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Internationalization of Service Firms

Question:

Discuss about the Organizational and National Cultural.

International business research focuses on those firms that conduct business across borders (Brush, Edelman & Manolova, 2015). As opined by Wagner III & Hollenbeck(2009),some reasons may be to mitigate for a small domestic market or to seek new markets for their product (Wild, Wild & Han, 2010). A particular set of countries which are given particular attention in the literature are emerging markets (Hitt, Ireland & Hoskisson, 2014). In the contemporary business context, firms are expanding internationally to mitigate the risk of operating in a single market along with increasing their brand identity, exposure and growth potential. There are significant advantages for firms who expand internationally. Globalization is not a process firms undertake; it is a macro/political economy process (Hitt, Ireland & Hoskisson, 2014). There are significant advantages for firms who expand internationally, ultimately being linked to increased firm performance (Hitt, Ireland & Hoskisson, 2014); however, there are also barriers and challenges faced by firms operating across borders. Effective identification and implementation of the strategies are more applicable for the service industries due to the reason that the pattern or utility of the service being provided in the domestic market will be different compared to the international market (Wild, Wild & Han, 2010). The taste and preference of the customers will be more diversified in the global market along with different rules and regulations in different regions. Though, international business offers opportunities for the contemporary business organizations, however, it also poses various challenges which should be effectively managed.

In the recent times, organizations belonging from the developing economies are entering in the global market. This is due to the fact that, the economies of the emerging economies are rapidly increasing and organizations are gathering competitive advantages to compete in the international market. They possess some sort of competitive advantages over others due to various reasons which will be discussed later in this report (Wagner III & Hollenbeck, 2009). Ola cab is one of the leading service firmsproviding app based cab service in the Indian market ("About us | Car rental | car hire | taxi India | olacabs.com", 2017). Currently they are one of the key players in the market having other global competitors. However, in the case of entering in the global market, they will have to determine diversified strategies in order to fulfill the requirement in the global market. The approach that they are maintaining currently may not prove beneficial for them in the international market. Moreover, journey from a developing country to a developed market involves various modifications of the existing strategies being fulfilling different taste and preference pattern of the customers. The customer behavior from developing and developed countries varies to a large extent in terms of expectations and requirements.

Emerging Market Service Firms

This report will discuss about the potential internationalisation of emerging market service firms, by evaluating the example of Ola Cabs possibilities for internationalisation. Moreover, the competitive advantages that the service industries belonging from the developing countries possess will also been discussed in this report. Various issues and challenges in the international business which can be faced by the organizations will also be discussed. Critical analysis will be done to determine the various aspects of international business.

Evidence shows that an increased number of service firms are operating across borders (Boehe, 2016). Previous research has focused on the internationalization processes and strategies of service firms (Budhwar, & Debrah, 2013). Moreover, the number of internationalized service firms from Emerging Economies is increasing. This is due to the reason that in the recent times, more and more service firms are entering in the global market. In addition, the trend of service firms entering in the global market is more from the developing economies. According to Boehe, (2016), more service firms are entering in the international market to tap the resource rich countries. According to Boehe (2016), the service firms from the developing countries lacks in resources. Thus, in order to fill the gap of inadequate resources, service organizations are entering in the global market and targeting the countries with having extensive resources (Boehe, 2016).

According to Xue, Zheng, &Lund, (2013), China is one of the leading developing economies in the world and huge numbers of service and manufacturing firms are entering in the global market. They stated that, there is huge difference in the requirement and approach of the service and the manufacturing firms in entering in the global market. According to them, the international business strategy for the service firms requires more experience rather than tangible resources. It is due to the fact that, service organizations will need the experience in dealing with the customers of the host country which will be very different than that of their home country. On the other hand, the manufacturing firms only require the availability of their business resources in order to produce their products in the host country. According to the researchers, service firms deals directly with the customers and thus they have to determine the social and cultural background of the host country more effectively to provide their service accordingly.

