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INTERNATIONAL BUSINESS
We’re used to identify the international market as the global market, we assume that companies, without taking into account the particular market segment they address or the type of their product, need to be able to compete on a global level. In the 90s globalization became the new field, but in the last 5 years several factors are strongly affecting the globalization path. From a theoretical POV, but also within the global company debates, there’s an analysis on globalization in which we ask if globalization is the end of the history. Several factors affect the global path. There’s an emerging trend in BACK RESHORING Le imprese fanno marcia indietro per rientrare nella propria nazione di appartenenza (back reshoring) o in paesi vicini (near reshoring). I wase entering in foreign market and I shifted part o the R&D activities, financial departments, logistics, etc. in my hometown. In the last decade innovation is becoming strategic, new ventures and firms or start-up companies are technology-based, in many cases also science based. The core business is based on the ability to create innovation. CORE BUSINESS Il core business, per darne una definizione compiuta e corretta, è l’insieme delle attività che servono a soddisfare lo scopo principale dell’organizzazione. Rappresenta l’area principale sulla quale l’azienda si concentra nelle sue operazioni. È, in poche parole, ciò per cui l’impresa è nata, l’obiettivo primario che intende raggiungere. BORN-GLOBAL FIRMS Companies that since from the beginning, identify that the market is not the home country market or the local one or the most geographical proxy, but it’s the global one. Since the beginning they’re able to respond to global demand, they have strategic advantage that allow them to be a global company. They don’t become global with a step-by-step approach. Born global firms since the beginning identify the global market as the market to address. Industrial district phenomenon it was an Italian phenomenon starting from the 60s and becoming particularly important in the 80s. What is a networking cluster? A cluster is a group of inter-connected computers or hosts that work together to support applications and middleware (e.g. databases). Cluster of innovation are not created from a bottom-up approach, but by the governments which identify in different parts of the country areas in which to locate facilities, research centers, innovation. They create the conditions for creating clusters of innovation because they’re able to attract the most innovative companies and the clusters are able to increase the attractiveness of the country itself. The territorial dimension and the market dimension are the 2 main dimensions. Clusters attract innovative people. They network, leading to the crosspollination of ideas. Companies benefit from each other's success: What one invents, rivals can access – think of a productivity boosting tool like Dropbox. And what one firm invents, others can build on. Smart land not only the city is intelligent and sustainable, able to attract people because they have more quality services and facilities or company because they could have benefits being in a very digitalized context (level of infrastructure, level of mobility etc..). But the territorial area in which the cities are located, becomes a smart land. It’s not related to the city dimension; within the city you can create clusters of innovation that create networking between clusters for producing innovation and translate science innovation into market innovation. “Psychic distance” It's not just a physical distance between countries, but there are forms of distance that are not objective, but subjective. Different countries have different culture for examples. The psychic distance to a
specific foreign country is a reflection of the perceiver's knowledge, familiarity and sense of understanding of it. Sometimes countries geographically near could have a low degree of differences in culture. If you’re an Italian company and you want to address to a Spanish market there are differences, but not so strong. If you want to enter in an Asian market the cultural differences could be very important. You could need to adapt products, services, change your brand image, create a new local brand etc… You could find differences in laws, on how to do business etc… These forms of distances are defined psychic because differences could translate into opportunities if you properly identify and manage them or, on the contrary, translate into strong barriers for entering in the market according to the fact that you’re able to analyze and properly manage. Ex if I want to enter in the Chinese market, culture is different, the way in which people buy is different, the legislative framework is difficult to analyze (Chinese is a language