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Svend Hollensen
GLOBAL MARKETING4th Edition
3 Internationalization theories
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3-2Hollensen, Global Marketing 4e, © Pearson Education 2008
Learning objectives
Analyse and compare the three theories explaining a firm’s internationalization process
Explain the most important determinants for the internationalization process of SMEs
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3-3Hollensen, Global Marketing 4e, © Pearson Education 2008
Learning objectives (2)
Discuss the different factors which influence internationalization of services
Explain and discuss the relevance of the network model for an SME serving as a subcontractor
Explain the term ‘Born Global’ and its connection to Internet marketing
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3-4Hollensen, Global Marketing 4e, © Pearson Education 2008
Historic development of internationalization
Traditional marketing approach
‘Life cycle’ concept for international trade
The Uppsala Internationalization model
Internationalization/ transaction cost approach
Dunning’s eclectic approach
The network approach
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3-5Hollensen, Global Marketing 4e, © Pearson Education 2008
The Uppsala internationalization model
Stage 1: no regular export activities (sporadic export)
Stage 2: Export via independent representatives (export modes)
Stage 3: Establishment of a foreign sales subsidiary
Stage 4: Foreign production/manufacturing units
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3-6Hollensen, Global Marketing 4e, © Pearson Education 2008
Figure 3.1 An incremental approach to internationalization
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3-7Hollensen, Global Marketing 4e, © Pearson Education 2008
Exceptions to the use of incremental steps
towards market commitment
Firms with large resources can take larger internationalization steps
When market conditions are stable and homogeneous, relevant market knowledge can be gained in ways other than experience
When the firm has considerable experience from markets with similar conditions, it may be able to generalize this experience to any market
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3-8Hollensen, Global Marketing 4e, © Pearson Education 2008
What is this?
What term refers to differences in language, culture and political system, which disturb the flow between the firm and the market?
Psychic distance
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3-9Hollensen, Global Marketing 4e, © Pearson Education 2008
Figure 3.2 Dimensions of internationalization
Organizational capacity
Finance
Sales objects Markets
Organizationalstructure
Personnel
Foreign operation methods
Source: Welch and Loustarinen, 1988. Reproduced with permission from The Braybrooke Press Ltd.
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3-10Hollensen, Global Marketing 4e, © Pearson Education 2008
Figure 3.3 Internationalization pattern of the firm as
a sum of target country patterns
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3-11Hollensen, Global Marketing 4e, © Pearson Education 2008
Foundation of the transaction cost analysis (TCA) model
Firm will tend to expand until the cost of organizing an extra transaction within the firm will become equal to the cost of carrying out the same transaction by means of an exchange on the open market
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3-12Hollensen, Global Marketing 4e, © Pearson Education 2008
What is this?
The friction between buyer and seller, which is explained by opportunistic behaviour is called _____.
Transaction costs
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3-13Hollensen, Global Marketing 4e, © Pearson Education 2008
What is this?
What term is used to describe behaviour that is characterised by self-interest with guile and includes methods of misleading, distortion, disguise, and confusion?
Opportunistic behaviour
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3-14Hollensen, Global Marketing 4e, © Pearson Education 2008
Transaction cost analysis framework
Cost minimization explains structural decisions
Firms internalize (vertically integrate) to reduce transaction costs
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3-15Hollensen, Global Marketing 4e, © Pearson Education 2008
Figure 3.4 Principles of the TCA Model
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3-16Hollensen, Global Marketing 4e, © Pearson Education 2008
Cost elements of the TCA model
Ex ante costs Search costsContracting costs
Ex post costsMonitoring costsEnforcement costs
Transaction costs = ex ante costs (search + contracting costs) + ex post costs (monitoring + enforcement costs)
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3-17Hollensen, Global Marketing 4e, © Pearson Education 2008
What is this?
When firms do business using an importer, agent, or distributor it is called _____.