According to Jensen& Petersen, (2014), service organizations from the developing economy enter in the global market to enhance thebrand value of the organizations.According to them, service organizations from the developing countries have limited opportunities in creating value and thus they enter in the global market to gather more opportunities for their value creation. With the access to the global market, service organizations will have more market base to tap and more number of customers to reach out. Thus, they will have more options in enhancing their business portfolio and increasing their brand value. According to Parola, Satta, Persico, & Bella, (2013), various service firms is entering in the global market, however, the choice of their entry mode is having serious implications on the effectiveness of their international business strategies. According to them, service organizations select their entry mode strategies according to their resources, market sector and the approach of the host country. This is due to the reason that service firms having less resources will not imply the direct investment mode of entry to enter in the global market. On the other hand, if the market sector they are operating is limited to the niche sector then it is unlikely that they will invest extensively in the host country. The approach of the host country is also one of the key determinants in selecting the entry mode.

Competitive Advantages of Emerging Market Service Firms

According to Budhwar, & Debrah, (2013), there are various challenges being faced by the organizations from the developing countries in entering in the international market. One of the key issues that they face is the lack of brand value. Due to their presence in the developing country, service organizations find difficulty in penetrating in the market of the host country. The brand of the service firm from the developing countries does not get adequate exposure in the international market which creates barriers in operating in the host country. Moreover, the lack of updated technologies and adequate financial resources is further creates issues for them in their international market. Majority of the organizations from the developed countries have the access to the latest and updated technologies. Thus, it is a major drawback for the serviceorganizations from the developing countries. Due to the reason that service industry have to directly deal with the customers, thus lack of access to latest technologies is making them trailing behind the organizations from the developed countries.

Similar conclusion by Kumar, & Siddharthan, (2013), regarding the challenges faced by the organizations from the developing countries. However, they have added another point which is also an important issue for the service organizations in the international business. According to them, service firms face the issues in managing the human resource in their international business. This is due to the reason that, the organizations from the developing economies lacks experience in the international business and it becomes difficult for them to manage the diversified employees in the international business along with their varied requirements. This caused internal issues and employee unrest in the organization.

However, a different view given by Wang, Hong, Kafouros, & Wright, (2012) states that organizations from the developing countries are also get influenced by the government policies of their home country. This is due to the reason that, government of the developing economies influences the organizations in initiating their international business activities according to their objectives. Thus, through the initiatives of the global business strategy of the organization, government tries to enhance their role in the geopolitical scenario.

However, various researchers pointed out other aspects of the internationalisationof the service organizations from the developing countries. According Luo, & Wang, (2012), the approach of the organizations from the developing countries is quite different from the organizations from the developed countries. This is due to the fact that the organizations from the developing countries are highly influenced by their organizational policies in home countrysuch as, influence of the work culture of the parent country on the work culture of the organization. According to them, the majority of the organizations from the developing countries are having effective establishment in their home country. On the other hand, the international market for them is not well established or it is going to be started. Thus, the policies and strategies implemented by them in initiating their policies regarding international business are according to their home country approach. However, it may pose challenge for them in the future due to the reason that in the international business, diverse approach should be initiated to effectively cater to different requirements of the customers. Thus, the unified approach of the organizations from the developing economies does not create much effectiveness in the international business.

Challenges Faced by Emerging Market Service Firms


However, there are various other aspects that are also need to be considered in the international business such as technology. There are various technologies which help to enhance the performance and the effectiveness of the strategies in the international market. According to Dunning (2013), technologies help the organizations to enhance their competitiveness in the global market by reaching out to the new market more effectively. Technologies help in planning the policies regarding the international business more effectively. Thus, organizations from the developing countries can enhance their organizational performance and effectiveness with the help of the technologies. In addition, international market comprise of more diversifies customer segments and market portfolios and thus use of technologies help in gaining the effective market strategy to cater to every customer segments.

As stated by Berthon, Pitt, Plangger, &Shapiro, (2012), in the current scenario of international business, technologies and marketing goes hand in hand. Thus, it is important for the organizations to effectively align the available technologies with their marketing activities. They also stated that one of the important technologies being used by the contemporary business organization is the social media. Marketing activities through the social media will help the organizations in reaching out to more number of customers in the global market. Initiation of the social marketing activities will also help to gather the feedback from the customers which can be further used to modify the service accordingly. The current market trend and the taste and preference pattern of the customers can also be determined with the help of the social media marketing. This is one of the way in which technologies helps in facilitates the international business strategies. Thus, although not researched specifically in relation to the service firm, technology has been found to be important in facilitating internationalisation

