INTERNATIONALIZATION AND MARKETING LEARNING

 

 

 

INTERNATIONALIZATION AND MARKETING LEARNING

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EXECUTIVE SUMMARY

With rapid technological advancements it has become imperative for modern organizations to study other markets as means of ensuring that their objectives are line with market expectations. This study aims to illustrate the importance of and the role played by internationalization towards development of knowledge on new technology and foreign markets. Factors such as the scope of the multinational entity’s activities, its perceptions on deficiencies of marketing knowledge and social capital external to the organization largely influence the processes of knowledge acquisition for the international entity.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INTERNATIONALIZATION AND MARKETING LEARNING

INTRODUCTION

With the trends towards globalization, barriers towards international business are gradually being eliminated. In addition, research indicates that a majority of poor and underdeveloped markets can benefit largely with accumulation of knowledge, innovation and internationalization or market innovation. Internationalization plays an important role in acquisition of new experiences and the learning process for the organization. For organization seeking entry into a new market, there is a need to gain information on the market ranging on a variety of topics and issues.

SITUATIONAL ANALYSIS

Internationalization can be best understood by timing entry into the international market, selection of market for entry, the entry modes used by the entity. The timing of entry refers to the initial decision by the management of the organization to enter into other markets abroad. In addition, the timing of entry into a new market is considered as an important factor given that it determines the success of the entity in the new market. Other factors that have been identified as essential towards internationalization strategies adopted by modern entities include resources, knowledge, process and product innovation, mimicry and situational uncertainty.

Globalization has resulted in other trends such as integration of markets to form customized unions, monetary unions and common markets. Thus, an entity seeking entry into a new market would be mandated to understand the common business and social practices as a means of accessing the new market.  In addition, globalization provides modern organizations with enhanced access to traditionally restrictive markets thus enhancing competition in such markets. In addition, it also encourages economic integration, transformation and liberation from the traditional command driven economies towards market driven economies.

Demand and Demand Trends

Understanding differences in demand and demand cycles in both foreign and local markets provides managers in the organization with an effective avenue for strategy formulation. As the firm seek entry into a foreign market through exports and graduates to foreign direct investment in the foreign market, it gains knowledge and experience on how to interact with customers based on demand and supply factors. Understanding the demand and supply factors that affect the product and service offered by the firm in the foreign market enable the entity to gain competitive advantage over existing players and new entrants into the market.

A majority of organizations seek to differentiate their products through pricing strategies to provide customers with immediate and effective substitute products. In addition, in understanding demand in the foreign market, the entity is able to gain experience and knowledge on the avenues of enhancing service and product delivery through an efficient supply chain. As the entity gradually gains experience in the foreign market to undertake a foreign direct investment in the foreign market, efficiency in the supply chain is a priority. This is developed through understanding and knowledge of the different players within the supply chain and the means to ensure optimum value in the supply chain (Andersson, Eriksson, & Lundmark, 2006, p. 35)

 

 

Demographics

Theorists believe that younger managers are more export oriented than older managers are. They are inclined to expand the business activities to other foreign markets due to their views on cosmopolitanism and international business. Managers play a significant role in a business given that they contribute their knowledge and skills that is in the form of individual life experiences or education. This offers an organization a vast pool of knowledge that is essential towards interactions with customers in a foreign market. Furthermore, through internationalization an entity is able to accrue information on incomes of market segments, age, race, gender and geographical regions for the foreign markets.

Psychographics

Attitudes and consumers preferences vary from one region to another as in the case of a local and foreign market. Thus, an entity should seek to understand the difference between customer attitudes in the foreign country s compared to the local market. This forms one of the most important sources and avenues for information on what drives consumer activities and behavior. Foreign markets differ from local markets in terms of the belief systems held, the use of media and the consumers of the products or service. Thus, internationalization provides avenues for accessing new markets that consumers who hold diverse belief systems from those held by local consumers.

