The increasing needs for clients globally as well as limited resources in certain areas necessitated some people's outsourcing of the deficit from other countries (Morgan &Katsikeas, 1998). Goods and services were brought in for the purpose of covering the gap, those who products goods and services were then regarded as exporters. Anciently it started out as a barter trade through exchange of goods until when the exchange medium surfaced. Since then export deals has been increased enormously due to increased degree of technology. Before businesses enter into export business they must have a better knowledge of the goals of participating in export business as well as laying down strategies of export. This may mitigate dangers associated with export business.
The essay will describe this is of business internationalisation and provides the possible known reasons for a firm to choose to visit international. Various kinds of internationalization will be mentioned as well as different modes of entry into overseas market. The article will discuss different export strategies that exist to a company internationalising for the very first time. The essay will also analyse benefits and drawbacks as well as supplying specific good examples. The literature for the essay was obtained from journals, papers, articles and various catalogs on International business and international marketing.
The Internationalisation Process
In order to raised determine the Internationalisation process, reference must be produced to the Nordic model (Johanson and Wiedershein-Paul, 1975; Johanson and Vahlme, 1977) which views internatinalisation process as a linear, gradual sequential build-up of events over time. Johanson and Matttsson (1988) refined the model by determining the next three functions of internationalization. First, the internationalisation theory presumes that the Company has generated up a source of competitive gain in its local market. Inability to exploit successfully this advantages within the neighborhood market with no unnecessary transfer costs, the Company will then look for to exploit its resources of advantage anywhere else outside that market. Second, the Uppsala internationalization model which defines as a process of increased commitment to international sales and production. It perceives the internationalization process as a sequential learning as the Company passes through amount of phases. Finally, the network methodology, the partnership between Businesses is major emphasis of this strategy. To be able to facilitate its functions, a Firm builds a number of associations and networks. The grade of established networks plays a essential role in the complete internationalization process.
Generally when the organization moves its procedures beyond the local country's borders, it is performing an internationalization process. You can find theories that analyse factors that will permit the firm to be successfully in the international market and phases the firm will pass through through the internationalization process. DeoSharma and Blomstermo (2003) developed a model for organization internationalisation called the Uppsala model. In this model the internationalization process is known as to be progressively and sequentially growing. As the organization becomes more engaged on international markets, the internationalisation process produces. The Uppsala model assumes that the firm's contribution in international markets begins by the strategy of using traditional export methods to the markets closer to the home market. That is by taking into consideration the perspective of ethnic and geographical closeness. After developing intricate ways of operations, the company may then export to a lot more faraway countries. Different kinds of methods can be utilized for penetrating the foreign market. The primary obstacle for a company to reach your goals in the internationalization process is having less knowledge as well as information about the foreign markets. Exploring the abnormalities of the targeted market segments is the answer to this obstacle (Porter, 1990). The chance associated with heading to the overseas market is lowered as the firm gets more information about that particular market.
Why organizations internationalise
The main reason for firms going international is obvious as it is for the decision to do any business that is conviction as well as commitment to succeed (Johnson & Turner, 2003). There are several motivations that drive businesses going international; the motivations are of two types which can be proactive and reactive one.
Proactive type of motives normally hails from firm's planned vision. It represents stimulus to attempt strategic change. In this type of motives firm's decision to get into international business depends on firm's wishes, companies may decide never to go into overseas market. Listed below are proactive known reasons for a firm to choose going international: the crisis of unique opportunity in a foreign market; exploitation of firm's unique competence anticipated to newly seen opportunity in a international market; increasing firm's profitability in international market after watching chance to increase firm's sales by retailing in foreign market; boosting the competitive benefit of the firm (Daniels et al, 2009).
Reactive types of motives are those beyond firm's immediate control. Businesses that are inspired by reactive motives are those attentive to environmental changes. In this kind of motives businesses have to go international whether they want or not scheduled to reactive reasons. The next reactive motivations could pressure the firm to move international: firm will get unsolicited inquiries from customers in international country; there may be demand saturation in local market; your opponents are selling abroad and you are aiming at dealing with them; you want to disperse the chance associated with your business (Daniels et al, 2009); stretching the life routine of firm's product.