According to Chen, Chiang, & Storey, (2012), information technology and business analytics have positive impact on the international business policies of the organizations. According to them, initiation of information technology and business analytics will help the organization in effective management of the customers in the global market. Moreover, information technology will help to enhance the communication channel of the organization by promoting effective communication among all the stakeholders in the organizations (Ulmer, Sellnow & Seeger, 2013). In the international business strategy, communication is much important due to the reason that it helps to connect the stakeholders from around the world. Thus, from the above critical analysis of the internationalisation policy of the service firms along with determining all the associated aspects, it can be concluded that organizations from the developing or emerging economies faces various problems in entering in the international market more than that of the organizations from the developed economy (Brush, Edelman & Manolova, 2015). In addition, the approach of the firms from both the economies in entering the international market is quite different.

Case Study: Ola Cabs

Hence, from the above review of literature, it is been found that service firms generally internationalise because of mitigating their small operating area as well as enhancing their brand value. However, they find the many challenges in due course of expanding their operational area. Technology has been found to facilitate in the process of entering in the international market. In this report, the case of Ola cabs will be used, and introduced in the next sections.

Ola cab is being founded in India in 2010 by Bhavish Aggarwal and Ankit Bhati. At the time of their introduction, the Indian taxi sector was not matured enough and app based cab service was a new concept at that time. Thus, at their initial stage, Ola got a huge untapped market to operate (Harding, Kandlikar & Gulati, 2016). They first started their journey from Mumbai and currently they are operating in more than 110 cities with having more than 6, 00,000 vehicles in their inventory.With several strategic acquisitions and service diversifications,such as acquiring the Indian cab aggregator Taxi for sure and diversifying their business in offering service to the niche market with Ola Lux, they are currently enjoying the market leadership status in the Indian cab market.Currently the net value of Ola stands at $5 billion. With the increase in number of competitors in the Indian market, Ola cab is currently facing the effect of increasing competition in the market. Thus, theyare now initiating the plan to enter in the global market to increase their market share.

With the improvement and rapid growth of the road infrastructure in India, the transport industry is also going to exceptional transformation. More automobile organizations are entering in this market.With the growth of the transportation industry, the cab or taxi market is also showing huge growth. The traditional cab service in the Indian market is still now having the market leadership status (Rahman & Anand, 2014). However, with the rise in various app based cab services, the taxi market is showing some intense competition in the recent years. It is being estimated that the Indian taxi market will show good growth in the next few years. Moreover, the growth in the per capita income and boom in the internet access among the common people will further help to push the growth of the cab market in India (Muralidhar, 216). However, the entry of global cab aggregator Uber has posed a huge challenge to Ola cab (Rahman & Anand, 2014). With their global business experience and huge capital infrastructure, they are effectively competition for the market leadership position.

Conclusion

Further, it is being estimated by Muralidhar (2016), that the cab service in India is still at its primary stage and there are huge opportunities to tap for the aggregators. This factor is influencing various global and domestic organizations to enter in this sector. Moreover, there are various challenges also in the Indian market that are being faced by these organizations. One of the key issues for them is the regulations and legislations in the Indian transport industry (Surie & Koduganti, 2016). Moreover, the clash between the traditional taxi operators and the app based service providers is also creating negative perception about the potentiality in the Indian market. Major cab operators are incurring losses due to offering huge discounts to the customers. This is due to the reason that, in a country like India, price sensitivity is one of the key criteria for the customers(Spears, 2014). Thus, to maintain the market leadership position, aggregators have to offer services at lower prices to attract more customers (Spears, 2014). Thus, this is further reducing the viability of the organizations in operating in the Indian market. These are the main reasons for Ola to look up for the new markets in foreign countries such as Singapore. This will help them to reduce the risks being associated with operating in a single country.

Singapore is one of the most developed economies in the Asian regions with having favorable per capita income(Gantman 2012).However, determination of the external environment of Singapore will help to determine the potentiality and the challenges to be faced by Ola cab in operating there. The political environment in Singapore is favorable and stable. Being a developed economy, the government is also more concentrated on the economic development of the country. According to the political and risk consultancy, Singapore is having low political risk (Gantman, 2012). Thus, it is an opportunity for the business organizations to enter the market of Singapore. In addition the incentives being provided by the government for investing in the market of Singapore can also be availed by Ola cab.

