Business Finance
MGT 4468 Troy University International Market Planning Discussion

MGT 4468

Troy University

MGT

Question Description

I’m working on a Marketing exercise and need support.

  1. (10 points) Read carefully Textbook Chapter 8, Power Points, and Lecture Supplement, and answer the following questions:
    • From Reading Chapter 8; Discuss briefly the different Business motives (See textbook p. 310 - 313) for Companies’ expansions abroad (Internalization).
    • Discuss Briefly your understanding of Ansoff’s Business Expansion (Market Growth) Model (textbook p. 308 – 310).

  1. (10 points) Explain (using a Theory in Chapter 8) how Google, Facebook, Twitter and Amazon.com – expanded their services globally (See textbook p. 328 – 329). What factors helped them to expand their services globally so quickly?

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Chapter 8. International Market Planning (20 points) Instructions: Type Answers for all Questions below. Your grade will be based on the quality of your answers. Post your Answers here. 1. (10 points) Read carefully Textbook Chapter 8, Power Points, and Lecture Supplement, and answer the following questions: From Reading Chapter 8; Discuss briefly the different Business motives (See textbook p. 310 - 313) for Companies’ expansions abroad (Internalization). Discuss Briefly your understanding of Ansoff’s Business Expansion (Market Growth) Model (textbook p. 308 – 310). 2. (10 points) Explain (using a Theory in Chapter 8) how Google, Facebook, Twitter and Amazon.com – expanded their services globally (See textbook p. 328 – 329). What factors helped them to expand their services globally so quickly? MKT 4468 LECTURE 9 SUPPLEMENT INTERNATIONAL MARKET PLANNING A. Introduction Internationalization – occurs when a firm makes a strategic decision to enter foreign markets and adapt its operations to international market environments. Internationalization involves decisions to – Expand abroad, Locate specific market opportunities, and Expansion strategy - using Concentrated or Differentiated Strategies. 1. Ansoff’s Expansion (Market Growth) Model: This model states that in order to be competitive and profitable, firms must expand their operations. This can be done in the four ways: Market Penetration, Market Development (Internationalization), Product Development and Diversification. - Market Penetration Strategy: Sell more of Same Product to Same market. Product Development Strategy: Sell New Product to Same Market Market Development (Internationalization) Strategy: Sell Same Product to New Market Diversification Strategy: Sell New Products to New Markets. B. Internationalization Internal/External; Proactive/Reactive Motives a. Proactive Internationalization Motives: - Market seeking – to exploit competitive advantages Resource Seeking – to acquire resources Efficiency seeking – to gain economies of scale Strategic resource seeking – to acquire strategic assets for long term objectives b. - Reactive internationalization motives: Increased competitive pressure Excess capacity Declining domestic market Improving or overcoming internal business problems. 1 2. Dunning’s Eclectic – Ownership-Location-Internationalization (OLI) Model (p. 316) * According to Dunning, market entry mode decisions are based on 3 conditions: a. Ownership (who will produce abroad?) b. Location (where to produce?) c. Internalization (why produce rather than license?) • Foreign Direct Investment is Preferred under 3 conditions: a. If firm has net ownership (of its assets) advantages over competing firms. b. If it is more profitable for the firms to use the unique assets than to transfer the rights to others. c. If it is advantageous to exploit (use) the assets through production outside the home country than exporting. • Critique of the OLI Model: a. The OLI Model factors do not work independently. They interact with each other. b. The Model mainly is valid for Western firms. Firms from Emerging economies internationalize even when they do not have unique ownership advantages based on superior technology, competitive products, or management knowhow. 3. Incremental Process Theory – Uppsala Model: (p.319) This theory explains the sequential steps in internationalization. - Firms first enter into markets close to their home base, and later enter more distant markets as their experiential market knowledge increases. a. Firms first enter markets that are close (psychic distance) to home market. b. First stage shows sporadic exports. c. Second stage – shows regular exporting activities d. Third Stage – involve foreign sales subsidiary organization. e. Fourth Stage – involve manufacturing in foreign subsidiaries. • Critique of the Uppsala Model: a. Sometimes, acquisition of market knowledge is faster than indicated by the Stages in the Theory’s model. b. Market knowledge may be acquired by hiring experienced international managers, by attending seminars, and from consulting organizations. c. If companies sell products with short life cycle, incremental market entry may not be the optimum solution. 