Factors Which Determine the Internationalisation Strategy for a Company - Essay Example

Question 2. “Companies can no longer afford to enter new markets in a careful, sequential process over decades” Rosenzweig 2001. Analyse the factors which determine the internationalisation strategy for a company of your choice. Marketing is the process of identifying, anticipating and satisfying customer’s needs and expectations, and achieving the organizational objectives. The overall marketing framework does not change a whole lot from the domestic marketing to the international marketing. However, there are two major differences that separate the domestic marketing concepts from that of the international marketing framework. The two paradigms are first, international marketing gives a vast and an unlimited scope at which marketing can be approached and second, the multidimensional nature of international market brings along several uncontrollable factors that need to be strategically dealt with in order to succeed in the global business environment. International Marketing strategy of a firm can be grouped in the SLEPT grouping factors, which are social, legal, economic, political, and technological. A brief overview of these factors gives a clear picture of the reasons and implications behind International Marketing strategies being followed by firms operating globally. A case of Hyundai Motors would help understand the implication of SLEPT factors better. All businesses consist of certain uncertainties as there is no guarantee of stability in the growing competitive market. Like all business ventures, Hyundai also has some of the limitations in their business. They are as follows: Risk Factors - In the course of its business, Hyundai is exposed to a variety of market and other risks including the effects of demand dynamics, commodity prices, currency exchange rates, interest rates, as well as risk associated with financial issues, hazard events and specific assets risk. Whenever possible, we use the instrument of insurance to mitigate the risk. Business Risk- The automotive industry is very capital intensive. Such investments require a certain scale of operation to generate viable returns. These scales depend on demand and to continue with the growth, momentum is needed to be viewed (Maarif, n.d.). Social Factors: With modernization, there is a phenomenal change in the behaviour and demands of consumers. The consumers are now ready to accept the products of the outside countries with ease. This psychology has lead to easy acceptance of the products of the company, worldwide. High quality & hassle free services are demanded by the customers to engage with an organization on a regular basis. Due to a diverse market, consumers today demand more a service –provider capable of delivering customized products and services. Legal factors: The easy and smooth functioning of the operations of a company outside its own country depends very much on the regulatory and trade practices of the host country in which it is going or planning to operate. Economic Factors: Globalization has emerged as a major trend to follow for various business organizations, as the global economy has become fully integrated and trade barriers continue to diminish. Hyundai Motor Company has made a giant leap forward, thanks to its advanced management philosophy designed to ensure a better future for Hyundai Motor Company and its customers. This management philosophy has become even more solid since the appointment of Mong Koo Chung as the Chairman and CEO in 1999. Trust and a hands–on management philosophy are the foundation of Hyundai Motor Company (Hitt, Ireland & Hoskisson, 2007). The consolidation of financial information of the business segments across the world is essential owing to the variations in the accounting practices & rules in different countries. Appropriate guidelines and policies need to be framed to safeguard against fraudulent financial processes (Hitt, Ireland & Hoskisson, 2007). Political Factors: The opportunities for success of a foreign player depend heavily on the political framework of the host nation. Technological Factors: The use of innovative and modern methods of transferring cash like Enterprise resource planning (ERP), etc. has lead the company to save on many of the aspects and apply that money in other progressive activities. Constant improvements in information technology and its influence in various processes enable Hyundai to expand its operations in other areas as well as countries without much problem. Strategic Alternatives and Recommended Strategy The strategic alternatives are a part of the future planning of the company with the aim of its development and growth. In case of Hyundai, it should begin with defining its values and clarifying strategy. It should systematically identify and align its organizational values with those of its primary stakeholders. Hyundai can do this by integrating its findings with the processes, policies, and procedures that can help it to achieve success. Hyundai will be required to change with the time in order to remain competitive. A critical part of their successful change will come from management, providing direction and vision for these changes, as well as, having the power and authority to effectuate this change (Hitt, Ireland & Hoskisson, 2007). The following can be the three alternative strategies that the company can follow: Growth: The company can save on costs by cutting down from some of its unprofitable segments and apply that saved money on its productive and profitable sectors. The