is more work to be done ..”. The areas that had been covered well included global and cross-cultural coverage, multi-sector and multi-method approaches, which seem to relate to the “how” of internationalising. Those that had not been well covered included how relevant SME internationalisation was to policy makers, implying that governments do not understand how SMEs become international and that policy does not reflect reality or potentially actively hampers such processes; and longitudinal studies, which would track the progress of SMEs undertaking internationalisation. Such studies would need to cover the type of policy in place at the time the firms expand which would allow more successful and supportive policies to be created to improve the conditions for SMEs seeking to internationalise. For SMEs seeking to internationalise their operations, there are many considerations, only a few of which are covered here. The process is fraught with difficulty and can be extremely high risk if a full subsidiary is set up in the target country. Exporting is the least risky strategy and this seems to be the predominant method by which internationalisation takes place for SMEs. Universities’ Integration of International Operations Universities are finding that they now need to work in a more market-oriented environment, following deregulation and the charging of fees, together with reductions in grants and the use of league tables to “differentiate” between the different institutions. As a result, institutions have been taking on more international students who pay full fees, to help balance the books. Recent proposals to restrict the number of foreign internationals allowed in the country are likely to impact heavily on universities’ abilities to balance the books. As such they now have to find additional revenue sources and for some, this involves provision of courses overseas, either using partnership arrangements or by setting up small colleges within the target country. The potential for e-learning has yet to be realised, but may see some focused developments in the immediate short term as universities seek additional funds from new sources. Chandra et al (2009, p.54) identify key learning points for business practitioners assisting SMEs with international expansion. Their study involved knowledge –intensive subjects (software providers). Key activities include networking (conferences, the internet, hiring those with international experience or at key network positions appear to be those most appropriate to higher education), collaboration if resources are limited, taking advantage of opportunities as they present themselves. As the internationalisation aspects take hold, further expansion takes place and international activity becomes a part of business as usual, including seeking out opportunities in a more systematic way. Using Westhead’s (2008) categorisations, universities, if they export anything, may well be disinterested exporters rather than committed. That is likely to change with the new austerity drive currently underway. It also points to the creation and delivery of more distance learning whether that is using paper-based or electronic means. Paper-based and e-learning can be exported as stand-along courses, but most students prefer some tutor input, meaning that online provision is probably the way to go. The use of Huarng and Yu’s (2011) key factors may provide additional information for the universities when considering such things. Most universities teach innovation and entrepreneurship (O’Cass and Weerawardena, 2008), thus already have the resources to develop such things for international expansion. However actually doing something about learning in these areas is not likely to be thought of as being important; in fact, it is unlikely that universities will consider that they need to consider such things at all. Universities ought to imagine that they are setting up a brand new business, and then follow that process through to ensure they think about everything that is relevant to their enterprise objectives and are successful in their endeavours. McAuley’s (2010) study covered literature between 1999-2009, a broad range of experiences and methods will have been included in this. Universities could use the references of the article as a starting point to discover more about the process of internationalisation and adapt them for their purposes. This would allow them to lobby government for policies that support their efforts, and may also help other firms looking to follow the same path. Ruby (2005) believes there is a symbiotic relationship between international universities and the international environment. He states that “education has become a tradable commodity” as “it can be priced, paid for and provided” (p.233). This fits with the current view within the UK government that the education providers operate within a market, whether that market be national or international. Ruby goes on to say that “universities are creators and disseminators of knowledge; they shape globalisation as much as they are shaped by it” (ibid). This viewpoint may be difficult for universities to accept as their ethos focuses on the development of knowledge and providing learning. It does have some validity as some degrees have international status, such as an MBA from Harvard Business School. So the degree and the school become nationally recognised “brands” allowing them to be used as currency around the world. Graduates also disseminate knowledge gained from