Risks associated with internationalization
Discuss about the Business Model Innovation in Practice.
In this era of globalization, organizations have started to think beyond the domestic boundaries. It is correct to say that although most companies expand abroad gradually, some smaller firms internationalize at or near the firm’s founding. The so-called born global firms represent a revolution in international business; their emergence suggests that companies can participate actively in foreign markets from an early stage. Hanks, Watson, Jansen, and Chandler (1993) indicates that small businesses often apply a life cycle model as a one size fits all approach and spend time trying to navigate through those stages. This could be one reason why innovation is lost because the life cycle chosen is not tailored to the specific company and their specific goal accomplishments. An organization’s structure and control system most typify the changes experienced by an organization during this process (Daft, 2015). Young, flexible organizations are more apt to be organic in nature. As the organization matures, organic flexibility gives way to formality and more controlled structure.
One advantage of selling overseas is the possibility of increased sales because the company’s target market is larger. In addition, by widening its market scope and reaching out to a wider customer base, a business can deal in international market shares as well as national ones.
The objective of this paper is to discuss the risk associated with internationalization, particularly for small firms such as Global Furniture Ltd. The paper would also explore the option of exporting, if it is the right internationalization strategy for the firm compared to other options. There has been an increase in the use of Information Technology. In the current economic environment, Information Technology is considered as a core business function. The paper would also discuss the benefits of using Internet in the export marketing strategy. There are various payments methods that the small firms can use. For example, firms can use direct bank transfer or use the Internet medium like PayPal. The paper would also discuss a systematic approach to exporting and managing export-import transactions for the firm.
The snapshot of the international marketing strategy for Global Furniture Ltd. can be shown as:
There are various risks associated with the internationalization strategy. At a high level, risks of internationalization could be categorized into internal level and external level. The internal risks exist at organizational level and external risks exist at industry level. The internal risks are related with employee motivation, employee productivity, leadership within the organization, organizational culture, leadership position etc. The external risks are related to the macro economic factors like political, legal, social, etc. According to European Union (2012), the lack of information about the foreign markets is the main barrier of SMEs accessing international markets. Berry and Brock (2004) assume that the accumulation of knowledge related to foreign markets is considered to be one of the key drivers of a gradual internationalization process. This knowledge can reduce uncertainty and the perceived risk of internationalizing by providing the firm with information about foreign markets (Hamill and Gregory, 1997). A snapshot of the types of risks that occurs as part of internationalization strategy can be shown as:
Right internationalization strategy
The small firms can have higher risks as compared to the large organizations because small firms have limited exposure. According to Shirkova (2009) significant literature exists on organization life-cycle research for developed countries. Conversely there is a lack of literature on organization life-cycle research for countries in transitioning economies (Shirkova, 2009). Shirkova (2009) focused a study on Russia and evaluated 593 Russian entrepreneurial firms to create an organizational life cycle for Russian companies. Data was collected through a survey of 606 managers and processed with SPSS software (Shirkova, 2009). The characteristics of the organization encompassed for-profit organizations, which were created after 1992 with Russian capital and had no fewer than three full-time employees (Shirkova, 2009). Half of the organizations surveyed were small organizations with three to twenty employees (Shirkova, 2009). The research suggests that one key characteristic that organizations must possess to survive is innovation. Whether the innovation develops through the IT department, the human resource department, the boardroom, etc. without it, stagnation sets in.
In order to minimize the risks of internationalization, the organization should have a strong and dedicated team of individuals. While using the Business Model Innovation for implementation of new products, leveraging that with the four functions of management (planning, organizing, leading and controlling) can greatly impact the success of the business plan and launch of a new product (Daft, 2016)
Planning – while this function is used to set the objective it can the objectives and goals. Using this planning function can help with presenting a clear picture of the value to the customer.
Organizing – the function to develop how the goals can be achieved with the company resources. Using the organizing function while generating the business model along with identifying risk and prioritizing those risks can help to develop how to successful reduce such risks.
Leading –When leading employees, either by motivation, role modeling or as a manager leading employees to meet production goals. This function can be utilized in all aspect of the business model. Leading the organization through any implementation of something new is important to have a successful launch to its customers.
Controlling – being able to control and manage the performance of employees while leading and managing them through the implementation of change can help with reducing anxiety and a higher connection to the new product or change.
There are various types of internationalization strategies that the firms can use. One of the basic internationalization strategies is direct entry in the foreign market. However, there are various risks in this approach. The organization may lack the knowledge of the local market and the organization may also lack the require capital expenditure. The various options available for small firms are licensing, franchising, join venture, exporting, etc. Every strategy has its own pros and cons. For the small companies like Global Furniture Ltd. export option could be a recommended option. The high-level view of different market entry strategies for Global Furniture Ltd. can be shown as:
Pros of exporting
The various pros and cons of exporting for Global Furniture Ltd. can be discussed as:
With this technique, the company may not be required to make any initial investment. The entry would be easy through this mode and the exit would also be easy. The company would not be required to invest directly to set up the infrastructure. With exporting strategy, the exit strategy is also easy. The organization would be able to leave the market if it does not like the market. Another advantage of exporting strategies is that the government laws are usually favorable for marketing. The management of Global Furniture Ltd. Should not face much of the political or legal challenges with the exporting strategy.