Economic and Business Conditions

Entry through exports or foreign direct investments into a new market is initiated by conducting an evaluation of the business and economic conditions within the proposed market. It amounts to determination of the viability of entry into the new market and the possibilities of profit making or loss and possibilities for growth. Diversity in economic conditions presents the organization with avenues for increasing its knowledge and experience.

State of Technology

This forms one of the most important factors for consideration in internationalization processes for a majority of modern organizations. Information technology has become an important resource for modern organizations as it provides avenues to enhance business operations and efficiencies. Technology is applied in a majority of business operations such as management, accounting, marketing, human resource management, resource allocation, product and service development and supply chain management.

Laws and Regulations

Polices may impede or enhance business operations in the form of exports and foreign direct investments into new markets. The entity should be able to understand the respective policies and regulations that govern its operations and respective market.

Research Objectives

The objectives of this research include the need to establish the importance of knowledge acquisition for modern organizations in internationalization processes. Research has indicated that knowledge acquisition results in uncertainty reduction in entry into new markets. In addition, entry into new markets is usually marked by uncertainty over the success of the firm in a foreign market. This presents the need to understand the role of uncertainty in internationalization for new firms.

To increase their possibilities of success in foreign markets, entities usually develop strategies based on ability to assimilate new information on the market and consumer activity or behavior. This brings about the need to enhance innovation, research and development of new products based on evolving consumer needs, wants and preferences. This study also aims to illustrate the role of uncertainty with respect to exit of firms as provided in a previous case study. This will provide an overview of the role of knowledge accumulation of norms and belief systems of the foreign country for firms undergoing internationalization using a case study of Belgian firms and Syrian manufacturers (Berthou, & Vicard, 2013, p. 17).

Statement of Hypothesis

Knowledge in modern organizations plays an important role internationalization processes for modern entities. Some theoretical models such as the Uppsala model acknowledge the importance of knowledge in reduction of uncertainty in new markets be it either through exports or foreign direct investments.

Some of the hypotheses to be tested in this study include:

1. Does market knowledge determine success in foreign markets
2. What strategies are modern organizations using to penetrate into foreign markets?

LITERATURE REVIEW

There are limited studies on the internationalization process for small and large entities in developing countries. Small and medium enterprises accrue different definitions in different countries and regions. For instance, a small and medium enterprise is defined by the European Union as an entity that employs not more than 500 individuals. In emerging markets such as Malaysia, an SME is defined as an entity that has sales turnovers that do not exceed more than RM25million annually and does not employ more than 150 individuals. In addition, internationalization also accrues differing definitions. Calof et al., (1995, p.116), defines internationalization as “the process of adapting the firms’ operations (the strategy, structure, and resources) to the international environment”. From such a definition, internationalization can be understood to be a dynamic and flexible process that is suited for emerging internationalization process for modern entities (Berthou, & Vicard, 2013, p. 19).

Organizational internationalization has been explained by models such the Finnish POM models and the Uppsala model. In addition, modern organization’s process of internationalization has also been explained through the network approach by Kenny and Fahy, 2004, Welch and Welch, 1998 and by Majkgård and Sharma, 1998. Another perspective that has sought to explain internationalization for small and medium enterprises is the International New Venture perspective by Zahra, Ireland, and Hitt, 2000, and by Oviatt and McDougall, 1994 (Oldenski, 2012, p. 31).

The Uppsala model as initiated and developed by Johanson and Wiedersheim-Paul (1975 and later expanded and enhanced by Johanson and Vahlne (1990 and 1977) is largely used as a definition for the patterns used by small and medium sized entities in internationalization processes. The Uppsala model is applied in two perspectives or patterns. The first pattern is made up of the four stages of entry into foreign markets. These four stages of foreign entry are; first stage is regular exports are advanced to export using independent parties or representatives, the second step is moving towards the use of sales subsidiaries later advancing to production and manufacturing in the last stage.

From this model, it is evident that firms usually enter into new markets using low commitment and low risk strategies. Using direct exports, that later graduate to high-risk ventures such as manufacturing subsidiaries and foreign sales representatives are common strategies of internationalization by firms around the world. The second pattern within the Uppsala model is the successive entry into new markets in countries that have lower levels of psychic distances such as language, business practices, education, culture and industrial development and capabilities. In addition, this model is of the view that firms make entry into new markets that have similarities to their home countries as they move towards markets that have higher levels of dissimilarities.

