An overall view of a firm’s Internationalization process - Hoang Van Hai

Hoàng Văn Hải và Đtg Tạp chí KHOA HỌC & CÔNG NGHỆ 121(07): 165 - 170 165 AN OVERALL VIEW OF A FIRM’S INTERNATIONALIZATION PROCESS Hoang Van Hai*, Hoang Thi Thu Hang College of Economics and Business Administration - TNU SUMMARY In an era of globalization today, more and more companies try to internationalize since they are aware of the importance of internationalization on the growth and expansion of their capacity and resource generation. In the attempt to create an overall picture of what the process might be, the paper provides a set of basic information of a firm’s internationalization process, including the most prevailing definitions of the process, advantages a firm can gain from internationalization, the model of internationalization, determining factors for a firm’s internationalization, and obstacles preventing firms from internationalizing. Keywords: internationalization, internationalizing firms, host countries, managers, resources INTRODUCTION* Vietnam has being integrated global economy widely and deeply. It is shown through the integration of the country into ASEAN in 1995, WTO in 2007, participating in Trans- Pacific Partnership (TPP), negotiating the free trade agreement with EU as well as Russian, Belarus, Kazhastan.... With Vietnam’s business community, internationalization, therefore, is inevitable. In the effort of providing a primary understanding of what the process could be, the paper introduces a set of basic information related to firms’ internationalization. Of course, these information can be found in corresponding literatures, yet they are scattered in lots of papers instead of one, thus the paper is just a collection of basic things relative to the process and hopefully, it will offer readers an overview of firms’ internationalization within reasonable amount of time. The paper content is presented through the following order: definition of firms’ internationalization process, advantages a firm can gain from internationalization, the model of internationalization, determining factors for a firm’s internationalization, and obstacles preventing firms from internationalizing. DEFINITION OF INTERNATIONALIZATION PROCESS The term internationalization was first introduced in 1920s as the organization * Tel: 0912 697605, Email: hoanghai@tueba.edu.vn started creating cross border relation within the market economies. There is no consensus among researchers on the definition of firms’ internationalization. To provide a fundamental concept of what internationalization process might be, two following definitions are worth consulting According to Johanson and Vahlne (1977: 23) “internationalization of a firm is a process in which the firms gradually increase international involvement”[14]. In the same subject, Lehtinen and Penttinen (1999: 13) indicated that “Internationalization of a firm of a firm concerns the relationships between the firm and its international environment, derives its origin from the development and utilization process of the personnel’s cognitive and attitudinal readiness and concretely manifested in the development and utilization process of different international activities, primarily inward, outward and cooperative operations” [17]. WHY DO FIRMS HAVE TO INTERNATIONALIZE? Internationalization offers internationalizing firms lots of advantages. Of these benefits, three most prominent advantages are: Internationalizing firms may be able to select possible strategies to minimize their costs in particular locations such as labor intensive activities in low-wage countries or software development in India [9][22], Hoàng Văn Hải và Đtg Tạp chí KHOA HỌC & CÔNG NGHỆ 121(07): 165 - 170 166 Internationalizing firms can make use of cross- national difference dynamically by shifting production or locations in response to changes in wage, exchange and tariff rates [20]. Internationalizing firms are able to gain tremendous learning opportunities through satisfying various tastes of customers and responding to different rivals in international markets [16][26]. This learning can be transferred to their other affiliates at negligible additional costs, improving their performance as a whole [20]. THE STAGES IN THE INTERNATIONALIZATION In the subsection, the Uppsala model, which is developed by Johanson and Widersheim- Paul in 1975 and then modified by Johanson and Vahlne in 1977, is chosen to describe stages of internationalization process since it is the most accepted one regarding internationalizing firms. This model describes the process as slow, sequential and gradual. It includes four following stages: sporadic export, export modes, establishment of foreign sales subsidiary, and foreign production/manufacturing units [8]. Stage 1 This is a stage when a firm starts export into a foreign market that has not been familiar before. Since the firm has no information of the country’s resource, no market experience will be drawn. Stage 2 The stage is marked with the firm’s establishment of channel to export. Its products are distributed via local distributors in the concerned country. At the stage, the firm consequently gains some superficial knowledge of the market. Stage 3 In the stage, the firm set up a sales subsidiary in the concerned country. Its knowledge of the market is broadened and the firm, as a result, is easy to control its business