SME Internationalization Process Models Literature Review Chapter

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SAMPLE EXCERPT:

[. . .] Technology industry will require different kind of network players and will have to focus more on innovation. In the technology industry the expansion might be concentrated because of the nature of these industries as they have more of independent operations and have different structural characteristics. It is hard to develop a strategic action for these types of industries. This means that the major expansion in this manner will come from most of the manufacturing firms and industries which are knowledge intensive which have high amount of investments in Research and Development departments.

Network theory also explains the challenges which are faced by immigrant entrepreneurs. As the immigrant entrepreneurs are entering the market with lack of local knowledge, limited recognition locally, language barriers and difficulties in obtaining the network players. All this makes their entry difficult. Therefore the immigrant entrepreneurs usually acquire the international network players to facilitate the growth of the venture. The network theory can only partially explain the influence of resources and ownership on exporting.

Entry Modes:

The firms' expansion strategy decides which mode to enter the foreign market with, the best alternative is selected and then the expansion takes place. The basic purpose of any business is to earn profits and to establish itself as a global player. This demands a highly complexed internationalization strategy and to identify the various opportunities which are available to them and then explore that through the resources and capabilities that the company possesses. A highly important decision for a firm is how to enter the market as there are a number of possible ways through which a company can decide to enter a foreign market.

The following chart can explain the expansion alternatives available to the companies:

ENTRY MODES

INVESTMENT

LICENSING

EXPORT

PORTFOLIO

FOREIGN DIRECT INVESTMENT

DIRECT

INDIRECT

CO

PERATIVE

JOINT VENTURES

FRANCHISING

CONTRACT MANUFACTURING

The chart explains the various modes of entering into a foreign market. The most common used methods for entering the foreign markets are given below:

Exporting

Licensing

Franchising

Joint Ventures

Direct Investment

Export Entry Modes:

The process which involves a seller who sells his goods and services which are produced in our country and then they are sold in the other country is called exporting. There are two types of exporting. Direct and Indirect. However some may argue that a third type also exists which is the cooperative exporting. Exporting can be carried out by acquiring the services of the following four players:

1. Exporter

2. Transporter

3. Government

4. Importer

Direct Exports:

Direct exports are the most commonly used type of exporting. This is done through capitalizing on the economies of scale. This provides the firm with affordable actions and a better control. The following are the types of direct exporting:

Sales Representatives

Importing Distributers

The main advantages of direct exporting are given below:

A better control over the selection of the foreign markets.

Provides the company with the choice of foreign representative companies

More secure because of trademarks, patents and other intangibles

Better alternative than indirect exporting in most cases

The following are the disadvantages of direct exporting:

Initial costs are high

More information is required

Increases the lead time

Indirect exports:

Indirect exports are based on the exports through intermediaries. In indirect exports the exporter has absolutely no control over the retailers and the products in the global market.

Types of indirect exporting:

Export trading companies

Export management companies

Export merchants

Confirming houses

Nonconforming purchasing agents

The following are the advantages of indirect exporting:

A Smoother access to the market

Availability of resources for production

Limited financial commitment

Less risky investments

Focused management team

Less handling costs due to less no direct handling

The following are the disadvantages of indirect exporting:

Higher risks in comparison to direct exporting

Limited control over distribution channels

Less knowledge and experience gained

Decision can backfire in case of wrong selection of distributors.

Less sales as compared to direct exporting

INTERMEDIATE ENTRY MODES:

LICENSING:

Advantages:

Helps in gaining more income because of the technical knowledge

Better reach than exporting

Rapid Expansion

Helps in making way for future investments

Trade transactions helps in retaining the established markets

Less political risks

Highly attractive proposition for new comers

Disadvantages:

More competition due to local and foreign players

Low level of income

Less control over the manufacturers

Incompetent partner can harm the reputation

Partner can also become a competitor

Franchising

Franchising is when a business is owned by a semi-independent owner who pays royalty and fees to the parent company and takes rights of its trademark and uses it for selling purposes.

Advantages:

The major advantage of franchising is that it has low political risk.

Relatively less costly

Easier to implement the expansion strategy globally

Better opportunities for financial investment.

Disadvantages:

The franchisee itself can be a major threat in future.

Initially more problems will be faced.

The selection process if goes wrong then it can earn the company a bad reputation.

Joint venture

Advantages:

Joint venture helps when the goals of the strategic partners converge.

Strategic partners can learn from each other.

Disadvantages:

Fear of conflicts

Lack of trust can hurt

Ambiguity in business dealings

Requires high level of support from the parent company

Cultural differences

Problems in coming out of the venture

Hierarchical entry modes:

The following are the hierarchical entry modes that a firm may choose to pursue:

Domestic-based sales representatives

Foreign sales subsidiary

Sales and production subsidiary

Region centers

Transnational organizations

Wholly owned subsidiaries

References

Root, Franklin R. (1994), Entry Strategies for International markets, John Wiley & Sons, Inc.

Yoshino, M.Y.; Rangan, U.S. (1995), Strategic alliances: an entrepreneurial approach to globalization, Harvard Business Press

Foley, J. (1999), The Global Entrepreneur: taking your business international Age, Dearborn,

Hoy, F.; Stanworth, J. (2003), Franchising: an international perspective, Routledge

Hitt, A. (2009), Strategic Management Competitiveness and Globalization, Nelson Education Ltd.

Sherman, A.J. (2004), Franchising & licensing: two powerful ways to grow your business in any economy, AMACOM Div American Mgmt Assn,

Elgar, Edward (2003). Learning in the Internationalization Process of Firms. Luostarinen (1979). p. 261

Penrose, Perran & Pitelis, Christos. Edith Elura Tilton Penrose: Life Contribution and Influence. Contributions to Political Economy (1999)

Pitelis, Christos; Roger Sugden (2000). The nature of the transnational firm. Dunning… [END OF PREVIEW]

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"SME Internationalization Process Models."  Essaytown.com.  April 18, 2012.  Accessed February 20, 2019.
https://www.essaytown.com/subjects/paper/sme-internationalization-process-models/8790048.