1. What are the various methods of internationalisation that could be adopted by any major retail organisation in a developed country seeking to expand its operations into large emerging markets to maximise the chances of success and minimise the risks of failure? Critically evaluate each method as explanations of the process of business internationalisation.
Factors Affecting Business Internationalisation
Over the years, internationalization has become a critical concept for most business across the world especially for those that need to explore as well as venture into new markets. For this reason, internationalization can be defined as the process in which a business entity, in this case, a retail organization, gets involved in the emerged as well as emerging markets. This phenomenon has a significant impact on an organization in terms of changing the landscape of most business which leads to a dynamic market situation (Azuayi, R. 2016, 1). Different companies employ different strategies in the internationalization process. The methods selected are dependent on various factors that affect the business on international fronts. For instance, the business is affected by various factors that include political, economic, social-cultural and Technological factors. These factors will be discussed in the context of this paper and an analysis done of how the factors affect the retail organization that has decided to venture into new and emerging international markets. To reduce the cost of production, internationalization has been one of the strategies that have been utilized by some retail organizations. This paper establishes the conceptual theory of internalization, the factors that influence the variations in international business as well as the methods of internalization that could be adopted by retail organizations in developed nations while venturing into international markets, to ensure maximization of success and reduction of the risks of failure.
Conceptual theory of internationalization, innovation and competitive advantage to different industries and locations
The outward movement of a firms operation is what the process of internationalization entails. There are various reasons that could lead a retail organization to want to participate in other markets outside the regions of its operation. First, the business could be interested in venturing on these new grounds as a way of exploring further opportunities to promote the popularity of their products among different setups. The growth of an organization can be attributed to the activities that it engages. Some retail organizations have grown bigger than the scope of the market they serve and thus have the need to explore further opportunities. This could be another reason for internationalization. These companies have established that there is a competitive advantage that exists in different industries in the new locations. For instance, a clothing retail company such as Zara in Spain has incorporated internationalization in their business practice to ensure that their brand is well known not only in Spain but also internationally.
Methods of Internationalisation
Doing so has ensured that Zara has is at a competitive advantage with other fashion retailers in the country since they get to earn more and explore new opportunities in other countries compared to companies that have not gone international (Lopez, C., & Fan, Y. 2014, 7). In addition, venturing into a new market is essential for innovation because as it shall be established, there are different factors that affect the operation of the business in new international fronts. For this reason, a retail company has to be innovative in its operations to ensure that it complies with any of such requirements. Innovations could also be in product development where a corporation might design its products in a certain unique way befitting the area in which it operates. With internationalization, different patterns of investments in foreign markets could be observed by a retailing company and a logical economic analysis conducted to create situations of location advantage which play a critical role in the success of a business that goes international (Twarowska, K., & K?kol, M. 2013, 5). However, there are various factors that influence variations in international business and must be considered at all times by retail organizations willing to incorporate internationalization in their activities as shall be established in the course of the paper.
For a retail enterprise with the desire to go international, it is essential to consider a number of methods for the internationalization process. According to traditional internationalization theory, an internationally active firm can generate a kind of firm-specific advantage in the domestic market in which it operates. In addition to this, internationalization helps in the reduction of production cost through the transfer of service as well as goods across the national borders where it is actually easier (He, S. 2011, 49). In order to explain the methods of internationalization that a company such a retail corporation might use, the existing theories are grouped into three perspectives which include the economic perspective, the process perspective as well as a network of strategic perspective.
This kind of perspective views internationalization from a strictly economic point of view. For that reason, it involves all the theories that tend to analyze the process of internationalization based on two primary factors that are cost as well as the economic benefit. The first theory that is contained in this approach is the industrial organization theory. The reason the theory is so called is because for a corporation to be internationalized, it should have at least a unique competitive advantage over the international market that it is willing to venture into (Benito-Osorio, D. Fernandez-Galiana, N. and Aviles-Palacios, C. 2016, 4). Having a competitive advantage allows the company the ability to move into the new markets without encountering many difficulties. The competitive advantage must be specific as well as unique to the company in order to ensure the success of the organization.
