Motives, Triggers And Barriers To Internationalization

Motives, Triggers And Barriers To InternationalizationIn general, internationalizationoccurs when the lodge expand its business activities into foreign foodstuffs. There might be several reasons for this. Of course, the most frequent reason is to expand gets, but this is not the only one. The motivatings and triggers for internationalization ar a key concept for firms that are mean to enter the globular market since both concepts go away shape the internationalization strategy or path (ij et al) and main characteristics of this process. delay 2 and Table 3 present the main motives and triggers.If the main reason to start exporting is to enlarge profits and growth, the potence new markets will be those where the competition is less crude and margins raise be set on a nobleer level. If the goal is to reduce costs by expanding the economies of scale, the target countries might be anyone, independent of the profit level that the connection can achieve there as long as there are positive. If the fierce competition in the local market is the driver to star exporting, then the foreign market will be determined as a defensive strategy mainly by forces out-of-door to the firm.Another crucial concept is the barriers hindering the export initiation. If any one of this factors or a combination of them is available in the firms context, it may hold linchpin the internationalization of the firm for a long period or even forever. concord to Hollensen (2008), the critical factors hindering internationalization initiation are mainly internal. Table 4 summarizes these barriers.In the Day Chocolate case, and based on the general study analysed and on the company tale, it will be assumed that the primary motive to start the internationalization process is to increase profits and to grow in revenue.In addition, some foreign market opportunities could be considered as a motive. On the other hand, Competitive Pressure as a reactive motive could besides have been s tated, but it does not seem the main one agree to the information analysed. The Day Chocolate is a small company and usually the firms that react to competitive pressures are larger than they are. Furthermore, years revenue and market component part are increasing according to companies figures, so the competitive pressure is not really a problem yet. The rest of the motives in Table 2 were cast aside after a careful examination.The main trigger found in the The Day Chocolate case can be the Perceptive anxiety. The company heed is highly professional, includes people with some different backgrounds and the fact that the headquarters are in London -a well known international financial and treat centre- provides another(prenominal) good reason to support this interpretation.The second trigger might be the Importing as inward internationalization. Although the products and the headquarters are I the United Kingdom, the issue facilities are located in Ger umpteen and the final product is exported from there to the U.K., according to the BBC19. The knowledge accumulated by importing the product from one European province to England can be used to make easy the export process to any other European nation.In order to be able to attend to the question regarding to which country they should go (export or invest in) it is assumed that no barriers hindering the export initiation exists or that if they exist, they are preventable at an inexpensive cost. It can withal be assumed that these barriers will not stop the internationalization of the firm but rather slow the velocityat which the company expands abroad.2.5.2. Strategic approach to internationalizationOnce it has become clear that the firm can, needs or wants to export or expand their operations abroad, there is a need of knowing how and where to go.In order to answer these questions it is necessary to have a framework to guide the analysis. For The Day Chocolate case the guidebook presented in Interna tionalization Handbook by ij (ij et al. 2005) was the most divertd. This structure is presented in Figure 5.According to ij the for the first time part (Part I) in Figure 5 is the selection of the appropriate Internationalization Path. In his book, he presents three typical pathways that the internationalization process of a software firm may take, but his steps and conclusions can also be expand to any firm in the confectionary market alike(p) Days chocolate. This area under discussion is also the same as the one that Hollensen refers as Internationalization theories or models in the third chapter of his book Essentials of Global Marketing. For the purpose of this work, the 3 pathways presented by ij can also be increase with the many other presented by Hollensen.Among many models, paths or theories, the most well known are the one presented in Table 5.Based on Days corporate webpage statistics and from private sector publications20, like Tranchell Doherty, it can be assumed t hat the company started it internationalization process by choosing an Organic growth path. The timeline on the firms webpage confirms that Devines management decided to begin their operations abroad in markets that are really close in location but also in culture and institutions like the United States and that the internationalizationprocess has been taking place in small but incremental steps.The size of the company and the market where it operates also support this view. In contrast with what happens with large companies, where the internationalization process happens in a relatively continuous and incremental fashion, for SMEs (like The Day Chocolate) in general this process is made in small incremental steps. According to Hollensen, usually for SMEs the internationalization process is relatively discrete and either project is distinct and individual. The fact that the company operates in the confectionery industry and not in the IT sector, among other facts, is also a good reason for not considering this firm chocolate as a born global company. Freeman (2002) also states that for Small and Medium Enterprises managers tend to gather and look for relevant knowledge and information before becoming internationalization ready, which is consistent with Devines history and with the Uppsala model21.In 2007, the company took the next step in its internationalization process by setting a foot in the United States market by opening offices there. According to Johanson, and Wiedersheim-Paul (1975) that would have constituted the third stage.2.5.3. The country choiceOnce the company has determined the path for internalization, its management needs to start the potential markets selection process (Part II in figure x.1). To address this problem, the screening process flesh outed in Rugman and Collinson (1995) will be used.2.5.3.1. First screening find out what product to offer to the world marketThis first screening is crucial in determining the potential of the companys goods in markets other than the local. This task canbe carried on successfully by using a wide number of market look tools. International trade statistics inspection, competitors financial information analysis and research papers or databases that are offered by international multilateral organizations like FAO, the World Bank and the IMF could be valuable tools as well.In general, chocolate confectionery is offered in all almost the countries of the world. In this sense, initially there are a large number of potential countries where to choose from. However, in this case, the company is selling a very particular proposition product (high quality + socially friendly chocolate) that limits the scope of this first screening. One drawback when dealing with this kind of specific and one-in-a-kind characterized goods is the lack of information or the excessive cost of getting it.A first measure to identify the potential foreign