Internationalisation Strategies - Appunti

2ND DECISION WHERE WHEN WHAT SCALE TO ENTER

where to enter→ evaluate when to enter a foreign market → to be a first mover or not- it implies advantages in the competitive advantages- the decision implies adv and dsv of being a first mover→ level of resource commitment- entering in large scale - big amount of financial resources, time and HR → fast entry but canimpact on flexibility and competitiveness- advantages and risk of commitment associated with large scales entry

Where to entry

The about 200 nation-markets in the world do not hold the same attractiveness for the firmcontemplating foreign expansion. The attractiveness depends on balancing the benefits, costs andrisks associated with doing business in that country. The market choice is based on the assessmentof a market potential profit which is a function of several factors, such as:

• the size of the growth of the market (in terms of population)
• the present and future purchasing power of consumers, which

depends on economic growth rates and demand trend

suitability of the product offering to the market

nature of local competition

high product value when the product is not offered in that market by local or/and foreign competitors → ability to charge higher prices and/or to build sales volume more rapidly

Relevance to assess foreign markets and to define a countries ranking in terms of their attractiveness and long run profit potential

size of market alone not enough - necessary to consider other elements because in some cases very large market measure- China and INDIA don't show big standard and purchasing power of consumer → impact of level of attractiveness- growing fast but low purchasing power- attractive countries- future opportunities for products- considering of size of market, but these factors need to be combined with purchasing power for specific products depending on economic growth rates on that specific market- trade off between benefits and risks

1. most favorable in stable countries with not a big inflation list- same risk emerging market are that with a higher economic growth with relevant trend of grow of demand while developed country are stable but not so demanding
2. suitability of product offer compared with the local market
3. if the international firm is able to offer a product not well known in the local market → more value for that product unexplored by local competitors or other international competitors
4. charge higher price
5. increase sales value faster
6. need time, resources and capabilities to choose the attractive market - also expensive
7. not all companies take the same decision
8. evaluate the local competitive and their strategy
9. firm must be able to understand local competitor strategy and in which way to enter

When to enter

Critical for building sustainable competitive advantage. To entering first happens when a company enters a foreign market before other foreign firms.

First mover ADV:

• ability to prevent

Rivals and capture demand by establishing a strong brand name and customer satisfaction.

Build sales volume in that country to lower costs compared to rivals by realizing economies of scale and then cut prices below that of a later entrant.

Create switching costs that tie customers to their products or services.

Enter before other competitors to acquire a very important market share in those markets and catch opportunities before others.

At the micro level, among the Italian firms that operate in the fashion industry, there are different behaviors among these firms.

Some firms are more proactive in the same sector, aiming to be a first mover.

Being a first mover also has important disadvantages.

The first entrant tries to preserve its market share, creating an entry barrier for the late movers.

First mover DSV: pioneering costs - the last entrant in a foreign market has the possibility to see the strategy that others performed.

Foreign firm liability that generates.

such as capital, manpower, and infrastructure. This approach allows the company to quickly establish a strong presence in the market and gain a competitive advantage. However, it also carries higher risks and costs. small scale Entering a foreign market on a small scale involves a more cautious and gradual approach. The company may start with a limited product offering or target a specific segment of the market. This approach allows for lower costs and risks, but it may take longer to establish a significant presence and gain market share. joint venture A joint venture is a strategic partnership between two or more companies to enter a foreign market together. This approach allows for sharing of resources, risks, and costs. It also provides access to local knowledge and networks. However, it requires careful planning and management to ensure a successful collaboration. licensing Licensing involves granting the rights to use a company's intellectual property, such as patents, trademarks, or technology, to a foreign company in exchange for royalties or fees. This approach allows for minimal investment and risk, but it also limits the company's control over its brand and technology. franchising Franchising involves granting the rights to operate a business under a company's established brand and business model. This approach allows for rapid expansion in foreign markets with minimal investment and risk. However, it requires careful selection and management of franchisees to maintain brand consistency and quality. acquisition Acquisition involves purchasing an existing company in a foreign market. This approach allows for immediate access to the market, existing customer base, and infrastructure. It also provides opportunities for synergies and economies of scale. However, it carries high costs and risks, such as cultural integration and regulatory challenges. greenfield investment Greenfield investment involves establishing a new subsidiary or facility in a foreign market. This approach allows for full control over operations and customization to local market conditions. It also provides opportunities for long-term growth and profitability. However, it requires significant investment, time, and resources to build from scratch.which implies rapid entry. The resulting high strategic commitment in a market:

• has a long term impact
• can have an important influence on the nature of competition (it is relevant to identify how actual and potential competitors might react to a large scale entry)
• can be able to capture first mover advantages associated with demand preemption, scale economies and switching costs, supporting long run position in the market
• must be balanced against the resulting risks and lack of flexibility since it is difficult to reverse

Underline the importance of human resources

Importance in flexibility in entering a foreign market ex join venture

Implement a long term strategy safely for what concerns risks- entering a large scale