barriers), there are factors related to local habits, different use of social media, social media I can not use… all these factors could provide to a company a lot of barriers, if I’m not able to understand I could enter into an epic fail, or not be allowed to enter to the market by the government! At the same time the same types of differences that translate from a distance Italy- China could be for your company an opportunity (if you live 30 years in China you have Chinese channels) so what at the beginning could be difficult to manage, if you internalize such types of difference and properly understand, translate, manage, it could transform into an opportunity. This is way distance is not objective, but it’s psychic! Cross-country managerial teams in order to communicate better with the other country. PSYCHIC DISTANCE As suggested by the semantic origins of the term suggest, Beckerman's intention was to point out the importance of perceptions in the formation of foreign trade relationships. However, in the Uppsala School's original rendering of the concept, its meaning subtly changed. In their studies ‘psychic distance’ was defined as “factors preventing or disturbing the flow of information between potential and actual suppliers and customers”. In the Uppsala model, cultural differences were only one aspect of psychic distance. However, in the latest two decades, the distinction between ‘psychic distance’ and ‘cultural distance’ has become increasingly blurred in IB literature. The 4 dimension of psychic distance:
- Cultural distance 2. Administrative distance 3. Geographic distance 4. Economic distance Psychic distance perceptions are formed on the basis of environmental stimuli, primarily the amount and type of knowledge a person possesses (or believes herself to possess) about a foreign country. This perception will, in turn, be influenced by a range of factors, many of which are historically determined qfor example: common language (often a legacy of former colonial ties) is significant not only in facilitating communication and information exchange but it is often associated with deeper cultural affinities affecting psychic distance perceptions. The value and usefulness of information about a foreign country to support firm’s decisions, depend not only on its quantity and content, but also on the recipient's ability to correctly interpret it. In this perspective, cultural differences are important as they affect an individual's abilities both to intellectually understand and to emotionally relate to conditions in foreign countries. The more familiar the impression of a foreign country is to the home country (or other countries with which the subject is familiar), the smaller the psychic distance Perceptions of psychic distance are also affected by personal factors, such as individuals' values, motivation and prior experience What is international business? (N.B. Queste definizioni non sono da sapere a memoria!) International business consists of flows of transactions that are devised and carried out across national borders to satisfy the objectives of individuals, companies, and organizations.
Creation of a global legal system A well functioning market-based economy in a globalised world requires a legal system that protects property rights and provides mechanisms for contract enforcements Many progress has been made during the last two decades by several countries. Closed borders, travel bans, and grounded passenger airlines have had a significant impact, but the pandemic is unlikely to cause globalization to collapse. The DHL Global Connectedness Index 2021 (GCI) provides an assessment of globalization during the pandemic. It signals that globalization is recovering from the COVID-19 setback. Despite strong headwinds in global geopolitics and trade, the GCI has shown surprising resilience in recent years. The Covid-19 pandemic put people flows on pause, but trade, capital, and information flows have helped to keep the world connected. 21/02/ The most critical political point is energy and its cost. MAIN CHARACTERISTICS OF A MNE (3 main characteristics): 1) Identify the market that offers location specific advantages (=different kinds of advantages you can find in one specific country and not in another), in order to perform your business and compete in the global market you have to identify if other locations in terms of market could offer to you company some advantages (ex. strategic costs cost of logistic, distribution, production, raw material..), called foreign location advantages. They’re important Basically you have to identify where to go and to do what. 2) SPECIFIC OWNERSHIP ADVANTAGES the company must have some strategic competecies or ownership-specific advantages to counteract the disadvantages initially connected to its unfamiliarity with foreign markets in comparison with local competitors.
