Growth through Internationalisation among Entrepreneurial Firms - Essay Example

Growth through Internationalization Introduction This study will focus on internationalization strategy that supports growth of entrepreneurial firms. Internationalization is a mechanism of increasing firm’s involvement in wide array of international markets. International activities can be explained thoroughly on basis of internationalization. Entrepreneurs who are inclined towards internationalization fields have to possess ability to think global beyond domestic boundaries. International cultures have to be understood appropriately by entrepreneurs in order to achieve growth and success. An international strategy can be successful only when there is a strong understanding about different behaviours, beliefs, business strategies and values of other firms across the globe. Innovation can be stated as the most important tool for entrepreneurs. Through innovative strategies an entrepreneur can acquire desirable market share and generate high profit margins. This study shall reveal the ways in which internationalization as a growth strategy has supported entrepreneurial firms. Apart from being aligned with corporate social responsibility, entrepreneurs must have an inclination towards innovation and maintaining quality. A theoretical background will be included in this study so as to highlight the importance of internationalization growth strategy for companies. The findings of this research paper will outline the growth path of entrepreneurial firms that has adopted internationalization strategy. There are some limitations and future research considerations also encompassed in this study. Aims and Objectives The major aim of this study is to highlight the importance of internationalization in growth of entrepreneurial firms. This study will encompass various dimensions of internationalization strategy. Objectives of the study can be classified as: To analyze growth of firms on basis of internationalization strategy To determine various growth related strategies To reflect upon some entrepreneurial firms that has adopted this particular strategy To outline final outcomes regarding efficiency of internationalization strategy. The entire research study will be based on these objectives and the main research question shall be – “what is the importance of internationalization in growth of entrepreneurial firms?” Theoretical Background According to Byrne and Popoff (2008), internationalization can be defined as one of the business strategies which are adopted by entrepreneurs so as to achieve long term success. Entrepreneurs usually focus on domestic market but to retain their market position the best mechanism is to target global markets. An international strategy basically means that there are scattered subsidiaries internationally and all of them act as local companies with no such support from parent company. As stated by Carnegy (2005), global strategy often leads to wide array of corporate strategies with a little adaption to business environment. The major challenge in this process is to incorporate one common strategy that can be implemented across the globe. As per Slywotzky and Hoban (2007), there needs to be flexibility in terms of adapting the set strategy to local business environment. A global strategy is all about focusing on a common strategy for overall network of partners and subsidiaries. Many countries are encompassed within this form of strategy establishing a synergy amongst all the countries. According to Yip (2007), however there are certain key differences between international and global strategy. Global strategy is all about involvement and coordination. Coordination amongst strategic activities is the degree to which firm’s strategy is executed and planned for different country locations. As per Terpstra and Sarathy (2005), an international strategy is not dependent on such form of coordination. The second difference is based on responsiveness towards local environment and product standardization. Product standardization can be defined as the degree to which process, product or service is standardized across regions. According to Geringer and Hebert (2009), an international strategy states that business subsidiary needs to be aligned with business local needs. Global strategy means standardizing products or operations in all countries unless there is some reason to alter business operations. The third key difference is related to competitive moves and strategy integration. As stated by Zou and Cavusgil (2002), competitive move and integration refers to competitive move of an organization into major markets. A multinational firm usually subsidizes operations in regions where market is observed to grow in terms of resources, or where market growth is witnessed to decline, or responding to rivals present in a market segment. According to Lu and Beamish (2007), international strategy creates a platform for firms where subsidiaries are independent to execute and plan competitive moves. Competitive moves can only be framed through a strong analysis of all possible local rivals. On the contrary, global strategy is inclined towards executing and planning competitive battles globally. As per Coulter (2002), a firm that has adopted global strategy tends to compete as single firms which are globally integrated. An