2 4. International Network Theory Approach: Network firms are governed by exchange relationships rather than through market transactions. a. Small and large firms, with limited resources, engage in network collaborations in production, distribution, and financing. b. Network relationships can be Interdependent (share market knowledge), or can be Independent (knowledge serves as competitive advantage) 5. Transaction Cost Approach – Involves Analysis of the Costs of making economic exchanges. - According to the theory, (in internationalization) a firm will tend to export or license (from the home country) its assets when transaction costs are low, or shift production to a foreign country when transaction costs are high. Three types of market entry costs are: a. Market Search and Information costs b. Bargaining costs (in licensing) c. Monitoring (governance) costs • Critique of the Transaction Cost Approach: a. The Approach assumes that exporting and production are substitutes. In reality, they are not. b. Sometimes a firm may manufacture at home and also export products to foreign markets (to gain market knowledge). c. It is difficult to measure transaction costs in advance of choosing a market entry mode. 6. Linkage-Learning-Leverage Model: This model (which explains the behavior of Asian “Dragon Multinationals) – emphasize that the linking of a firm to foreign partners and building corporate capabilities by exploring external business assets may greatly improve a firm’s market position at home. a. Linkage – refers to how the newcomer and latecomer firms focus on the advantage that can be developed abroad. b. Learning – involves both cost-based efficiency improvement and operations, as well as learning about technologies, brands, marketing and management issues. b. Leverage – means knowledge acquired abroad can be transferred back home and used to improve competitiveness in the local market. 3 • Critique of the LLL – Model: a. Loose forms of linkages (Collaboration) may no longer be the preferred option to obtain market knowledge and increase technological quality. 7. International New Venture Theory (“Born Global” Concept): This theory examines the situation in which small and medium-size firms go international soon after being founded. This is the “Born Global” Concept. a. These firms possess strong international marketing orientation and competency that allows them to focus on the needs of customers in each new market and deliver high-quality, unique products. - Examples of “Born Global Firms - Yahoo.com; Google.com, Facebook, etc. • Critique of the International New Venture Theory: a. Internationalizing at an earlier stage involves more risk-taking than the wellestablished internalization process of older firms. Measures of Internationalization and Firm’s Competitiveness (based on Degree of Commitment and Importance) a. Internationalization Performance is measured in two ways: i. Foreign Assets/ Total Sales ii. Foreign Assets/ Total Assets 4 5 Global Marketing Contemporary Theory, Practice, and Cases By Ilan Alon, Eugene Jaffe, Christiane Prange, and Donata Vianelli © Taylor & Francis 2016 Chapter 8 International Market Planning © Taylor & Francis 2016 Learning Objectives After reading this chapter you should be able to: • Understand what motivates a firm to expand abroad rather than in its domestic market. • Identify the drivers of international market expansion. • Understand measures of competitiveness. • Understand the fundamentals of internationalization theories. • Apply theories of internationalization to case studies of business firms. • Know more about “born global firms” and why they are different from traditional players. • Realize that there are many indicators that can be used to evaluate market attractiveness. © Taylor & Francis 2016 Internationalization INTERNATIONALIZATION: occurs when a firm makes a strategic decision to enter foreign markets and adapts its operations to international environments by committing both tangible and intangible assets, experiential knowledge, learning, and human resources to this effort. MOTIVATION FOR INTERNAL (domestic) vs. EXTERNAL (foreign) EXPANSION Example: Estée Lauder is focusing on cities with the biggest growth potential. As of 2014, after decades of doing business in South Africa and its neighboring countries, the company operates in a total of 14 markets on the continent. © Taylor & Francis 2016 The Ansoff Expansion Model Products Present New Market Penetration Product Development New Market Development Product / Market Diversification Markets Present Risk Source: Adapted from: Igor Ansoff, “The Firm of the Future,” Harvard Business Review, September–October 1965. © Taylor & Francis 2016 Ansoff Strategies 1. Present markets/present products: gain higher market share in existing markets using existing products. More resources are dedicated to marketing offering price discounts and better relationship with customers. 2. Present markets/new products: new products to current markets. It requires developing or acquiring new products or line expansion. These products need to be accepted by consumers and should not be too far away from the branding of the original product because this is what has created the product image in the past. 3. New markets/present products: New markets may be solely domestic or both domestic and global. 