The Finnish POM model differentiates three perspectives of internationalization. The first dimension is the Product (P) that refers to goods, services and systems used for profit making purposes. The second dimension is Operation (O) that relates to the operations of the entity towards reaching out to customers and accessing the market. It is made up of agents, subsidiaries and management contracts within the supply chain of the entity. The third dimension is Market (M) that defines the target or select market and takes into consideration issues such as cultural, political and physical differences between markets (Zahra, Ireland, & Hitt, 2000, p.24)

Theorists later added the Organizational Capacity dimension that defines the organizational resources structure, human resource and finance towards internationalization process for modern organizations. This model has been given little attention despite providing deeper understanding of the varying factors that influence internationalization process for modern organizations as compared to the Uppsala model. However, the two gradual models do not address the essence of networking in internationalization for modern entities.

On the other hand, the networking perspective has been essential in understanding internationalization in small, medium and large entities and their entry strategies into new markets. This perspective is essential in illustration of the importance of business networking in the internationalization process. The term network is defined as collaboration between actions and actors such as departments, people, business and their respective strategic links. Network links with governments, other businesses in the same market and agencies enhances the internationalization process for an entity. Madhok (1997) provides that networking can overcome the inconveniences that are brought about by the size of the business.

Sharma (1993) provides that networking have the ability to influence strategic decision-making in the organization given that it involves the exchange of resources amongst players in a given market. In addition, networking outside and within the small and medium network chain enhances the performance of an entity according to Fuller-Love and Thomas, 2004 and according to Wincent, 2005. Rutashobya and Jaensson (2004) also agree that networks are essential for all entities in their respective internationalization process, and especially for small and medium enterprises. Networking accelerates the internationalization process. This is essential for market learning given that an entity that is in a new market is able to obtain information from other players in the market.

The international new venture theory came about in the 1990s as part of a response towards the fact that majority of organizations do not apply the gradual models in response to internationalization processes according to Etemad, 2004a; Kenny et al., 2004. Such firms have been termed as ‘born global’ or international new venture firms. The theory of international new venture firms gives emphasis to the age of a firm rather than the size of an entity. In addition, it also suggests that international new venture firms are in possession of unique capabilities and assets that enable such entities with limited resources to undertake rapid venture into new and foreign markets.

Factors that move entities towards internationalization can be understood by the various motivating factors for internationalization. According to Czinkota, Johanson, and Ronkainen, 2002, such factors can be either proactive or reactive. Business opportunities, positive market situations can be among some of the main drivers for business internationalization. In addition the interaction between push and pull factors, may also drive internationalization of a firm. Other considerations include internal and external changes in the entity that may drive the need for internationalization. The competition and interaction between pull and push factors largely influences the decisions for internationalization within an organization.

In essence, the diversity of exposure ton new markets fosters the learning process for the organization. In addition, it provides avenues for access to diverse customers, business actors, different institutions, venture partners and competitors all of whom contribute towards the marketing knowledge within the organization. In essence, foreign environments provide opportunities for learning experiences for an entity. According to Ellis et al., (2011), expansion of sales activities to diverse markets provides learning opportunities for the entity that traverses both geographical and industry barriers and is independent of the actions of foreign entities.

A majority of multination entities note that as they enter new foreign markets, they are able to encounter new experiences in the form of rival practices, diverse consumer needs, testing platforms for their products and avenues for exploratory learning. This is a clear definition of market learning given that it involves acquisition of information relative to new markets because of internationalization.

METHODOLOGY

Research Design

A case study design can be used for this research given limited information on internationalization and market learning. Other possible research designs include causality designs that would seek to understand the relationship between internationalization of an entity and marketing learning for the organization. In addition, an exploratory design would also be a suitable design given the limited studies conducted on marketing learning and its relationship to internationalization in modern organizations. All the design models are appropriate in their own right, but they provide different results and conclusions for the study.

