Internationalization:
challenges for policy and strategy
MDRI, June 19, 2013
Ari Kokko
Department of International Economics and Management
Copenhagen Business School
Outline
1. About internationalization and exporters
Why and why is it so difficult?
2. Export promotion
What can government do to facilitate
internationalization?
3. Internationalization of large firms
A matter of strategy?
4. The secret of success
Innovation and entrepreneurship
5. Some examples from Europe
1. Internationalization
• Theory
– Motives, explanations, patterns
• Policy
– What is a good policy environment for
globalization?
• Strategy
– What is required at the firm level?
Drivers of internationalization
Hard to
manage
outside
Why internationalize?
• Company
–
–
–
–
–
–
Sales revenue
Scale
Technology
Ìntermediate goods
Resources
Competitiveness
Profitability
Survival
• Economy
–
–
–
–
–
Employment
Efficiency
Knowledge
Income
Growth
National wealth
Standard of living
Barriers to internationalization
• Legal and regulatory
–
–
–
–
–
• Culture
Tariffs
Subsidies
Public procurement
Border controls
Controls on immigration
• Technical
– Technical standards
– Private standards
– Transportation and
distribution
– Language
– Tastes
– Norms, values and
behavior
– Religion
– Work culture
– Corruption
• Risk
– Competition
– Liability of
foreignness
Internationalization
is a complex process
Source: Wiedersheim-Paul & Welsch (1980)
Exporters need to be strong to
overcome liability of foreignness
The exporters
• Most SMEs do not export
– It is difficult and costly to become an exporter
• More sporadic exporters than permanent
exporters
– Most firms have to try several times before they
succeed
• Most exporting companies export one product
variety to one foreign market
– A little bit more knowledge and skill needed for
every new export market and every new export
product
2. What is needed for export success?
• Large firms
– A good domestic
business environment
• Macroeconomic stability
• Low trade barriers
• Competitive exchange
rate
• Efficient bureaucracy and
reasonable tax rates
• Good infrastructure
• Flexible labor market
• Access to human capital
and technology
• Financial resources /
export credit guarantees
• SMEs
– Same + support to
overcome barriers to
internationalization
• Market information
• Links to partners /
network in foreign market
• Marketing support /
visibility
• Institutions for quality
control and quality
standards
• Financial resources
Export promotion: global experiences
• Red light
– Protectionism
– Export subsidies
• Yellow light
– Preferential access to credits and foreign exchange
• Green light
– Openness to trade and FDI
– Infrastructure and education
– Institutions for technology and market research
– Quality control and quality standards
– Competitive exchange rate
Example: Business Sweden
The Swedish government and the Industry have established Business Sweden to help
Swedish private companies develop contacts with customers in other countries
Analyses and advice
Practical help
Business Sweden’s offer to private
companies in Sweden
Explore the
opportunities
•Information &
Knowledge
Choose
strategy
Establish
presence
•Market analysis
•Business Support Office
•Partner search
•Forming the company
•Local export advisor
Develop the
business
•Sales and market
support
•Seminars and events
•Visitors program
• Market selection
•Business opportunity
package
•Acquisition support
•Recruitment
•International
procurement
•Development programs
initiated by foreign aid
organizations and the
industry
Business Sweden in the world
Belgium
Bulgaria
Denmark
Estonia
EU
Finland
France
Greece
Italy
Latvia
Lithuania
Holland
Norway
Poland
Portugal
Rumania
Russia
Switzerland
Serbia
Spain
Great Britain
&Ireland
Sweden
Czech
Republic
Turkey
Germany
Ukraine
Hungary
Austria
UAE
Hong Kong
India
Indonesia
Iraq
Japan
Kazakhstan
China
Malaysia
Saudi Arabia
Singapore
South Korea
Taiwan
Thailand
Vietnam
Europe
Asia & the Middle East
Africa
Argentina
Brazil
Chile
Colombia
Canada
Mexico
USA
Americas
Botswana
Egypt
Kenya
Morocco
Nigeria
South Africa
Oceania
Australia
New Zeeland
Other agencies supporting Swedish exports
Swedish International Development Cooperation Agency
The Swedish Agency for Economic and Regional Growth
Exportkreditnämnden is a business partner to exporting companies and banks
Swedish Export Credit Corporation: Experts in international financing
A channel for investment based on an industrial policy that promotes economic growth
The Swedish Governmental Agency for Innovation Systems
Swedfund is a committed, active and long term investment partner
The Swedish Environmental Technology Council
3. Internationalization of large firms
• Larger scale allows investment in export-specific
assets, skills, and knowledge
• Limited dependence on public export promotion
structures
– Exceptions: export credits, credit guarantees
• Focus on internationalization strategy
– To create sustainable competitive advantage
leading to growth and profitability
– To get customers to prefer your offer over your
competitors’
– To use or create market imperfections
Strategy:
Goal and how to get there
Why do we need a strategy? What
happens if we do nothing?