4. New markets/new products: With the increasing interest in emerging markets, companies have begun to target the specific needs of the emerging consumer. This strategy may not only result in new products for developed markets but may also benefit developed countries these innovations can be transferred back to. Companies now begin with their experience and knowledge of their customers in distant markets and use information to conceive, design and make a new, locally appropriate product from the ground up. © Taylor & Francis 2016 Motivation to Internationalize: Proactive and Reactive (1) PROACTIVE MOTIVES: stem from management’s beliefs that internationalization improves the current position of the firm. For instance, four main intentions drive Chinese companies to go abroad: 1) securing natural resources, 2) gaining access to new markets 3) buying strategic assets 4) improving domestic and overseas efficiency. Trade agreements are also motives for internationalization. An agreement that serves to reduce trade barriers will certainly encourage domestic firms to take advantage of lower tariffs in order to export. Other differences in the Outward Direct Investment (ODI) Motives of Chinese SOEs and Non-SOEs State Owned Enterprises (SOEs) Natural resource seeking Increasing international competitiveness Maintaining domestic leading position Non-State Owned Enterprises (SOEs) Strategic asset seeking Access to new markets Seeking technologies Diversification Seeking efficiency © Taylor & Francis 2016 Motivation to Internationalize: Proactive and Reactive (2) REACTIVE MOTIVES: Reactive motivated firms view internationalization as a necessary response to unfavorable conditions in their current markets. Such conditions may be increased competitive pressures, excess capacity given domestic market conditions, a declining domestic market, or saturation of the home market. There is some evidence to show that firms that engage in proactive planning are more successful than those that do not (reactive). A comparison between different international sportswear companies and their internationalization strategies: Foundation Date Employees (2013) Revenues (2013) US$ First Internationalization Internationalization Motive LiNing 1990 3,592 948.9 million 2001 : Spain Creation of trends and enhancement of the brand Adidas 1949 50,728 15.88 billion 1950 : First exports to Switzerland, Scandinavia, and Canada Ensure future growth Nike 1971 48,000 25.3 billion 1972: Canada; 1974: Australia Cost effective production © Taylor & Francis 2016 Theories of internationalization and Market Entry The criteria for determining whether to expand in an internal market, rather than a foreign market, are based on the transaction costs of information, opportunism, and asset specificity. Cost of information acquisition in foreign markets is far more expensive than acquiring information in internal markets. If transaction costs of operating abroad are higher, they cause market failure and serve as a barrier to internationalizing the firm. Internalization theorists suggest that foreign direct investment occurs when the benefits of internalization outweigh its costs. © Taylor & Francis 2016 Different Approaches for Internationalization Theoretical Perspective OLI Model Main Author(s) / Year Focus Dunning (1981, 1988, 2006) • Inside-out oriented asset exploitation. Modified OLI-paradigm with inward investment and more collaborative linkages Incremental Process Theory (Uppsala Model) Johanson and Vahlne (1977), (2009) (2013) • Inside-out orientation built on substantial home advantage as an antecedent to internationalization, sequential market entry Later focus on relationships, which connects to network approach Network Approach Johanson & Mattson (1988) • Transaction Cost Analysis Linkage, Leverage, Learning Model Hirsch (1976) • Mathews (2006) • International New Venture Theory Oviatt & McDougall (1994); Jones & Coviello (2005) • • Internationalization occurs within the network by making use of existing information and resource exchanges Internationalization is linked to the costs that occur in dealing with specific entry mode options Outside-in orientation with latecomer firms using overseas investments and global linkages to leverage their existing cost advantages and learn about new sources of competitive advantage Internationalization starts right after foundation by ignoring psychic and cultural distance © Taylor & Francis 2016 OLI Model Entry mode decisions are based on three conditions or advantages: 1. Ownership (who is going to produce abroad), 2. Location (where to produce) 3. Internalization (why to produce rather than license someone else) Foreign direct investment (FDI) will be the preferred mode when three conditions are fulfilled: • The firm must have net ownership advantages over competing firms. • It must be more profitable for the firm possessing these unique assets to use them itself rather than transfer the rights to others • It must be advantageous for the firm to exploit its unique assets through production outside its home country rather than by exporting. Critique: • In the framework, location advantages are treated independently from ownership advantages. However, there is a constant interplay between O, L, and I that the model doesn’t take into account • Further, the model is mainly valid for Western firms but may not be able to explain the reality of emerging market firms (EMFs), which tend to internationalize even if they do not necessarily have unique ownership advantages based on superior technology, competitive products, or management know-how. © Taylor & Francis 2016 Uppsala Model Explain the sequential steps in the direction of increased foreign dedication. Over time, firms gradually progress through a series of stages based on experiential learning and commitment of resources. 1. In the first stage, there are only sporadic exports, mostly from unsolicited orders. 2. Regular exporting is accomplished in the second stage, via contracts with established, independent distributors, and sales representatives abroad. 3. In the third stage, a foreign sales subsidiary is organized. 