international strategy considers competition as a stand-alone element but global strategy focuses on integrated approach that is applied across different regions. International strategy or foreign entry market strategy is dependent on degree of risk, commitment and control of resources and return on investment. As stated by Fillis (2006), there are various types of entry modes such as non-equity mode and equity mode. Non-equity mode includes contractual and export agreements. On the contrary, equity mode may be defined as strategies for wholly owned subsidiaries and joint ventures. Amongst all the entry techniques the one which offers lowest risk level and market control is known as import and export. According to Henry (2011), the highest risk is associated with direct investments. This form of strategy even encompasses high market control and desirable return on investment. Greenfield investments or acquisition can also be directly related with direct investments. Strategic alliances can be referred to as cooperative agreements that are formed amongst firms. As stated by Lasserre (2012), the main focus of this form of strategy is to develop new products or technologies rather than dealing with existing product line or services. Firms entering into strategic alliances have a common objective of technology exchange. Exporting or importing, franchising, licensing and joint ventures are common techniques that are utilized while framing international strategy. Growth of firms is enhanced when organizations go beyond local market and focus on international markets. Data Analysis This research study will focus on internationalization of some firms like Proctor and Gamble, Walmart, Coca-Cola, IKEA and Zara. These companies have been able to sustain their market position by adopting best practices in global markets. There are various reasons behind companies going international but the main focus is on expansion and growth. When a firm identifies new markets and recruits international employees than only it can help to expand or diversify business. Economic globalization can be defined as the process whereby business can expand into foreign markets so as to target global clients. Technological breakthrough has made global communication much easier. Email networks and air travel makes it possible for managing business from the most remote locations. A range of considerations are generally assessed before a firm plans for any such global expansion. Firms usually consider overseas operations to be most attractive mainly because it reduces overall budget and increases profit margins. It is easy to reduce overhead costs in countries where there are lower living cost and deflated currencies. For instance US based business has an advantage of operating in regions that possesses free trade agreements with the country. It has been observed that those firms which witness financial crisis are likely to move overseas and tends to reformulate their respective budget. Growth is directly linked with change within the business system. IKEA is one such example of entrepreneurial firms that has achieved success through focusing on internationalization. This company was established in 1940 and is now world’s leading home furnishing retailers. Europe and rest of Scandinavian countries were the main target markets of the company. IKEA has been able to identify taste and preferences of customers in different regions and develop products accordingly. The major reason behind growth of this firm is its diversification through internationalization. IKEA do not focus on home market only but it has been able to expand into global market by exploring available market opportunities. Coca- Cola is the largest beverage company across the globe. Internationalization has enabled this firm to acquire desirable market share and be aligned towards taste or preferences of global customers. Product standardization technique has been implemented by the firm in order to offer quality products to all its customers. On the other hand, Zara a fashion retail company was witnessing major challenges in its domestic market but moving into global markets facilitated the firm to determine taste or preference of global customers and address it effectively. The company is able to manage its lead time effectively and deliver products to required region. Walmart’s strategy of being the low price retailer gained significance when it diversified into different locations. In current scenario the firm occupies high percentage of revenue margins and is regarded as the largest retail chain across the globe. Proctor and Gamble is the largest distributor and manufacturer of consumer products. The company has incorporated divestment strategy in its business operations and acquired companies in global platform to achieve desirable market share. Findings This research study highlights that different companies adopt different strategies so as to sustain its business operations. Growth is the main area of concern for any company that has long term objectives. Internationalization is considered to be an effective tool in order to achieve growth because it helps to address needs and wants of global customers. Many multinational companies are inclined towards global strategy since it enables a firm to develop large base of customers. Firms like Coca-Cola, Zara, IKEA, etc., did not stay