INTERNATIONAL MARKETS BUSINESS STRATEGY

International market expansion Business Strategy to expand a Business Internationally

Student Number – S152334

Date – 17.02.2014

Literature Review

Chapter 1: Literature Review

Introduction

This chapter presented different aspects of internationalization by examining related theories. The main highlights were; international expansion, market entry strategies, regulatory environment, and challenges of internationalizing. Research gaps were derived from the extensive body of theoretical review to justify the need to execute the research.

International Expansion

According to Malhotra et al. (2003), internationalization of business firms has shifted dramatically over the past 20 years. The overwhelming shift has been the movement from orienting their operations towards international markets and shifting respective marketing initiatives from being multi-domestic to being global.

With the increased commitment in foreign markets (financially and otherwise), the proportion of revenues has shifted along with these commitments (Albaum & Duerr, 2008). They noted that greater resources would be expended in marketing goods across several political borders as different processes are employed in different countries.

Katsikeas, Leonidou, Palihawadana, & Spyropoulou (2007) noted that internal and external factors influenced and organization to consider internationalizing. Internal motivations include; unsold excess inventory, need for further growth, and possession of a compelling product. The internal factors were mainly associated with core competences.

External motivations stemmed from; unsolicited offers usually from other governments, encouragement by governmental agencies through business incentives, and favorable macro factors such as stable currency (Katsikeas et al., 2007). They allow a firm to exploit its excess capacity or extend its knowledge base to new markets profitably.

Katsikeas et al. (2007) also noted that firms, which had internal motivations, were usually objective-oriented and exercised rationality in decision-making. On the other hand, external motivations resulted in a strategy-oriented firm that was substantially subjective adopting an opportunistic tendency to its internationalization approach.

Albaum & Duerr (2008) also indicated that international expansion was prompted by; need to require research and development costs, expand market access to new customers, and pursue higher returns from these operations. In most instances, recovering invested development costs require expanding into new markets to have sustainability.

This reduces the return-on-investment time and allows the company to invest in new products. The need to access new markets was also a major motivator for expanding into international markets. Thomson & Martin (2005) also indicated that the major motivators were influenced by the need to diversify risk and cost base.

They identified four core motivators; market access to new customers, capitalizing on existing core competencies, spreading business risks, and lowering operating costs through enhanced competitiveness (Thompson & Martin, 2005). The ability to widen market scope reduces shocks experienced in challenging domestic environment.

Access new markets by expanding customer base allow a firm to capitalize on its resources and capabilities to extend operating scope. This enables it to drastically reduce overall risk levels especially economic which could be influenced by the saturation of domestic markets. Cost levels are also lowered with risk spreads and market diversification.

The internationalization process is considered to be risky as market dynamics are unknown (Rugman & Collinson, 2006). They explored the learning challenges that firms face in exploring foreign markets. To counter the lack of local knowledge, a progressive approach such as Uppsala internationalization model was considered to be apt.

Rugman & Collinson (2006) also noted to be successful; companies that embarked on internationalizing had to focus on regional rather than global strategies. There are diverse socio-cultural and demographic in different regions that would be prudently considered separately. This effectively means that international firms are not cohesive monoliths.

They are instead comprised on different regional configurations that are combined under one holding body. This affords each subsidiary a certain degree of autonomy that allows it to effectively execute the regional strategy. Internationalization is an intrinsic part of the diversification process that extends outside the domestic market.

Lipczynski & Wilson (2004) examined the concept of extension as part of a firm’s strategy. They noted that firms could select two basic options; market extension or market extension. Market extension could involve selling to different customer segments or exploiting external geographical locations (Lipczynski & Wilson, 2004).

Internationalization approach can take the forms of; multi-domestic, transnational, or global strategies (Hitt, Ireland, & Hoskisson, 2011). Increasingly, firms are seeking a transnational approach whereby there are able to coordinate local responsiveness and still achieve respectable global efficiencies.

There are three main theories that have sought to expound the rapid development of internationalization. According to Ekeledo & Sivakumar (2004) they are; internationalization/transaction-cost, eclectic, and resources-based theories. In addition, there is an Uppsala model, which is progressive for an expanding business.