You are required to write an essay in which you assess the usefulness to international marketers of the three theories of internationalization listed below Uppsala Model Network Model Born Global Pathway Matteo Fabbi University of Westminster, UK ____________________________________________________________ ______________________ Several studies have focused on theories of internationalization since the raid of globalization hit every aspect of our life and organization as much.
The advancement of technology, the decline of trading barriers, the rise of students exchanges programs, yet the rise of low-cost airline companies, is driving the economy to become more integrated and homogeneous. This rapid process is getting marketers and business owners to think and making important decisions to whether or not going international, how, where and when to do it. The study has failed to find a general view whether an approach is better then another, however it has presented situations of firms from different size, operating in different industry and assessed the usefulness of each theory to a specific situation.
In fact the paper has found that there are many factors that will influence a marketers to perceive the usefulness of each theory especially regarding on the resources and capabilities of each organization. The paper makes use of different journals articles, a small case study, and references from Hollensen book: Global Marketing (2006). If looking at the size of a business, then for SMEs approaching the Uppsala model is a way to overcome those barriers of internationalization stressed by Hollensen (2006), such lack of resource and knowledge, yet an opportunity to increase market share and competitiveness.
By gradually committing to the foreign market, organizations also decrease the level of risk to their investments (Whitelock, 2002). On the other hand by gradually increasing the production of goods, the organizations will not benefit from a great level of economy of scales. Although, businesses may rethink this approach for one more reason. In fact the model does not take in consideration the competition.
If a business enters a new market with a new product following the U-model, smart firms benefiting of higher resources might decide to enter the same market, with a similar product, but with higher commitment, if they see the market responding positively to the new entrant (Crick, 2009). In this case they might opt to jump from the first, directly to the most profitable of the four different modes of entering an international market suggested in the article by Johanson et all. (2004) and in a situation with high level of international customers and competitors, the less internationalized firm can be “pulled out” (Hollensen, 2006).
The only way for the early starter to keep the position is to insure they have the best distributors and to tight the distribution net with a predatory price. In a world where information is thought to be the new oil, firms need to become extremely quick in processing data, transforming them into information and then create knowledge for their the internationalization process. For this reason the Uppsala model has received many criticisms because the slow process involved into acquiring knowledge by experience (Whitelock, 2002).
Gaining knowledge with the shorter span of time gives the firm a competitive advantage, as the case mentioned previously whether to obtain the best distributors or the best place for a point of sales when entering a new market. Obstacles to gain knowledge have been decreasing with the latest changes of our world, as suggested by Hollensen (2006) citing Nordstrom: physic distances have decreased and the world has become more homogeneous. For instance thanks to the Erasmus student exchange program established by the EU (1994), Europe offers an interchangeable and multilingual human resource, here businesses can hire people with the experience and knowledge required without develop it in-house, thus making “leapfrog” strategies more feasible, the internationalization process faster and the Uppsala model less useful especially in situations of highly internationalized firm and industries. Also Johanson et all. (2004) and many other authors have also shown that the Uppsala internationalization process is not valid for service industries. The acquiring of knowledge is an important factor in evaluating the usefulness of the theories in analysis.
If looking at the high-technology industry, products have very short life cycle and must be internationalize in a very short time if they want to be successful in the international market. Companies working in this type of industry achieve a faster internationalization process by relying on the expertise and knowledge of network partners (Hollensen, 2006). The Network model is very useful to create innovativeness, by matching different organizations with complementary skills, by outsourcing the manufacture to overseas-based firms, technical services, and even marketing and distribution.
The entire supply chain can benefit from the network model of internationalization, creating competitive advantage for the firm. Even in this particular case, SMEs have to face the big challenge of dealing with bigger organization with greater managerial and coordination skills, plus the resources to invest, although the strengths of this approach to SMEs lies on the importance of the personal factors. According to Hollensen, an entrepreneurial orientation towards seeking opportunities, taking risks and action oriented to innovative markets can lead SMEs to a competitive position when entering international market.
Hollensen (2006) stresses how individuals, rather part of a marketing team or in the case of SME, most likely entrepreneurs, can shape the environment in ways that will benefit the firm, taking initiatives, aggressively tailing ventures and achieve agreements with other companies. This paper has recognized a resemblance of Hollensen findings in a particular case study provided by Berra et al. (1994) on regard the internationalization process of the Italian clothing SMEs in the late ’90 using network models.