Generally proactive motives are initiated by the management of the company based on perceived firm's advantages on revenue, technology, product and exclusive information about the marketplace. Reactive motives will be the result of firm's management to environmental transformations. More regularly reactive motives are over-production, lessening of local sales and stresses from competitors. Companies that enter into foreign markets when you are mainly stimulated by proactive motivations are more likely to be successfully in foreign market.
Modes of access into international market
According to Anderson and Gatignon (1986) following the decision to enter international market has been made by the firm, choosing the modes of entry will observe at some level. Blowing wind and Perlmutter (1977) advised that choosing a perfect mode of entry performs a major role on firm's performance in overseas market. You can find types of ways businesses can enter into the foreign marketplaces. Three major ways of access are exporting immediately, exporting indirectly and producing firm's products in overseas country via contractual modes for example franchising and licensing or via direct investments in overseas country for example joint projects (Main, 1987).
Approaches to Exporting (Export Strategies)
Choice on how to export products has significant effect on firm's exporting plan as well as its marketing strategies. Matching to Anderson and Coughlan (1987) export strategies can be grouped into two categories which are Direct versus Indirect strategies and Going alone versus Co-operation strategies
Going only strategies are strategies organizations use when they decide to export products on its own. Under this category all activities associated with exporting is performed by the exporter. Going alone strategies includes Foreign retailers, direct selling, selling using distributors, selling using providers, retailing using subsidiary and providing using Government firms.
Using foreign retailers is a kind of strategy where a firm sells right to stores in the international country. Firm's associates will be travelling to make directly contact with retailers for the reason that country, though immediate mailing, use of brochures as well as others might give greater results.
Under direct selling strategy an exporting firm provides its products straightforwardly to get rid of users surviving in the international country. In direct offering the export company is in charge of collecting repayment and shipment of products.
Selling utilizing a overseas distributor is a predicament when a vendor in a international country acquisitions products from the exporting company at a significant discount for the purpose of reselling them to be able to get income. The distributor will be accountable for providing product's services and other works with hence minimizing the export firm out of this kind of tasks. Foreign distributors resell the merchandise to retailers who sell them to end users. The agreement between an exporting organization and a distributor will be set up whereby terms of connection between them will be clearly stated.
Selling using sales associates is some sort of strategy where sales representatives present the product to prospective clients. They normally focus on payment basis; they presume no risk in offering the merchandise. Under this plan you will see a contract between the two parties that will define conditions of engagement
Selling using Federal agencies is seen in Zimbabwe where only the Grain Marketing Plank which is the federal government agency has agreement to export maize. Another example can be observed in Tanzania where only the Tanzania Pyrethrum Table has permission to export Pyrethrum products.
With indirect export strategies, a company uses an intermediary company to find market segments in foreign country. The indirect export strategies include the use of Export Management Companies (EMCs), the use of Export Trading Companies (ETCs) and the utilization of international trading consultants. These intermediaries give exporters good access to entrenched knowledge and connections. The co-operation strategy is when two or more exporters become a member of their power in conducting international business. Terpstra (1987) advised that when organizations join their ability they are likely to be efficiently on the planet market. The co-operation strategies include tactical alliance, joint venture, contract manufacturing, licensing and franchising.
Strategic alliance co-operation strategy occurs when several firms join alongside one another their attempts in weakening customers' bargaining electric power which results into advanced profitability. In this strategy quite feature is that every firm has to keep up with the competitive benefits it posses. The down sides associated with strategic alliance are conflict among lovers which might cause troubles in managing the business enterprise and insufficient synergy because of associates' maintenance of its competitive gain. Consequently, many strategic alliances are very successfully at the beginning but ends up in collapsing for example British Petroleum and North american Petrol Company (BPAMOCO); Honda and Rover. Another good example of tactical alliance strategy is Sony-Ericsson who signed up with with the purpose of maximizing their proper advantages usage in a overseas market.
