International Business Strategies: Globalization & Market Entry
Globalization and International Business Strategies
Globalization: Process by which people, products, information, and money move freely across borders.
Global Industries: Industries in which companies need to operate in key world markets in an integrated and coordinated way to survive.
Multinational Companies: Companies that operate in various countries outside their countries of origin.
Global Companies: Multinational companies that operate in the world in an integrated and coordinated way.
Born Global: Companies that become multinational immediately upon or soon after being founded.
Globalizing: Phenomenon whereby the competitive structure of industries changes progressively from multinational to global. → like the cosmetic industry
Global Integration and Coordination: Organizational structure and management processes by which various activities scattered across the world are made interdependent.
Objectives of Internationalization
We have different types of objectives:
- Opportunistic: Sending current products to other markets without significant company transformation or innovation. Good in the short-term but unsustainable against larger competitors.
- Economic:
- Increase Sales
- More Profitability
- Economies of Scale: Cheaper production, more profitability, and increased sales.
- Strategic: A company entering a difficult market, even at a loss initially, to:
- Develop new ideas and competition
- Diversify risk
- Ensure long-term survival
Internal Analysis: The Export Diagnosis
Finance: Do we have the capital to invest in exports? Is working capital sufficient? Are we profitable enough to take on export costs?
People: Do we have the right team with export knowledge? Language skills, cultural openness, and flexibility are key.
Product: Is the product suitable for international markets? Consider size, fragility, transport costs, and legal restrictions.
Production: Can the current production system handle increased demand? Is there flexibility, automation, and quality control in place?
Top Management: Are managers committed to expanding abroad? Do they have a strategic vision and support innovation?
Each of these areas must be balanced. Often, finance and production are easy to assess (quantitative), but people and management are more subjective.
SME vs. MNE Challenges
SMEs (Small and Medium Enterprises) often face higher relative costs, lack of time, staff, and knowledge about foreign markets. MNEs (Multinational Enterprises) face complexity and coordination issues across many countries.
Example – Borges vs. Carbonell (Spanish olive oil brands):
Borges exports to many countries, with small, flexible production. Carbonell focuses on fewer markets but with high production volume and efficiency. Both strategies work, but they reflect the companies’ internal structures and capabilities.
Product Considerations:
- Transport costs (affected by size and weight).
- Fragility and perishability (e.g., ice cream requires special containers).
- Adaptation needs (branding, flavors, packaging).
- Legal compliance (certifications, documentation, trade regulations).
Obstacles to Internationalization
- High transportation costs.
- Lack of working capital.
- Inability to identify or contact overseas customers.
- Limited access to market information or government support.
- Lack of trained personnel.
- Difficulty matching competitors’ prices.
Liability of Foreignness
Refers to the challenges foreign companies face due to lack of local knowledge, discrimination, or complexity. It causes a “learning curve” that requires time and resources. Cultural adaptation is essential.
Cultural Considerations
Hofstede’s Cultural Dimensions (6 Key Values)
- Power Distance – Acceptance of inequality in society.
- Individualism vs Collectivism – Focus on individual goals vs group goals.
- Uncertainty Avoidance – Tolerance for ambiguity and risk.
- Masculinity vs Femininity – Competitive vs collaborative cultures.
- Long-term Orientation – Focus on the future vs short-term results.
- Indulgence – The extent to which people control desires.
Meyer’s Culture Map – 8 Cultural Scales
- Communication: Low-Context vs High-Context
- Evaluation: Direct vs Indirect Negative Feedback
- Persuasion: Principles First vs Applications First
- Leadership: Egalitarian vs Hierarchical
- Decision-Making: Consensual vs Top-Down
- Trust: Task-Based vs Relationship-Based
- Disagreement: Confrontational vs Avoidant
- Scheduling: Linear Time vs Flexible Time
These frameworks help companies adapt management and communication styles across cultures.
Common Strategic Pitfalls in Market Selection
- Wrong Market Assessment: Over-reliance on general data like GDP or population. Example: Overestimating China or Africa due to size, ignoring real consumer behavior.
- Relying Solely on Contacts: Many companies select a market based on a single distributor contact without proper research. Contacts are useful but not enough.
- Shareholder Pressure: Sometimes markets are selected due to internal pressure, not data. Example: Ford entering China too early under pressure, while VW succeeded by entering at the right time.
- Replication: Assuming that a product that worked in the domestic market will work abroad without adaptation. Example: Kellogg’s failure in India (1994) – ignored Indian breakfast habits.
