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bab 11 ENTRY AND EXPANSION

The Role of Management

Management dynamism and commitment are crucial to a firm’s first step toward international operations. Managers of firms with a strong international performance typically active, aggressive, and display a high degree of international orientation. The issue of managerial commitment is a critical one because foreign market penetration requires a vast amount of market development activity, sensitivity toward foreign environments, research, and innovation.

To achieve such a commitment, it is important to involve all levels of management early on in the international planning process and to impress on all players that the effort will only succeed with a commitment that is companywide. The decision to export usually the owner, president, chairman, or vice president of marketing.

The first step in developing international commitment is to become aware of international business opportunities. Management must then determine the degree and timing of the firm’s internationalization. Management must decide the timing when start the internationalization process and how quickly it should progress. Planning and execution of an export venture must be incorporated into the firm’s strategic management process.

Management is often much too preoccupied with short-term, immediate problems to engage in sophisticated long-run planning. Management’s enterpreneurial spirit manifested itself by following through on the lead. Nonetheless, while such management by serendipity maybe useful in a start-up phase, it is no subsitute for effective planning when it comes to setting the long-term strategic corporate direction.

Motivations to Go Abroad

Proactive Motivations

Profits are the major proactive for international business. management may perceive international sales as a potential source of higher profit margins or of more added-on profits. Profitability is often linked with international growth-yet many corporate international entry decisions are made based on expectations of market growth rather than on actual market growth. Unique products or a technological advantage can be another major stimulus.

A final major proactive motivation involves economies of scale. International activities may enable the firm to increase its output and therefore rise more rapidly on the learning curve.

Reactive Motivations

Reactive motivations influence firms to respond to environmental changes and pressure rather than blaze new trails. Competitive pressures are one example. Similarly, overproduction may represent a reactive motivation. Declining domestic sales, whether measured in sales volume or market share, have a similar motivating effect. Goods marketed domestically may be at the declining stage of their product life cycle. The reactive motivation of a saturated domestic market has similar results to that of declining domestic sales. In this context, the concept of psychic or psychological distance needs to be understood. Geographic closeness to foreigan markets may not necessarily translate into real or perceived closeness to foreign customer.

Strategic Effects of Going International

Going international presents the firm with new enrivonments, entirely new ways of doing business, and a host of new problems. The problems have a wide range. They can consist of strategic considerations, such as service delivery and compliance with government regulations. The firm needs to determine its preparedness for internationalization by assessing its internal strenghts and weakness.

Entry and Development Strategies

Exporting And Importing

Firms can be involved in exporting and importing in a indirect or direct way. Indirect involvement means that the firm participates in international business throught an intermediary and does not deal with foreign customers or firms. Direct involvement means that the firm works with foreign customers or markets with the opportunity to develop a relationship.

Many firms are indirect exporters and importers, often without their knowledge. As an example, merchandise can be sold to a domestic firm that in turn sells it abroad. At the same time, many firms that perceive themselves as buying domestically may in reality buy imported products. They may have long-standing relations with a domestic supplier who, because of cost and competitive pressures, has begun to source products from abroad rather than to produce them domestically. in this case, the buyer firm has become an indirect importer.

International Intermediaries

The intermediaries also can identify foreign suppliers and customers and help the firm with long or short term market penetration efforts. Major types of international intermediaries are export management companies and trading companies.

Export Management Companies

Firms that specialize in performing international business services as commision representatives or as distributors are known as export management companies (EMCs). EMCs have two primary forms of operation: they take title to goods and distribute internationally on their own account, or they perform services as agents. When working as an agent, the EMC is primarily responsible for developing foreign business and sales strategies and establishing contacts abroad.

EMCs that have spesific expertise in selecting markets because of language capabilities, previous exposure, or specialized contacts appear to be the ones most successful and useful in aiding client firms in their international business efforts. When operating as a distributor, the EMC purchases products from the domestic firm, take title, and some assumes the trading risk.

Compensation of EMCs

The mechanism of an EMC may be very useful to the domestic firm if such activities produce additional sales abroad. However, certain activities must take place and must be paid for.

