MGC2120 Lecture 7: MGC2120 - W7 Internalisation of Business
28 Sep 2018
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Department
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Week 7: Internalisation of Business
• Investing abroad (process)
- Business expansion: a firm usually expand its
business in the home market to generate knowledge,
experience → utilizing these, firm can be successful in
foreign market. It transfers its knowledge & experience
to the host market to the host market & apply those to
get competitive advantage in the host market.
- Since there’s different environments in the host
market, the knowledge & experiences firm gets from
home market might not be applicable in the host
market because of differences in institution, culture,
preferences (liability of foreignness).
• Incremental Internationalisation process
1. The Uppsala international model (U-model)
- A firm should first expand its business in the
domestic market where culture & institutional
differences are very low. Domestic market is an
important location to generate experience &
knowledge, low risk.
- It begins with low risk indirect exporting to
psychically or culturally close or similar market.
- When firm gain important manager knowledge &
experience in the lost risk host market, then it can
increase it commitment, present & go into the
international market.
+ Stage 1: no export activities.
+ Stage 2: export via an independent
representative or agent (outsource activities to a local
firm → reduce risk).
+ Stage 3: the establishment of an overseas
sales subsidiary.
+ Stage 4: the installation of overseas
production or manufacturing units.
2. Innovation-related internationalisation model (I-
model)
- Domestic market stage: the firm has no initial interest
in overseas activities unless there’re internal or
external shocks.
- Pre-export stage: internal shocks (over production →
firm sells its products somewhere in the market) &
external shocks (institutional motivation or instrument
i.e free trade agreements) arouse exporting interest.
- Limited Experimental involvement stage: a move
toward an indirect export strategy that will only
involve a small amount of the firm output.
- Active involvement stage: move toward direct
exports & expanding the volume of product exported.
- Committed involvement stage: the firm is a
committed participant in international activity &
allocates resources between domestic & foreign
markets.
• Born Global
- Start-ups are called born global firms in international
business – they were born to serve international market
because of their huge advantages from innovation,
filling the gap of transition cost.
- They are young & have entrepreneur abilities, they
can take risks.
- Foreign market oriented.
- Fast in internalisation.
- Internationalize soon after forming & often ‘within 3
years of foundation’.
- Not new, but numbers grew in recent years because
of growth in technology, globalisation forces, easy
affordability of logistics.
- Different names:
+ Born global
+ International new ventures
+ Born international
+ Instant internationalisation
+ Early internationalising firms
1. Internal features
- Small firms.
- They don’t have huge tangible resources because
they were started by young entrepreneur, they have
innovative (intensive) ideas to solve transition costs.
2. External environment
- They run the business in a homogeneous industry,
they don’t need to adapt their products to cultural
tastes & preferences in different market.
- Low/limited liability of foreignness because they
don’t need to comply to the host market.
- Integration of different markets facilitates the growth
of this global firm.
- Advances in ICT & emergence of the Internet.
- They don’t focus in the home market, they run
business in multiple countries → the market share in
each market is small → generate less revenue.
- Efficient & affordable logistics.
• Institutions, Resources, & Entrepreneurship
•Background of founder manager
•Entrpreneurial orientation
Individual-
Specific factors
•Unique resources
•Network ability
Firm-Specific
factors
•Globalisation forces
•Government support
External factors
Institution-Based
View
Resource-Based
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Entrepreneurship
Document Summary
Business expansion: a firm usually expand its business in the home market to generate knowledge, experience utilizing these, firm can be successful in foreign market. It transfers its knowledge & experience to the host market to the host market & apply those to get competitive advantage in the host market. Since there"s different environments in the host market, the knowledge & experiences firm gets from home market might not be applicable in the host market because of differences in institution, culture, preferences (liability of foreignness). + stage 3: the establishment of an overseas. + stage 2: export via an independent: the uppsala international model (u-model) A firm should first expand its business in the domestic market where culture & institutional differences are very low. Domestic market is an important location to generate experience & knowledge, low risk. It begins with low risk indirect exporting to psychically or culturally close or similar market.