With this technique, the company would have a limited control. The company may not be able to manage its operations effectively in the foreign region. Although there are many benefits of exporting goods, there are also disadvantages. In setting up an international branch, a company may face costs in making promotional materials, traveling and handling administrative tasks. Companies that expand overseas may have to modify their products to make sure that safety codes and import restrictions are met.
The summary of the risks associated with exporting and other international market entry strategy can be highlighted as:
In recent times, there has been an increase in the use of technology. There are numerous advantages of Internet over the traditional medium. With the use of Internet and technology, the management of like Global Furniture Ltd would get real time access to data and information. With the use of Internet, the management would be able to minimize any information lag or time delay. The use of Internet enables the organization to develop and establish an open system in place. The idea presented from Knutsen and Brock (2014), placing ownership as the defining characteristic of a closed system, narrows down the organizations that operate purely as closed. The problem this writer is coming across is finding an organization that meets the definition that many of the researchers are presenting as closed. Such as when Knutsen and Brock (2014) state that, “Viewing organizations as closed systems assumes that organizations do not need to interact with the environment, the environment is stable, and organizations do not need to adapt to the environment” (p.1119). Rhetorically, what company can operate without interacting with their environment in some way? Only a vertical company who depends solely on its own product resources from the bottom up could call itself a closed company. When considering that external environments include stakeholders, who have an effect on, or are affected by, the activity of an organization (Boutelle, 2004), any organization relies on their external environment.
Cons of exporting
In fact, the organizations should use the path of Internet and digitization is evident from the case study of Kodak. According to Bingemann (2012), the print media and telecommunications industries had the potential of following the same path of Eastman Kodak if the two industries did not adapt to a digital environment. Dr. Ziggy Switkowski who was Eastman Kodak’s chief executive of Australasian operations described, “it’s hard to move from a high market share, high-revenue legacy business, into a new capital-intensive world where you have to compete for market share in lower margin products” (Bingemann, 2012). The demise of Eastman Kodak was attributed to the organization’s failure to adapt to its environment, leadership’s stubbornness, and leadership’s failure to observe, react and adapt to future trends (Bingemann, 2012). Another example is Blockbuster, which failed to react and adapt to rapid industry changes and respond to new competitors such as Netflix entering the marketplace (Samaad, 2012). According to Wienclaw (2015) the production of new products that enter the marketplace means product development is needed in order to stay competitive.
With the evolution of World Wide Web and the expansion of Internet, there have been several new channels of information dissemination. The Internet website and social media platforms have emerged as new media channels. There are various advantages and disadvantages of using this form of new media for small businesses. The biggest advantage of Internet and web channel is the efficiency and responsiveness (Kellermann & Jones, 2013). It can be said that Facebook and Twitter are the fastest way to reach to people. In fact, the consumers can get abundant information from these channels. However, the abundance or the excess data could also be considered as the problem or disadvantage of these new media channels. The issue of credibility and reliability is one of the big challenges for the new media channels. With the Internet channels, people are free to post anything on Internet. There is no checkpoint or system in place that checks the content. In the health care industry, there are certain regulations in place and there are certain government guidelines that have to be followed. However, the regulatory committees, organizations and policies cannot have a complete or end-to-end control over the open websites like blogs, opinion pages and forums or Facebook groups. Therefore, it is important that end consumers should understand the ways to differentiate between the good and the bad content. As a guideline, people should not trust the blogs and the personal opinions pages. It is also important that people should do the research on multiple sources (Pandey & Hasan, 2013). As a thumb rule, people should refer to the web sources that are academic and rich in literature. It the information presented in the form of a research on the government and medical institutions website can be trusted. At the same time, it is also important that consumers should not rely on the information gathered over Internet. As a best practice, consumers can always refer to doctors or other experts in the health care industry. The government can also create a system where more independent bodies are established to check the advertising claims of institutions and individuals. The above learning holds true not only for individuals but also for small and mid-size enterprises.
There are various payment options that organizations can explore in the multinational environment. The simplest form of payment method is direct fund transfer for banks. In this type of payment method, the customers of Global Furniture Ltd would make online transfer to the account of Global Furniture Ltd. There are some added payment formalities involved in the case of international funds transfer. The sender or the customer would require a SWIFT code to complete the payment.