Causality design is the most appropriate form of research design to illustrate the effect of internationalization on marketing learning of the firm. Due to the inadequacies of resources, the study was sourced from other case studies such the case of Belgian and Spanish firms operating in the European region, who started entry into foreign markets by exports before engaging in foreign direct investments. This study employs a causal research design to illustrate the effects of internationalization and marketing learning. Firms started out with exports to foreign markets before they diversified into foreign direct investments as a result of enhanced knowledge on the foreign markets.

Research Context and Sampling

Convenience samples were obtained from previous research conducted on Belgium, and Spanish SMEs and their respective attitudes towards internationalization through exports and foreign direct investments. Growth and success of a firm is attributed largely to the marketing learning and internationalization process. There is need to illustrate causality between the two variables, internationalization and marketing learning for the organization.

Export and Foreign Direct Investment (FDI) entries-Belgian firms Study

Year	Export entries with no previous FDI	Export entries with previous FDI	Total Export Entries	FDI entries with no previous exports	FDI entries previous exports	Total FDI interests
1998	2,925	0	2,925	0	20	20
1999	2,760	1	2,761	3	28	31
2000	2,892	0	2,892	5	52	57
2001	2,773	0	2,773	8	50	58
2002	2,575	0	2,575	3	24	27
2003	2,469	1	2,470	1	24	25
2004	2,971	1	2,972	4	27	31
2005	2,511	0	2,511	16	24	40
2006	2,530	1	2,531	5	33	38
2007	2,745	0	2,745	6	19	25
2008	2,847	0	2,847	1	27	28
TOTAL	29,998 (99.99%)	4 (0.01%)	30,002 (100%)	52 (13.68%)	328 (86.32%)	380 (100%)

Note: The table provides the export and foreign direct investments made by the Belgian manufacturing entities in foreign markets that are outside the European single market between the periods 1998 -2008.

Export and Foreign Direct Investment Relationships

Year	Export Relationships		FDI Relationships
	World	Outside the EU	World	Outside SM
1998	55,822	23,119	974	214
1999	56,025	22,923	1,004	230
2000	57,330	23,748	1,127	283
2001	58,603	24,135	1,335	330
2002	58,693	24,172	1,383	332
2003	58,846	24,025	1,369	336
2004	60,046	24,517	1,324	334
2005	60,774	25,194	1,222	322
2006	57,155	25,366	1,312	390
2007	57,156	25,591	1,296	387
2008	53,408	24,764	1,147	349

Spanish firms study and their respective levels of entry into new markets as result of exposure to managerial knowledge and market knowledge in the foreign markets. Some of the variables used in the study of Spanish firms as conducted by Maria (2010) in which she reviews export performance of Spanish SMEs and the respective factors that influence internationalization of such firms. Some variables used in this empirical study include

1. Managerial experience of the management executives of the SME firm
2. management executives’ skills in foreign languages

• time spent in foreign countries by management executives

1. management executives knowledge of international business
2. the views of management executives on exports
3. firm size

• firm experience
• environmental factors of the foreign market such as demand for foreign products and services

1. commitment by the entity on exports

 

Firm Size per employee number	Percentage (%)	Firm Age	Firm Export Experience
Micro enterprises	9.6
Small enterprises	50.7	Mean 34years	Mean 17years
Medium enterprises	39.7
Industrial sector	%	Technology
Beverages, tobacco and food	9.6	Low technology
Textiles and related products	8.2	Low technology
Wood and paper products	5.5	Low technology
Basic metals and metal products	10.2	Medium- Low technology
Low technology firms	8.2	Low technology
Chemical manufacturers	14.4	High and medium technology
Machinery and equipment	11.0	Medium high technology
Electrical machinery and apparatus	15.8	Medium high technology
Motor vehicle trailers and transport equipment	4.8	Medium high technology
Low technology services	9.6	Low technology
High technology services such as computer and business activities	2.7	High technology
Total	100.0

 