Economic Perspective Method
The second theory of the economic perspective method is the internationalization theory. The internationalization theory was created in the 1970’s from the influence of the cost theory, which mainly deals with the decision of a company to be able to internalize their operation and perform them at a lower cost within the corporation as opposed to the outside corporation. Based on research, it can be established that a retail corporate company will internationalize through direct investment if doing so implies that there would be a lesser cost incurred as it is a less risky method (Benito-Osorio, D. Fernandez-Galiana, N. and Aviles-Palacios, C. 2016, 5). This method is often applied when a company requires to control its major assets that are established abroad. The final theory of the economic perspective is Dunning’s Eclectic Paradigm. The paradigm explains that a corporation’s method of internationalization is exclusively dependent on the competitive advantage that the firm has on its local market, the desire of wanting to go international as well as have an advantage over these foreign markets.
This type of perspective is more dynamic compared to the others. It tends to analyze the sequential steps that an organization takes in order to reach the foreign markets. In this accord, the idea is that for internationalization to occur, the sequential process of accumulating knowledge on the new market before the commitment of resources is essential. It is for this reason that the process perspective has to be analyzed. This perspective is composed of the gradualist theory, the product-life theory, the innovation theory as well as the three scenario theory. The gradualist theory can be seen as the best theory of the internationalization process as it breaks down the process gradually (Lima, C. 2010, 9). This theory calls for an organization to get involved in the new markets and commit some resources gradually as the company continues to grow in broad. For that reason, the gradualist theory identifies dual crucial factors which form a part of the internationalization process and that is the knowledge that a company builds about the different markets and the second being the increasing commitment of the company to continue investing abroad as the organization expands.
The product life cycle theory was developed in the year 1966 in order to explain the process of internationalization. With this cycle, the stages in which a company goes through during the internationalization process could be established. Each phase or stage could be linked to a given aspect of production activity. There are four stages of the product lifecycle which include the introductory phase, the growth phase, maturity phase and lastly the decline phase. In each of these stages, production goes through different facets. The third theory of process perspective is the innovation model which emerged in the 1970s (Khanna, T., Palepu, K., & Sinha, J. 2005, 4). This market is about a business the opens the ‘first door’ in the market it operates. That is, an innovation model would require the coming up with a product that has not been discovered yet in the market to enter. The final theory in the process perspective is the three scenarios theory. It is one of the most recent theories compared to the others. The three scenarios involved in this theory include phase 1, the stage of decreasing internationalization and higher cost, Phase two which entails the growth of internationalization to a greater degree and finally phase three which is the return to decline once more.
Process Perspective Method
The main idea under this perspective is that the inter-organizational networks which a corporation has are a primary cause of internationalization. The networks are created by different corporations that communicate with each other as well as share communication and thus make decisions that are influenced by the entire network. This means that for an organization such as the retail corporation to go international, it should have knowledge about the market that it wishes to join. If the company is lucky enough to have corporations that it can consult or share ideas and get information on the international fronts, then the possibilities of success for the organization increases (Jonsson, A. 2012, 15). This perspective tends to portray how effective organizational networks can be for the internationalization process. The advantage of having such networks is not only for company communication as well as learn about the external opportunities but also to provide access to the resources that a retail company in this case, for instance, may or might not have. For that reason, this internationalization approach concludes that the internationalization process is practically determined by the mutual understanding and influence of corporations that are in the same network. When going international, there are various factors that might affect this transition and must be considered by the retail organization before internationalization as shall be noted below.
