ENTREPRENEURIAL ACTIVITY AND INTERNATIONALIZATION PROCESS
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Entrepreneurial Activity and Internationalization Process
Introduction
In the business world, several individuals come up with innovative ideas on how to make money daily. After such individuals have weighed all the critical aspects of the field, they look for the required capital and venture into the business world to enjoy significant success levels. Such individuals are called entrepreneurs. Many entrepreneurs have to start from the bottom with small to medium-sized enterprises (SME’s). Such organizations are usually relatively new to the industry, and it may take some time before the organization becomes fully operational and starts making significant profits.
However, for some SMEs, success does not elude them for significant periods. Once such companies start gaining recognition among the locals, they begin making enough money to warrant the capital that the entrepreneur invested in the project. At this point, the SMEs feel that they can do more and earn much more than they do at that particular time (Masum and Fernandez, 2008). Therefore, the step that follows is usually the expansion of services into the global market. This expansion typically allows such companies to have access to a broader market, meaning that there is exposure to potentially more customers. This exposure gives the SME hope of acquiring a more significant number of customers who would be instrumental in facilitating the company’s growth and cementing its position on the global scale.
On this front, several SMEs prefer to take things slowly by adopting the gradual method of entering into the global market. This procedure involves getting involved in one market at a time, monitoring the effects that the move will have on the business’s performance before deciding on the next step. This model is appropriate for growing companies, as the global market is full of many risks. One such risk is the volatile nature of global markets brought about by uncertainties concerning the political and economic stability of various countries (Dawei, 2008). Such occurrences may interfere with an organization’s international operations as its main clients may be affected by incidents such as civil wars. Based on such concerns, the slow approach appeals to many emerging countries.
However, in recent years, emerging companies, such as Alibaba, defied the business world’s norms. In particular, Alibaba decided to expand its operations to a global scale during its early stages, regardless of the risks involved. Such bold moves go to show the ambitious nature of Alibaba’s founder, Jack Ma. By taking such a huge risk, the company managed to establish itself into several markets worldwide in a single move. Looking at the company’s status at the moment, it is safe to say that it is currently the largest retailer and e-commerce company in the world (Wu and Gereffi, 2018). The company’s story is a classic example of high risk equals high reward.
Based on Alibaba’s success, many individuals classify it as a born global, meaning that the company’s destiny was to operate on a global scale from the time of its inception (Mannherz, 2018). Therefore, this paper aims at studying the entrepreneurial activity of Alibaba and its internationalization process during its growth phase. The study will identify the factors that prompted Alibaba’s geographical choices and the modes of expansion that the company employed as it expanded its activities into the selected geographic markets. Also, the study on Alibaba will reveal the challenges that SMEs face when trying to expand their market and the possible interventions to overcome these challenges. The study will rely on secondary sources of data.
Selection of Geographical Markets for Expansion
Several factors affect the choice of an organization to decide to globalize its operations. The most common cause of globalization is high domestic competition or saturation of the internal market (Carpenter and Dunung, 2011). As stated before, the business world is full of innovative individuals looking to make significant amounts of money and establish their position in society. Therefore, there is a high possibility that there might exist several similar businesses within the same country. As a result, these many businesses offer the same services to a limited number of customers. The returns from such ventures are usually less satisfying.
As a result, the businesses will have to come up with innovative ideas that will help them stay ahead of their competitors. Doing something unique will get the attention of the consumers, attracting them to the company in question (Masum and Fernandez, 2008). In Alibaba’s case, the move of choice was to go global. This move would open doors to new opportunities and increase the trust levels of local consumers in the company. This move worked very well for Alibaba because the company managed to gain international recognition. This recognition has a psychological effect on the locals. Many people believe that a company that has operations worldwide is more likely to be more legitimate and professional in the way it handles its operations. Otherwise, the international market would not have such a liking for the company.