their places of learning, which is also another way higher education is international, according to Ruby (ibid, p.234). Universities can therefore place their offerings within this framework to allow them to deal with the “marketisation” of higher education. Universities deal in adult learning, and with the increasing amount of information available, and more professional development being required to satisfy professional bodies of continuing competence and currency of knowledge, universities are providing more focused, specialised courses to deliver this (Belonozhki and Khitu, 2008). This represents a huge opportunity for exploitation on both a national and a global level. As such courses are already being delivered, converting them into e-learning materials and resources should be relatively straightforward. If the necessary skills are not available within the university (unlikely) then additional training can be undertaken to create them. The main issue with this approach is the potential lack of consideration of the different cultures of those students who wish to undertake the courses provided. When teaching face-to-face there are visual and auditory cues to help communication. This allows cultural appreciation to be developed and sensitivities identified so that culture clashes can be avoided. Bash (2009) studied a doctoral programme delivered largely by distance learning, to identify how the course and its students engaged with each other. He found that inter alia cultural and linguistic barriers existed along with taken for granted knowledge related to learning and academic levels. The evidence found issues with the learning materials and their use of “idiomatic and technical” English, along with the absence of visual cues for guidance (ibid, p.475). The cross-cultural issue is therefore one of the biggest to be addressed by universities entering and operating within the global context. Conclusion There is a substantial body of literature available considering the multifaceted idea of globalisation for all organisations, including an increasing number of studies focused specifically on universities, who are now having to work within a global market place to generate income that allows them to continue operating. The main issues for universities seeking to pursue this strategy appear to be making sure that the base knowledge for provision of effective distance learning are in place; the ideas of innovation and entrepreneurship are important and must also be developed; a full analysis of the situation prevailing at the time the university branches out; the university depends on the global market place as much as it depends on them; and that cross-cultural issues need to be considered when putting learning materials together and dealing with the students. The knowledge requirements are high, however, it will be the international reputation of the university that will substantiate their position within a global arena. Failure to deliver quality learning will ensure the university fails in its attempts to globalise. Success in delivering such learning will lead to substantial rewards for the universities that do so. Word Count: 2,547 words, excluding references References Bash, L. (2009) ‘Engaging with Cross-Cultural Communication Barriers in Globalised Higher Education: the Case of Research-Degree Students’ Intercultural Education Vol. 20 No.5 pp.475-483 Belonozhko, A. L. and Khitu, E. F. (2008) ‘On the Characteristics of Higher Education for Adults’ Russian Education and Society Vol. 50 No. 3 pp.57-63 Chandra, Y., Styles, C. and Wilkinson, I. (2009) ‘ The Recognition of First Time International Entrepreneurial Opportunities: Evidence From Firms in Knowledge-Based Industries’ International Marketing Review Vol. 26 No. 1 pp.30-61 Hill, C. W. L. (2011) International Business: Competing in the Global Marketplace (International Student Edition) (8th edn.) McGraw-Hill, New York Huarng, K-H. and Yu, T. H-K. (2011) ‘Entrepreneurship, Process Innovation and Value Creation by a Non-Profit SME’ Management Decision Vol. 29 No. 2 pp.1-17 (Note that the article is the pre-print edition and may be subject to correction) Kaarna, K. (2010) ‘Understanding Accelerated Internationalisation: Integrating Theories for analysing Internationalisation Paths’ Economics and Management Vol. 15 pp.556-561 Lynch, R. (2009) Strategic Management (5th edn.) FT Prentice Hall, Harlow McAuley, A. (2010) ‘Looking Back, Going Forward: Reflecting on Research into the SME Internationalisation Process’ Journal of Research in Marketing and Entrepreneurship Vol. 12 No. 1 pp.21-41 O’Cass, A. and Weerawardena, J. (2008) ‘Examining the role of International Entrepreneurship Innovation and International Market Performance in SME Internationalisation’ European Journal of Marketing Vol. 43 Nos. 11-12 pp.1325-1348 Pykalainen, T. and Ojala, A. (2009) ‘International Activities of Knowledge-Intensive Small- and Medium-Sized Enterprises: the Example of an Open Source Software Firm’ Management Research News Vol. 32 No. 7 pp.645-658 Ruby, A. (2005) ‘Reshaping the University In an Era of Globalisation’ Phi Delta Kappan Vol. 87 No. 3 pp.233-236 Westhead, P. (2008) ‘International Opportunity Exploitation Behaviour Reported by “Types” of Firms Relating to Exporting Experience’ Journal of Small Business and Enterprise Development Bol. 15 No. 3 pp.431-456 Yip, G. S. (2001) ‘Global Strategy in the Twenty-First Century’ in Mazzucato, M. (ed.) Strategy for Business: A Reader The Open University/Sage, London Read More