What happens without strategy?
Second law of thermodynamics
• Entropy, disorganization, randomness and
chaos increase
(if we do not interfere
and create order)!
Rudolf Clausius
Organizations and strategy
Tools
• Market analysis – external as well as internal
– Porter’s five forces
– SWOT
• Strategic positioning
– Balancing pressure for cost reductions against
pressure for local responsiveness
Internal and external fit
Internal Resources
Strength
Weaknesses
Strategy
Opportunities
Threats
External Environment
22
Generic
strategies
25
International strategies
• However, textbook models seldom generate
blue ocean strategies where you have the
whole ocean for yourself
• When others do
the same, it
makes the ocean
red
4. THE SECRET OF SUCCESS
Entrepreneurship
leads to
Fundamental Competition
which operates through
Creative Destruction
and creates
Temporary Monopolies
Fundamental competition
• Competition from
–
–
–
–
–
A new commodity
A new technology
A new source of supply
A new type of organization
Breaking up cartels or reorganizing an industry
• Competition which commands a decisive cost or
quality advantage...
• ... and strikes not at the margins of the profits and
the outputs of the existing firms but at their
foundations and their very lives
Fundamental competition
Innovation: Key strategy even in
seemingly simple industries
Core values of
• Seek opportunities
• Dare to try
• Challenge the
boundaries
• Listen to and encourage
new ideas
• Fight bureaucracy
• Act and look for a more
efficient solution
• Constant improvement
• Fast pace
• Curiosity
• Open doors
• Respect others
But innovation is hard…
• Most new ideas are bad ideas
• The Iron Law of Innovation:
10-20-70
Success ratios of corporate venturing
(sales relative to expectations of venture champion)
80%
60%
40%
67%
20%
21%
12%
0%
Below
expectations
According to Strongly above
expectations expectations
N=86
How to promote entrepreneurship
and innovation
• Compare yourself with your best competitors
– Benchmarking
• Prepare for tomorrow’s challenges already
today
– Foresight and market analysis
• Invest more in knowledge and skills than what
you need today
– Create Excess Capacity
How to promote entrepreneurship
and innovation
5. Examples from Europe
• Global financial crisis has forced firms to
innovate in order to survive
• Three innovation strategies
A. Increased value added from higher efficiency in
existing activities: product / process innovation
B. Increased value added from new position in
value chain: functional innovation
C. Move to new value chain: inter-chain innovation
Innovation trajectories
•Value added
Strategy B: upgrading within the value chain
R&D
Center
Branding
Marketing
Center
Design
Center
Manufacturing
Center
OperationC
enter
R&D Design Engineering Manufacturing Operation Marketing Sales Services
Example strategy B: AS Kodumaja, Estonia
AS Kodumaja turnover 2004-2011 and forecast 2012
Example strategy C: AS Estiko Plastar
(packages for construction materials –> packages for food industry)
Employees
Turnover
Export
• Thank you for your attention!