Concentration vs. Diversification Strategies
Concentration Strategy:
- Focus on fewer markets.
- Works better with developed/mature markets (e.g., Europe, USA).
- Less risky, more manageable, but growth may be slower.
Diversification Strategy:
- Expand into many markets, especially emerging ones.
- Riskier but can lead to fast growth and reduced dependence on any single country.
Key Insight: When entering emerging markets, don’t rely only on them—balance with mature ones.
The Three Circles Model
This model compares:
- What your company offers
- What customers want
- What your competitors offer
From this, you identify:
- Points of Parity: What customers expect that you and competitors both offer (minimum requirement).
- Points of Difference: What only your company offers—these create competitive advantage.
Example:
Apple = Reliable (parity) + Design & Innovation (difference) → Allows premium pricing.
Sources of Competitive Advantage
Differentiated Value Proposition: Unique offer appreciated by consumers (e.g., Canon’s professional services).
Cost Leadership: Low-cost production and pricing (e.g., Ryanair, Walmart).
Innovative Advantage: New products and features (e.g., Apple’s AirPods).
Time-Based Advantage: Speed in adapting, producing, and delivering (e.g., Zara).
Blue Ocean Strategy: Create entirely new markets with no competition (e.g., Cirque du Soleil, Netflix, Yellow Tail Wine).
Indirect Exporting
The company sells its products to an intermediary in its home country, who then exports them abroad. The exporter does not have contact with foreign clients. Ideal for companies that are not yet ready to manage international operations.
Advantages:
- Easy to implement.
- No export knowledge needed.
- Immediate access to foreign markets.
- Low cost and risk.
Disadvantages:
- No control over foreign distribution.
- Low learning about the foreign market.
- Lower profitability.
Direct Exporting
The company sells directly to a foreign client or intermediary abroad. Can involve agents or distributors but more control than indirect exporting. The exporter handles documentation and logistics.
Advantages:
- More control.
- Direct relationship with foreign partner.
- Learn about the market.
Disadvantages:
- Higher risk and responsibility.
- More investment needed (travel, logistics, training).
Export Consortium. Group of companies share an export department. Common for SMEs that want to export but lack resources individually.
Success Factors:
- Maximum 6 companies.
- Similar size and strategy.
- Non-competing and complementary products.
- Commitment and trust among members.
- A neutral export manager is key.
Advantages:
- Shared costs and risks.
- Stronger export offer.
- Learning opportunity.
- Access to better logistics and market knowledge.
Risks:
- Internal conflicts.
- Too much control by each company can lead to paralysis.
Agent vs Distributor
AGENT -> Represent your product. Earn commission. No stock or delivery. Suitable for markets with few clients making large orders. Exporter keeps control of marketing. No ownership of goods.
If there are few large customers → Use an agent.
DISTRIBUTOR -> Buy and resell your product. Add a margin to the resale price. Handle stock, delivery, and after-sales. Suitable for markets with many small clients. Distributor executes marketing. Takes ownership of goods.
If there are many small retailers → Use a distributor.
SALARIED AGENTS
- Work exclusively for your company.
- Paid a fixed salary + bonus (not commission).
- More control and alignment.
- Ideal for complex markets or long sales processes
Exclusive vs Non-Exclusive Agreements
Exclusive Agreements:
- One agent/distributor per market.
- Motivates the intermediary to invest in the brand.
- Good for premium products and long-term relationships
Non-Exclusive Agreements:
- Multiple distributors in one market.
- Less control, more competition among distributors.
- Useful in large countries (assign regions/states)
Licensing is when a company (Licensor) gives permission to another company (Licensee) to use its intangible assets (like brand, patent, know-how…) under specific conditions and in exchange for royalties.
Examples: Lego & Star Wars: Lego is the licensee using Star Wars’ intellectual property. Legoland: Lego is now the licensor (giving the right to others to run theme parks).
Advantages for the Licensor:
- Low-cost and low-risk market entry
- Avoids import duties and trade barriers
- Quick access to markets
- Extra income from existing technologies
- No operational responsibility
- The licensee bears the risks
Advantages for the Licensee:
- Quick access to know-how and technologies
- Saves time and money on R&D
- Access to recognized brands
- Easier market entry
Main Risks of Licensing:
- Technology leakage: The licensee might learn how to make your product and become a competitor
- Loss of control over quality
- Your brand image could be damaged if the partner doesn’t manage it well
Franchising is when a company (Franchisor) gives another party (Franchisee) the right to operate a business using its name, brand, systems, and support, under specific conditions and in return for fees and royalties.