productive segments then lead to growth and development of the company in the other countries as well, where it wants to expand its business. Stability: Hyundai also has an alternative to concentrate on its current set of activities instead of taking risk of trying to invest in the fields that are not that much productive. Retrenchment: One of the other strategic options for Hyundai can be the option of retrenchment, which offers to dominate one market at a time and limit its operations in other segments. Recommended Strategy On analyzing the various strategic alternatives, it is believed that the most appropriate alternative for Hyundai is the growth alternative. The company should invest in new & profitable market and explore the segments which are still unexplored by the company and also its competitors. At present, the company is in a strong position and there are no major reasons for it to pursue the stability option. However, it needs to ensure that the new segments adapt well and integrate successfully with the existing operations. It also needs to adopt a flexible approach about various other alternatives, as the business environment change on a regular basis (Blomstermo and Sharma 2003). Question 4. There are no significant differences in the way physical products and services are marketed in the international market environment. Using the elements of the marketing mix as the basis for evaluation, compare and contrast this statement, using examples throughout to illustrate your answer. A service can be understood as an intangible purchase bought by a customer that does not have the features of apparent tangible benefits as does a physical product. This very feature makes it even more difficult for service providers to win over the customer loyalty; there are several variable features associated with the choice of a customer while picking on his preferred service provider. Services can be understood from consumers’ perception of an experience, degree of performance, people oriented, or purely equipment based, such as a flight journey, legal help, consultation outcome, or vehicle satisfaction. In order to understand the differences and similarities between marketing a product and a service, it is essential to understand the nature of services first (Klopper 2006). Four major characteristics that help understand services are intangibility, perishability, heterogeneity and inseparability (Hoffman and Bateson 2010). Intangibility The performance of service that decides or helps consumer develop a perception or his experience is intangible by its very nature, which means that services can not be stored physically or displayed unlike a physical product. Due to the lack of physical characteristics, it is difficult for companies to communicate the strengths of their services, services neither can be patented nor is it as easy to decide the price of a service as it is for a physical product. Heterogeneity Services are primarily provided by people and they can not be expected to be consistently performing all the time, like a machine does. Individual differences also mean that the level of services can not be standardized at a certain level, which also means that the service performance is difficult to measure and hence manage. The problem does get even more complex in the International Marketing scenario. Even though, technological advancements have made it possible to evaluate and measure the service performance, it is not as easy and reliable to maintain the service quality as is to ensure quality of a tangible product. This inherent nature of service performance makes it difficult for consumers to evaluate and make an educated choice when it comes to choosing one service provider over another. Perishability Services inherently are perishable, which means that it can not be stored for other’s to use or for future use and rather needs to be consumed at the very time they are produced. The intangible nature of service means that they can not to be held in inventory or stored in warehouses for re-use. This can be understood from several examples, like a consultant on vacation can not leave back his knowledge and expertise for someone else to use, a live performer can not store his live performance for the audience rather it has to be delivered instantly and followed instantly to be referred as a live performance. Inseparability Services are mostly consumed as soon as it is produced; which means it’s not possible to separate production and consumption. This feature means that service providers find it difficult to enjoy the benefits from economies of scale and experience curve effect, such as tour and travel operators, retailers etc. The consumer is usually a part of the production of service as are the others involved in providing a service; which means that there is no possibility of mass production and neither is storage of service possible. Marketing Mix and Service Delivery Traditionally services were not seen as being too different from product delivery by the marketers, however, the above characteristics have forced the marketing and business professionals to understand services as being very different from that of product delivery. McCarthy’s (1960) 4Ps – product, price, promotion and place formed the marketing mix that could be comprehended by a manufactures but the intangible nature of services have attracted many point of views. In 1981, Booms and Bitner proposed an extension of the 4Ps framework by including process, physical evidence and participants, which has gained increasing popularity in terms of decisive