Decision Whether to Internationalize Research Paper

Pages: 22 (6941 words)  ·  Bibliography Sources: 30  ·  File: .docx  ·  Level: Doctorate  ·  Topic: Business

Decision Whether to Internationalize or Not?

Companies competing in the oil and gas extraction industry are faced with some unique challenges and opportunities as the demand for energy increases and the inexorable march to peak oil continues. Emerging economic powerhouses such as China, India, Brazil, and Malaysia will need ever-increasing amounts of energy to fuel their economic development and consumer demand, and it is becoming apparent that companies that can extract oil and gas efficiently and reliably enjoy a competitive advantage. Not surprisingly, the oil and gas industry is highly internationalized, with a global supply chain and customers. One company that has experienced success in this environment has been RBG Limited, a UK corporation created in 1995. This company forms the focus of this study to identify salient factors affecting the decision to internationalize or not, and these issues are discussed further below.

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Research Paper on Decision Whether to Internationalize Assignment

In an increasingly globalized marketplace, many companies are trying to internationalize without giving much consideration to the implications of such initiatives. In their rush to jump on the internationalize bandwagon, some companies have either failed to achieve the positive outcomes they intended or have otherwise failed to gain a competitive advantage using this process. Not surprisingly, then, many companies have been reluctant to internationalize because of the unknowns that are involved. In this regard, Arbaugh, Camp and Cox (2008) report that, "While internationalization and its consequences have been the focus of extensive research, the question of 'Why don't firms internationalize?' has received much less attention. Considering that in spite of the "march of globalization" often trumpeted by the business press, the fact that most high-performing North American entrepreneurial firms still are domestically oriented makes this an interesting question" (p. 366). The theory of new venture internationalization indicates that among existing companies, some will be more amenable than their competitors in seeking new opportunities outside the sphere of their existing markets (Clerq & Bosma 2008). This theory builds on the strategic choice view of organizational decision making, in that it focuses on the firm's pursuit of specific goals as an important factor associated with the nature and pace of internationalization. Therefore, the commitment to internationalize will likely differ according to two knowledge-related firm resources, the company's management team size and the company's existing level of innovation (Clercq & Bosma 2008).

Indeed, projecting an international presence on the level required by the internationalization process no longer represents an insurmountable enterprise, and there are a wide range of resources available to help new entrants in a given market sector level the playing field with existing market leaders. These trends means that companies seeking to grow their businesses are faced with some challenging issues when it comes to identifying the optimal approach, with internationalization being the route of choice for some, including RBG Limited (hereinafter alternatively "the company"), an oil and gas extraction company discussed further below.

RBG Limited

Since the company' incorporation in 1995, it has experienced a number of acquisitions and mergers that has fueled its growth. For instance, in 2005, the company acquired Core Technical; in 2006, Wilcox Engineering was acquired and a joint venture with SRQ was created in 2007. Finally, in 2008, the company acquired PWL, providing RBG with the employee complement shown in Table 1 below.

Table 1

RBG Profile and Key Facts

Factor

Description

Comments

Company Name

RBG Limited

Incorporation date 25 October 1995

R/O Full Postcode

AB21 0DP

Registered Number

Primary UK SIC (2003)

Code -- 11.20

SIC Code 11.20: Service activities incidental to oil and gas extraction excluding surveying. This sector provides oil and gas service activities on a fee or contract basis, for example directional drilling and re-drilling or repairing and dismantling of equipment.