As Berra points out in his article, it is well know that the clothing sector of the Italian industry is particularly characterized by polarization: where a number of big companies counters numerous SMEs, specialized in some phases of the manufacturer process. Looking at the particular situation presented in the article, many industrialized countries in the late ‘80s followed different models of internationalization to respond the change in the economical context of that period.
Lifestyles and consumption patterns evolved, the cost of the factors increased and new competitors appeared in the market place together with a decrease in general demand. Many countries intensified their international decentralization and redeployment; Japan had made use of international sub-contracting with the biggest trading companies; the USA opted for overseas assembly strategies in their closest countries like Mexico and Latin America, operating both with independent partners and subsidiaries.
On the other hand Germany relocated and redeployed the manufacturing phases to areas of CMEA and Yugoslavia, whilst France and England made productive FDi in their colonies (North Africa and areas of Commonwealth) (Berra et. all, 1994). These changing circumstances imposed the Italians firms to react. SMEs, which could not afford FDI strategies, opted for production and commercial agreements, so trying to penetrate the markets in partnership with local operators. Also SMEs used a method of decentralization for their production within the country and through a network of companies (Berra et. all, 1994).
The network model used through horizontal connection (with other SMEs) and vertical connection (among larger firms), was useful to create flexibility and low cost, therefore increasing competitiveness to respond at the market changes of the time. According to Hollensen (2006), the internationalization success of SMEs is mainly based on the level of preparation and coordination of each single network in advance. Planning ahead, conducting marketing research, involving highly skilled human resources, investing resources and shaping the products to meet consumers need to each target market are the basis of a Global Born SMEs.
Considering the previous study, then the paper will suggest to international marketers working within the clothing industry that coming global born model will be useful to SMEs by drawing on the positive elements that each market have to offer: for instance matching the source/destination relationship of the labor cost in the East, with the stable market in Europe and the profitable one of Japan, through outsourcing the technology from Germany and USA. This model will be useful to marketers that have great managerial skills for planning ahead and coordinating.
Other main benefits derive from the high flexibility and speed of reaching foreign markets. The Internet will benefit the Born Global companies for their communication process within their networks and for their researches. This is in fact an important factor to take in consideration when evaluating the model. By mainly offering very innovative products and services, Born Global firms have to face relatively high costs in R&D, which as suggested by Hollensen (2006), occur “upfront”. Furthermore competition is very high and products can become obsolete very soon.
In conclusion the paper suggests that each of the theories can be applied by a firm depending of the situation, the type of business and the industry the firm is operating in order to perceive its effects. By looking at the situations presented by this paper, it can be argued that the Uppsala model is more likely to be perceived as useful by international marketers working into a multi domestic industry, with limited resources and a lack of entrepreneurial orientation towards innovativeness and networking.
Although, the paper has also highlighted some of the limitations of the model, that need particular attention. Furthermore this essay has found the Network model very useful applied to SMEs, especially to cope with the big challenges of larger organization that abound of resources and capabilities. Finally the Born Global Model is the one that seemed to respond the best to the trends and the global market requirements, however it is useful merely to those marketers that managerial skills to plan and coordinate a global type of business since the beginning.
References Book Hollensen, S. (2007). Global marketing. 4th edition. Edinburgh Gate (UK): Pearson Education Limited Journals Whitelock, J. (2002). Theories of internationalization and their impact on market entry. 19 (4), 342-347 [online] Available from: Emerald Management Extra [Accesses 29th of October] Berra, L. et all. (1994). The internationalization Process in the Small and Medium Sized Firms: A Case Study on the Italian Industry. , 67-75 [online] Available from: Small Business Economics < www. springerlink. com> [Accessed 25th October] Johanson, J. et all. (2004) Discovering market networks. 40, (3/4), 259-274 [online] Available from: Emerald Management Extra [Accesses 25th of October] Crick, D. , (2009). The internationalization of born global and international new venture SMEs. 26 (4/5), 453-476 [online] Emerald Management Extra [Accesses 27th of October]