The Art of Going Global

A Practical Guide to a Firm's International Growth

Olga E. Annushkina, Alberto Regazzo

• Publisher: Palgrave Macmillan
• Year: 2020
• Print ISBN: 9783030210434
• eBook ISBN: 9783030210441
• Topic: Business
• Subtopic: Business General
• Index: Business

Internationalizing your firm presents both exciting opportunities and daunting challenges, regardless of your industry. While strategy will vary from firm to firm, this book provides a solid set of decision-making tools that will support you as you take your company global. Starting with the most important step – cultivating a truly international perspective in your senior management team – it sets out the pros and cons of each choice you will face as you define and shape a global strategy. With a pragmatic toolkit provided at the end of each chapter, The Art of Going Global will help to improve your decision-making capabilities in relation to a range of challenges, including:

· Selecting foreign markets

· Adapting your business model

· Navigating uncertain global markets

· Managing across cultures

· Choosing between entry mode options

With case studies and insights illustrating how to apply each toolkit, this book is ideal for practitioners, MBA students, and those in executive education. It will help you to consider a variety of alternative solutions for key managerial decisions on internationalization, the costs and benefits of different strategic scenarios, and ultimately drive you to create a clear global vision for your firm.

© The Author(s) 2020

O. E. Annushkina, A. RegazzoThe Art of Going Globalhttps://doi.org/10.1007/978-3-030-21044-1_1

Begin Abstract

1. Is Your Business Reaching Its Full Scale on Global Markets?

Olga E. Annushkina¹ and Alberto Regazzo²

(1)

SDA Bocconi School of Management, L.Bocconi University, Milan, Italy

(2)

Long Term Partners S.r.l., Milan, Italy

Olga E. Annushkina (Corresponding author)

Email: [email protected]

Alberto Regazzo

Email: [email protected]

Keywords

InternationalizationBusiness strategyGlobalizationForeign markets

End Abstract

Strategy is about reaching goals. If you are a business leader considering international expansion, focusing on this seemingly simple statement could save your project. Without clear and measurable objectives, you will find yourself unequipped to confidently dedicate the financial and human resources needed to achieve foreign growth.

In this chapter, we discuss how internationalization can affect your firm’s performance (and it is not just about revenue!). Next, we introduce a tool to help you create ambitious and comprehensive internationalization goals. Finally, we discuss how to define the full potential of your business in global markets, by teaching you not ‘how to dream big’, but ‘how big to dream’.

1.1 Going International: the Profitability Issue

Businesses love celebrating their global presence. “Our international activities are significant to our revenues and profits, and we plan to further expand internationally,” is fairly typical annual report statement. It is no wonder, considering the extent to which global growth is venerated by shareholders. Yet, in reality, academic research has failed to confirm whether it actually has a positive effect on a firm’s profitability.

Over the past three decades, the relationship between internationalization and profitability has received unprecedented attention from international business researchers, yet the studies cannot agree. The impact of internationalization (including all forms, from exporting to joint ventures, acquisitions, and greenfield factories) of American, European, and Asian firms’ on performance has been found to concurrently be:

1. 1.
   positive: an increase in the international presence improved the firms’ performance;
2. 2.
   negative or insignificant: an increase in the international presence had a negative direct influence on firms’ performance or did not have any significant impact;
3. 3.
   sigmoid (S-shaped curve): internationalization initially contributed negatively to profitability. During the second stage of international growth the impact was positive, and in the third stage the effect of further international growth was negative or insignificant;
4. 4.
   U-shaped: international growth initially decreased profitability indices, after which they recovered and the firm’s performance was positive.

There have been numerous explanations for such inconclusive results, including measuring imperfections, inconsistent definitions in the “degree of internationalization”, and difficulties in reconciling variations in accounting standards.

We point out the above, not to scare you away from international expansion, but to demonstrate that it is a complex process that cannot always be measured in clear cut terms. While this book assumes that internalization has at least the potential to have a positive effect on profitability and competitive advantage, it will also guide you through the associated risks.

Unfortunately, there is not a tried and tested “recipe” for how internationalization will grow your business and create value for your shareholders, but you can prepare the starting ingredients:

1. 1.
   An understanding of the uncertainty of the relationship between internationalization and performance, the factors that will benefit your firm’s international profitability and (more importantly) those that will damage it.
2. 2.
   A clearly defined set of internationalization goals that include, but are not limited to, financial performance, coupled with a set of metrics with which to evaluate your firm’s advancement on global markets.