Turnover in GBP

261,837

(as of 31/12/2008)

Number of Employees in Last avail. year

2,965

Previous Names

1. RIGBLAST GROUP LIMITED (2005-01-07)

2. LEDGE 248 LIMITED (1996-04-19)

Website

http://www.rbg-group.com/

Source: UK Companies House, http://xmlgw.companieshouse.gov.uk/

RGB Ltd. Mission and Vision

The company's stated mission is "To be the fabric maintenance and construction support service partner of choice within the global energy industry" (Our aims and ambitions 2011, p. 1). The company's stated vision is as follows:

We will be renowned as the number one global fabric maintenance and construction support partner, providing safe, quality and innovative services. The industry will admire and recognise our capabilities and our performance; our competitors' employees will want to work for us. The market will expect us to deliver, because we always deliver. As people we will all be valued, given opportunities and enjoy work. Growth will be the norm across the business, and change will be expected and promoted. (Our aims and ambitious 2011, p. 2)

As can be readily discerned from the company's mission and vision statements, RBG seeks to expand its international operations further in the future as part of its fundamental corporate strategy for growth. This type of growth, though, represents a proposition that will inevitably require expansion into additional international markets and these issues are discussed further below.

Market opportunities

The decision to internationalize will involve identifying what type of strategy will be used to pursue new market opportunities in countries outside a company's existing network of operations. According to Kasper, Van Helsdingen and De Vries, there are two basic strategies that can be used by companies seeking to internationalize: (a) client following and (b) market seeking as described further below.

1. Client following: In this strategy, companies follow the client to provide services in the foreign subsidiaries of the customer in their own country.

2. Market seeking: In those cases where companies are searching to grow their business in new markets, they will enter into new international markets to expand and serve new customers in foreign countries. These customers have to become familiar with this new entrant and new relationships have to be built. This is more complex than the foregoing "client following" strategy (Kasper et al. 1999, p. 29).

In RBG's case, it has traditionally applied a client following approach, taking its services where they are needed in the dynamic oil and gas extraction industry environment. In other cases, though, a growing body of evidence indicates that organizational size and age are not barriers to internationalization (Yamakawa, Peng & Deeds, 2008). As a result, some of the primary factors that have emerged as leading reasons why some companies pursue internationalization while others do not relates to various perceptual and experiential issues that will vary over time as a company's leadership team changes (Manlova, Brush, Edelman & Greene 2002). Two of the most likely factors that will influence the decision to internationalize are the current levels of domestic success and the degree of barriers to entry in new markets (Manlova et al. 2002). The so-called "domestic success" perspective as explicated in the Uppsala model of corporate internationalization, indicates that companies will seek to internationalize their operations at the point their domestic markets have matured, but not typically before this maturation has been achieved (Arbaugh et al. 2008). Therefore, so long as there are existing opportunities in the domestic market for growth, firms are less likely to internationalize (Arbaugh et al. 2008). By contrast, the so-called "barriers to internationalization" perspective maintains that companies are reluctant to internationalize as a result of significant differences in knowledge and/or national cultures (the so-called "psychic distance") between the headquarters country and other countries, and/or perceived financial or economic risks. According to Arbaugh and his colleagues, in these cases "firms may be interested in internationalization, but perceived external hurdles discourage them from doing so" (Arbaugh et al. 2008, p. 367).

Other authorities agree that these factors influence the decision-making process concerning whether internationalization is in a company's best interests or not, but suggest that many companies make the decision based on a unique set of circumstances. For instance, Hutzschenreuter, D'Aveni and Voll report that, "International expansion is a topic on the agenda of almost every large company" (2009, p. 45). There are a wide range of reasons that may compel companies to pursue internationalization, including (a) access to unique resources, (b) access to growth markets, (c) exploitation of economies of scale, or (d) benefits from differences in factor costs (Hutzschenreuter et al. 2009). These authorities, though, caution that "International expansion is a complex task," and add that, "During international expansion, a firm starts to operate subsidiaries in countries with which it is unfamiliar and in which it is an outsider" (Hutzschenreuter et al. 2009, p. 45). In these types of cases, companies lack the specific information they need to conduct business in these new environments, such as knowledge concerning customer preferences and competitors or knowledge concerning how to interact with local governments, unions, or employees (Hutzschenreuter et al. 2009). Over time, companies gain this knowledge by trial and error, or through the use of country-specific partners than can help them navigate the intricacies of doing business abroad. This steep learning curve has caused some authorities to recommend an incremental approach to internationalization, while others suggest that a more radical approach… [END OF PREVIEW] . . . READ MORE

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