Power Conflicts between EMCs and Clients

The EMC faces the continous problem of retaining a client once foreign market penetration is achieved. Many firms use an EMC’s services mainly to test the international arena, with the clear desire to become a direct participant once successful operations have been established.

Trading Companies

Today, the most famous trading companies are the sogoshosha of japan. Names such as mitsubishi, mitsui and c. itoh have become household words around the world. The nine trading company giants of japan act as intermediaries for about one third of the country’s exports and two fifths of its imports

Expansion of Trading Companies

For many decades, the emergence of trading companies was commonly believed to be a japan-spesific phenomenon. In countries as brazil, korea and turkey, trading companies handle large portions of national exports. The reason these firms have become so large is due, in good measure, to special and preferential government incentives, rather than market forces alone.

Private Sector Facilitators

Facilitators are entities outside the firm that assist in the process of going international. They supply knoeledge and information but do not participate in the transaction. Such facilitators can come both from the private and the public sector.

A second influential group of private sector facilitators is distributors. To increase their international distribution volume, they encourage purely domestic firms to participate in the international market.

Public Sector Facilitators

Increasingly, organizations at the state and local level also are active in encouraging firms to participate in international business. Many states and provinces have formed agencies for economic development that provide information display products abroad, conduct trade missions, and sometimes even offer financing.

Licensing

Under a licensing agreement, one firm permits another to use its intellectual property for compensation designated as royalty. The recipient firm is the licensee. The property licensed might include patents, copyrights, technology, technical know-how, or spesific business skills. Licensing has intuitive appeal to many would-be international managers. Licensing may help to avoid host-country regulations applicable to equity ventures. A special form of licensing is trademark licensing, which has become a substantial source of worldwide revenue for companies that can trade on well-known names and characters.

Franchising

Franchising is the granting of the right by a parent company to another, independent entity to do business in a prescribed manner. Usually franchising involves a combination of many of those elements. Typically, to be successful in international franchising, the firm must be able to offer unique products or unique selling propositions. Franchising has been growing rapidly, but government intervention is a major problem. Although the local franchisee knows the market best, the franchisor still needs to understand the market for product adaption and operational purposes.

Local Presence

Interfirm Cooperation

1. Reasons for Interfirm Cooperation

strategic alliances are used for many different purposes by the partners involved. Market development is one common focus. Penetrating foreign markets is a primary objective of many companies. The most successful alliances are those that match the complementary strenghts of partners to satisfy a joint objective.

2. Types of Interfirm Cooperation

o Informal Cooperation

o Equity Participation

o Consortia

o Managerial Considerations

A Comprehensive View of International Expansion

the central driver of internationalization is the level of managerial commitment. This commitment will grow gradually from an awareness of international potential to the adaption of international business as a strategic business direction. Management’s commitment and its view of the capabilities of the firm will then trigger various international business activities, which can range from indirect exporting and importing to more direct involvement in the global market

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BUILDING THE KNOWLEDGE BASE

The single most important cause of failure in international business is insufficient preparation and information. The failure of managers to comprehend cultural disparities, the failure to remember that customers differ from country to country, and the lack of investigation into whether or not a market exists prior to market entry has made international business a high-risk activity.

INTERNATIONAL AND DOMESTIC RESEARCH

The execution of international research may differ substantially from that of domestic research. The four primary reasons for this difference are:

New Parameters

In crossing national borders, a firm encounters parameters not found in domestic business. New parameters also emerge because of differing modes of operating internationally. Managers must therefore obtain information in order to make good business decisions.

New Environmental Factors

Many of the domestic assumption on which the firm and its activity were founded may not hold true internationally. Management needs to learn the culture of the host country, understand its political systems and level of stability, and comprehend the existing differences in societal structures and language.

The Number of Factors Involved

The number of changing dimensions increases geometrically. Coordination of the interaction among the dimensions becomes increasingly difficult because of their sheer number. Such coordination, however, is crucial to the international success of the firm for two reasons. First, in order to exercise some central control over its international operations, a firm must be able to compare results and activities across countries. Second, the firm must be able to learn from its international operations and must find ways to apply the new lessons learned to different markets. Without coordination, such learning cannot take place in a systematic way.