DATA ANALYSIS

Firm Size and Productivity

	Mean	Standard Deviation	Minimum	Maximum
Domestic firms
Employment	69	123	5	1,600
Productivity	67.32	67.03	2.19	485.95
Exporting firms
Employment	470	1055	5	9,736
Productivity	74.62	53.02	5.21	894.59
Firms with FDI
Employment	1,750	2,036	10	7,297
Productivity	83.94	32.83	5.16	310.38

 

Factor analysis results as conducted on the Spanish firms with respect to their export activities and foreign direct investments

Analysis	Construct/time	Factor loads	Eigen Values	%Variance Explained	Cronbach
Factor 1	International business knowledge		3.885	64.758	0.888
	International management knowledge	0.924
	Global knowledge	0.808
	International legislation knowledge	0.792
	International market knowledge	0.778
	International finance knowledge	0.776
	Knowledge of ICT for international business activities	0.738
Factor 2	Managerial perceptions			69.268
Factor 2.1	Perceived export barriers		2.481	41.341	0.794
	Political difference between local and foreign markets	0.836
	Cultural differences between local and foreign markets	0.833
	Legal differences between local and foreign markets	0.754
	Lingual differences between local and foreign markets	0.719
Factor 2.2	Perceived export stimuli		1.675	27.927	0.802
	Exporting contribution to profits of firm	0.914
	Exporting contribution to sales growth for the firm	0.913
Factor 3	Firms Characteristics
Factor 3.1	Firm export commitment
	Research in international markets	0.825
	Regular visits to export markets	0.822
	Strategic planning of export markets	0.811
	Separate export department within organization	0.539
Factor 3.2	Firm Experience
	Firm age	0.898	1.613	26.905	0.623
	Firm export experience	0.880
Factor 4	Satisfaction by export performance
	Satisfaction by export market position		5.514	40.856	0.907
	Total overseas market share	0.856
	Market share in mainstream markets	0.846
	Main market versus main competitors	0.771
	Overseas sales growth levels	0.762
	Overseas sales growth in main markets	0.729
	Export objectives achieved	0.728
Factor 4.2	Satisfaction with export profitability and new market entry		1.252	26.798	0.790
	Financial results of products or services total	0.860
	Financial results of products in main market	0.821
	Profitability of overseas activities	0.674
	Expansion to new foreign markets	0.578

Ordinary Least Squares Analysis

The export intensities were used in the study as an indicator of the role of information and knowledge in the firm towards growth in the level of export activities and possible foreign direct investments. Five export performance indicators were used namely

1. Export intensity
2. Number of export zones

• Satisfaction with export market position

1. Satisfaction on export profits
2. New market entry

The five export performance indicators have been used as the independent variables with success in the foreign market being the dependent variable. Success depends largely on the five factors as applied to the organizations.

Table 1: Standardized coefficients displayed in t-statistics in parentheses.

Variables	Regression of export intensity	Regression of  number of export countries or markets	Regression of number of export regions	Regression on satisfaction with position within the  export market	Satisfaction with export profitability  and entry into new markets
Managerial international experience	–	–	–	–	0.171**(2.10)
Manager’s foreign language skills	0.236***(3.08)	0.238***(3.05)	0.219***(2.96)	–	–
Manager’s time spent abroad	–	–	–	–	–
Managerial knowledge in international business		0.266***(3.41)	0.255***(3.29)	0.320***(4.05)
Export stimuli	0.313**(4.17)
Export barriers	-0.163** (-2.15)
Firm size	–	–	–	–	–
Firm experience			0.151**(2.07)
Export commitment			0.209***(2.62)		0.196**(2.41)
Shortage of demand in domestic market			-0.164** (-2.22)
Information availability in read to opportunities in foreign market
Unsolicited foreign orders received
Technological intensity within industry	0.157**(2.06)		0.180**(2.44)
F static	9.010***	12.219	9.836***	16.427***	6.123***
R^2	0.204	0.146	0.298	0.102	0.079
Adjusted R^2	0.181	0.134	0.268	0.096	0.066

** refers to p<0.05 and *** refers to p<0.01

 

 

 

 

DISCUSSION

The study was aimed at illustrating and investigating the effects of internationalization for modern firms with respect to market learning. Marketing learning amounts to the knowledge and experiences gained by an entity because of continued business operations in a foreign market. There is need to understand that there is limited research on marketing learning with respect to internationalization of modern firms. In essence, the importance of internationalization for modern firms amounts to the need to establish their respective presence in diverse contexts as a means of achieving high levels of marketing learning.

