Internationalization - Why companies Internationalize? How Companies Internationalize? - Reviewing various Literatures.
Introduction
Growth is the
significant factor for any business, some organizations focus on the growth to
create competitive advantage and some to become the market leader. The constant
urge to grow helps business perform better. Businesses grow by throwing new
products (innovation) or else by enticing new customers (internationalization,
Consolidation) or by using a mixed strategy.
The world economy is
internationalizing with the countries opening boundaries for trading which
reduces the trade barriers, moreover e-commerce is reducing the geographical distance
drastically. Such environment sets a perfect platform for the retailer to
explore out of their domestic boundaries to pursue growth. “International
Retailing is no longer simply an option: it has become necessity”(Alexander, 1990). However the stimulus of internationalization
is still more general as illustrated below.
Before internationalization
activity become a necessary strategy for growth, The flow of ideas and
information brought international influence to trading formats (Kacker, 1985). Complex networks of international alliance broaden the spread of
know-how/ideas, offering buying advantages for the each party opened up the
international sourcing gate. Sourcing of products internationally is a well-established
activity which helps retailers to create competitive advantage by sourcing the products
in low cost. These are the general faces of retail internationalization.
The purpose of this article is to explore retailers various dimension of internationalization and
Reviewing Retail Internationalization Theory
International Business is commerce or trade that is carried on by a
company beyond its domestic borders (McGoldrick and Davies, 1995). A strategy is the practice or plan that integrates an organization's
major goals, policies and action sequences into a cohesive whole.(Thompson, Strickland, and Gamble, 2010). International business strategy is a cross border trade often it
is considered as business conducted between companies in different countries. Like
most industry based studies of internationalization, the common pattern for the
author to explore the various dimensions of internationalization before going
into key motives and strategies.
1. Dimension of internationalization
Often every academic paper/ literatures describe
internationalization into various stages, in reality, not many
retailers/companies go through every stage of internationalization. With that
thought we will review numerous studies books to understand the various dimensions of
internationalization.
1.1 The geographical dimension
Not surprisingly, the studies on the geographical dimension of
retail internationalization emphasizes either inward or outward investment (Jan Johanson, 1999) from a defined market, many
examples can be found by studies monitoring specific geographic flows. The
following matrix is the outcome of various literatures exploring
internationalization in geographical dimension:
|
Studies
|
Authors
|
Explanation
|
|
Company Based Studies
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(Laulajainen, 1993)
(Laulajainen, 1991)
(Treadgold, 1991)
|
In this study author's analysis
and explains how retailers (Ikea, H&M, Laura Ashely and Toys R Us)
internationalize. Uses the company data follows their internationalization
process and concludes retailer internationalize geographically. The treadgold
purpose of study was not addressed to find the internationalization pattern
of the company, but the author explores how company internationalized.
|
|
Internationalization Patterns
|
(Jan Johanson, 1999)
(Davies and Jones, 1993)
|
Jan Johanson “The Mechanism of Internationalization”
author reflects an advantage for retailers expanding close to the domestic boundaries.
Whereas Davies reviews various
literature and compares it with international activity of departmental store,
finally concludes that retailers will initially internationalize to the
market similar to home country.
|
The
one common theme in all this literature is that authors are all tracking
companies outward and inward flows of investment to explain retail
internationalization.
1.2 The Time Dimension
A supplementary
factor which may contribute to the understanding of retail internationalization
is the time dimension. The speed of action, i.e. the time dimension, emerges
indirectly from the generally accepted idea that a saturating home market is an
important trigger for internationalization. (Laulajainen, 1993) stated that the age of the retailer should positively correlate
with retailer’ degree of internationalization which exactly supports our
earlier statement. One literature which introduce a direct factor of time
dimension is (Treadgold, 1990/91). Which argues that retailers, travel through the learning curve
over time as they move through stages termed “reluctance, caution and
ambition”. The time based viewpoint might however add an argument as changes in
geographical direction, entry method and management behaviour may provide clues
to factors influencing the process.
2. Key driving forces of
Internationalisation
The two most
common answers pops immediately when rationalizing the driving forces for
internationalization are “SATURATION of home market and Identifying NICHE in
forgiven Market”. These factors where emphasised by (White, 1984) in his paper “Multi-national- A slow advance?” but current retail
internationalization will not fit only into these factors. Hence we will explore various studies and pen our interpretation based on present retailing scenario.
The Reason for internationalization is given various
names by different authors in various studies as follows:
|
Authors
|
Terms used
|
|
(Williams, 1992) and (Alexander, 1990)
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“Motives”
|
|
(Winch, 2006)
|
“Drivers”
|
|
(Vida, 2000)
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“antecedents”
|
Hollander, S.C (1970) was one of the pioneers to identify the
motives of retail internationalization and it slowly followed by the other
authors. The Motives for retail internationalization was classified into “push
and pull” motives by (Kacker, 1985) (Alexander, 1990) and (Treadgold, 1990/91). Such classification is fundamental to an interpretation which sees
internationalization as reactive approach or proactive approach where reactive
approach is a descendant of push factor likewise proactive is of pull motives
factor. Based on the studies lets analysis various push and pull factors.
|
Push Factors
|
Pull Factors
|
|
Unstable Political Structure
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Stable Political Structure
|
|
Unstable Economy
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Stable Economy
|
|
Mature Domestic Market
|
Underdeveloped Domestic Market
|
|
Format Saturation
|
Niche Market
|
|
Small Domestic Market
|
Large Market
|
|
Negative Social Environment e.g.