Broader Definition of Competition

Firms must determine the breadth of the competition, track competitive activities, and evaluate their actual and potential impact on company operations on an ongoing basis.

RECOGNIZING THE NEED FOR INTERNATIONAL RESEARCH

A major reason why managers are reluctant to engage I international research is their lack of sensitivity to differences in culture, consumer tastes, and market demands. A second reason is a limited appreciation for the different environment abroad. They are not prepared to accept that labor rules, distribution systems, the availability of media, or advertising regulations may be entirely different from those in the home market. A third reason is lack of familiarity with national and international data sources and inability to use international data once they are obtained. Finally, firms often build their international business activities gradually, frequently based on unsolicited orders.

Research allows management to identify and develop international strategies. The task includes the identification, evaluation, and comparison of potential foreign business opportunities and the subsequent target market selection. In addition, research is necessary for the development of a business plan that identifies all the requirements necessary for market entry, market penetration, and expansion. On a continuing basis, research provides the feedback needed to fine-tune various business activities. Finally, research can provide management with the intelligent to help anticipate events, take appropriate action, and adequately prepare for global changes.

DETERMINING RESEARCH OBJECTIVES

Research objectives will vary depending on the views of management, the corporate mission of the firm, the firm’s level of internationalization, and its competitive situation.

Going International – Exporting

A frequent objective of international research is that of foreign market opportunity analysis. A sequential process of researching foreign market potentials consist of:

1. Preliminary screening for attractive country markets (Which foreign markets warrant detailed investigation?)

2. Assessment of industry market potential (What is the aggregate demand in each of the selected markets?)

3. Company sales potential analysis (How attractive is the potential demand for company products and services?)

Going International – Importing

When importing, the major focus shifts from supplying to sourcing. Management must identify markets that produce supplies or materials desired or that have the potential to do so. Foreign firms must be evaluated in terms of their capabilities and competitive standing.

Just as management would want to have some details on a domestic supplier, the importer needs to know about the reliability of a foreign supplier, the consistency of its product or service quality, and the length of delivery time. In addition, foreign government rules must be scrutinized as to whether exportation from the source country is possible. The international manager must also analyze domestic restrictions and legislation that may prohibit the importation of certain goods into the home country.

Market Expansion

Research objectives include obtaining more detailed information for business expansion or monitoring the political climate so that the firm successfully can maintain its international operation. Information may be needed to enable the international manager to evaluate new business partners or assess the impact of a technological breakthrough on future business operations.

CONDUCTING SECONDARY RESEARCH

Identifying Sources of Data

Typically, the information requirements of firms will cover both macro information about countries and trade, as well as micro information specific to the firm’s activities. On many occasions, firms can make use of secondary data, that is, information that already has been collected by some other organization. A wide variety of sources present secondary data, the principal ones are governments, international institutions, service organizations, trade organizations, trade associations, directories and newsletters, electronic information services, and other firms.

Selection of Secondary Data

Even though one key advantage of secondary data over primary research is that they are available relatively quickly and inexpensively, the research should still asses the effort and benefit of using them. Secondary data should be evaluated regarding the quality of their source, their recency, and their relevance to the task at hand.

Interpretation and Analysis of Secondary Data

Secondary data were originally collected to serve another purpose that the one in which the researcher is currently interested. Therefore, they can often be used only as proxy information in order to arrive at conclusions that address the research objectives. The researcher must often use creative inferences, and such creativity brings risks. Therefore, once interpretation and analysis have taken place, a consistency check must be conducted. The researcher should always cross-check the results with other possible sources of information or with experts.

Data Privacy

Many societies are increasingly sensitive to the issue of data privacy, and the concern has grown exponentially as a result of e-business. Readily accessible databases may contain information valuable to marketers, but they may also be considered privileged by individuals who have provided the data.

CONDUCTING PRIMARY RESEARCH

Primary data are obtained by a firm to fill specific information needs. Although the research may not be conducted by the company with the need, the work must be carried out for a specific research purpose in order to qualify as primary research.