in the country. Stage 4 The stage is marked with the establishment of the firm‘s manufacturing unit in the concern country. Because of having deep knowledge of the market, the firm itself starts manufacture there. Johansson and Vahlne (1990) indicated that firms sometimes skip some stages and jump to another stage. For instance, a firm can start exports with the chosen country and neglect stage 2 and directly establishes sales subsidiary in the country. Or in the second and third stage, a firm can create its relationship via joint ventures with earlier representatives. There is a direct relationship between market knowledge and market commitment. The more the market knowledge, the more the firm’s market commitment [13]. DECISION TO INTERNATIONALIZE To answer the questions of what are determining factors for firms’ internationalization process, researchers have focused on elements triggering a firm’s decision to make an entry in foreign markets [2]. Two main following factors drawn from corresponding literature are: organizational factors and environment factors [1]. Organization factors Organizational factors can be divided into two forces: decision-maker characteristics and firm-specific factors Decision-maker characteristics These characteristics arise from the recognition by the top managers or the top management teams of the importance of the firms’ internationalization process. According to Reid (1981), the following characteristics affected positively the internationalization decision: [21] Traveling and experiencing abroad. Managers traveling abroad extensively are more likely to have open mind and be desirable in foreign affairs, thus being more eagerness to meet Hoàng Văn Hải và Đtg Tạp chí KHOA HỌC & CÔNG NGHỆ 121(07): 165 - 170 167 foreign managers and build business partnerships. They are also more opportunities to recognize advantages offered by foreign partners and foreign countries, having a business network abroad, and being able to contact and negotiate with managers from various cultures, Foreign language proficiency. The number of languages spoken by the top managers is pivotal to show his or her interest in international operation. The abilities of speaking several languages make the top managers to be eager to travel abroad more, thus being able to form social and business contacts, understand business practices, negotiate and sign good deals for the company. The decision-maker background. Top managers who was born, lived, studied, or worked abroad are more likely to possess extensive international experience, and have international orientation, Personal characteristics. Managers who are natural risk-takers are more likely to internationalize than risk-averse ones. Similarly, high ambition managers are more motivate in internationalizing than low ambitions ones. Firm-specific factors There are two firm-specific factors [18]: Firm size. Firms in big size tend to internationalize more than small ones since they own more managerial and financial resources, reach higher level of economics of scales, and tend to attribute risk to lower level in international operation, International appeal. A unique product or service with an international appeal could as an engine stimulating for firms’ internationalization process. Take products like Nike shoes, Levi’s jean, Pepsi, McDonal’s, and electronics appliances as good examples. These products have all crossed global borders as a result of their international appeal. Environmental factors The external business environment has significant influence on a firm’s strategic direction. Among external driving forces for firms’ internationalization process, the most important factors are showed as follows: Unsolicited proposals Some unsolicited proposals from foreign governments, distributors, or client trigger firms’ internationalization [33]. Take automaker Volkswagen as an example. In the visit to Volkswagen’s headquarters in Germany in 1978, Chinese delegation proposed a joint venture with strong support of the Chinese government. Because of the attractive proposal, the automaker decided to enter into Chinese auto market, and later became China’s largest manufacturer of cars [18]. Because of the popularity of the internet, a firms’ internationalization process may be marked by receiving unsolicited inquiries through its website. For example, Ekomate, the Indian software development firm, made the first international contract with a British firm as a result of receiving unsolicited proposal from British partner through the company’s website by chance. After the first oversea entry, Ekomate entered into US market and its clients included multinational firms such as IBM, Ford, and Citibank [18]. The bandwagon effect Internationalizing firms can take advantages from its internationalization process rather than its competitions in the home markets. These benefits may include gaining cheap materials, new knowledge, or large economies of scale. The internationalization of a firm, therefore, brings the fear of being left behind to its rival thus may force the competitions to mimic the internationalizing firm’s strategic move to expand abroad [12][10][15]. It calls bandwagon effect. For example, seven different US telecommunications have invested large amount of capital in the local long distance market in Mexico at about the same time [10]. Hoàng Văn Hải và Đtg Tạp chí KHOA HỌC & CÔNG NGHỆ 