Joint venture is the situation when a foreign organization has a co-operation with a firm residing in the target market country. In this plan the foreign firm has sufficient collateral to enable them to truly have a say in managing the business though not absolutely. A good example of a jv strategy was observed in 1980 when TRW, a company residing in United states based in data process maintenance and Fujitsu Ltd. , that was Japanese major computer manufacturer, created a jv. After Fujitsu found that it was difficult to enter competitive market in United states by itself, it therefore created a jv with TRW to obtain the marketing knowledge and assistance in syndication of its products. Another successful joint venture example is the main one between Standard Motors and Toyota. They shaped jv with the name NUMMI (New United Electric motor Developing, Inc. ) which emerged among the successful business. The jv benefited the companions in the manner which it reduced substantially resources that every partner should provide, the business benefited GM to replace its out-of-date model Chevette with automobiles created by the jv like Nova, Pontiac Vibe, Toyota Tacoma and Toyota Voltz, in this joint venture GM obtained advantages by trimming the time requirements to half and by reducing the cost to 10% of the cost it could have incurred if it have run the business together. Since Toyota has high quality reputation, GM uses it as an advantage together with low prices to get new buyers. The joint venture benefited Toyota in amount of ways. Toyota got a perspective of manufacturing autos in United States basing on advisable economic consideration; therefore it took this jv advantageous for evaluating its eye-sight and took it as a low risk to start an enterprise in United States and use GM's more developed name to advertise its vehicles in USA. Apart from advantages, there are disadvantages from the joint venture between GM and Toyota. It is the culture of Japanese companies to re-invest the profits while USA firms prefers in paying dividends quarterly. Generally other advantages organizations can get when jv strategy is applied includes better market information credited to good responses from the market, organizations can have better management of creation as well as marketing functions and the expropriation danger will be reduced. The down sides associated with joint venture strategy include the issue of interest which can occur among companions, proportionate writing of revenue.
Contract manufacturing is another co-operation strategy whereby a agreement is made between a firm residing in home targeted market and the firm which is designed to export. The agreement includes only the creation process of the merchandise. The firm residing in the target market will all the production activities while the whole marketing of the products is performed by the organization that designed to export. Advantages when contract manufacturing strategy can be used include the coverage of the business enterprise from politics uncertainties, the making dangers will be reduced, and manufactured products will be advertised just like those locally produced. The negatives of applying this plan include challenges in spotting appropriate producer in the overseas market, the organization doing developing will receive all the manufacturing gains not the firm that do the exports and there might be an issue on quality control because the exporting firm is not participating in the developing process.
Under licensing strategy, the organization going to export (licensor) granted the patent protection under the law, copyrights and trade grades to another organization surviving in the targeted market (licensee) (Daniels et al, 2009). The licensee is liable on processing, marketing and advertising the merchandise in the home area. The Licensee will be prone to pay the licensor a proportionate amount of sales volume level as agreed. Advantages of using this strategy include accessing the mark market will be done easily using the licensee, reduced costs of investment due to absence of varying costs, reduced hazards of opportunities and you will see low costs of administration. The disadvantages of using licensing are the firm might be creating its own competitor; taxation of produced products on the basis of loyalties contributes to reduced income and confidentiality of information is reduced. An example of licensing strategy is when the Japanese car company Toyota granted a South African founded company South Africa Motors the protection under the law to make and sell Saloon autos with a Toyota brand in African market.
In franchising strategy, the exporter agreed with a firm in the target market that the exporter also known as franchiser to be providing elements to the local firm also known as franchisee which will be manufacturer or company in the targeted local market. In this strategy the franchiser will also be responsible for managing standard presentation, marketing structure and management functions. The franchiser will also allow its trademarks to be used in the business (Daniels et al, 2009). The franchisee will be in charge of providing information about the target market, some capital for business establishment and contribution in general management activities. Advantages associated with using this type of strategy include the low priced of investment, the chance associated with the business is low and the franchisor can easily get the info about the international market easily through the franchisee. The drawbacks include the difficulties in handling business confidentiality. Among franchising is observed when Coca Cola Company provides the concentrates to a lot of franchisee in many countries for producing soft drinks. The franchisee does not have any knowledge of making the Coca cola concentrates. The chemical type formula of processing Coca cola concentrates is a company's competitive benefits which is well patented.
Choosing an export strategy is inevitable for a company with a desire of broadening its business abroad. Depth knowledge of business environment and market information will be the key factors of success in export business. For a company to endure in export business, it must manage the dynamism of that business. Before the exporter chooses suitable export strategy, the goals of the business must be popular. Choosing the proper export strategy is vital for a better performance of the business enterprise. Flip-flop type of strategy might cause the business to be unsuccessful (Porter, 1990). After strategy selection it's important to examine it constantly to be sure that it fits the business enterprise environment.