Internationalization: challenges for policy and strategy
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Internationalization: challenges for policy and strategy
MDRI, June 19, 2013
Ari KokkoDepartment of International Economics and Management
Copenhagen Business School
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Outline1. About internationalization and exporters
Why and why is it so difficult?2. Export promotion
What can government do to facilitate internationalization?
3. Internationalization of large firmsA matter of strategy?
4. The secret of successInnovation and entrepreneurship
5. Some examples from Europe
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1. Internationalization
• Theory– Motives, explanations, patterns
• Policy– What is a good policy environment for
globalization?• Strategy
– What is required at the firm level?
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Drivers of internationalization
Hard to manageoutside
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Why internationalize?
• Company– Sales revenue– Scale– Technology– Ìntermediate goods– Resources– Competitiveness
Profitability Survival
• Economy– Employment– Efficiency– Knowledge– Income– Growth
National wealthStandard of living
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Barriers to internationalization• Legal and regulatory
– Tariffs– Subsidies– Public procurement– Border controls– Controls on immigration
• Technical– Technical standards– Private standards – Transportation and
distribution
• Culture– Language– Tastes– Norms, values and
behavior– Religion– Work culture– Corruption
• Risk– Competition– Liability of
foreignness
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Internationalization is a complex process
Source: Wiedersheim-Paul & Welsch (1980)
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Exporters need to be strong to overcome liability of foreignness
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The exporters
• Most SMEs do not export– It is difficult and costly to become an exporter
• More sporadic exporters than permanent exporters– Most firms have to try several times before they
succeed• Most exporting companies export one product
variety to one foreign market– A little bit more knowledge and skill needed for every
new export market and every new export product
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2. What is needed for export success?
• Large firms– A good domestic
business environment• Macroeconomic stability• Low trade barriers• Competitive exchange rate• Efficient bureaucracy and
reasonable tax rates• Good infrastructure• Flexible labor market• Access to human capital
and technology• Financial resources /
export credit guarantees
• SMEs– Same + support to
overcome barriers to internationalization
• Market information• Links to partners / network
in foreign market• Marketing support /
visibility• Institutions for quality
control and quality standards
• Financial resources
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Export promotion: global experiences
• Red light– Protectionism– Export subsidies
• Yellow light– Preferential access to credits and foreign exchange
• Green light– Openness to trade and FDI– Infrastructure and education– Institutions for technology and market research– Quality control and quality standards– Competitive exchange rate
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Example: Business SwedenThe Swedish government and the Industry have established Business Sweden to help Swedish private companies develop contacts with customers in other countries
Practical helpAnalyses and advice
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Explore the opportunities
•Information & Knowledge
•Local export advisor
• Market selection
Choose strategy
•Market analysis
•Partner search
•Visitors program
•Business opportunity package
•Acquisition support
Establish presence
•Business Support Office
•Forming the company
•Recruitment
Develop the business
•Sales and market support
•Seminars and events
•International procurement
•Development programs initiated by foreign aid organizations and the industry
Business Sweden’s offer to private companies in Sweden
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Americas
Africa
Asia & the Middle East
Oceania
Europe
Business Sweden in the world
BotswanaEgyptKenyaMoroccoNigeriaSouth Africa
ArgentinaBrazilChileColombiaCanadaMexicoUSA Australia
New Zeeland
UAEHong KongIndiaIndonesiaIraqJapanKazakhstanChinaMalaysiaSaudi Arabia SingaporeSouth KoreaTaiwanThailandVietnam
BelgiumBulgariaDenmarkEstoniaEUFinlandFranceGreeceItalyLatviaLithuaniaHollandNorwayPolandPortugalRumania
RussiaSwitzerlandSerbiaSpainGreat Britain &IrelandSwedenCzech RepublicTurkeyGermanyUkraineHungaryAustria
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Other agencies supporting Swedish exports
Swedish International Development Cooperation Agency
The Swedish Agency for Economic and Regional Growth
Exportkreditnämnden is a business partner to exporting companies and banks
Swedish Export Credit Corporation: Experts in international financing
A channel for investment based on an industrial policy that promotes economic growth
The Swedish Governmental Agency for Innovation Systems
The Swedish Environmental Technology Council
Swedfund is a committed, active and long term investment partner
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3. Internationalization of large firms
• Larger scale allows investment in export-specific assets, skills, and knowledge
• Limited dependence on public export promotion structures– Exceptions: export credits, credit guarantees
• Focus on internationalization strategy– To create sustainable competitive advantage leading to
growth and profitability– To get customers to prefer your offer over your competitors’ – To use or create market imperfections
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Strategy: Goal and how to get there
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Why do we need a strategy? What happens if we do nothing?