121(07): 165 - 170 168 Attractiveness of the host country Attractiveness describes how desirable the country’s host market is for the business activities by foreign firms. Market size of destination countries is one of the determining factors influence investment decisions of foreign firms since it provides internationalizing firms with greater potential for growth, profit, and stability of operations. Aside from market size, per capital income is a good indicator for a country’s attractiveness. The higher the per capital income, the higher the purchasing power and demand for industrial and consumer good. Cheap labor, availability of skills, and proximity to the market are also important factors attract foreign firms [7][24]. OBSTACLES TO INTERNATIONALIZATION The difficulties of internationalizing firms can be derived from at least four different types of liabilities Liability of foreignness. The difficulties is due to the different norms and rules conducting human behavior, including culture, language, religion, and politics. It prevents companies from operating successfully in foreign markets due to their lack of knowledge and social networks to realize the differences [25][19], Liability of expansion. The difficulties come from an increase in the scale of a firm’s operation. Domestic firms may face problems of increased transportation, communication, and coordination due to their expansion. These problems, however, are usually higher for multinational companies as a result of high costs of coordinating in international operations [11][4], Liability of smallness. The difficulties associate with small and medium –sized enterprises as a result of limited financial resources for investing abroad, limited information about the characteristics of foreign markets, a lack of human resource to implement relevant business development work, and less negotiating leverage in relation to potential business partners and foreign governments [3][5], Liability of newness. The difficulties relates to being new to a market. New domestic market entrants are in disadvantage position compared to existing firms, these problems, however, may be larger for internationalizing firms due to a lack of experience of foreign transactions or lack of certain resources needed in foreign markets [4][6], When Carrefour, a well-known French retailer, made expansion in China, it encountered the liability of foreignness (Carrefour was boycotted by Chinese nationalists in 2008 because of being French company); the liability of expansion (Carrefour experienced problems of transportation, communication and coordination due to China’ vast geographical size, it, therefore, has to establish eleven regional procurement centers); and the liability of newness (At first, Carrefour was impossible to find the best local supplier and get along with local government authorities, therefore it had to be dependent on the knowledge of local Chinese joint venture partners) [18]. CONCLUSION Evidently, internationalization is not easy to implement, especially with small and medium sized firms. Yet it is still a vital factor for enterprises to grow and expand their capacity and resource generation as well as to improve their competition in both domestic and international markets. A basic understanding of the process is, therefore, helpful for students who are trained to be either policy makers or managers because they both have a key role in accelerating the internationalization of firms. Of course the paper, as being a reference, would provides lectures and students in other majors with useful information related to their particular interests corresponding to internationalizing firms. Hoàng Văn Hải và Đtg Tạp chí KHOA HỌC & CÔNG NGHỆ 121(07): 165 - 170 169 REFERENCES 1. Aharoni, Y. (1966)” The Foreign Investment Decision Process”, Boston, MA: Graduate School of Business Administration, Harvard University. 2. Albaum, G. 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(1995) “Overcoming the liability of foreignness”, Academy of Management Journal, 38(2): 63-341 26. Zahra, S.A., Ireland, R.D., & Hitt, M. A. (2000) “ International expansion by new venture firms: International diversity, mode of market entry, technological learning and performance”, Academy of Management Journal, 43(5): 925-950. Hoàng Văn Hải và Đtg Tạp chí KHOA HỌC & CÔNG NGHỆ 121(07): 165 - 170 170 TÓM TẮT TỔNG QUAN VỀ TIẾN TRÌNH QUỐC TẾ HÓA CỦA CÔNG TY Hoàng Văn Hải*, Hoàng Thị Thu Hằng Trường Đại học Kinh tế & Quản trị Kinh doanh – ĐH Thái Nguyên Trong thời đại toàn cầu hóa ngày nay, ngày càng nhiều công ty cố gắng quốc tế hóa vì họ nhận thấy được tầm quan trọng của tiến trình này đối với sự tăng trưởng và mở rộng khả năng sản xuất cũng như sản sinh nguồn tài nguyên. Với cố gắng để tạo ra một bức tranh chung về quá trình quốc tế hóa, bài báo cung cấp một tập hợp những thông tin cơ bản của sự quốc tế hóa của một công ty, bao gồm những định nghĩa phổ biến nhất, những lợi ích mà công ty nhận được từ tiến trình này, các bước của tiến trình quốc tế hóa, những nhân tố quyết định đến sự quốc tế hóa và những trở ngại ngăn cản sự quốc tế hóa của công ty. Từ khóa: quốc tế hóa, công ty quốc tế hóa, nước chủ nhà, tài nguyên. Ngày nhận bài:05/3/2014; Ngày phản biện:25/3/2014; Ngày duyệt đăng: 25/6/2014 Phản biện khoa học: TS. Bùi Nữ Hoàng Anh – Trường Đại học Kinh tế & Quản trị kinh doanh - ĐHTN * Tel: 0912 697605, Email: hoanghai@tueba.edu.vn