On the same front, Alibaba had already reached out to the majority of domestic consumers. The company felt that it had the potential to serve even more clients who would, in turn, increase the company’s revenue. It did not take long before the company ventured into the international field, which has enjoyed massive success over the two decades it has been in existence. Alibaba’s popularity stems from the fact that it considers its customers before any other thing.
In Jack Ma’s words, he searched China on a search engine, and nothing came up. At this point, he made up his mind that he would create a business that would link the Chinese to the outside world. He made it his goal to ensure that retailers all over the world could access the Chinese market. At the same time, this move ensured that China had access to a variety of quality products from across the globe. This move has since created opportunities for other SMEs to feel about what access to a global market feels.
After determining that globalization was the way to go, Alibaba had to consider the costs involved in going global. This move’s financial aspect is essential because it would be unreasonable to embark on the worldwide market without the necessary financial resources. Such a move would be suicidal because lack of funds usually leads to the collapse of any business organization. A reputation that classifies a company as one that tried to go global and failed is not a good one. It creates a bad image for the company and repels potential customers.
Some companies may not have enough capital to go through with such a venture. However, a careful study of the situation may reveal that the move would be profitable for the company. In such scenarios, SME’s may take a loan and embark on the journey, hoping that their venture will be successful. The success of this venture would allow the SME to repay the loan in a good time. Alibaba’s situation is almost similar to this scenario. Jack Ma had a vision that he projected would be very profitable. Therefore, he gathered his friends and gave a detailed presentation of his ambitions and aspirations (Fannin, 2008). After listening to Ma, the individuals in the room raised the money that gave rise to the company that is a global sensation currently.
In some cases, companies have been guilty of misappropriating the funds involved in venturing into a foreign market. Such actions jeopardize the entire operations of the company in question. A typical example of this kind of mistake was Carrefour when it tried to venture into the Chilean market. However, the company’s efforts were unsuccessful, forcing it to strategize (Carpenter and Dunung, 2011). On the other hand, Alibaba has demonstrated a proper understanding of the business world by successfully venturing into foreign markets and making significant profits. The company has emerged as a role model for other SMEs to emulate in their quest for greatness. The company is also generous enough to provide opportunities for SMEs to exploit their full potentials.
Other considerations during the expansion process revolve around the investors. The venture should be beneficial to stakeholders because they have a vital role to play in managing the company’s operations. Their funds facilitate the smooth running of the organization. Therefore, there should be enough thought before putting their investments at risk (Carpenter and Dunung, 2011). Such considerations would ensure that the company remains in good standing with the investors.
In past years, the scholars described the internationalization process as a multistep process that took a considerable amount of time to materialize (Masum & Fernandez, 2008). This model saw SMEs start with ultimately no international activity. In the following years, the company would begin to slowly engage in some global business, while evaluating the risks and benefits involved as they move along. If the entire operation goes on smoothly, the company would eventually find itself owning affiliates and branches in different parts of the world. The successful implementation of this process would determine the levels of international success that a company would enjoy on a global scale.
While using this approach, it was complicated for some companies to even think about embracing the internationalization of their activities. These difficulties arose from the fact that the internationalization process relies heavily on making contact with people on an international scale. The necessary people that need approaching include international suppliers and markets (Masum & Fernandez, 2008). Scholars refer to this model as the Network Approach. For this model to be successful, making contact alone was not enough. The company had to ensure that it established and maintained good relationships with the international market and suppliers. Establishing connection was hard enough, and creating good relationships was even harder given the geographical distance that factored in. Hence, only a few companies could manage to achieve this feat.
However, in contemporary society, the world has made significant advancements in terms of technology. The extensive use of technology, particularly the Internet, has effectively helped to make the world a global village. As such, there are many links between different countries in the world, allowing companies to have access to the worldwide population even during the early stages of the company’s development. Therefore, these companies could quickly contact international suppliers and reach out to the global market. This was the case for Alibaba during its inception. The company aimed to create a link between China and the outside world, achieving this through the help of the Internet.