From the information provided it is evident of the differences between firms in terms of size and their respective export activities. In addition, it is evident that firms with previous experience in exports to foreign markets resulted in foreign direct investments. This is largely attributed to their experiences and understanding of the foreign market because of knowledge gained on the market. Thus, internationalization through exports provides an entity with an avenue for marketing learning on the foreign market before it graduates to foreign direct investments due to experience and knowledge gained on that market (Ibeh & Kasem 2014, p. 27).

CONCLUSION AND RECOMMENDATIONS

It is imperative for the management in the organization to evaluate various internal and external factors that influence consumer behavior in the local and foreign markets. Contrasting both provides the entity with an understanding of the importance of diversity in developing products and services, marketing and business operations within the foreign market. Marketing learning takes place in the following dimensions and environments of the organization.

Demand and Demand Trends

It is imperative for an organization to understand and take note of the changes and differences in demand. Demand for products and services vary from one market to another due to different economic factors. Understanding differences in demand and demand cycles in both foreign and local markets provides managers in the organization with an effective avenue for strategy formulation. As the firm seek entry into a foreign market through exports and graduates to foreign direct investment in the foreign market, it gains knowledge and experience on how to interact with customers based on demand and supply factors. Understanding the demand and supply factors that affect the product and service offered by the firm in the foreign market enable the entity to gain competitive advantage over existing players and new entrants into the market. Understanding drivers of demand for products and services is the initial step towards successful entry into the new market.

Demographics

The entity should undertake studies on demographics of the proposed market as a means of gaining information on consumer belief systems, and possible perceptions of the entity, its products and services in the new market. This offers an organization a vast pool of knowledge that is essential towards interactions with customers in a foreign market. Furthermore, through internationalization an entity is able to accrue information on incomes of market segments, age, race, gender and geographical regions for the foreign markets.

Psychographics

The entity should seek to understand the difference between customer attitudes in the foreign country as compared to the local market. This forms one of the most important sources and avenues for information on what drives consumer activities and behavior. Foreign markets differ from local markets in terms of the belief systems held, the use of media and the consumers of the products or service. Thus, internationalization provides avenues for accessing new markets that consumers who hold diverse belief systems from those held by local consumers. Attitudes and consumers preferences vary from one region to another as in the case of a local and foreign market.

Economic and Business Conditions

Diversity in economic conditions presents the organization with avenues for increasing its knowledge and experience. Entry through exports or foreign direct investments into a new market is initiated by conducting an evaluation of the business and economic conditions within the proposed market. It amounts to determination of the viability of entry into the new market and the possibilities of profit making or loss and possibilities for growth. In addition, it also provides for gradual familiarization of the entity with the respective market factors and conditions that influence consumer behavior and the demand and supply of good and services.

State of Technology

Technology application in the foreign market may differ from the local market in terms of intensity and sophistication. Products and services should be revolutionary and easy to use rather than providing customers with complicated and expensive products or services. This forms one of the most important factors for consideration in internationalization processes for a majority of modern organizations. Information technology has become an important resource for modern organizations as it provides avenues to enhance business operations and efficiencies. Technology is applied in a majority of business operations such as management, accounting, marketing, human resource management, resource allocation, product and service development and supply chain management.

Laws and Regulations

Polices may impede or enhance business operations in the form of exports and foreign direct investments into new markets. The entity should be able to understand the respective policies and regulations that govern its operations and respective market. The entity should also seek to familiarize itself with the proposed market in terms of policies ad regulations that may govern its business operations and interactions with its customers.

 

 

 

 

 

 

 

 

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