Which are the strategic factors that affect your competitiveness in the medium term (which are the types of alliances you’re able to create/enter, the patents, physical aspects or intangibles aspects…). You have to determine before going abroad which are the factors able to provide to your specific company ownership specific advantages, that are strongly related to your competitiveness. They’re important because i n the internalization process the SOA (owner.spec.adv) are more strategic than when you operate in your own market or markets similar to yours, because such types of SOA need to be used to identify the disadvantages that at the beginning you need to face with because you’re entering in a different market (different needs, legislation etc.), you need to identify which is the list of asset tangible and intangible that could be particularly used to understand the difference between your market and other markets. When you adopt the strategy of the first mover, they’re essential! You identify a foreign market particularly appealing for a business, you identify before others the opportunities that exist. By doing this you can create barriers for the other businesses to enter in this market! COOPETITON APPROACH puts together then need to cooperate to do some activities, but at the same times when they find an opportunity, they compete in the market. Coopetition is the act of cooperation between competing companies by forming a strategic alliance designed to help both companies. Coopetition includes a mixture of cooperation with suppliers, customers, and firms producing complementary or related products. 3) MNE MUST POSSESS BEFORE ENTERING IN A MARKET, SOME SPECIFIC ORGANIZATIONTAL CAPABILITY THAT COULD ALLOW THE COMPANY TO MANAGE THE COMPLEXITY RELATED TO THE ORGANIZATIONAL PART. A MNE must posses some organizational capabilities to achieve better returns from leveraging its strategic strengths internally rather than through external market mechanisms such as contracts or licenses The need of a company which looks in which country to enter, is also related to identify if for your specific business in that moment, you’re able to have internal organizational skills that are > the possibility to eternalize some activities to other parties. You can externalize activities, but you have to be sure that such types of activities that you want to externalize (because you don’t have time, skills, etc.) in the internalization process need to be identified as not strategic or your international competitiveness. In many cases the aspect that give to your company a competitiveness in markets similar or into yours, could be completely different from the aspect that could create for you opportunities in another different market. You have to be able to analyze before going broad! MAIN RISKS RELATED TO THE FOLLOWING THE LEADER ”WAIT AND SEE” You tend to copy the leader (=the first mover company). It’s very difficult to replicate the success because the factor that the leader manages and combine skills, know how etc. could be completely different. If a market already exists is common that you copy the same approach of the leader, but with different starting conditions or if are the same, different ways to combine that you don’t know, so you fail. ANALYSIS THE MOTIVATION FOR GOING ABROAD In the 60s the conditions for going abroad where totally different from the conditions in the 90s! 60-80 traditional motivations were sufficient to explain After 90 Traditional motivations weren’t able to explain the reason for the internalization of companies. With the start of the 90s we have to rethink about the motivation to go abroad for this reason THE GLOBALIZATION PROCESS! Before 90s the rules for doing business and transferring the flow capital, movement of people (consumers and workers), movement and protection of rights (patents) was controlled at a national level. Each country
EMERGING MOTIVATIONS
- The increasing scale economies and shortening product life cycle: these forces made a worldwide scope of activities not a matter of choice but a prerequisite for companies to survive, especially in capital- intensive industries (chemical, electronic, automobiles, airframes…). Without taking into account the set of activities in which you’re contacting your business, more and more the level of competition became higher! The translated into the fact that firms that needed to compete in a very fragmented market plenty of competitors, this competitors made the firm shift from tangible assets to an intangible paths. Companies identified that internalization wasn’t just an option, they were forced to go abroad because the home market was insufficient and because if I don’t go abroad, I’m sure I have to face with more competitors, local and foreign able to enter! The market arena was becoming more and more saturate. So, for more than 3 decades was considered an option the internalization, then it was considered mandatory starting from the 90s, otherwise firms couldn’t have survived! Additionally if you are a subcontractor, you’re forced to follow the leader. You follow him to maintain the subcontractor relationship! WHY THERE IS A CONNECTION BETWEEN THE PRODUCTS THAT REDUCE THE LIFECYCLE OF THE FIRMS (YOU NEED TO REPLACE, INTRODUCE NEW PRODUCTS AND SOLUTIONS IN A SHORT PERIOD OF TIME) AND THE INCREASING ROLE FO THE BRAND, ESPECIALLY WHEN YOU NEED TO GO ABROAD? The product is entering in a life cycle which is shorter and shorter (due to novelty and competition), so the brand can create an opposite brand because during the last 2 decades the invs shifted from the product to the brand, companies are investing in brand strategies more than in product strategies. It’s difficult to relaunch the lifecycle of the product, but if you’re a brand with a very strong reputation, you could be able to use the brand in this way: more and more we buy the brand, not for the product (=idea of quality, perception of status symbol etc..). So the brand becomes a tool to counteract the shortening for the product lifecycle, you’re not able to allungarlo, ma if you have a good brand (reputation etc.) you can be sure that all your products are sold, because