In recent years, many scholars have observed that successful adaptation of information technology, coupled with innovative strategies, contributes directly to the success that modern companies enjoy (Lecerf and Omrani, 2019). Companies that are quick to adopt and embrace the use of technology in their operations are generally more successful in their services than counterparts that do not embrace technology fast enough (Gbadegeshin et al., 2019). On this front, Alibaba incorporated technology right from its inception, using the Internet as the primary platform for operations. The company hoped to reach out to other countries through the Internet.
Right from the formation of Alibaba, it had a competitive advantage over other retailers in China, even though this fact may have been unbeknown at the time. The advantage the company had was that it had access to a larger market population as it could reach out to people via the Internet. In a business full of competition, any form of competitive advantage that a company can gain over the rest puts the company in an excellent position to enjoy success in the field (Lee et al., 2018). One of the largest at that, Alibaba’s competitive advantage proved correct as it went on to rise through the ranks to become a global retailer. The company’s strategies have proved very useful throughout the company’s existence.
The key to successfully breaking out into the international scene also depends on the country’s choice to first approach a somewhat hopeful and ambitious venture. The state of choice should have a strong economy. A strong economy means that the consumers within the chosen geographical area can comfortably purchase the company’s products. A struggling economy would not effectively promote a business’s operations, resulting in losses for the SME. Losses, especially during the early stages of a business venture, are usually demoralizing for the company involved. Suffering losses has adverse effects on the company involved, and may force the company to back down from the operation, resulting in a failed attempt at globalization.
Alibaba’s primary was the first to establish sustainable links with the United States of America. The U.S. economy is one of the strongest in the world, if not the strongest. There are often comparisons between other world currencies and the U.S. dollar. Therefore, Alibaba could not have chosen a better country to target other than the U.S. This was the hardest part of the globalization process. Once the company had accomplished this phase, it was only a matter of time before it would enjoy much more success in other parts of the world.
Modes of Expansion
Gaining entry into the international market is usually appealing to many companies, especially during the growth phase. There are five commonly used modes by companies to burst onto the international scene. These modes are exportation, acquisitions, the formation of partnerships and strategic alliances, licensing and franchising, and greenfield ventures (Carpenter and Dunung, 2011). Different companies choose different methods of expanding into the global population after evaluating the requirements. Each mode has a set of advantages and disadvantages that influence the critical decisions of the company involved (Rui, 2018). Ideally, a company will choose the mode with minimum risk and high reward.
Over the years, Alibaba has employed a combination of these modes of establishing itself as an international brand. The first model used by the company was engaging in a greenfield venture. This venture involves coming up with a new venture that is exclusively the property of the property involved. Although this mode is extremely costly, the company has total control over the activities of this venture, and the returns are above average (Carpenter & Duning, 2011). Alibaba ventured into the business world with the idea that it was new to China. The primary purpose was to allow the Chinese to have access to quality products from outside the country. A survey indicated that the majority of the Chinese population could not afford American products. However, Alibaba looked to change this perspective by making the products accessible and affordable to the Chinese community.
Another strategy employed by Alibaba is that of mergers and acquisitions. This process allows the company to acquire form partnerships with other companies. The union of these companies allows the companies to mobilize their resources and work towards achieving a common goal. Alibaba’s acquisition strategy focuses on China and mobile companies. For example, the company to reach a greater the company acquired the Hengsheng group in 2014 (Jia and Kennedy, 2016). Such moves allow the company to reach out to many people in different areas at a standardized or reduced cost.
Alibaba cements its international presence by facilitating exportation services among sellers and consumers who use their services (Roque et al., 2019). The company’s main objective is to promote all kinds of trading activities using an online platform. This vision and ambition have made the company a favorite among many individuals who engage in business activities. Consequently, signs point towards Alibaba continuing to enjoy the successful status it has managed to achieve through determination and hard work.
