Internationalisation of Businesses: Is the grass always greener?
By Dr. Boidurjo Rick Mukhopadhyay and Prof Dr. Bibhas K Mukhopadhyay –
1. International Award winning Development and Management Economist, formerly at the Institute of Development Studies, UK.
2. Author and Professor of Management and Economics, formerly at IIBM (RBI), Guwahati
Internationalisation is the process of going global. The OECD in 2008 gave one of the crispest definitions by saying that Internationalisation is the process by which firms “initiate, develop, or sustain business operations in overseas markets” and participate in international trade.
Therefore, it includes everything from exporting, opening offices and managing operations in other countries to selecting partners, building linkages with foreign investors, and also at the same time integrating into global value chains. The above applies to both SMEs and large corporations who choose to internationalise.
Other studies have captured Internationalisation as the process of increasing international operations by participating in global markets in various forms. It could also be perceived as the process by which firms could increase their awareness of the direct and indirect influences of international transactions on their future, while at the same time can establish and conduct transactions with other countries directly.
Naturally, therefore the process takes a long time and includes several incremental decisions and strategies. It involves various outward and inward products, services or resources transferring across national boundaries. For example, think of the extended supply chain of coffee chains such as Starbucks or Costa and also fast fashion or sportswear brands.
It is important and interesting to know more about how firms internationalise because it is not simply about exporting or setting up business units in host markets, but also to understand how for example multinational companies enter emerging markets like India, Brazil or South Africa amongst the BRICs that typically involves a great deal of risk due to volatile markets in the sense of both political and economic activity.
So, it becomes more about understanding the process of how firms strategise to enter the market. While some companies prefer the gradual path considering one market after the other, taking into consideration time and knowledge; whereas others avoid a step by-step approach. The example of TATA is exceptional, and after sealing the deal with Land Rover and Jaguar in the UK, it solidified its global presence more than ever.
Why do SMEs internationalise?
The primary forces behind Small and Medium Enterprises (SMEs) considering internationalising are firstly, to reduce costs and price while also accessing and using technology that allows connectivity. In the process, this connects people and locations.
With increased connections and technology use, more opportunities at the international level could be identified. Secondly, increasing internationalisation of SMEs could change different countries’ institutional environments and expectations. e.g., continuous demolition of trade barriers, facilitated by financial deregulation.
This could lead to the improvement of innovation capabilities and capacity in firms. Thirdly, expanding operations into other countries after world economic restructuring that followed the fall of socialism in Russia and Central/Eastern Europe, and geographical expansion of markets in Asia, particularly China. These new markets have experienced exponential growth and investment.
Government supporting internationalisation:
An example from higher education industry The primary reason for higher education institutions to internationalise is to attract skilled workers, fostering exchange and co-operation, and providing cost-effective alternatives to domestic education opportunities.
In India, for example, the IIMs, in particular, have done an exceptional job with this. Through strategic internationalisation, higher education institutions promoted multiculturalism and cross-cultural awareness which have been a usual thing in Western Universities. One of the impacts has been to offer new study, research, and work opportunities and benefits that are no longer limited by national boundaries.
However, in order to sustain the momentum of increasing international cooperation, it is important to make higher education attractive and internationally competitive, promoting internationalisation within higher education institutions in a strategic way. New firms who want to internationalise at an early stage without clarifying their goals and market objectives could diminish the image of the higher education industry of their home country.
Promoting internationalisation within higher education institutions is generally a good move given the resource capacity of a higher education institution, so partly ways to do it would be to firstly, deliver part of their programmes in foreign languages while ensuring quality control, secondly, provide adequate teaching capacity to teach their national language to international students.; thirdly, develop language and cross cultural skills of domestic students, and fourthly, consider recruiting foreign academics on the basis of emphasising ‘cultural fit’ as much as academic merit.
Examples of successful Internationalised businesses
The international business machine corporation (IBM) was the first company to produce computers for governments, and then educational facilities and large businesses. IBM entered the personal computer market in 1981 with the IBM PC, which helped start the personal computer revolution.
What IBM did uniquely was the fact that other companies began making computers that were compatible with IBM, which made IBM PCs the industry standard. With time and more recently, IBM has invested heavily in artificial intelligence, as well as self-healing computer technology. IBM’s more recent success is due to its ability to adjust and adapt during changes in the computer and technology industry.
In adjusting to the changing times, IBM also recognized what needed to be eliminated, and divested products and markets that they had developed over the past century. The company is solely heavily focused on innovation, achieving more patents per year than any other players in the industry.
At the same time, the company reached out to address global problems, such as the management of water, Smarter Planet, and other similar initiatives. These strategies, comprehensively, has helped sustain IBM’s internationalised nature and operations.
IKEA focuses on combining high functionality with quality and design in its products, while keeping prices as low as possible, especially by keeping the assembly of the furniture directly at the hands of the customer. Their goal has always been to provide furniture that makes everyday life easier and is available to everyone, all of this while keeping sustainability in mind.
The IKEA Group works with a franchise System and multiple different companies, all under the IKEA Brand. The company has grown significantly over the past decades, with revenues reaching a billion dollars recently. IKEA has over three hundred stores in 55 different countries and is the third-largest consumer of wood worldwide.
The Austrian company, Red Bull does global marketing so well that many Americans assume it’s a local brand. One of its most successful tactics is to host extreme sports events all over the world. From the Red Bull Indianapolis Grand Prix to the Red Bull Air Race in the United Kingdom to the Red Bull Soapbox Race in Jordan, the brand’s powerful event marketing strategy takes them here, there, and everywhere. Red Bull’s quick-witted advertisements and packaging have helped this brand go global. They also ‘glocalise’ well in international markets, when necessary.
Airbnb, a community marketplace for people to list and book accommodations around the world, based out of San Francisco, California. Airbnb has grown to 1,500,000+ listings in 34,000+ cities worldwide. Heavy marketing on social media offered a good level of success. One of the most popular marketing tricks they hatched was in 2015 when they started this campaign of #OneLessStranger, the company asked communities where they were based to perform random acts of hospitality for strangers, and then take a video or photo with the person and share it using the hashtag.
Spotify –another successful and interesting company (voted to be one of the best global companies in 2018) and expand from Sweden into other countries so quickly. The company’s goal has always been about helping users find something new. It’s one thing to select a genre of music to listen to — it’s another thing to select a ‘mood’ to listen to.
Spotify gets users to listen to music that goes beyond their favourite genres, and instead satisfies habits and lifestyles that people share all over the world. In the process of doing so, it allows international artists to access listeners from other countries simply because their product is being categorised a different way. Spotify now has offices in 17 countries around the world.
While all seems positive when businesses choose to internationalise, there are political, regulatory, currency and country-level risks that they encounter as they go through the process of going global. At the ground level in international markets, the performance, cultural norms, and role of interlocutors are critical factors.
Also, the aspirations and attitudes of counterparties can be somewhat difficult to predict, which could affect the nature of partnerships that are created. More often than not, cultural factors and social capital also plays a huge role in determining survival and success in a host market.