It is correct that the company might be required to changes its existing payment methods to suit the international payment methods like PayPal. When there is a business or company that is resistant to change there must be great leadership. Great leadership sets the tone for implementing change and ensuring successful change. The planning approach can be used in the beginning stages of change. By planning it can help implement the change and ease employees into the change and why the change is necessary. Leading and controlling go hand and in hand. If there is great leadership that understand the need for control and how to amongst a group of people it will also help with change and the resistant of change. Being organized is also a very important function, being organized helps when there is questions and concerns and even when employees do not feel change is necessary, as a leader being able to answer all questions and give truthful direct answers improves the approach of successful change.
The payment mode would also need innovation. In “Business Model Innovation in Practice,” Euchner and Ganguly (2014) discuss the challenge of implementing innovations within organizations that are naturally resistant to change. They present a systematic approach for integrating innovations to increase the likelihood of acceptance and success. Review their five-step approach and discuss how the four functions of management (planning, organizing, leading and controlling) can be leveraged within in their suggested approach to assist organizations in implementing successful innovations.
A proactive strategy begins with the recognition that a transition from the formalization stage to the elaboration stage is occurring. Top management then needs to take steps to ensure that the transition goes smoothly and that those who prefer to stagnate in the previous stage do not hinder it. The three key recommendations for Global Furniture Ltd can be discussed as:
The company should definitely have a vision and long term objective of expansion in international markets. There are various benefits of expansion in the international market that the company can get. It is recommended that the company should focus on the export strategy. There are various options and alternatives to expand and make entry in the new market. However, the method of exporting has its own benefits. The risks involved are less in exporting and the company can actually make a quick exit from the market if it does not suit the company.
It is recommended that the company should start its international journey in the country that shares the similar culture to the home country of Global Furniture Ltd. Typically, the firms would have various cultural and social challenges as they expand in the new markets.
It is recommended that the company should focus on innovation. The expansion in international market would provide new avenues and opportunities to the company. However, the company should also be willing to face tough competition. Therefore, the company must be willing to invest on innovation so that it can match the competition in the foreign market.
Euchner and Ganguly (2014) discuss challenges organizations that are resistant to change face. The four functions of management (planning, organizing, controlling, and leading) can be incorporated into their 5-step approach as follows:
Through leading, planning, organizing, and controlling, organizations can keep the focus on the customer.
By planning and organizing, organizations can align their vision with the business model and organizational objectives.
Identify risks- Leading, planning, organizing and controlling are all key factors when identifying risks. Managers must be able to plan to overcome risk, lead their people to avoid them, organize the process, and control variables.
Prioritize risks- Organizations can plan for risk and organize their strategy to only take those that are necessary.
Reduce risk through business experiments- Organizations can plan and test to see what will work to reduce risk. They can then organize their strategy to overcome the unnecessary risks going forward.
It is recommended that a winning strategy must be introduced to the organization upper management, different areas of the organization without a strong positive strategy that involves everyone the change will fail (Rick, 2012). Often the lower level employees to know what is going on and often management does know since they are the ones making decisions. No one should have to read the newspaper or social media that the company is about to acquire another company or there will changes in the business hierarchy. These changes should be known to all parties involved. Everyone should be prepared on the change and the challenges that may occur everything should be transparent nothing should be hidden.
Conclusion
The above paper discusses the international marketing strategy for Global Furniture Ltd. With the above discussion, it can be said that the expansion in an international market appears to be a logical step for the company. The company would need to cover various internal and external factors or risks before it can finalize its expansion strategy. Other than the external and the market risks that company would also be required to manage the change within the organization. There is a possibility that the existing employees may not like the idea of international expansion. Visser (2011) described the necessity to have employees be involved in the change progress. Allowing individuals to know about the changes that are occurring, allowing them to have some say in what the future holds, and participate in the challenges, will greatly assist in buy-in and lessen resistance when it comes to making changes. A solution-focused participatory style of leadership would work in many situations. Five suggestions that Vissor (2011) described are: co-developing a clear picture of the preferred future; goal directed activating questions; questions and statements which presuppose agency responsibility, emphasizing choice and creating opportunities for choice.
The above paper also discusses the payment methods for Global Furniture Ltd. With the above discussion, it can be said that the Internet and e-commerce medium payment mediums like PayPal is a recommended step for Global Furniture Ltd.
References
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Boutelle, J. (2004). Understanding stakeholders for design success. Retrieved from:
Understanding Organizational Stakeholders for Design Success
Bingemann, M.S. (2012). Kodak’s demise a warning to adapt. The Australian, 15.
Daft, R. L. (2015). Organization theory and design (12th ed.) Mason, OH: South-Western, Cengage Learning.
Euchner, J. e., & Ganguly, A. D. (2014). Business Model Innovation in Practice. Research Technology Management, 57(6), 33-39.
Euchner, J. & Ganguly, A. (2014). Business Model Innovation in Practice: A systematic approach to business model innovation can help capture and reduce risks. Research-Technology Management. 57(6), p.33-39
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Samaad, M.A. (2012). Embrace change; Retain core values. Credit Union Times, 23(4), 1-18.
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Wienclaw, R.A. (2015) New product management. Research starters.
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