Emerging markets and economy account for about of 80% of the world population as well as approximately 60% of the natural resources in the world (Zhu, M. Wang, Z. and Quan, H. 2011, 4). Every market scenario has factors that influence the operations of the business. These factors are essential as they determine the success of a business, for instance for a retail organization engaging emerging markets. In addition, these factors influence the variations in the international organization’s business structure as well as leadership and styles in management as shall be noted. They include:
In venturing in international markets, a retail organization from a developed nation would want to consider political factors that affect their operations. Political turmoil, as well as instability, would dissuade any frim from committing much of their resources in such markets. In addition to this, political decisions such as tax laws as well as regulatory statutes might deter an organization from wanting to engage heavily in a market (Panwar, A. and Malhotra, A. 2017, 138). For a multinational corporation like a retail company to succeed in a foreign market, it is wise to enter into the host’s country carefully. Regardless of the product that the company is dealing with, the political factors of a host country alone could have a tremendous effect that could impair the normal operation of the business and even the success of the operation resulting into losses (Deuer, G. 2013, 10). For this reason, to optimize the chances of success and reduce the risks of failure, assessment of the host’s political risks is essential. Doing so would ensure that the business understands the political influences that could affect their businesses in one way or the other and make operations difficult in the internationalization process.
Network of Strategic Perspective Method
There is numerous culture which could have an impact on international business. Culture could be stated as the way of life of a given set of individuals. For that reason, culture could be a major part of how people behave as well as how they conduct their work. During the internationalization process, a retail business should consider a nation’s organizational culture since it encompasses the ideals of people in the market that the business engages (Deari, H., Kimmel, V., & Lopez, P. 2016 12). Understanding the social-cultural factors in essential for social engagement between the business and its customers. Culture might dictate the style of leadership and structure of the organization to adopt. For instance, an organization’ culture could adopt a unique leadership style as well as the business structure to suit its employees as well as customers. Such as strategy might not be applied in other branches existing in a different country because every location could have different ideas and believes that constitute their culture (Lima, C. 2010, 3). National and organization culture are closely related because an organization should align its activities having considered the social-cultural factors that could influence business. In order to succeed, the variations in culture must be adopted by the various managements of a business that is willing to venture in such fronts (Dawei, G. (2012, 5). For that reason, in conducting an internationalization decision, a retail organization must consider how social-cultural factors affect their business prior to venturing.
The economies of different companies might influence the performance of a company in different ways. The opportunities that might exist in the economy of a developed nation might not be the same as those found in the developing economies. For instance, the economy of the developed nation is mainly based on knowledge-based services (Radulovich, L. 2008, 12). This implies that when venturing in a developed nation economy, the perfect person for carrying out a business could be acquired without having to spend extra on training. On the other hand, if a business goes into a developing nation’s economy, it would most likely be required to train some of the personnel acquired thus incurring more costs. For that reason, proper consideration of the economic factors is essential for proper planning of the business activities. The internationalization of a business is often analyzed through the relation that exists between commitment to a market as well as the knowledge at the micro, meso as well as macro levels of the economy (Bianchi, C. 2009, 8). Understanding such economic factors is essential for any business willing to go international since the organization can uncover some issues that may facilitate or hinder their success and act accordingly.
These are the final factors that could have an influence on the internationalization of a business. The business environment today has been revolutionized as a result of the evolution in technological advancements contributed by the information age. Many professional service firms that tend to be intensive in their input of technology, as well as human capital, are known as knowledge-based firms (Radulovich, L. 2008, 9). The knowledge-intensive corporations have adopted more technological solutions and have been observed to be in the process of employing more proactive as well as rapid strategies in internationalization compared to the other traditional firms. Technology could imply a major boost to the operations of a business if applied in the right way. For that reason, a retail corporation willing to venture into new and emerging international markets might consider using technology as an asset in conducting their operations.
With the consideration of the above factors, a conclusion can be drawn for the business internalization process as well as the factors that the business might want to consider before venturing into the emerging markets.
In conclusion, Internationalization is the process in which a business entity, in this case, a retail organization, gets involved in the emerged as well as emerging markets. For the retail business to be able to venture in the international markets, it must have a competitive advantage in the market that it operates as well as the international market that it is willing to venture. One way to be ahead for the organization is to consider the strategic or the network approach which entails the corporation partnering with other companies in the abroad market for the purpose of gaining information as well as resources that they may or might not have to enter these new territories. Using this strategic move, all the factors such as political, economic, social-cultural as well as technological that might impact a business are well understood earlier in advanced as thus managed to minimize risks and maximize the chances of success for the retail organization in new fronts.
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