they’re wanted from the public. If the bran is strong enough (if you’re able to create a global brand), you can be sure you’re forced to put in the market new products, but non hai tutto lo sbatti di comunicare le novità del prodotto, perchè se hai gà una buona imagine I tuoi customers già ti conoscono. This is the power of the brand. We know the life cycle is shortening, every time we invest into communicating to the market, translate to the market the new features etc.. if the brand is powerful enough, people buy from you! The BRAND is not a tool for making the life cycle of the product last more, but the attention of the customer to buy your product! So they can also lower production costs, (for example producing Asia but selling it at the same high cost, because of the reputation of the brand). If you create a global brand you can: Standardize the product global collection you can present everywhere (the same collection) You can strongly reduce the marketing expenses because you’re not promoting the product anymore. You work on perception of quality instead of intrinsic quality 2) A second factor that become critical to a company’s international strategy is its global scanning and learning capability. A company whose international strategy was based on technological of marketing advantage could enhance that advantage through the scanning and learning potential inherent in its worldwide networks of operations and activities. If your ownership competitive advantages are based don technological advantages (ability to innovate) and in your marketing advantages (more and more related to the intangible assets) you could devote time and human resources skills in order t identify in the global market in which area of the world such type of intangible competitive advantages could find the best places. If your strategic assets are more&more based on intangible assets (=ability to innovate), you must devote time into identify in which market there are the conditions such types of intangible assets, which type of network operation you can enter in order to exploit your ability to innovate, if you base on
innovation you need partners (= exacquiring innovations from startups). You need to be where innovation is, where you can discuss your idea and find partners to develop it. The role of infrastructure is important to catch the opportunities of globalization. Infrastructures can be soft and hard. Hard infrastructure transport system, telecommunication system etc. During the past it was particularly strategic Soft infrastructure online selling, the health care system, financial institutions, governmental systems, law enforcement, and education systems. “Hard” infrastructure refers to the large physical networks necessary for the functioning of a modernindustrial nation, whereas “soft” infrastructure refers to all the institutions which are required to maintain the economic, health, and cultural and social standards of a country, such as the financial system, Soft & Hard infra mix If I have to decide where to go abroad, it depends on the types of infrastructures I’m looking for. The European market is very saturated in terms of demand, we need to find new product, acquire know- how and information in order to become stronger, bigger and developed. Globalization has a positive and a negative side, when a conflict starts, it becomes global immediately, because the economic dimension is a global one. In the globalization finance play a fundamental role! What is globalization? Since the 1980s a fundamental shift has been occurring in the world economy: From a world in which national economies were relatively self-contained entities (in the 70- 80s), <> by: -barriers to cross-border trade and invs Types of barriers (important!): Duties higher costs and prices who reduce your competitiveness Cultural differences, different business system and regulation Language barriers Currency barriers strategic for companies because 1)you don’t have currency risks and 2)costs to transform euro in pesos or etc. Not the same standard from a technological POV (non hanno le stesse prese) distance, time zones, and languages national differences in regulation, culture, business systems In the past there were isolated markets (the French, the Portuguese, the German etc.--> national dimension) then there created commercial relationships between markets in terms of import and export. In the market framework factors that could be evaluated different have an explanation, it’s a consequence of the globalization (se in America hanno le prese diverse c’è un motive!) to give the opportunity to benefit from a likely shift. Globalization Shift to a world in which not only barriers are declining, but also in which:
- Perceived distance is shrinking due to advances in transportation and telecommunications technologies
- Culture (and cities) is starting to look similar the world over
- National economies are merging into an interdependent, integrated global economic system
Globalization and the emergence of global institutions As markets globalize, institutions are needed to help manage, regulate and police the global marketplace and to promote the establishment of multinational treaties to govern the global business system Global institutions created to help perform these functions include: q The General Agreement on Tariffs and Trade (GATT) and its successor, the World Trade Organization (WTO) q The International Monetary Found (IMF)? World Bank (WB) q The United Nation q The G Two main factors underlie the trend toward greater globalization of markets and production: the decline in trade and investment barriers occurred since the end of the World War II AND the technological change (communications, information processing and transportation technologies). Declining in trade and investment barriers International trade occurs when a firm export goods or services to consumers plaed in another country. Foreign Direct Investments (FDI) occurs when a firm invests resources in business activities outside its home country. Many of the barriers to international trade historically took the forms of high tariffs on imports of manufactured goods; the rational