factors of the marketing mix from a wide array of marketing segments (Tang, Chan and Tai 2002). Services thus have to not only follow the 4Ps of the tangible products, but also 3 additional aspects including process, physical evidence and participants. In a way, marketing services is not too different than marketing a product and on the hand it can also be argued that there are huge differences in marketing the two. The difficulty levels involved in terms of possible and justifiable performance evaluation of a service by consumer makes it even more complex for managers to set up service cost and increase the visibility of their expertise. The fact that a consumer can evaluate and develop a perception about a service only after he has purchased and experienced it makes it complicated both for consumers and service providers. Consumers in this case are most likely to judge a service through its pricing or base their decisions on personal references. Unlike the manufacturing industry, service industry demands a close eye on the quality of employees working across the globe. Service quality is as good and efficient as are the quality of employees as they are directly involved in providing services to customers. International marketing of services makes this even more crucial because cultural and other differences could result in variability levels of service quality due to employee differences. Some of the major aspects that decide the difference in marketing a tangible product and a service are cultural differences, attitudes and responsiveness of individuals; this is true both from the perspective of employees and customer. There is though a role of tangibility in measuring and evaluating service delivery as the physical evidence involving the environment in which a customer receives a service is a perfect tool to measure and judge the scope of improvement and the level of service quality. International service delivery also demands a high personal involvement of the service provider for making the entry and existence successful. Unlike a manufacturer, who can rely on exporting the products from one particular country, a service provider needs to have a close contact with the people of the country in order to identify with them better. International marketing of services requires a different marketing mix keeping in mind their characteristics. An extended marketing mix is one of the major marketing differences in tangible products and services. Level of involvement in the host country, Standardisation of services, variable fixed costs and resultant ideal pricing, high need of direct delivery and short distribution are some of the major differences in marketing of products and services internationally. Question 5. Some marketers believe that product performance is the most important issue. Others maintain that the looks, feel and other design elements of products are what really make the difference. Is product functionality or product design the key to brand success? Analyse this question with reference to products you are familiar with. In the kind of business and marketing scenario that we are facing today globally, it’s not an easy choice for the manufacturers and service providers as to what is the key to sustained competitive edge and excellence! Experts have varying opinions and thoughts and most believe that the marketing presence is what matters than just the quality parameters of a product. The conflict exists for a manufacturer in the sense that what should they primarily focus on – product quality, service quality or the design of the product. No clear evidences can back any of the point of views as companies have varying experiences. One aspect though is an obvious choice of marketers and is sure here to sustain is the product differentiation, simply because if a consumer is unable to differentiate and identify with a product, the firm can never win over the Brand Loyalty (Kotler and Keller 2006). Differentiating Aspects The first thing that catches a consumer’s imagination and develops his perception for a brand is the outlook, which is primarily decided by the design aspect of the product. International Business Marketing has made the design aspect even more important for global players and that is just for the reason that the brands are now exploring, never explored international markets. The scope of the Asian market is huge and most of the developing countries are getting exposed to a number of market players and their products. Features do not differ a whole lot but the design does and that is the key to immediate market base. Several of the examples can be tapped by locating the global mobile companies, the automotive industry, luxury products, and the women oriented line of products. Nokia is one example that has written global success histories in recent times with its innovative and foreseeable business strategies. It invests a huge amount of finance on the designing part of gadgets so that it catches the attention of consumers as soon as exposed to them. The global companies have actually been spending a huge amount on the designing part of their proposed products by hiring a dedicated team that goes around carrying out surveys to understand consumer needs from this perspective (Ghauri 2003). Differentiating factors, like features of a product, its performance quality, conformance quality, durability, reliability and repairability have so far been the major influencing factors for international marketing and gaining competitive excellence. However, the marketers off late have focused on another deciding