Global Marketing-Global Marketing of the Firm, Initiation of Internationalization , Internationalization theories, Development of Firms international competitiveness

globalization
Reflects the trend of firms buying,
developing, producing and selling products and services in
most countries and regions of the world.
internalization
Doing business in many countries of
the world, but often limited to a certain region (e.g. Europe).
international company
A company is considered international when more than
half of its total sales come from outside its home
country.
global company
A company is global when over half of its total sales
come from outside its home continent.
global marketing
the firms commitment to coordinate its marketing activities across national boundaries in order to find and satisfy a global customers needs better than the competition
a global marketing firm is expected too…
-develop a global marketing strategy based on similarities and differences between markets

-exploit the knowledge of the headquarters (home organizations) through worldwide diffusion (learning) and adaptations

-transfer knowledge and ‘best practices’ from any of its markets and use them in other international markets

Types of knowledge sharing within a
global/international company
-Forward Knowledge Flow

-Reverse Knowledge Flow

-Lateral Knowledge Flow

Forward knowledge Flow
from headquarters to
subsidiaries
reverse knowledge flow
from subsidiaries to
headquarters
lateral knowledge flow
occurs between subsidiaries
An important component of firm-specific conditions
management assumptions / beliefs about doing business
globally.
EPRG Frame work
Ethnocentric, Polycentric, Regiocentric, Geocentric
Forces for global coordination
-removal of trade barriers
-global accounts/customers
-relationship management network
-standardized worldwide technology
-worldwide markets
-global village
-worldwide communication
-global cost drivers
removal of trade barriers
Removal of
barriers such as import taxes, safety regulations, customs costs
global accounts/customers
who demand global delivery of
products, assured supply and service systems, uniform
characteristics and global pricing
relationship management/network
throughout value
chain, including suppliers, customers, inter-departmental, which
helps to reduce market uncertainties
standardize worldwide technology
especially in high-tech
, which leads to more homogeneity in the demand and usage
worldwide markets
NO “from the home country to the
rest of the world” approach anymore. Products& services
diffuse over the countries at the same time (Apple)
global village
standardization of human needs or
homogenous cultures who desire similar kinds of products
AND at the same time with others
worldwide communication
Internet based low-cost
communication methods make it easier for people to
search for products and access them.
global cost drivers
Economies of Scale & Scope tempt
companies to expand their operations and benefit from
higher volume / lowers costs / synergy
Forces for Market Responsiveness
-cultural differences
-regionalism/protectionism
-De-globalization
cultural differences
Markets are people, not products.
Although globalization prevails, people still keep their
cultural characteristics
regionalism/protectionism
is the
grouping of countries into regional clusters based on
geographic proximity (the European Union, EU or the North
American Free Trade Agreement, NAFTA)
-Trade barriers that are removed from individual countries
are reproduced for a region and a set of countries.
De-globalization
refers to return to old values,
differences and with a hint of ethnocentrism promoting
barriers to standardization / global market concept
inward internationalization
firms importing from
other country/countries
outward internationalization
firms expanding its
operations to other country/countries.
proactive motives for internationalization
-profit and growth goals
-tax benefits
-managerial urge
-technology competence/unique product
-foreign market opportunities/market information
-economies of scale
reactive motives for internationalization
-competitive pressures
-domestic market:small and saturated
-overproduction/excess capacity
-unsolicited foreign orders
-extend sales of seasonal products
-proximity to international customers/psychological distance
Internal triggers of Export Initiation
-perceptive management/personal networks
-specific internal event
-importing as inward internationalization
external triggers of export initiation
-market demand
-competing firms
-trade associations
-outside experts (export banks, agents, governments)
Barriers hindering Internationalization initiation
-insufficient finances

-insufficient knowledge

-lack of foreign market connections

-lack of export commitment

-Lack of capital to finance
expansion into foreign markets

-Lack of productive capacity to
dedicate to foreign markets

-Lack of foreign channels of
distribution

-Management emphasis on
developing domestic markets

-Cost escalation due to high
export manufacturing,
distribution and financing
expenditures.

Barriers Hindering the further Process of
Internationalization
-general market risks

-commercial risks

-political risks

General market risks and challenges
-Competition from other firms
• Language and cultural differences
• Difficulties in finding the right distributor
• Differences in product specifications
• Complexity of shipping services
comercial risks
-Exchange rate fluctuations
• Failure of export customers to pay due to contract
disputes, bankruptcy, refusal to accept product or fraud
• Delays and/or damage in the export shipment and
distribution process
• Difficulties in obtaining export financing-
Political Risks of Host Country
• Import restrictions
• Foreign exchange controls
• High foreign tariffs
• Civil strife, revolution and wars
Political Risks of Home Country
Lack of governmental assistance
• Lack of tax incentives
• National export policy
• High value of domestic currency relative to export markets
• Complexity of trade documentation
Risk-management strategies
-Avoid exporting to high-risk markets
-Diversify overseas markets
-Insure risks when possible
-Export credit insurance
-Structure export business so that buyer bears most risk
-Exchange rate risk management
forward contracts, future contracts, swaps and options–
Internationalization Theories
-Uppsala Internationalisation model
-Transaction cost Analysis Model (TCA)
-the Network Model
Uppsala Internationalisation model
-Developed by Swedish researchers

Two Assumptions:

-Companies initially tend to expand their operations into
geographically close countries.