of such tariffs was to protect domestic industries from foreign competitors What countries did mostly this shift? The US with Regan and UK. You can’t create a global frame if you’re alone, you need partners! Why UK? UK was part of UE (still with differences) AND US 1)COULD BE USEFUL TO CREATE THE BRIDGE 2)the London stock exchange (the two main were the London and the US stock exchange). UK though it was an isle, they had industries che non sarebbero più state fundamental per la loro sopravvivenza, dovevnao importare tante cose, so they needed to build an industry in which they had a role, e la visione è stata the finance (=the market). The stock market was the first to be regulated. In 1990 there was the Amato/Carli Law that shifted and transformed the Italian financial system into a private one, the same have done the others county privatization of the banking financial industry this allowed the liberalization of the flow of money. The globalization was a POLITICAL DECISION (not related only to market!). The two countries decided to be able to combine worldwide partners to something that could create competitiveness and be win- win. Loro hanno detto ai vari paesi: Dovete entrare in questa long term vision, perchè le vostre companies sono troppo piccole. Which were the topics? You’re too small, so you’ll benefit from a market with very few rules. It’s a win-win situation because you’re small companies could enter, people are able to move and look for a job worldwide and it’s also a win-win situation because we can reduce the distances among different countries (cultural, legislative, the way in which you do business). How can we reduce them? If you can address to a global market without barriers, we can provide to the same global market the same product, services with the same standard, the same technology and we can educate people to buy the same, to desire the same etc..--> ability to create global brands. If you’re able to standardize the products you can address to a global demand, because you don’t have to change them! In the 90s cities started also to look more similar. If you go to London you find Italian restaurants, the same brands etc… the biggest brands are worldwide, if you want to see differences you don’t have to go in the center of the city! But this was the goal of globalization: to reduce differences, if you’re able to standardize you’re able to produce the same product and sell worldwide. N.B.--> If you share the same currency, you reduce the costs!
A shift toward a more integrated and interdependent world economy has several facets: The globalization of markets 2 main events: first banks, then the liberalization and privatization of the telecommunication system The globalization of production Companies identified that the location choice was firstly guided to the production system needs. To go abroad could have an impact on reducing the costs of production. Going abroad means in a few periods of time starting to make a strategic decision process not related just to selling but related on how to shift and put the different parts of your value chain (WHERE TO PUT THE MARKETING DIVISION, WHERE TO PUT THE PRODUCTION ETC… ) If you delocalize the production we lose our work! This was a worry. FONDAMENTALE And the response was: When during the past we had national barrier for protecting national markets, the competition was on the market side. With globalization the biggest shift was from the market to the state level! This means that if I make a privatization, deregulation, destroy the barriers to entry the market, before companies ask to compete to the markets, state and nation start to compete each other. Before companies, the governments compete each other! Government (even before companies) started at the beginning of the 90s to compete in order to become more attractive. Italy decreased its ability to be attractive, think to our legislation, to our fiscal rules that are not attractive, a burocracy very slow. It’s not that Italian companies are not competitive, it’s fault of the government! Italian companies have to go abroad to be competitive where legislation etc. are different. If the rules are used like tools for attracting (I can copy your legislation and reduce more) is a short term thing and you’re going to reduce your political power, you don’t have real assets, it’s just a short term move. Globalization was particularly strategic (in the short tem view) for companies that were B2C because in B2B (business to business) if we don’t consider raw material, if you sell a specific service to a company, in many cases you would have a portfolio of services solutions, ma in many situations you should be able to adapt your product and solution to you customer needs. IN B2C market if you’re able to create global markets with global brands and needs you could be sure that in short medium term you0re more able to standardized everything, people don’t ask you for standardization, the becks are equal in all over the world, also Kellogs etc… The globalization of markets The terms refers to the merging of historically distinct and separate national global market (the German market, the Brazilian market etc.) into on huge global market place. We talked about the International commercial Sales of Goods contract.--> There is one seller and one buyer Now we’ll talk about international commercial distribution of Goods agreement The entrepreneur that is identified as the principle relies upon cooperation with another entity. It is: I. To satisfy the entrepreneur’s needs to procure goods:
- International commercial Sale of Goods (or Supply) contract II. To satisfy the entrepreneur’s needs to rely on business cooperation:
INTERNATIONAL COMMERCIAL AGENCY AGREEMENT
- authority of the Agent to commit the Principal;
- authority of the Agent to receive payments on his behalf;
- obligation for the Principal to accept the orders transmitted by the Agent;
- information which the Principal should pass on to the Agent, such as any change in the range of products or services, price, etc.;
- minimum orders. DIFFERENCES WITH A DISTRIBUTION CONTRACT agents do not take ownership of goods