Being a developed economy, the per capita income of the customers is more than that of the income of the home country of Ola. Thus, the business opportunities for them are more in entering the Singapore market (Rodan, 1989). Moreover, the per capita income of Singapore is the highest in the entire ASEAN regions. With having rapid industrialization, the income of the customers is further rising. Thus, the market potentiality for Ola cab is much favorable. The business friendly legislations and the low rate of taxation will further help Ola cab to effectively operate in the market of Singapore (Tan, 2012).

The social environment of Singapore is liberal and inspired by the western culture. Thus, Ola cab will not find any social barriers in providing service to the market in Singapore (Vaara et al., 2012). Moreover, with the increase in the average income, the purchasing power of the customers is also increasing. Thus, market will be there for Ola cab to operate. It is also been seen that majority of the people in Singapore do not have the positive acceptance for the blue collar jobs (Webster, 2014). Thus, the service being provided by Ola will be more accepted by them due to the fact that Ola will provide convenience to the customers. Moreover, the customers in the Singapore market is already accustomed with the concept of app based cab service. Thus, it will be easy for Ola to introduce their service in the Singapore market.

As earlier discussed, the economy of Singapore is developed and with the help of rapid industrialization, more and more new technologies are being made available in the country (van Stel, Millan & Román, 2014). The penetration rate of the internet service is over 70 percent. The infrastructure of information technology is also much favorable in Singapore. Thus, it is a huge opportunity for the Ola cab due to the fact the service of them is primarily based on internet access. Thus, with having the extensive internet penetration, the market will be more for them.

One of the key challenges that Ola cab will face in operating in the Singapore market is the presence of several competitors. Singapore is already having a few established players who are offering app based cab service (Rayle et al., 2016). Thus, it will be difficult for them to gain the market share from among the established operators. Moreover, another key challenge that will face is the increasing cost of doing business in Singapore. This is due to the reason that, with the development of the economy, the cost involved in doing business is also increasing in Singapore. Thus, Ola has to incur more cost in operating in the market of Singapore.

Though the government policies in Singapore is more business friendly but in the recent time, introduction of strict legislations for the organizations in maintaining their employees may have adverse effect on the business of Ola. The market share of Ola may also take a hit due to the fact that, the recent global economic crisis had adversely affected the economy of Singapore also (Castells, Caraca & Cardoso, 2014). Thus, Ola also has to face the economic crisis being occurred in the Singapore (Milioti, Karlaftis & Spyropoulu, 2015). Ola will already face stiff competition in the market of Singapore upon entry. However, due to the fact that the Singapore is having open and liberal economy, there is always the risk involved regarding the entry of new competitors (Hayek, 2012). Thus, more entry of new competitors will further decrease the chance of growing market share for Ola. Another key challenge that is to be faced by Ola in having business in Singapore is the anti-foreigner sentiment. This is due to the reason that the income inequality is widening and the foreign companies are being blamed.

Singapore is having large numbers of taxi and cab aggregators intensely competing in the market. Some of them are operating for years and gained enough goodwill and reputation in the market. The market is going to be more intensely competitive with the entry of the global cab aggregators (Maciejewski& Bischoff, 2015). Some of the few leading cab aggregators operating in the market of Singapore are Citycab, Comfort Taxi, SMRT taxi and Transcab. Uber the global cab aggregator is also operating in this market. Currently, Uber is leading the market due to their cheap and competitive pricing strategies over their competitors (Cramer & Krueger, 2016). However, Ola upon entering the market of Singapore will have to consider few factors to drive their business effectively. One of the key factors is providing smart fleet of air conditioned and properly equipped cab. In their home market of India, having air conditioned cab is being treated as luxury and not as necessity. Thus, in India, Ola has the option of availing air conditioned and non-air conditioned cab. This, strategy will not get succeed in Singapore. This is due to the fact that all the major cab aggregators there are providing air conditioned cab and it is being treated as necessity by the customers.

Another factor that is to be considered is offering of eco-friendly cab to the customers. Awareness about the environment is on rise in Singapore. Adopting this concept, various cab aggregators in Singapore are offering eco-friendly cabs which runs on CNG or batteries (Lin et al., 2014). This is also helping them in creating a distinctive image in the market. Thus, Ola also has to consider innovation in their business strategy to effectively cater to the market of Singapore. Rapid innovation in providing the service to the customers will be an effective tool to gain foothold in the Singapore market (Cheng, Yang & Sheu, 2014).