In the bulk of this book, we seek to shed light on the first topic and on the variety of factors that could influence the profitability of your international operations. We will do this by discussing the key components of internationalization strategy (such as foreign market selection, entry modes, organizational strategies and adaptation-standardization choices) and their potential impact on your firm’s success in international markets. Each chapter (except for one dedicated to strategy) contains relevant case studies and examples.

The remainder of this chapter explores the second topic: why firms decide to go abroad. We will introduce our International strategy control panel, a tool to help you clarify your international objectives, and we will discuss what defines success in international markets.

1.2 Why Firms Decide to go Abroad

Your business is performing well in its home market, and the obvious next step is to launch in other countries. You may be correct, but before booking those plane tickets, take a moment to consider all your implicit motivations for chasing global growth. The result could change your whole approach, or, at least clarify your ideas on how to measure your future progress.

The decision to internationalize is made at both corporate and business unit levels (for multi-business firms), and may be driven by a single or a complex variety of motives (Fig. 1.1). Without a deep understanding of why you are taking your business abroad, it is impossible to define meaningful internationalization goals. This is both true for firms that already have an international presence and those branching out for the first time.

Fig. 1.1

Internationalization motives

The internal motives for your decision to internationalize are likely to fall into four broad and interconnected categories:

1. 1.
   Financial and economic: to increase revenue (the first line of the profit and loss statement), to optimize cost structure (all other lines of the profit and loss statement), or to do both.
2. 2.
   Competitive advantage: to obtain access to strategic clients, distribution networks, or specialized know-how and technology. Firms internationalizing for competitive advantage may be unable to predict the immediate or mid-term impact of the internationalization decision on financial performance.
3. 3.
   Diversification: seeking to manage risk.
4. 4.
   Reactive motives: reacting to external stimuli that favour an opportunity abroad.

1.2.1 Financial and Economic Motives of Internationalization

Increasing revenue by “market-seeking” is perhaps the most obvious (and commonly cited) reason for internationalization. By going abroad, your business can increase its customer base, approach new types of clients or follow existing clients: take the case of CATL, a Chinese producer of batteries for electric vehicles that decided to open a factory in Germany to better serve its existing client BMW.

Internationalization will also enable your firm to learn about customer needs and market segments you may not have even considered. This was the finding of Culinaryon, an international cooking school based in Russia. Its Moscow location thrived on birthday parties, celebrations and corporate events. However, opening in Singapore enabled it to reach a new type of customer, those willing to invest in cooking classes to improve their skills”: a cooking class seen more as an educational experience than entertainment.

Let us assume that, to date, your firm has only operated in its domestic market. By default of living in the same country, your customers are subject to the same economic conditions, product availability and cultural influences. It follows that you your product prices are more or less aligned. Now imagine that you operate in several countries. Suddenly it is possible to vary prices depending on local market conditions. You can command more if a particular country has a product shortage, or if there are fewer competitors. It could even be the case that the locals perceive imported products to be of higher quality. To see an example of this in action, look no further than Swedish furniture retailer Ikea. Its “Hektar” floor lamp costs 58.00 euros in Sweden, 55.00 euros in Italy, 49.00 euros in Czech Republic, 41.00 euros in Poland, 59.99 euros in Greece and 51.00 euros in Croatia.

Internationalization is not just about customer demand. There are potential benefits at every point of the supply chain. You can reduce costs by offshoring some of your business activities to countries where the cost of labour, electric energy and natural resources is lower, or a factory’s productivity-to-cost ratio is higher than in your home market. For example, Chinese telecoms and consumer electronics company, Huawei Technologies, opened its first research and development (R&D) centre in Sweden in 2000 to benefit from access to qualified telecoms engineers. The expected output in terms of technology development was attractive enough to ...

Table of contents

• Cover
• Front Matter
• 1. Is Your Business Reaching Its Full Scale on Global Markets?
• 2. Global “E–E–E” Mindset: Empathy, Ethics, and Engagement
• 3. The Adaptation Issue
• 4. Foreign Market Selection: Which and How Many?
• 5. Entry Modes: How to Enter a Foreign Market
• 6. Organizing for International Growth
• 7. Strategic Decisions in International Business
• 8. Implementing Internationalization Strategy: The People Question
• Back Matter