agent is paid by the principal through commission on the business value generated distributors receive their payment directly from the customers distributors holds stock of goods in the concerned market distributors provide back-up and after-sale services to customers in the given territory Franchising A well-established corporate party (the franchisor ) to another party (the franchisee ): the use of its highly reputed commercial brand; the use of successful operational model; and the required business support The franchisee sets up and runs the distribution business involved in a given territory in exchange: Initially, for a one-off entry fee, and thereafter A periodical licence fee (which may be based on a percentage of the income generated) Obligation of the franchisee
- Operate in accordance with the business model of the franchisor
- Meeting the target market’s expectations
- Order and promote the sale of the franchisor’s products and services
- Adhere to the instructions of the franchise manual
- Submit business reports at regular interval
- Keep sensitive information confidential Franchising pros and cons
- Non-negotiable (flexibility should be a warning sign)
- Typically unilateral (full of “must”, “do”, “can’t do”)
- Rules on avoidance (i.e. termination) of contract and damages (ground for avoidance, avoidance procedure, effects of avoidance in general, rules of restitution damages and mitigation of harm)
- Standard provisions
- Prior to opening approval of the location
- Powers of inspection Franchising vs licensing A license is a contract through which one party grants another permission to use its patents, trademarks, copyrights, designs or trade secrets The organization receiving the license, or licensee, compensates the licensor by paying a flat fee, royalties or a combination of the two.
company because you co create the market and not just to enter when the competitive framework has been already established So when to enter depends once again.
3. on what scale to enter The step by step approach doesn’t mean only that you decide to enter in one country, wait and see, analyze the risks and then go in another market! In many cases when you enter on a step by step approach you need to reduce costs and risks or you could be you too small for devoting the proper time that the internalization approach needs (=because you need to collect information from the market, to collect information’s and make them test regards the attitudes pf the foreign customers). So, you are forced in many cases to enter also by reducing the type of investments, so the decision making process based on what scale to enter is strictly related and able to make an effect on the entry modes choice. So where and when to go and what scale are strictly related to the fact that they could have on the strong impact on the entry modes. 4. entry modes You have to identify entry modes that are affordable to you, if you decide to enter on one or more foreign markets, in order to be the leader ad then impose other companies to follow you, the entry scale is on a very high level, so you have to invest a lot on order to create an opportunity for you, but at the same time if you make high investments you increase the barriers for entering the market in relations to the followers. So, if I make high investments (=so I shift the production, I create strong and strategic partnerships, I put R&D activities, I create legislative barriers for other companies to enter, I’m able to create in the foreign markets also logistic platform and from the distribution pov I have the market on my hand ) I will enter on a very big scale, which implies that at the same time I create wide opportunities for me to be one of the leaders but such types of investments create barriers for entry for the followers. Empirical evidences show that many firms tend to adopt a step by step approach in the internationalization process by selecting foreign markets that are close to the domestic market not only geographically but also in term of “perceived” distance between the home country and the foreign market as to differences in language, culture, administrative & business framework, political environment and other factors that can make difficult to understand the foreign environment. This is particularly true for European companies, that in many cases are small/medium companies (or also big that compared to the Asians ones are small). The dimension of the company is able to affect the perception of distance between the home country or the foreign markets in which the companies identify opportunities to expand. This means that the perceived distances do not just affect how to reach the customers but also the need for your company to create anew brand because for example the brand that you have for your market could not be feasible for the Asian market (it’s impossible to translate the name or the meaning is completely different etc..). These difficulties translate into costs for a company! Sometimes the difficulties to manage are too high, and this is why in most of the cases for the European companies that are small and start the internalization process later by entering in other similar countries tend to use the STEP BY STEP APPROACH! In many cases the step by step approach we could identify as an empirical evidence translates into second best location choices. Only after have learning from their experience of operations in close foreign markets, they start to enter in in more distant ones by selecting the best location choices. Sometimes it happens that the market is very appealing from the consumer pov or for the growing trend, but you could fail in entering in such a type of market because the conditions to enter aren’t at your disposal, so you’re forced to identify another market that could be a second choice because it is not so appealing, but it’s easier to enter and you can reduce the costs of failure. Such a type of step by step approach that translates into second choice, implies that companies tend to base their internalization process on an approach that considers the possibilities to learn from previous experiences as the only way to become international during the time.
