INTERNATIONALIZATION OF KOHLER ENTERPRISE INTO GLOBAL MARKET
Table of Content
Table of Content…………………………………………………………………………..2
Introduction……………………..……………………………………………….……….3
Target Market………………………………….…………………………………….…..4
Strategies for Going International………………………………………………………4
Measures to be Taken…………………………………..……………………………….10
Conclusion and Recommendation………………….………………………………….11
References………………………………………………………………………………..12
Internationalization of Kohler Enterprise into Global Market
Expansion into new markets is usually an effective way of growing a company. Companies typically enter new markets like India and China through the internationalization process. The internationalization process explains the mechanism of designing products to fulfill the needs of consumers in several states or designing them in a manner that can easily be modified to achieve the goal of satisfying the needs of the customers. The process is usually used by the companies which aim to expand their footprint beyond their home countries through branching out into global markets. Moreover, the process is based on an Uppsala framework of internalization, which aims at offering an understanding of how and why companies enter and develop in global markets. The process of internalization is typically gradual, and firms are required to commit resources to and enhance knowledge of particular foreign markets before deciding to enter those markets. This report provides an insightful analysis of the process of internationalization along with the rationales for the crucial strategic decision to enable the senior management of the company to comprehend the entire mechanism of internationalizing.
Internalization is the mechanism of expansion used by the companies to expand their operations in the emerging markets. Emerging markets have remained to be the principal target for most of the companies since they have favorable consumer demographics, increasing productivity, which results in more attractive prices, together with rising disposable income along with the increasing obtainability of credit (Conconi et al. 2016). Expanding into the emerging markets like India and China usually induce benefits to the companies since it enables them to increase their stream of revenue, brand image, and profit margin. For businesses to expand into the emerging markets, they are required to utilize the internationalization process which would eventually enable them to enter the new markets.
The Target for Entering Global Market
Companies usually internalize due to various reasons which include, but are not limited to look for opportunities for expansion through market diversification, get higher returns, gain an idea about products, services along with business tactics. Other reasons for internationalization encompass the need to serve consumers who relocated overseas and access cheaper or better value factors of production (Kunday and Şengüler 2015). Internalization facilitates companies to adapt to the high rivalry of international firms, and this makes them deduce various competition strategies that would promote their sustainability in the aggressive global market. The ability of a company to cope up with the international competitions and strive in the market would consequently translate into higher profit margin since the company would still be doing well despite the competition (Forsgren 2015). Also, internationalization capacitates firms to offer products and services which reached maturity in their home country. Thus, it gives a company opportunity to provide some of its products that have locally reached maturity stage to customers in various countries. The reasons for internationalization would, therefore, enable the senior management to compare the situation of the company based on the reasons provided before making a strategic decision of entering the new markets.
Strategies on Entering the Global Market
Internationalization is habitually done through various methods which include indirect shipping, direct shipping, joint investments, licensing, franchising as well as FDI. Direct exporting is a process where the producers or suppliers directly sell their products to the international market through the third party (Johanson and Kalinic 2016). Indirect exporting, firms generally enter the markets through the intermediaries. Indirect exporting has some advantages, which include minimal involvement in the export process, and it is also cheap. Additionally, indirect exporting provides a company with the opportunity to learn about international marketing, and this would help it to develop its marketing strategy to match those of the global competitors (Vahlne and Johanson 2017). Also, indirect exporting makes the company have limited liability for problems linked with the marketing of the since it becomes the burden of the intermediaries. Nevertheless, indirect exporting is associated with low profits, loss of control over foreign sales, and the company is less likely to know its customers. It might also lead to rapid change in the long-term outlook and goal of the company’s export program.
Likewise, direct exporting is the method of internationalization where the firm directly engages with the international markets. Direct exporting, a company is responsible for conducting market research, logistics of shipments along with invoicing. Direct exporting is associated with various benefits which include a higher level of dominance over all aspects of the deal and a better understanding of the marketplace (Ren et al. 2015). Furthermore, it enables a company to know its customers and know who to contact in case something goes wrong in the process of entering the new markets. Nonetheless, direct exporting requires more people power to establish a customer base, and it also requires more time, energy, and capital. Moreover, it lowers the company’s ability to respond to the customers as quickly as possible (Santangelo and Meyer 2017). Consequently, this might adversely affect the reputation of the company as well as incapacitating it to swiftly react to the changing needs of the customers.