-They follow a sequential pattern of entry with progressively
deepening their commitment to each market.

4 stages of Internationalization with Uppsala
– No regular export activity (sporadic export)
– Export via independent reps (export modes)
– Establishment of foreign sales subsidiary
– Foreign production/manufacturing units
intensification of market experience occurs as
experience grows
sequential pattern of entry
successive foreign markets with progressive
deepening of commitment to each market
Exceptions to the Uppsala Internationalisation Model
Firms with large resources experience small consequences of
commitments and can take larger internationalisation steps
– When market conditions are stable and homogeneous, relevant
market knowledge can be gained other than by experience
– When firm has considerable experience from markets with similar
conditions, it can be generalised to specific market – Experiential knowledge can be obtained through grafting which
means acquire local units that has necessary market knowledge
– Too deterministic (foreign market conditions are sometimes such
that you cannot plan and follow these steps one after another) – Leapfrogging- entering ‘distant’ markets in terms of psychic distance
at an early stage – Globalization- Psychic distance decreased
Transaction cost analysis Model (TCA)
• The costs that emerge due to ‘friction’ between buyer and
seller, which is explained by opportunistic behaviour is
Transaction Costs
• The friction between buyer and seller arises due to
opportunistic behaviour
• A party to an exchange has the potential to behave
opportunistically (i.e., engage in self-seeking interest
behaviour with guile, lying, stealing, or violating
agreements)

• It is a theory which predicts that a firm will perform
internally those activities it can undertake at lower
cost through establishing an internal (‘hierarchical’)
management control and implementation system while
relying on the market for activities in which
independent outsiders (such as export intermediaries,
agents or distributors) have a cost advantage.
• Focussed on [lowering] the cost of transactions caused
through friction between buyers and sellers

cost elements of the TCA model
ex ante costs, ex post costs
ex ante costs
search costs, contracting costs
ex post costs
monitoring costs, enforcement costs
Transaction costs equation
Transaction costs = ex ante costs (search + contracting costs)
+ ex post costs (monitoring + enforcement costs)
TCA Framework
Cost minimisation explains structural decisions
Firms internalize (vertically integrate) to reduce transaction
costs
Transaction cost analysis concludes…
if the ‘friction’ between
buyer and seller is higher than through an internal hierarchical
system then the firm should internalize
Limitations of TCA Model
Narrow assumptions of human nature. Itis not always
opportunistic, or zero-sum game. Firms can turn it into winwin
situation between them and their partners.
• Model excludes “internal” transaction costs. There can also
be high friction costs between the head office and its sales
subsidiaries.
• Model is not applicable for SMEs. As mostly lacking resources
and knowledge, they are confined to externalization, building
trust-based relationships with their partners.
• Model focuses on transaction costs, and ignores “production
cost, such as R&D, manufacturing.
• THUS, most efficient choice of internationalization
mode is one that will minimize the sum of production
and transaction costs.
the Network Model
suggests that the relationships of a firm in a
domestic network can be used as bridges to other networks in other
countries. So firstly domestic, then internationalized firm.
business networks
a mode of handling activity interdependences
between several business actors.

Actors are autonomous and their relationships to each other are
flexible and may alter accordingly to rapid changes in the
environment

a basic assumption of the network model
the individual firm
is dependent on resources controlled by other firms.
main unit of study in the network model
the group of firms
born global
A firm that from its ‘birth’ globalizes rapidly without
any preceding long term internationalization period.
born globals have ‘time-space compression’, what is known as
‘here and now’ functioning
born globals are managed by
visionary entrepreneurs
born globals challenge
the traditional internationalization theories
born globals are generally
SMEs with fewer than 250 employees.
competitive analysis
How the firm creates and develops competitive advantages
in the international market
country competitiveness
National competitiveness refers to a country’s ability to create,
produce, distribute service/products in international trade while
earning rising returns on its resources
industry competitiveness
Refers to a dominant industry which stands out among other
industries with the value that it creates both for BtoB and BtoC
customers.

The state of competition and profit potential in an
industry depends on five basic competitive forces:
new entrants, suppliers, buyers, substitutes, and
existing market competitors.

firm competitiveness
A firm is competitive if it can produce products and services of
superior quality and lower costs than its domestic and international
competitors.