So, the step by step approach starts from the perceived distance, which implies that you identify that you’re able to manage only some distances and in many cases you’re not ready to enter, so you have to identify other markets to enter which are not the best but that are the more manageable. For such a type of markets that In this moment we’re not able to approach because of the distance, we use the approach of wait and see! So, we wait that other companies enter, we analyze them, start to learn from their experience, if they are successful, in which ways, what partnerships they have etc… So you learn both on that side and also from your internalization experience. You learn externally by watching others and internally by what you’re doing. In many cases such a type of approach when you’re able to finally enter the market the empirically evidence shows that when the companies are ready to enter the opportunities that you have identified in the past are not still present or present in a reduced way. Sometimes the barriers reduce the interest to enter in that market! So the step by step approach AFFECTS VERY STRONGLY THE POSSIBILITY TO GO ON! Experiences, coming from "learning by doing», build the firm’s knowledge of foreign markets and that body of knowledge influences decisions about both further location choices and the level of commitment (and the types of activities) that subsequently grow out of them As learning and commitment building take time, this explain why many (but not all) SMEs move only incrementally into markets that are more “distant” (and often more potentially both risky and rewarding). Which foreign market/markets to enter? This choice must be ultimately be based on an assessment of a country’s longrun profit potential, which is a function of several factors such as:
- the size of the market (demographic trend)
- the present wealth (purchasing power) of consumers
- estimated economic growth rate in the medium term The attractiveness of a country as a potential market depends on balancing the benefits, costs and risks associated of doing business in that country. Another important factor is the value an international business can create in a foreign market, which depends on the suitability of its product offering to that market and the nature of indigenous competition Greater value translate into the ability to charge higher prices and/or to build sales volume more rapidly The nature of the motivation for going international can also in part affects the location choice Timing of entry The advantages frequently associated with entering a foreign market early than competitors are known as first-mover-advantages. They are related to the ability:
- to preempt the rivals and capture demand by establishing a strong brand name on the foreign market
- to build sales volume in that country and ride down the experience curve ahead of rivals, giving the early entrant a cost advantage over latent entrants which may enable the early entrant to cut prices below that of later entrants
- to create switching costs that “tie” customers into their products/services (this cost make it difficult for later entrant to win business) REDUCE the willingness of the customer to change the supplier or to try another product or buy another brand.
- So you create all these informal barriers that tight together the first mover with the customers and the presence of strong switching costs implies that it could be difficult to offer something different and to gain customers because the customers want to stay in that type of relationship.