Low Population/ High Migration
|
Positive Social Conditions e.g.the
rise of the middle class
|
|
Poor economy falling currency
|
Favourable Exchange Rates /
Stable Currency rates
|
Source: (Kacker, 1985) (Alexander, 1990) and (Treadgold, 1990/91)
However (Williams, 1992) has found “‘push and pull’…. active-Passive and proactive-reactive
dichotomies” unsatisfactory. He prefers to use four motivational dimensions
which are as follows but all his four motivational dimensions resemble the push
or pull factors.
·
Proactive and growth oriented
:- which is similar to the proactive motives in other studies
·
Limited domestic growth
opportunities :- again this resembles the reactive or push factors
·
Internationally appealing/
innovative retail offer:- which is similar to the proactive motives in other
studies
·
Passive Motives:- this
resembles the reactive or push factors
2.1 My Interpretation on Motives of Internationalization
|
Reactive International Expansion
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Proactive International Expansion
|
|
Firstly there are not many
literature's explain about reactive international expansion. Reactive
internationalization is nothing but reluctant internationalization in other
words retailers are not willing to cross border but the domestic market
turbulence forces them to expand. The key question here is what if the
domestic market turbulence is encountered will their major focus shift back
to domestic market?
|
This is a contrast approach to
reactive international expansion. Every literature states that proactive
approach is the identification of opportunities abroad before the push from
home market, but none of literature explaining the difference between
proactive retailer vs born global retailer. Internationalization expansion
motives for proactive retailer are different from born global retailer.
|
In present
scenario, internationalization of business is turning to be a necessary task.
We can rationalize gaining competitive advantage as the primary reason/ driving
force for a retailer to internationalize over push or pull factor. The constant
urge to stay on top of the game encourages retailer to explore beyond the
boundaries.
Gone are those
days where retailers were bound to political or other environmental factors to
commence a trade. We cannot still evaluate the motivation of
internationalization on conventional push-reactive and pull-proactive approach.
Frankly, fascinating technology, faster communication and ease of
transportation with which retailers are able to build the presence without
crossing borders. This will be a significant stimulus for a retailer to
internationalize.
3. Key Strategies
competing internationally
3.1 Strategic
Alliance and Joint ventures
Strategic
alliances of one sort or another have been a common feature in manufacturing
industry for many years (Nielsen, 1988). Cross broader alliance is popular and viable vehicles for
companies to edge their way into the markets of foreign countries. Significant
parts of retail literature have examined the international nature for example (Treadgold, 1990/91), (Laulajainen, 1993) and (Williams, 1992). This body of literature has mainly studied cross broader movements
and international motives rather than the mechanisms involved in an international
retailer activity. Below matrix signifies various alliance types from various
authors.
|
Authors
|
Type Alliance
|
Explanation (Paraphrased)
|
Advantage (Interpretation)
|
|
(Bucklin and Sengupta, 1993)
|
Co- marketing alliance
|
Co-Marketing alliance is a form
of working partnerships. Author suggested that these types of alliance are
“contractual relationships” between firms. Their products/services are
dependent on other firm.
For e.g. T.K Maxx & FleishmanHillard
|
Gains effectiveness by reducing
managerial imbalance. Careful project selection and better matching of
potential partners also help to enhance alliance effectiveness
|
|
(Boersma, Buckley, and Ghauri,
2003)
|
Joint Ventures
|
The Joint venture is defined as
“business agreements where two or more owners create a separate entity “ for
e.g. Arvind & CK India
|
A Company can share the capital
and resources to gain the competitive advantage.
|
The main key
interpretation in the strategic alliance essay is there are not many
literature's on the buying club strategies, whereas more literatures are focused
on the co-marketing alliance and joint ventures. The buying club is basically a
buying organisation which exists for the benefit of their members. In other
words they are buying agent’s source and buy garments/products on behalf of the
company their main role is to maximise the purchasing power. For e.g. Li &
Fung
3.2 Licensing
strategies
Licensing is the
most easy way for the firm with know-how knowledge or unique patented product has
neither the internal organisational capability nor the resources to enter the
foreign market. (Luo, 2000) explains the idea of “cross-licensing” across the boundaries.
In-addition Licensing has the key advantage of avoiding the risk of committing
resources to the country markets that are unfamiliar, politically &
economically unstable or risky.
3.3 Merger
and acquisition
This approach is more suitable for the
aggressive retailers who don’t trust on organic growth. Author (Gattiker, 2007) explains Merger and Acquisition as the risky
mode of internationalization, further he explains key elements and
consideration during internationalizing through M&A which includes benefits
of retaining the identity of subsidiary firm . In that article author explains
the idea of “Partial acquisition” where retailer acquiring minority equity
stake in another firm to achieve strategic leverage.
Conclusion
To put in nutshell, Motive of internationalization can be push method (reactive) or pull method (proactive) and it is caused as depicted below in images (own sources- made it for better understanding). These cause will play major role in deciding retailers internationalization strategy . A million dollor for further research do retailer flow/use only either of these ( Licensing strategies, Merger and acquisition, and Strategic Alliance and Joint ventures ) strategies or do they use any other strategy in these desperate times?
Reference