factor that not only creates a brand identity, but also wins over brand loyalty and that is – Style, which significantly gets decided by the designers working on the product. Question 6. Supply chain internationalisation is the best way for SME’s to expand abroad. Discuss this statement with reference to several examples. The basis of global competition has changed. No longer are companies competing against other companies, but rather supply chains are competing against supply chains. The success of a business is now invariably measured neither by the sophistication of its products nor by the size of its market share. It is instead usually seen in the light of the ability to harness its supply chain, sometimes forcefully and deliberately, to deliver responsively to customers as and when they demand it (Jones and Tilley 2003). Understanding and implementing good practices in SCM should bring about dramatic changes in work and business processes, with positive results in efficiency, cost reduction, and better-quality services. SMEs Are Slow to Implement SCM Participants recognize that in today’s climate of a single marketplace, intense competition, dynamic business environment, and proliferation of innovation and new disruptive technologies, organizations must implement SCM. However, for one reason or another, those SMEs that are aware of the need to install SCM systems have been slow to do so. Failure to act quickly and link productively to the SCM loop will impede the productivity levels of SMEs as globalization and competition (generated by the onset of the WTO regime) will continue to influence organizations and business systems nationally and regionally in APO member countries. In today’s chaotic market situation, large firms have been observed to be keen on going global through various business strategies but little is know about SMEs involvement in international supply chain activities. There have been growing role of SMEs on a country’s economy and overall market scenario. The topic of ways of approaches SMEs pursue in their international supply chain activities has been gaining increasing debate (Antonelli 2008). SMEs operate very differently than large firms and their approach to the value chain and supply chain activities differ too; the major factors being the international exposure and coordinating partners that affect to the level of international supply chain activities’ involvement of SMEs. As Hollenstein (2005) observed the smaller forms had a lower probability and the degree of international involvement through contractual arrangements, mergers or foreign direct investments. It has mostly been observed that SMEs are more likely to get involved in contractual arrangements than foreign direct investments or mergers. There are several motives behind SME’s going global, which could be shortage of resource availability locally, lower costs abroad, product standardisation or cash on management’s global exposure etc. Supply Chain Internationalisation and SMEs As observed by Knight (2001), various aspects of supply chain management, like global technological competence, unique product development, focus on quality, foreign distributor network are key to success for SMEs operating internationally. There primarily are two types of SMEs – Born-Global and Late Starters. Born-global SMEs are formed with an eye to cash on the international market and a dearth of possibilities through global operations. They are know for the their entrepreneurial acumen and risk taking capabilities, where as the late starters are the ones that internationalise gradually by taking one step at a time to avoid any business risk associated with international operations. Born global SMEs can be characteristically understood through their keenness on international entrepreneurship to gain significant competitive advantages by using the available resources and sales opportunities in multiple countries. According to Oviatt and McDougall (1994), multiple modes are normally used in new international ventures, like licensing, export, import, strategic alliance, manufacturing and distribution activities etc. Three major restraints that are faced by SMEs and restrict them from going international are risks associated with- Economies of scale Lack of Adequate Finance Lack of adequate Knowledge, resulting in Aversion to risk taking All the three restraints can be adequately dealt by having a strong supply chain strategy comprising of personal contacts, collaborative partnerships, client followership, adopting advanced technology, and using multiple modes of entry. References Hitt, M.A. Ireland, R.D & Hoskisson, R.E. (2007). Strategic management: competitiveness and globalization. Cengage Learning Blomstermo, A. and Sharma, D. D. (2003). Learning in the Internationalisation Process of Firms, Edward Elgar Publishing. Maarif, N.N. Power of Marketing. Penerbit Salemba Publication. Klopper, H. B. (2006). Marketing: Fresh Perspectives, Pearson South Africa. Hoffman, K. D. and Bateson, J. E. G. (2010). Services Marketing: Concepts, Strategies, & Cases. Cengage Learning Tang, E. P. Y., Chan, R. Y. K., and Tai, S. H. C. (2002). Asian Dimensions of Service Marketing. Routledge. Kotler, P. and Keller, K. L. (2006). Marketing Management. Tsinghua University Press. Ghauri, P. N. (2003). International Business Negotiations. Emeral Group Publishing. Jones, O. and Tilley, F. (2003). Competitive Advantage in SMEs: organising for innovation and change. John Wiley & Sons. Antonelli, A. V. D. (2008). A Road Map to the Development of European SME Networks, Springer. Read More