markets for The Day Chocolate would be analysing the world trade evolution of Fair-Trade products. That might help the firms management in recognizing the most active markets for this kind of products.As it is shown in Table 6 and according to the Fairtrade Labelling Organizations (FLO) in 2009 they were many countries showing a dynamic market for this kind of products. Among them, it is necessary to highlight Canada, Finland, Australia and New Zealand where the surge in the transactions was higher that 65% in the first case and about 60% in the other tree cases. another(prenominal) nations with a remarkable performance were Spain, the Netherlands, Belgium, Germany, Ireland and Sweden. Although the U.K. and the United States presented a performance below the average growth rate of 15%, it is necessary to state that they are still by far the most important marketsin volume for organic and fair-traded goods.Regarding the specific case of this companys main product, a NGO -TransFair USA- declare that during 2008 the imports of fair- trade certified cocoa into the U.S. rose at rates of more than 50%.22Finally, the genuine potential of every market will be ultimately determined by the interaction with other factors such as socio cultural forces and economic conditions.2.5.3.2. Second screening macroeconomic and financial conditionsThe support World Economic Outlook report from the International monetary Fund (IMF)23 clearly shows what to expect for the upcoming years. The developed countries GDP will grow on average 2,5% in 2011, still trying to recover from 2007s financial crisis. The U.S., Germany, and the U.K, together with some developed Asian countries such as conspiracy Korea will be presenting above average growth rates. However, some countries like Spain, Italy and France will show a growth rate between 0% and 1%. On the other hand, developing nations are expected to growth on average 6,5%, with Developing Asia and Latin America leading among these regions.From a macroeconomic billet of view, the next years are going to be very good ones for most of the developing countries and also for some developed nations. For the purpose of this document, the countries will be segmented in four categories, considering that The Day Chocolate should focus in the short run on those that are not experiencing a recession. Table 7 contains this information.However, the product that they are offering is not a cheap one. It is a premium product and usually the prices are above the average. In this context, the income levels of the consumers are also an important factor to be considered.This is what Rugman Collinson (1995) called the Market intensity.Figure 6 shows the relation between the per capita income level for all developed countries and the expected GDP growth for 2011. As it is shown, there are 1 group that is more desirable for the company. The second quadrant comprises all countries showing both very high income level and high expected level of economic activity. However, the companys man agement might find also attractive potential markets in countries that do not have a very high level of per capita income, but whichs economies are growing very fast (Quadrant 4).2.5.3.3. Third screening Political and Legal forcesThis step covers the examination of the political and ratified forces in every potential market. There might be trade barriers that obstruct the export process or the lack of solid institutions can acquaint a serious risk in the form of the future losses.One way to detect this serious problems is by addressing to the World Economic Forums (WEF) Global fighting Index (GCI)24. This index includes a weighted average of several different components, each one of them measuring a diverse feature of the competitiveness. Those components are classify into 12 categories or pillars. The first one of these pillars is Institutions. The GCI is calculated for 140 countries and the results are available free of charge. Table 8 presents the most important variables and their weight in spite of appearance the first pillar Institutions.Table 9 provides some of the results obtained by the WEFs researchers for the 2010/11 index25. There it can be seen that the countries with the most stable or trustworthy are in general also those with a higher level of economic development.2.5.3.4.Forth screening socio-cultural forcesA multinational corporation or a company desiring to become one should examine the main social and cultural disparities between the potential market and the home country.The concepts of cultural distance and psychological distance as presented in Hollensen (2008) have the potential of disturbing the normal flow between the foreign market and the company.Language, religion, work habits, ethnicity, age and many other socio-cultural factors may tempt the decision regarding where to locate the operations. Maps 1 and 2 illustrate this theory by presenting the world distribution of the main religions and of the English speaking nations.For The Day Chocolate to debar problems generated by cultural distance it will be recommended to establish operations or to export to anglo-saxon countries, like former British colonies or commonthwealth nations. Other european nations, specially those from German and Nordic origins, might be suitable in this first stage of internationalization. In a future stage, and after diminution these distances by means of the learning process, the firm might also attempt to gain a foot in more culturally distant markets. accent groups activities and consumer surveys can help the firm in determining the main differences and similarities between the foreign market and the headquarters values and culture.2.5.3.5. Fifth screening Competitive enviromentThis last stage of the analysis focuses on the competitive forces. Confronted with comparable and equally desirable potential markets, the firms tend to internationalize to those where the competition is less ferocious. The lack of competition can pro vide the company with some degreeof monopolistic power that might have the power to increase the earnings.In the case analyzed, there were detected many new actors entering into the market in the last years, also some big players in the industry like Nestle and Cadbury are making efforts to beg this fast growing segment26. Despite these facts, competition is still not a barrier in most of the national markets analysed.Special attention should be paying to Germany, Switzerland and Austria, where several small and medium local producers have a long lasting tradition manufacturing chocolate products of world recognized quality27.2.5.3.6. Final selectionAccording to The Day Chocolates website, the firm currently operates in 11 markets. In the U.K.28 and in the United States, the company has direct control over its business. In the rest of the countries, they believe on other companies, which are in charge of the distribution channels (Canada, Norway, Sweden, Netherlands, Denmark, Slov akia, Czech Republic and Japan).Trough the screening process and its five stages many countries were considered as potential new markets Finland, Australia, New Zealand, Belgium, to the south Korea, Germany, Switzerland and Romania.Germany and Switzerland were discarded mainly because of the competitive environment and in second place because some possible cultural distance. South Korea was finally not considered fundamentally because the huge cultural distance and also because the physical distance.Due to the market size and growth projections, the chocolate per capita consumption29, the similarities in the socio-cultural environments, the authentic legal and political framework, the expected friendly competitive context this document concludes thatThe Day Chocolates management should make an effort to analyse in more detail the potential of the following new markets Australia, Finland, Belgium and New Zealand.