Companies can also internationalize their business through licensing. It is a method of internationalization where a company is granted a license to operate in the international markets. The licensors benefit through gaining access to international markets with minimal or no investment. Licensees, on the other side, benefit by acquiring accessibility to technologies and commodities that they do not have (Narooz and Child 2017). A company can also engage in the internationalization process to enter new markets via Franchising. Franchising is an arrangement where the franchisor grants the franchisee the entitlement to use its trademark or conduct business in its trade name. This method of internalization is associated with various advantages and disadvantages. Some of its benefits include recognition of the brand name, reduced risk of business failure, and issuance of an exclusive right over the territory of the business. Franchising usually promotes the brand recognition of a company since it exposes the brand to a large customer base which is distributed across the globe (Batsakis and Mohr 2017). It makes the customers familiar with the product of the company, and this will, in turn, foster the brand recognition of the firm.
Furthermore, franchising lowers the risk of the failure of the business since the company is based on proven ideas. Before franchising a business, the companies analyses and checks the level of success of different franchise companies before settling on one, and this would greatly assist in lowering the chances of business failure (Głodowska et al. 2019). Nevertheless, Franchising is costly since it may make a company to incur the enormous cost than initially expected. The franchise agreement also contains some restrictions which restrict how the company can run a business. Besides, it may lead to low profit since the profits obtained from the business are shared with the franchisor.
Moreover, a company can use the joint venture to get into the foreign markets. A joint venture is the method of internationalization that entails developing a new identity in which the launching associates take a nimble role in the creation of approach and decision making. A joint venture typically enables parties to pool their resources together to assist in accomplishing specific tasks. It is usually advantageous to the companies because it allows firms to acquire cash discounts as well as scope in value-addition practices that are justifiable on an international basis (Khojastehpour and Johns 2015). Also, a joint venture secures accessibility to an associate’s technology, its proprietary undertakings along with the safeguarded market positions. A joint venture also establishes a foundation for more practicable future rivalry in the sector. However, a joint venture can contribute to the clash of cultures, significant imbalance, and restricted flexibility. The joint venture is linked with a substantial imbalance of assets, expertise, and investment, and this can adversely affect its effectiveness.
Similarly, the joint venture may result in a clash of culture relating to the management style employed by the leaders of the companies in a joint venture to manage the organization. Conflict in culture and management style may lead to poor co-operation and collaboration that might adversely affect the productivity of the organization in the new market. Flexibility in the joint venture is also limited, and thus, under most circumstances, affects the operation of the business (Khojastehpour and Johns 2015). There are also limited outside opportunities when companies are in a joint venture since joint venture agreements limit external activities of the partner firms while undertaking a venture project.
Companies can also enter new markets through alliances. The alliance is a collaborative association that is less structured compared to a joint venture and acquisition. Moreover, it is habitually determined by various factors which include investment options, infeasibility, indigestibility alongside information asymmetry. The factors usually assist in determining whether a company is in alliance or a joint venture relationship. The alliance is essential to businesses because it enhances the competitiveness of the company (Lindstrand and Hånell 2017). The global strategic coalition also enables firms to set new standards, overcome competition, and divide global business risks. Strategic alliance would make the companies engage in joint marketing that would, in turn, assist in spreading the risks of conducting business and increase the business returns. Alliance also makes companies interact with various experts from different fields, and this would enhance the competitiveness of the company, especially when they employ the skills from the expertise into their production process. The findings on the different methods of internalization are therefore crucial to the company since it will enable the senior management of the company to select on the most appropriate method to assist the company in entering new markets.
Theories of internalization
Multiple theories are usually useful in explaining the involvement of companies in the overseas markets. They encompass network theory, eclectic proposition, simultaneous theory as well as sequential theory. The network theory of internationalization explains that firms are embedded in broader business networks, which can affect the companies based on the connection with other actors along with their positions within the actors (Dicken 2011). Moreover, it acknowledges that the process of internationalization builds on the assisting associations, or it can create new associations with the focus of changing from organizational to social. The theory further states that companies are embedded based on six networks, which include technological, political, social, spatial markets, and temporal markets. The systems would, therefore, perform a crucial obligation in the internationalization of a firm into the overseas market. Furthermore, the theory states that networks can be considered at the inter-organizational, intra-organizational, and macro levels.