- it will make easier for ING to attract both customers and distributors (insurance agents), as the scale of entry gave them reasons for believing that it will remain in the market for the long run
- The scale of entry gave other foreign financial institutions considering entering in the U.S. market pause, as they have to compete not only with indigenous institutions but also against an aggressive and successful European player -On the negative side: -by committing itself heavily to the U.S, ING may have fewer resources to support expansion in other foreign markets, so the commitment to the U.S. “limits” the company’s strategic flexibility 21/03/ ENTRY MODES Once a firm decides to enter a foreign market, the question arises as to the best mode of entry. Firms can use 6 different mode to enter foreign markets, each has advantages and disadvantages: 1. Exporting Many manufacturing (export is typically in the manufacturing field) firms begin their global expansion as exporters (both in B2C and B2B markets) and only later switch to another mode for serving a foreign markets. Exporting can’t be always a strategy beacue there could be materials that are needed for internal purposes instead of being exported. For example, the war economy (=economia di guerra) because now there are national goals that need to be pursued before commercial goals. Advantages: -It avoids the often substantial cost of establishing manufacturing operations in the host country -It may help the firm achieve experience curve and location economies Disadvantages: -Exporting from the firm’s home base may not be appropriate if lower cost locations for manufacturing the products can be found abroad, in particular for firms adopting global or transnational strategies -High transport costs and tariff barriers can make exporting uneconomical Before the beginning on the 90s entering in other countries for export, comported duties and fees, so there were costs -Problem with delegating sales, marketing and services activities to another company (local agents) THE GLOBAL TREND IS THAT CUSTOMERS ARE MORE AND MORE LOOKING FOR CUSTOMIZATION, SO IF YOU HAVE TO CUSTOMIZE YOU HAVE TO BE MORE ROOTED IN THE MARKET AND HAVE MORE ASSETS Real customization vs perceived customization perceived personalization, instead of actual personalization, is the underlying psychological mechanism of message effectiveness. A message will show superior effects when it is perceived to be personalized by a message recipient, regardless of whether it is actually personalized or not. MASS CUSTOMIZATION You could offer plenty of options, the customer could mix according to the needs, wishes, desires and what you obtain is something that appears customized but each part is standardized. Each part is standardized, we explore the options in order to give you the opportunity to cocreate the products but it’s perceived (quando scegli le cose sdella amcchina come I colori materiali etc, sono già scelti, tu scegli tra cose già standardized)
STANDARDIZATION VS CUSTOMIZATION customization attempts to meet the needs and preferences of the individuals while standardization attempts to meet the needs and preferences of the masses (bus and transportation services).
2. Licensing a. A licensing agreement is an arrangement whereby a licensor grants the rights to intangible property to another entity (the licensee) for a specific period and in returns the licensor receives a royalty fee from the licensee. b. Intangible property includes: • Patents • Trademarks • Formulas • Processes • Designs • Copyrights In the typical international licensing deal, the licensee puts up most of the capital necessary to get the overseas operation going. Advantages:
- the licensor does not have to bear the development costs and risks associated with opening a foreign market; this agreement is very attractive for firms lacking the capital to develop operations overseas
- Can be attractive when a firm is unwilling to commit substantial financial resources to an unfamiliar or political volatile foreign market
- Is often used when a firm want to participate in a foreign market but is prohibited from doing so by barriers to investment (ex: FujiXerox joint venture)
- Is frequently used when a firm possesses some intangible property that might have business application, but it does not want to develop those application itself. (Coca Cola has licensed its famous trademark to clothing manufactures, which have incorporated the design into clothing) Disadvantages:
- Licensing does not give a firm the tight control over manufacturing, marketing and strategies that is required for realizing curve and location economies; when these economies are important, may not be the best entry mode
- Competing in the global market requires a firm to coordinate strategic moves across countries by using profit earned in one country to support competitive attacks in others; by its nature licensing limits a firm’s ability to do this: a licensee is unlike to allow a multinational firm to use its profit (beyond those due in the form of royalty payments) to support a different licensee operating in another country
- There are several risks associated with licensing technological know how to foreign firms, and a firm can quickly lose control over its technology by licensing it One way to reduce this risk is cross-licensing agreements (also the foreign partners), the licensee, is requested to license some of its valuable know-how to the firm in addition to a royalty payment; it enables firms to hold each other hostage, which reduce the risks of opportunistic practices. Cross-l-a ARE MORE RELATED TO THE TECHNOLOGICAL PART. A cross-licensing agreement is a contract between two or more parties where each party grants rights to their intellectual property to the other parties.During the time these agreements transform into join venture! Another way to reduce the risk is to link an agreement to license knowhow with the formation of a joint venture in which both the licensor and the licensee take important equity stakes; such approach aligns the interest of the two firms because both have a stake in ensuring that the new venture is successful EX. the risk that Fuji Photo might appropriate Xeros’stechnological know how and then compete against Xerox in