Externalization
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3-18Hollensen, Global Marketing 4e, © Pearson Education 2008
What is this?
When firms implement a global marketing strategy using their own subsidiaries, it is called _____.
Internalization
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3-19Hollensen, Global Marketing 4e, © Pearson Education 2008
Limitations of the TCA framework
Narrow assumptions of human natureExcluding ‘internal’ transaction costsRelevance of ‘intermediate forms’ for
SMEsImportance of ‘production cost’ is
understated
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3-20Hollensen, Global Marketing 4e, © Pearson Education 2008
The network model
The relationships of a firm in a domestic network can be used as bridges to other networks in other countries
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3-21Hollensen, Global Marketing 4e, © Pearson Education 2008
Figure 3.5 An example of an international network
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3-22Hollensen, Global Marketing 4e, © Pearson Education 2008
Figure 3.6 Four cases of internationalization of a firm
The early starter The late starter
The lonely international
The international among others
Degree of internationalization
of the firm
Low
High
Degree of internationalization of the market
Low High
Source: Johanson and Mattson, 1988 p. 298. Reprinted by permission of Thomson Publishing Services.
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3-23Hollensen, Global Marketing 4e, © Pearson Education 2008
Personal factors in Internationalization
Positive perceptions of global environmentEntrepreneurial orientationInnovativeness
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3-24Hollensen, Global Marketing 4e, © Pearson Education 2008
Internationalization preparation
Conducting international market research
Committing resources to support venture
Adapting products to target foreign markets
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3-25Hollensen, Global Marketing 4e, © Pearson Education 2008
What is this?
What term refers to a firm that from its ‘birth’ globalizes rapidly without any preceding long term internationalization period?
Born global
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3-26Hollensen, Global Marketing 4e, © Pearson Education 2008
Characteristics of born globals
SMEs with less than 500 employeesAnnual sales under $100millionReliance on cutting-edge technologyManaged by entrepreneurial visionaries
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3-27Hollensen, Global Marketing 4e, © Pearson Education 2008
Figure 3.7 ‘Organic’ versus ‘born global’
External environment Internal environmentManagers’
mindset
Decision to internationalize
Organic pathway
Home market
Export market A
Export market N
Born global pathway
Home market
Export market A
Export market N
Source: Adapted from Âijö et al. (2005), p. 6.
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3-28Hollensen, Global Marketing 4e, © Pearson Education 2008
Factors supporting born globals
Role of niche marketsAdvances in process/technology
productionFlexibility of SMEs/born globalsGlobal networksAdvances and speed in information
technology
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3-29Hollensen, Global Marketing 4e, © Pearson Education 2008
Figure 3.8 Models of economic efficiency
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3-30Hollensen, Global Marketing 4e, © Pearson Education 2008
Internationalization of services
Simultaneous production and consumptionCustomer participation in production
processActivity processing
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3-31Hollensen, Global Marketing 4e, © Pearson Education 2008
Factors to consider in the internationalization of services
Information technologies
Cultural issues Geographic locations
Standardization vscustomization
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3-32Hollensen, Global Marketing 4e, © Pearson Education 2008
Strategies for internationalizing services
Direct export
Systems export
Direct entry
Indirect entry
Electronic marketing
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3-33Hollensen, Global Marketing 4e, © Pearson Education 2008
For discussion
Explain why internationalization is an ongoing process in constant need of evaluation.
Explain the main differences between the three theories of internationalization.
What is meant by the concept of ‘psychological’ or ‘psychic distance’?
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3-34Hollensen, Global Marketing 4e, © Pearson Education 2008
Reebok: A case study
Which of the internationalization theories is best for explaining the Adidas acquisition of Reebok?
What could be the motives behind Adidas’ acquisition of Reebok?
Which of the three internationalization theories is best for explaining whether Reebok follows the establishment of its retailers in international markets?
Is Reebok able to copy its US marketing approach in other international markets?
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