Globalization Challenges facing SMEs
The process of globalization is a complex activity that often proves impossible for emerging SMEs. Only a few companies usually manage to establish themselves on the global market and enjoy the benefits that come with the achievement of such an important milestone. Many SMEs have globalization as part of their expansion plan. However, several factors prevent such organizations from realizing their dreams. The difference between companies that achieve internationalization and those that fail in these quests is that successful companies find ways to overcome globalization barriers.
The most significant problem facing developing companies is the lack of capital for expansion (Kumar, 2019). Breaking out into the global market can be an overwhelming task, especially for emerging companies. This process would mean that the company would have to increase the number of employees because it would need contacts in the target countries. More employees would mean increased expenses for the company in terms of the employees’ salaries. While exploring international prospects, there is always the possibility that the company will have access to a more significant market population. Increased market sizes, more often than not, usually mean increased demand for a company’s products. Therefore, SMEs that hope to achieve any type of success on the global market have to raise their production rates. Increased productivity requires a monetary investment, an issue that may be challenging for developing companies.
Alibaba established itself due to the individuals that came together to fund the establishment of the company. This funding turned out to be an investment of a lifetime for those that were involved in the formation process. Once Alibaba had collected the required amount for their operations, the people in charge of running the company ensured that they spent every dollar efficiently and with caution (Fannin, 2008). It was clear to them that they did not have a reserve of funds as they had contributed everything they had and directed it to the establishment of the company. The growth process took patience on the company’s part as they began making profits gradually. Eventually, the company accrued enough earnings from the innovative ideas to finance its growth, a true story of hard work and patience pay.
In some countries, the governments have taken up the initiative to fund SMEs to facilitate their growth. These funding activities receive support from other non-governmental organizations to support business ventures to achieve their full potential (Pekmezovic and Walker, 2016). Different modes of funding may come in the form of loans and grants, giving SMEs a chance to explore their growth options.
The language barrier forms part of the challenges that some SMEs may face during their global expansion. It is impossible to complete any business transaction without reaching an agreement between the involved parties. Individuals cannot reach an agreement without effective communication, and a language is an essential tool in facilitating communication between different people. Therefore, language differences can hinder communication, making it impossible to reach an agreement that would help a business expands its operations outside its host country (Leonidou, 2004). Language differences involve both verbal and non-verbal communication skills.
In the case of Alibaba, Jack Ma had effectively committed himself to learn English. He had experiences with tourists, which helped him improve his knowledge and command of the English language as he offered free tour guide services. This knowledge of a foreign language made him feel more globalized than most of the Chinese population. This knowledge of English would prove instrumental later during the establishment of Alibaba as he was able to communicate with outside parties to promote the expansion of Alibaba’s services outside China. Other potential interventions to this problem would be to hire translators to enhance the communication process.
For some SMEs, their country of origin may be a liability in terms of globalization. For example, an SME based in a politically unstable country will have difficulties concentrating on business activities due to heightened insecurity in the area (Cuervo-Cazurra et al., 2018). Also, political instability affects the ability of consumers to use the products of a particular company. If a company cannot make sales in its home country, it would be challenging to come up with enough capital to expand operations. For Alibaba, expansion was natural because China has been politically stable for a considerable period.
Conclusion
It is usual for business organizations to want to be successful in their venture. Otherwise, without success, there is no justification for the business venture. Therefore, SMEs use the resources available to them to try and facilitate the growth of their operations. In many countries, people consider a business successful once it has successfully managed to establish itself in the global market. Also, this status allows the company to make millions of dollars in terms of revenue. However, globalization is not an easy task that happens overnight. It takes a lot of determination to achieve such a feat.
Alibaba is one such company that rose exponentially to the top of the business world. Upcoming SMEs can learn a lot from following Alibaba’s success story. The company goes an extra step in creating growth opportunities for other SMEs by facilitating their access to the global market. It is for this reason that Alibaba stands out from other companies. Success stories are rare to come by, and Alibaba is one such rare occurrence that sets the pace for other companies to follow.
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