Industrial versus Consumer Sources of Data

The researcher must decide whether research is to be conducted in the consumer or the industrial product area, which in turn determines the size of the universe and respondent accessibility.

Determining the Research Technique

Once the desired data structure is determined, the researcher must choose a research technique. As in domestic research, the types available are interviews, focus groups, observation, surveys, and the use of web technology.

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BAB 9.
EMERGING MARKET

In the emerging market economies, the key to international success will be an understanding of the fact that societies in transition require special adaptation of business skill and time to complete the transformation. Due to their growing degree of industrialization, other economies are also becoming part of the world trade and investment picture. It must be recognized that these global change will, in turn, precipitate adjustments in industrialized nations, particularly in the manufacturing and trade sectors. Adapting early to these changes can offer new opportunities to the international firm.

ECONOMIC CHANGE

For western firms, the political and economic shifts converted a latent but closed market into a market offering very real and vast opportunities. Yet the shifts are only the beginning process. The announcement of an intention to change does not automatically result in change itself. Highly prized, fully accepted fundamentals of the market economy, such as the reliance on competition, support the profit motive, and the willingness to live with risk on a corporate and personal level, are not yet fully accepted. It is therefore useful to review the major economic and structural dimensions of the change taking place in order to identify major shortcomings and opportunities for international business.

Firms doing business with transition economies often encounter interesting demand conditions. Buyers preferences are frequently vague and undefined. Available market information is inaccurate. As result, it is quite difficult for corporations to respond to demand. In emerging markets, consumption pattern can change rapidly. Companies that can anticipate these discontinuities can exploit them. The challenges to manager in emerging market is not restricted to the governmental front. The success of operations frequently rests on manager ability to compete effectively with unconventional competition such as product counterfeiters, product diverters, and informal competitors who ignore local labor and tax laws. To cope with all these challenges, transition economic need trained managers.

ADJUSTING TO GLOBAL CHANGE

Both institutions and individuals tend to display some resistance to change. The resistance grows as the speed of change increases. It does not necessarily indicate a preference for the earlier conditions but rather a concern about the effects of adjusment and a fear of the unknown. Major shifts have occurred both politically and economicallyin central Europe and the former Soviet Union, accompanied by substansial dislocations. Therefore, resistance should be expected.

STATE ENTERPRISE AND PRIVATIZATION

Often the international manager is also faced with state-owned enterprises that have been formed in noncommunist nations for reasons of national or economic security. These firms may inhibit foreign market entry, and they frequently reflect in their transactions the overall domestic and foreign policy of the country rather than any economic rationale. The current global trend toward privatization offers new opportunities to the international firm, either through investment or by offering business skills and knowledge to assist in the success of privatization. Through privatization, budgets can reduced and more efficient – non fewer-services can be provided. Privatized good and services are often more competitive and innovative. Two decades of experience with privatization indicate that private enterprises almost invariably outperform state-run companies.

INTERNATIONAL BUSINESS CHALLENGES AND OPPORTUNITIES

Challenges

1. One major difficulty encountered is the frequent unavailability of convertible currency. As result, many countries resort to barter and countertrade.
2. Lack of protection some countries afford to intellectual property right. Unless importers can be assured that government safeguard will protect their property, trade, and technology transfer will be severally inhibited.
3. Attempting to source products from emerging market. Many firm has found that selling is not part of economic culture in some countries.
4. The quality of the products. Therefore, the international manager must require manufactures to improve quality and offer prompt delivery using advanced information technology.

Opportunities

1. Some transition economies have products that are unique in performance. While they could not be traded during a time of ideological conflict, they are becoming successful global product in an era of new trade relations.
2. The most sourcing opportunities are for industrial products, which reflects the past orientation of research and development expenditures. Overtime, however, consumer products may play a large role, sometimes even a surprising one.
3. Technology transfer are also substantial opportunities to provides quite useful information.

Why The Mutinational Firms Have higher rate success in transition economies?

