7/31/2014
“Itwasthebestoftimes,itwastheworstoftimes....”
CharlesDickens,ATaleofTwoCities
McGraw-Hill/Irwin
Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
 Domesticvs.InternationalExpansion
 AnsoffandInternationalization
 MotivestoInternationalize
 Internationalization/MarketEntryTheory
• InternationalProductLifeCycle
 UppsalaModel
 BornGlobal
• TransactionCostAnalysis
• OLI
• MarketExpansionScreening
 Concentrationv.Diversification
7-2
 Internationalizationoccurswhenafirm
makesastrategicdecisiontoenterforeign
marketsandadaptsitsoperationsto
internationalenvironments.
• Decisiontoexpandabroad
• Locatespecificmarketopportunities
• Expansionstrategydetermined
 Concentrated
 Diversified
• Selectionofentrymode
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Ansoffsuggestsfourwaysinwhichfirmscan
expandtheiroperations:
Figure7‐1
7-4
 Togainhighermarketshareinexisting
marketsusingexistingproducts
• Resourcesarededicatedtomoreaggressive
advertising,salespromotionandcustomerservice
andrelationshipenhancementsExample:Fuller’s
LondonPride
 Ofthefourgrowthstrategies,market
penetrationhasthelowestrisk
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Offernewproductstocurrentmarkets
• Requiresdevelopingoracquiringnewproducts,
orlineexpansion
• Example:MountBlanc
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 Newmarketsmaybesolelydomesticor
bothdomesticandglobal
• Example:Tesco
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 Offeringnewproductstonewmarkets
 Example:AppleComputers
• Originallymarketedtothegraphicdesignmarket
• Nowmarketedtothefinalconsumer
• Expandedproductoffering
• Expandedglobally
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 Internationalizationhasbeendefinedasthe
processofadaptingafirm’soperationsto
internationalenvironments
 Technicallyonlymarketdevelopmentfits
thisdefinition
 Successfulglobalfirmshaveexpanded
operationsbothdomesticallyand
internationallywithAnsoff’sstrategies.
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7-10
 Stemfrommanagement’sbeliefsthatthereare
firm‐specificassetsthatcanbeexploited
abroad
 4categoriesofproactivemotives
• Marketseeking
 Entermarketstopreemptcompetition,betterservecustomers
orexploitcompetitiveadvantages
• Resourceseeking
 Firmsinvestabroadinordertoacquireresources
• Efficiencyseeking
 Firmsseektogaineconomiesofscaleandscope
• Strategicresourceseeking
 Attaincompetitiveadvantagebyacquiringassetsforlongterm
objectives
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Figure7‐3
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 Aresponsetounfavorableconditionsin
currentmarkets
• Increasedcompetitivepressure
• Excesscapacity
• Decliningdomesticmarket
• Improvingorovercominginternalproblems
 Reactivemotivesareusuallyregardedas
negative
• Example:Heineken
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 Internationalizationtheoryexplainsthe
conditionsunderwhichitismoreefficientfora
firmtocreateaninternalmarketratherthan
enterforeignmarkets
 Criteriaarebasedon:
• thetransactioncostsofinformation
• opportunism
• assetspecificity
 Firmsdointernationalizeinspiteofhigher
transactioncostsbyinternalizingfirm‐specific
advantages
• Foreigndirectinvestmentoccurswhenthebenefitsof
internalizationoutweighitscosts.
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Figure7‐4
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 RaymondVernonsuggeststhat:
• StageOne
 Firmsfirstdevelopproductsforthehomemarket
 Demandfortheproductemergesinoverseasmarkets,
andthefirmexportstoaccommodate
• StageTwo
 Productevolvesintoacommodity
 Productionabroadcommences
 Competitiontotheoriginatorarisesglobally
 Originatormustproduceinlowercostlabormarkets
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Figure7‐5
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 Firmsfirstenterintomarketsthatareclose
psychically(psychicdistance)totheirhome
baseandlaterentermoredistantmarkets
• FirstStage– sporadicexports
• SecondStage– regularexporting
• ThirdStage– foreignsalessubsidiaryorganized
• Fourthstage– manufacturingsubsidiaryis
established
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Figure7‐6
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 Oneexceptiontotheconceptof
internationalproductlifecycles,andthe
theories’mostglaringweakness,isthe
existenceofthe‘bornglobal’firm.
 Thisfirmisinitiatedwiththeintentto
immediatelydobusinessinallaccessible
globalmarkets.
• Infomediaisanidealexample.
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 Proponestheoccurrenceandimportanceof
havinginternationalnetworks.
• Networkparticipantsaregovernedbyexchange
relationshipsratherthanthroughthemarket.
• Becausemanysmallcompaniesdonothaveinfinite
resources,networkcollaborationsareseenasan
importantinternationalizationstrategy.
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Figure7‐7
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 Definition:costofmakinganeconomic
exchange
 Threetypesofcosts…
• Searchandinformationcosts
• Bargainingcosts
• Monitoring(governance)costs
 Andthreecostscenariosbasedonentrymode
 Productionathomeforexport
 Licensing
 Productionabroad
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
Entrymodedecisionsarebasedonthreeconditions
Ownership(whowillproduceabroad)
Location(wheretoproduce)
Internalization(whyproduceratherthanlicense)

Foreigndirectinvestmentwillbethepreferredmode
whenthreeconditionsarefulfilled:
• thefirmmusthavenetownershipadvantagesovercompeting
firms
• itmustbemoreprofitableforthefirmpossessingthese
uniqueassetstousethemitselfratherthantransfertherights
toothers
• itmustbeadvantageousforthefirmtoexploititsunique
assetsthroughproductionoutsideitshomecountryrather
thanbyexporting
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 Purposeofscreeningistoselectthose
marketsthathavethebestpotentialfor
expansioninforeignmarkets
• Thefirststepistodefinethecriteriathatare
relevanttothefirm'senvironment
 Then,marketselectionnarrowsdownaset
ofentrytargetsquantitatively
• Multiplefactorindices
• Directionalpolicymatrices
• Decisionmatrices
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Figure7‐8
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Figure7‐9
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 ConcentrationStrategy
• Involvesfocusingmarketingeffortandresourcesin
oneorafewkeymarketsintheshortrunand
gradualexpansionintoothermarketsinthelong
run
 DiversificationStrategy
• Requiresinvestingmarketingeffortandresources
intoalargernumberofmarketsintheshortrun
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7-31
• Acalculationthat
relatesthevalueofthe
investmentin
marketingtorevenue
orprofitgeneration
•AnSshapedcurve
suggestsa
concentrationstrategy
isrequired
• Aconcavefunction
recommends
diversification
Figure7‐10
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
Firmscanexpanddomesticallyorinternationally
• Ifafirmdecidestointernationalize,itmustdeterminethe
bestroutetodosothroughmarketsearch

Marketscreeninginvolveschoosingamethodthat
canselectthosemarketsthathavethebestpotential
forthefirm’sproductsandservices

Twopossibleentrystrategiesareavailable:
Concentrationordiversification

Finalstageintheinternationalizationinvolves
choosinganinitialentrymode
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