Influence on the nature of competition - companies try to understand which could be the reaction of the company when entering a country and of competitors

Sometimes the high commitment in some country limits the strategic flexibility to

move to other markets → entering at a large scale has an influence in reach capabilities of competitors - identify how actual and potential competitors might reach to large-scale entry

Dutch insurance company - entered in US with a FDI (acquiring local subsidiaries of other insurance companies) because in this way it has the possibility to give a sign on the involvement of that market to the local market and public institutions → easier to attract customers and distributors

Investing heavily in US had a negative side - it reduced the resources in other potential market because of the big effort in entering in US, limit of its strategy elsewhere → limit of strategic flexibility small scale

The large scale entry is hard to be implemented from a small firm or for a firm from a developing country. A small scale entry could be implemented from Large firm at a first moment and then after becoming more familiar with the market entering a larger scale.

Small scale involves a lower level of

enter a foreign market, a firm needs to consider various factors such as market size, growth potential, competition, cultural differences, and regulatory environment. The international market selection approach helps firms identify the most suitable markets for their products or services. Market size and growth potential: Firms should assess the size of the target market and its growth potential. Larger markets with high growth rates offer more opportunities for sales and expansion. Competition: Analyzing the level of competition in the target market is crucial. Firms should evaluate the number and strength of competitors, their market share, and their strategies. Entering a market with intense competition may require significant resources and pose higher risks. Cultural differences: Understanding the cultural nuances of the target market is essential for successful market entry. Firms should consider factors such as language, customs, traditions, and consumer behavior. Adapting products, marketing messages, and business practices to the local culture can enhance market acceptance. Regulatory environment: Firms must comply with the legal and regulatory requirements of the target market. They should assess factors such as trade barriers, import/export regulations, intellectual property protection, and labor laws. A favorable regulatory environment can facilitate market entry and operations. Market research and analysis: Conducting thorough market research and analysis is crucial. Firms should gather information on customer preferences, market trends, distribution channels, pricing strategies, and potential partners or distributors. This data helps firms make informed decisions and develop effective market entry strategies. Overall, the international market selection approach helps firms identify the most suitable markets for their expansion efforts. By considering factors such as market size, growth potential, competition, cultural differences, and regulatory environment, firms can increase their chances of success in foreign markets.Per condurre operazioni a livello internazionale, le aziende devono sviluppare un'analisi approfondita delle condizioni ambientali per identificare:● i mercati adatti da entrare● la modalità di ingresso nel mercato● l'offerta appropriata (strategia di marketing)La valutazione del mercato estero si basa sull'analisi dei fattori che influenzano il potenziale profitto e altri fattori come dimensione, tasso di crescita economica, potere di mercato dei clienti, pressione competitiva → impatto sull'attrattività del mercatoPer implementare questa analisi è necessario adottare un approccio proattivo e sistematico e comprendere le condizioni ambientali estere → valutare l'attrattività al fine di identificare i mercati da entrareCosa analizzare - potenziale di mercato sufficiente, fattori ambientali, condizioni geografiche (alta temperatura) e condizioni economiche (alto potere di acquisto delle persone)es. Daiking industries - multinazionale giapponese di sistemi di condizionamento dell'ariaPerché è importante identificare il/i mercato/i "giusto/i" da entrare?1.

it can be a major determinant of success or failure (especially in the early stages of internationalization)². This decision influences the choice of foreign entry strategy in the selected countries³. Impractically of entering all nations stages - scarce resources (material, human), competencies, knowledge, and country-specific investments⁴. It can influence the definition of proper foreign marketing strategy→ market selection is a key decision:

• one of the most important decision in firm internationalization
• a company should do it systematically
• it should be based on a well defined criteria
• it helps to formulate a marketing strategy

not all firms are able to take this systematic approach in evaluating and choosing the attractive market in which to enter

IMS - International market selection process - different management style of LSEs and SMEs

Differences in:

• resources availability
• formation of strategies/decision-making process
• organization
• risk

decision-making is based on careful analysis and evaluation of potential risks and rewards. The focus is on minimizing risks and ensuring stability. Time focus Long-term focus - decisions are made with a long-term perspective in mind. The emphasis is on sustainable growth and building a strong foundation for the future. Flexibility Limited flexibility - due to the formal and hierarchical structure, there is less room for flexibility and adaptability. Decisions are made based on established rules and procedures. Economies of scale Not a major consideration - SMEs do not have the same economies of scale as larger organizations. They often operate on a smaller scale and may not have the same purchasing power or bargaining leverage. Information sources Limited access to information - SMEs may have limited resources to gather and analyze information. They rely more on personal networks and informal sources of information. Overall, LSEs and SMEs have different characteristics and approaches to decision-making. LSEs have more resources, formal structures, and a long-term focus, while SMEs have limited resources, informal structures, and a more flexible approach.