TYPES: Product/Brand Franchising: Right to sell specific branded products (e.g., car dealerships)
Business Format Franchising: Full package: brand, processes, systems, training, etc. (e.g., McDonald’s)
Advantages for the Franchisor:
- Fast growth with limited capital
- Lower risk
- Franchisee invests and manages the local unit
- Revenues from franchise fees and royalties
Advantages for the Franchisee:
- Access to a proven business model
- Brand recognition
- Support from the franchisor (training, marketing)
- Faster return on investment
Risks:
- Poor execution by franchisees can damage brand image.
- Difficult to maintain consistency across countries.
- Risk of conflicts between franchisor and franchisee.
- Cultural or legal issues in the target market
Franchising is ideal for:
- Retail chains, fast food, hospitality, education, fitness, etc.
- Companies with strong brand and well-tested processes
Joint Venture
What is it? A Joint Venture (JV) is a strategic partnership where two companies (usually local + foreign) create a shared company to operate in a foreign market. Both share investment, risk, profits, and control. Can be 50-50 or with different ownership percentages.
Advantages of a Joint Venture:
- Lower risk and investment than going alone.
- Access to the partner’s local knowledge, contacts, and infrastructure.
- Easier entry in restricted or culturally complex markets.
- Shared costs and expertise.
- May be required in markets with FDI limitations (e.g., China, India)
Disadvantages of a Joint Venture:
- Shared control can lead to conflicts.
- Differences in management style or goals.
- Risk of technology transfer to the partner (future competitor).
- Profits are shared.
- Requires constant communication and trust
Key Factors for a Successful JV:
- Choose the right partner (aligned values, reputation, goals)
- Clearly defined roles, responsibilities, and exit clauses
- Open and frequent communication
- Legal and cultural due diligence
- Set up joint decision-making mechanisms
When should a JV be used?
- When entering emerging or highly regulated markets.
- When you need a local partner to access distribution or licenses.
- When you want to share investment and risk.
- When cultural understanding is crucial
A subsidiary is a company that is 100% owned and controlled by the parent company, located in a foreign market. It is a high commitment and high-risk strategy.
Advantages:
- Full control over operations, strategy, and brand.
- Better protection of intellectual property.
- Full access to local market knowledge.
- Helps build a long-term presence.
- More credible with local partners and customers
Disadvantages:
- Requires high investment (money, time, people).
- High operational complexity.
- High risk (especially in politically or economically unstable countries).
- Legal and bureaucratic challenges in some markets.
When is a subsidiary recommended?
- When you want full control.
- When the market has long-term potential.
- When local operations require a high level of adaptation.
- When you want to protect strategic assets (brands, know-how, etc.)
ACQUISITIONS : Sometimes companies decide to buy an existing local company instead of starting from scratch.
Benefits:
- Faster market entry.
- Access to existing customers, brand, and employees.
- Instant market knowledge and presence
Drawbacks:
- Expensive.
- Integration challenges (culture, systems, staff).
- Legal and financial risks
What are international alliances?
An international alliance is a strategic cooperation between two or more companies from different countries, where they share resources, capabilities, or knowledge to achieve common goals—without a full merger or acquisition.
Why form an international alliance?
- To enter new markets
- To share risks and costs
- To gain access to local knowledge
- To improve innovation or R&D
- To access distribution networks or technologies
- To increase competitive power
Types of International Alliances
1. Non-equity alliances:
- Companies collaborate without sharing ownership
- Includes licensing, franchising, R&D agreements
- More flexible and less risky
2. Equity alliances:
- Companies own shares in each other
- Includes Joint Ventures
- More commitment and integration
Key Success Factors in Alliances:
- Trust and transparency between partners.
- Clear goals, roles, and responsibilities.
- Cultural compatibility between companies.
- Strong communication channels.
- Well-defined conflict resolution mechanisms.
- Exit strategies or “divorce clauses”
Main Risks and Challenges:
- Conflicts of interest.
- Asymmetry in knowledge or power.
- Cultural differences.
- Intellectual property leakage.
- Lack of commitment from one of the parties.
- Possible transformation of your partner into a competitor
When are alliances most useful?
- When entering complex or regulated markets.
- When you need local adaptation.
- When you lack resources or know-how to go alone.
- When speed is essential (first-mover advantage)
Example Scenarios:
- A tech company partners with a local firm to adapt a product to local tastes.
- A pharmaceutical firm enters a market using an R&D alliance with a local lab.
- Two airlines create a codeshare agreement to expand their network (e.g., Star Alliance)