Part 1
With the rise of globalization, many firms have ventured into internationalization because of the wide playing field and the quest for bigger profit. There are many challenges to international expansion and firms have experienced advantages and disadvantages in their entry to new markets.
Research has shown that international expansion influences organizational performance through economies of scale, exploitation of local endowments, knowledge sharing, and other mechanisms. However, there were studies that concluded a positive relationship between international expansion and corporate performance (Delios & Beamish; Goerzen & Beamish as cited in Jiang, 2010). Moreover, a few research focused on the effect of corporate performance on succeeding international expansion decisions (Hitt et al. as cited in Jiang, 2010). There are successful international expansions that we can cite, like Google which has made internationalization a strategic priority so that they can improve organizational performance (Fortune; San Francisco Chronicle as cited in Jiang, 2010).
International expansion usually begins with exporting. Firms learn by observing operations or behaviour of other firms (Levitt & March as cited in Jiang, 2010). Interorganizational learning can lead to competitive advantage that can be used in international business (Alcacer & Chung as cited in Jiang, 2010). Four major objectives of aiming for foreign investment are: natural resource seeking, market seeking, efficiency seeking, and strategic asset seeking. Firms are motivated to go international because of the lure of more profits and more competition (Dunning as cited in Jiang, 2010).
Disadvantages start when the firm is affected by dissimilarities between the host country and firm’s home countries as this creates “a liability of foreignness” for firms. Firms face various challenges in the international market. First, distance can be translated into information costs. A firm must obtain and learn new information in order to understand foreign market where consumer preferences, labor situations, and business norms are different from the home environment. This is known as the cost of entry, or barriers to entry. Another is differences in political, administrative and legal institutions which comprise the contractual hazards and business risks, especially in an unsound political situation. Lastly, the idiosyncratic demands of new markets can make capabilities formed and mastered in a firm’s home country largely obsolete or less valuable (Anand & Delios; Kostova & Roth as cited in Jiang, 2010). This may require costly development of new resources and capabilities (Jiang, 2010). As the firm’s experience in international expansion increases it becomes more likely to enter more remote and culturally distant countries (Davidson & Erramilli as cited in Jiang, 2010). Firms’ location choices are influenced by home-host country ‘distance’ and by organizational capability to overcome the increased costs and risks associated with distance. Once we have reduced the risks, we will be able to increase profit, although it is a long shot. Our investment can provide future growth opportunities by committing resources that can be transferred between initial and subsequent investments within the country we are trying to penetrate.
Part 2
The automobile industry is a highly competitive industry and any aspiring company can face barriers to entry. There is a growth in the automobile production because of the new trends in production techniques and developments of labor productivity (Lee, Lee, Kim, & Lim, 1996). An automobile company that decides to market internationally faces an oligopolistic competition, which is usually predominant in the car industry where there only a few major players in the competition (Needham et al., 1999, p. 22).
The introduction of mass production by Henry Ford led to the American domination of the car industry. The Japanese car industry was then a small industry but it grew through the 1980s and competed in Europe and the United States (Lee et al., 1996). A small car company cannot just enter the foreign market because of the large capitalization and the barrier to entry.
Any initial investment made by a small firm will be risky and will cost much. We have to find ways to reduce the risks and uncertainties even in the face of inexperience or lack of familiarity. Firms use platform investment to deal with this. A platform investment refers to the initial foreign direct investment made by an international firm in a host country (Belderbos & Zou as cited in Hong, 2012).
Any new entrant in the car industry should be aware that competitors have been there since the very beginning of the industry. American, European and Japanese car companies have endured through time and have suffered setbacks. American car companies like Ford Motors have declined, and Japanese firms tremendously improved because of the emergence of “international equity arrangements”, mergers and acquisitions, advanced technology, and various assembly arrangements. Many countries have penetrated the world market and small companies can face tremendous odds (Lee et al., 1996).
Small companies entering the global market must be aware of the stiff competition and therefore must be prepared by way of organizational learning. We have to learn from other companies; but organizational learning needs capital, time and manpower. If we are a major retailer in the United States, we will face the same obstacles as the small ones, but we can be more prepared to fight other major retailers. Continuous learning and training and development must be inculcated in the minds of our employees and teams.
References
Hong, S. (2012). Essays on international expansion strategy (Doctoral thesis, The University of Texas at Dallas). Retrieved from http://ezproxy.sothebysinstitute.com:2195/pqdtft/docview/1038154494/B94507549D9A49E9PQ/1?accountid=13958
Jiang, G. (2010). Essays on the international expansion strategies of multinational enterprises (Doctoral thesis, The University of Western Ontario). Retrieved from http://ezproxy.sothebysinstitute.com:2195/pqdtft/docview/868670409/fulltextPDF/1F4C1EDABB994859PQ/4?accountid=13958
Lee, D., Lee, K., Kim, J., & Lim G. (1996). Executive insights: The Korean automobile industry – challenges and strategies in the global market. Journal of International Marketing, 4(4), 85-96. Retrieved from http://web.a.ebscohost.com/ehost/pdfviewer/pdfviewer?sid=f90783f6-5f0d-4dd6-8a6f-009c720a7fa2%40sessionmgr4001&vid=0&hid=4207
Needham, D., Dransfield, R., Coles, M., Harris, R., & Rawlinson, M. (1999). Business for higher awards. Oxford: Heinemann Educational Publishers.