4. In the fourth stage, a manufacturing subsidiary is established. Firms first enter into markets that are psychically close to their home base and later enter more distant markets as their experiential knowledge increases. Critique: acquisition of knowledge is faster than indicated by the stage model © Taylor & Francis 2016 Uppsala Model Sources: Adapted from: Forsgren, M., & Johanson, J. (1975). Internationell företagsekonomi (International business economics). Stockholm: Norstedts; Dervilée, F., Rieche, M., & Zieske, A. (2004). Internationalization and foreign market entry choice: An alternative approach to the Kristianstad 30 Model [MBA thesis]. Högskolan: Kristianstad. © Taylor & Francis 2016 Uppsala Model: Critiques • Why can’t firms leapfrog stages? • Acquisition of knowledge is faster than indicated by the stage model. • Knowledge may be acquired by hiring experienced international managers, by attending seminars sponsored by export institutes and from consulting organizations. • The world has become flat and integrated, facilitated by rapid dissemination of information. • The model is uni-directional; it does not consider the possibilities of changing strategies at a given stage, e.g. divestment or choosing a cooperative mode such as a strategic alliance. • Especially born-global firms show a totally different internationalization behavior which opposes the insights of the Uppsala model • If companies sell products with a short life-cycle, incremental market entry may not be the optimum solution because the time available for return on investment is short and entering foreign markets in an accelerated way may be preferable. • Later developments of the theory have taken some of these aspects into account, for instance, by emphasizing the importance of network relations, the role of uncertainty, and a more dynamic perspective by emphasizing opportunity development capabilities, internationalization capabilities, and relational capabilities that all support the manner and extend of a firm’s venturing abroad. © Taylor & Francis 2016 Network Approach All different forms of networks have in common that they require complex strategies to ensure their viability and success. • An industrial network normally includes different players involved in production, distribution, and usage of services and products. • Financial networks are important for SMEs since these companies normally need to finance their expansion with external capital. Network participants are governed by exchange relationships rather than through the market. Because many small companies do not have infinite resources, network collaborations are seen as an important internationalization strategy. Network-based relationships Shared Knowledge Interdependent Consent Trust Learning Partners Scandinavia Market-based relationships Knowledge Serves Competitive Advantage Independent Contracts Price Power Customers UK, US, Australia © Taylor & Francis 2016 A Multinational Firm’s Network: An Example Internal Network of the MNC S3 S2 S4 S4 S1-5 = subsidiaries Subsidiary 1 External Network of the MNC = suppliers = non-business actors © Taylor & Francis 2016 Transaction Cost Approach A transaction cost is a cost of making an economic exchange. There are three sorts of costs: a. Search and information costs b. Bargaining costs c. Monitoring (governance) costs We can discern at least three scenarios of transaction costs by mode of entry: 1. Production at home for export involves local manufacturing costs, search and bargaining costs for distributors, and governance costs. 2. Licensing includes search and bargaining costs for a licensee, governance costs, and the risk of dissemination. 3. Production abroad involves manufacturing costs in the foreign country, possible bargaining costs if the subsidiary is not wholly owned, and some governance costs. © Taylor & Francis 2016 Transact ...
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Running head: INTERNATIONAL MARKET PLANNING

International Market Planning
Student’s Name
Institution
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INTERNATIONAL MARKET PLANNING

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International Market Planning


Discuss briefly the different Business motives (See textbook p. 310 - 313) for
Companies’ expansions abroad (Internalization).
In the current corporate world, it is either you go global or go home. With increase

competitiveness in the local markets, the global market has become the only option for most
companies if they want to remain profitable. One of the potential markets has been developing
countries which have proved to be a promising market for companies expanding abroad.
Therefore, companies in developed countries have seemingly increased their interest for
expansion to foreign countries, especially the developing countries, for several motives. One of
the motives that drive companies to expand their operations abroad is to secure natural resources.
Some of the large companies in developed companies are driven by the need to secure natural
resources from foreign countries since some of the foreign companies have large deposits
untapped naturals resources (Alon et al., 2016). Therefore, to secure and tap various natural
resources that are useful in their production, local companies in developed countries end up
expanding their operations abroad to tap the latter resources effectively. The other motive that
drives companies to expand abroad is to gain new markets. For some companies which have
shrinking market shares in their local m...

CristinaP (13883)
Carnegie Mellon University

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