The eclectic theory provides conditions that must be attained by the companies to become involved in the overseas markets and FDI. The conditions stipulated by the theory entail possession of an ownership-specific advantage over companies in the host nation. Also, the company must be more lucrative for the MNC to make use of its possessive-strengths in the international markets. Another condition requires the firm to best exploit its advantages than selling them to foreign companies (Czinzota et al. 2009). The theory would, therefore, be useful to the senior management of the company since it will enable the management to understand some of the conditions which the company must attain to allow it to expand into the new emerging markets like India and China.
Similarly, the sequential theory states that a company enters a new market by following a particular sequence. The sequence contains stages that mark the progressive increase of the firm’s commitment to involvement in the oversea market. The theory further states that as the firm moves through the sequential stages, its understanding and information on the overseas market increases, thus making it to be at a better position of entering new markets to promote its operation and market base (Hill 2009). The findings on the theories of internationalization are vital to the senior management of the company because they would assist in improving the understanding of the senior management on internationalization. Thus, they would significantly impact the strategic decision-making process of the administration while deciding to enter new emerging markets like India and China.
Measures to be taken in Entering Global Market
The internationalization process is usually affected by various factors which act as obstacles to productive internationalization. The barriers are habitually classified into distinct classes which among them include capabilities, finance, and business environment (Rugman and Collinson 2012). Capabilities generally include untrained personnel for internationalization while finance entails a shortage of working capital to finance exports.
Framework for Entering Global Market
The primary frameworks for comprehending internationalization encompass the eclectic paradigm along with FSA-CSA. The eclectic model mainly offers insight into the ownership, location, and internationalization of a company. Ownership advantages typically include the competitive edges of the firm that would make it perform better compared to the competitors in the global market. Some of the competitive edges of a company entail innovation, business brand, techniques of production together with business skills. The ownership advantages would, therefore, promote the internationalization of a company since they would enable the firm to enter the emerging markets and compete with the rivals effectively (Peng 2016). Besides, location advantages encompass the alternative nations for undertaking value-added practices. The internalization advantages, on the other hand, are the advantages that are associated with own production instead of production through partnership arrangements like licensing and joint ventures.
Furthermore, the FSAs framework exists in various forms such as Asset-form FSAs, Transaction-type FSAs, as well as Recombinant FSAs. Asset-form FSAs deals with the ownership of physical tools and intellectual property. The Transaction-form FSAs encompass the ability of the company to conduct internal and external transactions efficiently (Peng 2016). At the same time, Recombinant FSAs envisions the capacity of an organization to reassemble its complementary assets to foster its performance.
Real Business Data and Information
The actual business data and information on internationalization is the data published by EOCD on the SME internationalization in the APEC members. The report reveals that Canada surveyed the expansion of SME to gather facts on the general features of SMEs along with their financial activities. The outcomes of the research showed that in 2011, about 10.4 percent of SMEs in the country were direct exporters of goods and services, while 26.0 percent of SMEs were direct importers (Lee et al. 2015). Similarly, the Japanese White Paper in 2014 revealed that 3.0% of the manufacturing SMEs were involved in direct exports, whereas the overseas subsidiary owned 13.4 % of all the SMEs. Furthermore, in 2013, Korea reported having directly exported 87,800 SMEs goods and services with a value of $95.9 billion.
Conclusion and Recommendation
In conclusion, the internationalization process explains the mechanism of designing products to fulfill the needs of consumers in several states. Companies usually enter new markets by employing various internationalization methods which include but are not limited to an alliance, joint venture, franchising, and licensing.
The companies are therefore required to choose the best plan that would enable them to enter the new markets efficiently. Similarly, various theories have offered an understanding of the process of internationalization, and some of them include sequential theory and network theory. This report is therefore useful to the senior management of the company since it will help the management to get enough information that would, in turn, influence its strategic management decision on entering a new market.
References
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