bounded within their local markets but they could identify opportunities in global market place. The key findings of this study are growth of entrepreneurial firms can be enhanced through internationalization strategy. Conclusion As per this study internationalization strategy is a framework that is adopted by firms to achieve long term success or growth. This growth is highly dependent on the type of strategy that is adopted by a firm. Internationalization is when an organization does not want to operate within domestic markets but wishes to expand its market share on a global scale. There are different strategic frameworks that are suitable for firms operating in particular market segment. Growth strategy can only be successful for an organization when it focuses on understanding global customer needs or wants. This study has revealed cases of many multinational companies that are aligned with internationalization strategy. Proctor & Gamble, Coca-Cola, Zara, etc., are names of some well known companies operating successfully in local as well as global markets. However global markets offer wide array of opportunities to a firm that helps to sustain market position. On broader context, there is a major difference between global and international strategy but they have a common objective in terms of firm’s growth. Implication for entrepreneurs Entrepreneurs incorporate innovation within all its business strategies. The main aim of all business operations is to secure high profit margins. Internationalization as a growth strategy is the most effective way to analyze and offer products or services to global customers. There are multiple channels that can be explored by an entrepreneur in order to stay competitive in the industry. Amongst all of them to “go global” is the most convenient approach as it facilitates acquiring bigger percentage of market share. It can be stated that domestic markets are often saturated and in such scenario it becomes difficult to retain customers. Growth can only be achieved when large base of customers are maintained by an organization. This platform is provided only through implementing international strategy. Differentiating product line or services and offering them as per customer needs in global context is the best way to gain long term success. Limitations This particular research study has certain limitations in terms of data collection and analysis of obtained information. Secondary research is an effective tool for any research study but some primary tools or techniques can be implemented to obtain better results. This was a major limitation in this study. In overall context, there was a wider scope within this research study. More professionals could have been included within this research study to state the importance of internationalization strategy. There is a great scope for future research on this topic. The topic can be explored more in terms of disadvantages of internationalization strategy and its significance in modern world. Negative aspect of this strategy would help entrepreneurs to analyze both sides of internationalization strategy. It would enable companies to adopt best approaches and then implement it within the system. References Bolton, B., and Thompson, J. Entrepreneurs: Talent, Temperament and Opportunity, 3rd Edition. Routledge, London, 2013. Byrne, S., and Popoff, L. International Joint Ventures Handbook. Baker & McKenzie, UK, 2008. Carnegy, H. Struggle to save the soul of IKEA. Financial Times, UK, 2005. Coulter, M. Strategic management in action. Prentice Hall, New Jersey, 2002. David, F. R. Strategic management and cases. Prentice Hall, New Jersey, 2011. Fillis, I. Small firm internationalization: An investigative survey and future research directions. Management Decision, Vol. 43, Issue 8, 2006, pp. 812-889. Geringer, J.M., and Hebert, L. Control and Performance of International Joint Ventures. Journal of International Business Studies, Vol. 20, Issue 2, 2009, pp. 235-254. Henry, A. Understanding Strategic Management. Oxford University Press, New York, 2011. Lasserre, P. Global Strategic Management. Palgrave Macmillan, Singapore, 2012. Lu, J.W., and Beamish, P.W. The internationalization and performance of SMEs. Strategic Management Journal, Vol.22, Issue 6, 2007, pp. 337-425. Mcfarlin, D. B., and Sweeney, P. D. International Management. Dreamtech Press, New Delhi, 2008. Peng, M. Global Strategy. Cengage Learning, USA, 2013. Pringle, H. Brand immortality: how brands can live long and prosper. Kogan Page Publishers, Great Britain, 2008. Simerson, B.K. Strategic Planning: A Practical Guide to Strategy Formulation and Execution. ABC-CLIO, USA, 2011. Slywotzky A., and Hoban, C. Stop competing yourself to death: strategic collaboration among rivals. Journal of Business Strategy, Vol. 28, Issue 3, 2007, pp. 45-55. Terpstra, V., and Sarathy, R. International Marketing, 8th edn. Dryden Press, Chicago, 2005. Ulwick, A. W. Business Strategy Formulation: Theory, Process and the Intellectual Revolution. IAP, USA, 2005. Wintzer, E. Global Competition and Strategic Management. GRIN Verlag, Germany, 2007. Yip, G. Total Global Strategy. Prentice-Hall, London, 2007. Zou, G., and Cavusgil, S.T. The GMS: a broad conceptualization of global marketing strategy and its effect on firm performance. Journal of Marketing, Vol. 66, Issue 3, 2002, pp. 40-57. Read More