1. Foreign firms have had a tendency to enter- at least initially- services sectors that allowed high profit potential with minimal capital investments. This permits a first stage entry of little capital risk.
2. As multinational firms gain experience and knowledge of the local markets, they may then increase the size of their capital investment.
3. The export orientation of the multinational firm is quite consistent with the economic policy goals of many economies. They are often sorely in need of export earnings.
4. Many multinationals quickly find their access to local capital through the rapidly developing domestic financial sector to be easier.
5. As multinational firms mature in transition, many find that the domestic market itself represents a legitimate market opportunity on a stand alone basis. Although this is the commonly assumed goal of privatization, it is not always achieved.

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BAB 8.

ECONOMIC INTEGRATION

LEVELS OF ECONOMIC INTEGRATION

A trading bloc is preferential economic arrangement among a group of countries. From least to most integrative, they are the free trade area, the customs union, the common market and the economic union. It should be noted countries (or groups of countries) may give preferential treatment to another countries on the basis of historic ties or due to political motivations.

01. The Free Trade Area

The free trade area is the least restrictive and loosest from of economic integration among countries. In a free trade area. All barriers to trade among member countries are removed. Therefore, goods and services are freely traded among member countries in much the same way that they flow freely between. No discriminatory taxes, quotqs, tariffs, or other trade barriers are allowed. The most notable feature of a free trade area is that each country continues to set its own policies in relation to nonmembers. In other words, each member is free to set any tariffs, quotas, or other restrictions that it chooses on trade with countries outside the free trade area.

02. The Customs Union

The customs union is one step further along the spectrum of economic integration. Like the members of free trade area, members of a customs union dismantle barriers to trade in goods and services among themselves. In addition, however, the customs union establishes a common trade policy with respect to nonmembers.

03. The Common Market

Further still along the spectrum of economic integrations is the common market. Like the custom union, a common external trade policy. In addition, however, factors of production are also mobile among members. Factors of production include labor, capital, and technology; when factors of productions are freely mobile, then capital, labor, and technology may be employed in their most productive uses. Despite the obvisious benefits, members of a common market must be prepared to cooperate closely in monetary, fiscal, and employment policies. Furthermore, while a common market will enhance the productivity of members in the aggregate, it is by no means clear that individual member countries will always benefit.

04. The Economic Union

The creation of a true economic union requires integration of economic policies in addition to the free movement of goods, services, and factors of production across borders. Under the economic union, members would harmonize monetary policies, taxation and government spending. In addition, a common currency would be used by all members.

ARGUMENTS SURROUNDING ECONOMIC INTEGRATON

They center on (1) trade creation and diversion; (2) the effects of integration on import prices, competition, economic of scale, and factor productivity; and (3) the benefits of regionalism versus nationalism.

Trade Creation and Trade Diversion

The increased export of wheat and other products by Spain to the EU as a result of its membership is termed trade creation. The alimination of the tariff literally created more trade between Spain and the EU. At the same time, because the united states was still outside of the EU, its products suffered the higher price as a result of tariff applications. U. S. exports to the EU fell. When the source of trading competitiveness is shifted in this manner from one country to another, it is termed trade diversion.

Reduced Import Prices

When a small country imposes a tariff on imports, the price of the goods will typically rise because sellers will increase prices to cover the cost of the tariff. This increase in price, in turn, will result in lower demand for the imported goods.

Higher Factor Productivity

When factors of production are freely mobile, the wealth of the common market countries, in aggregate, will likely increase. The theory behind this contention is straightforward: factor mobility will lead to the movement of the labor and capital from areas of low productivity to areas high productivity. In addition, to the economic gains from factor mobility, there are other benefits not so easily quantified. The free movement of labor fosters a higher level of communication across cultures. This, in turn, leads to higher degree of cross-cultural understanding; as people move, their ideas, skills, and ethnicity move with them.

Regionalism Versus Nationalism

Economists have composed elegant and compelling arguments in favor of the various levels of economic integration. It is difficult, however, to turn these arguments into reality in the face of intense nationalism.

EUROPEAN INTEGRATION

• Economic Integration In Europe From 1948 to The Mid-1980s

• The European Union Since The Mid-1980s

• Organization of The EU

• Implications of The Integrated European Market

NORTH AMERICAN ECONOMIC INTEGRATION

• U. S.- Canada Free Trade Agreement

• North American Free Trade Agreement