Thus, from the above literature review with respect to the business portfolio of Ola cab from India, it can be said that Ola should consider the cultural aspect of Singapore before entering the market. This is due to the fact that, for the service industry, determination of the cultural aspect is much important as they have to directly deal with the customers and the duration of service encounter is more in the case of service industry compared to the manufacturing industry.Moreover, it is also been observed by evaluating the literatures that service organizations such as Ola cab from India are opting to enter developed economies due to the reason that developed economies are already having the required infrastructure for operation. Moreover, the per capita income of the population in the developed economy is more than that of the developing economies. Thus, the market potentiality of the service organizations such as Ola Cab will be more in the developed economies such as Singapore.

Moreover, the review of the literatures helped to gain an understanding about the requirement of the service organizations especially from the developing economies in operating in the developed countries. It is been evaluated that, one of the key factors that should be considered by the service organizations in entering in the developed economies is the experience in operating in the international market. However in the case of the Ola cab, they do not have the required experience of international business. Thus, they may face some issue in coordinating various aspects in the international business in their initial stage. Another key factor that also should be considered by the service organizations in entering in the international market is the initiation of latest, updated and suitable technologies. This is due to the reason that, business scenario in the developed economies is much more developed and technologically advanced compared to the business scenario in the developing countries. Thus, in entering the market of Singapore Ola have to initiate latest and updated technologies to effectively coordinate their business, to stay aheadin the competition and to enhance the convenience of the customers. Thus, the more will be the latest technologies being used by them, the more will be their competitive advantages in the market of Singapore.

In the above discussion of the literature, it is been noted that choice of the entry mode is also an important factor to consider for the service organizations in entering in aforeign market. As earlier discussed, Ola cab lacks experience in the international business and being from the developing countries, hey also do not have the access to the latest technologies. Thus, the entry mode should be chosen effectively by them in order to effectively operate in the market of Singapore. Various literatures have stated that management of the human resources should be done effectively by the service organizations in entering the foreign market. Thus, in the case of Ola Cab, they have to decide about their chosen approach of international human resource management. This is due to the reason that, employing people only from the market of Singapore will not be beneficial for them due to the fact that they are not aware about the organizational cultures, values and policies of Ola cab. On the other hand, employing people only from the home country will also not be beneficial for the due to the reason that, employees from the home country cannot able to effectively determine the expectation, trend and requirement of the local market. Thus, effective consideration of these factors will help them to cater to the market of Singapore efficiently.

Conclusion

Having analyzed the market and business potential of Ola in entering in the market of Singapore, it can be concluded that Ola is having huge opportunities in Singapore market, provided they will effectively implement their business strategies. This is due to the reason that, this report has identified various issues and challenges that may be faced by Ola in entering in the market of Singapore. Critical analysis has been done in determining the challenges and opportunities being faced by the service providers from the developing economies. This analysis helped to identify the probable issues and challenges to be faced by Ola in the global market.

One of the key issues being identified is the lack of experience and resources of the organizations such as Ola which will pose a challenge for them in operating in the global market. Thus, Ola has to consider these factors before entering in the market of Singapore. Another factor that should be considered by them is the cultural aspect of Singapore. Effective determination will help to offer and design their services according to the requirement of the customers. Competitor analysis has been done in this report to determine the market scenario in Singapore. It is been analyzed that various established competitors are operating in the market and it will be huge challenge for Ola to attract market share.

From the critical analysis of the literature it is been seen that, the key challenges that will be faced by Ola cab are the management of human resources in the market of Singapore and choice of the market entry policies. In the case of the market entry policies, initiation of the joint venture with any domestic firm in Singapore will be helpful and most effective for them. This is due to the reason that, as discussed earlier, Ola cab is not having experience in operating in the international market. Moreover, they do not have effective market data about Singapore. Thus, initiation of joint venture will help them in having partnership with a domestic firm of Singapore. This firm will have better knowledge about the local market re4quirement. In addition, the initiation of joint venture will also involve less risk due to the fact that he domestic firm will also investment in the venture. In the case of the human resource management, Ola cab should initiate the geocentric approach in order to have employee from both home and host country on board. Thus, it is being expected these measures will help them to effectively operating in the market of Singapore.

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