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What happens without strategy? Second law of thermodynamics
• Entropy, disorganization, randomness and chaos increase (if we do not interfere and create order)!
Rudolf Clausius
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Organizations and strategy
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Tools
• Market analysis – external as well as internal– Porter’s five forces– SWOT
• Strategic positioning– Balancing pressure for cost reductions against
pressure for local responsiveness
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Internal and external fit
22
Strategy
Internal Resources
External Environment
Strength
Weaknesses
Opportunities
Threats
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25
Generic strategies
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International strategies
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• However, textbook models seldom generate blue ocean strategies where you have the whole ocean for yourself
• When others do the same, it makes the oceanred
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4. THE SECRET OF SUCCESS
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Entrepreneurshipleads to
Fundamental Competition
which operates through
Creative Destructionand creates
Temporary Monopolies
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Fundamental competition• Competition from
– A new commodity– A new technology – A new source of supply – A new type of organization– Breaking up cartels or reorganizing an industry
• Competition which commands a decisive cost or quality advantage...
• ... and strikes not at the margins of the profits and the outputs of the existing firms but at their foundations and their very lives
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Fundamental competition• From local grocery stores to global supermarket
chains (Wal-Mart)
• From local craftsmanship to global do-it yourself in furniture (IKEA)
• From instant photography (Polaroid) and film-based photography (Kodak) to digital photography (Sony, Nokia)
• From mainframes (IBM) to the PC (Compaq) to the powerful mobile phone (Nokia, Sony-Ericsson)?
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Innovation: Key strategy even in seemingly simple industries
• Seek opportunities• Dare to try• Challenge the
boundaries
• Listen to and encourage new ideas
• Fight bureaucracy• Act and look for a more
efficient solution• Constant improvement• Fast pace• Curiosity• Open doors• Respect others
Core values of
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But innovation is hard…
• Most new ideas are bad ideas
• The Iron Law of Innovation: 10-20-70
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67%
21% 12%0%
20%
40%
60%
80%
Belowexpectations
According toexpectations
Strongly aboveexpectations
Success ratios of corporate venturing (sales relative to expectations of venture champion)
N=86
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How to promote entrepreneurship and innovation
• Compare yourself with your best competitors– Benchmarking
• Prepare for tomorrow’s challenges already today– Foresight and market analysis
• Invest more in knowledge and skills than what you need today– Create Excess Capacity
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How to promote entrepreneurship and innovation
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5. Examples from Europe
• Global financial crisis has forced firms to innovate in order to survive
• Three innovation strategiesA. Increased value added from higher efficiency in
existing activities: product / process innovationB. Increased value added from new position in
value chain: functional innovationC. Move to new value chain: inter-chain innovation
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Innovation trajectories
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Strategy B: upgrading within the value chain• V
alue
add
ed
R&D Design Engineering Manufacturing Operation Marketing Sales Services
Branding
Marketing Center
OperationCenter
Manufacturing Center
R&DCenter
DesignCenter
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Example strategy B: AS Kodumaja, Estonia
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AS Kodumaja turnover 2004-2011 and forecast 2012
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Example strategy C: AS Estiko Plastar (packages for construction materials –> packages for food industry)
Employees
Export
Turnover
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• Thank you for your attention!