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The three companies in this study operate within three different sectors of the manufacturing industry. Shine and IAC are both very British firms. All three firms operate in the design and manufacturing of products and their target markets are business-to-business market, however Zarlink's targets specialised markets such as medical, communication and optical industries. Shine operates in the food equipment market segment within the manufacturing industry, whilst IAC do not have a specific product but operate as System Integrators with multiple segments.
To illustrate the domestic and international activities of the three companies in this study, Table 2 describes their size in terms of turnover and number of sites in the UK and the extent of their foreign development in the light of their experience overseas and the number of international markets entered as well as domestic. Table two shows the following: Zarlinks are towards the top end of the SME definition (between £.....million), IAC are mid-sized (between £.....million), Shine Ltd are towards the small end of SME definition (between £....million). In terms of age and experience Zarlink is ....., Shine ....... and IAC is ......
Design and Manufacturing
Size: turnover, age and international and domestic experience
Competition in few numbers,
Urge to remain domestic,
Language and Local representative/Presence,
Stimulation for expansion
Moved from Telecom to medical,
International brand potential
Specialized Market - Niche,
Entry Mode choice
Purchase a manufacturing unit
Regular visits by management personnel,
Modern electronic communication,
Full engineering support from the UK
Create value in a focused market,
Importance of Entrepreneur/Decision-Maker
Decisions taken locally,
Centralised decision making
European Commission - Seventh Framework Programme (FP7),
Wales Trade International (WTI),
In-depth local knowledge and lots of visits,
Relations drive expansion and opportunities
Table 2: Summary of findings
The main challenges expressed by the two companies were competition, the decision to stay in the domestic market, financial commitment, language, local presence and management resources. In terms of finance in developing international expansion, Zarlink's financing was an issue as there was "no budget or money" for its planned international expansion. For IAC financing international expansion was equally challenging as its ventures were fully financed from in-house and as IAC states from the interview:
"We have a long way to go before we are operating as an independent clone of the UK operation".
Although Zarlink had some help with financing its international business and operations and developments.
The next barrier and challenges both firms stated were that of cultural, legal and consumer differences between markets contributing to the complexity of foreign market development.
As Zarlink argues: "international expansion can be much complex as or than domestic growth, even with European Union as there are still vast differences in local restrictions and legalities". IAC maintain that it is essential for a company expanding into new countries and markets "to understand the differences between those countries and markets as well as there is the need to recognise the differences in culture". Zarlink added that the peculiarities of going to foreign markets necessitate prior research and analysis of the target market and "forming relationships as well as allowing plenty of time for the market to develop". This means making fully informed decisions which includes taking into accounts of the risks and assessing the market fully and in-depth before moving to the international market.
For both companies' management resources to support the international expansion of the company is very time consuming and intricate procedure as the company deals with different cultures and markets. Both companies state that management resources are costly, such as getting people and infrastructure in place that is going to serve the company for years to come. According to Zarlink during the company's initial international expansion it considered Greenfield (purchasing another company) but realised it did not need it. It then decided to go for a joint venture but realised that the benefits did not outweigh the limitations imposed especially in terms of culture and cost and control.
IAC also added that "the requirement for a salesman locally is that they be primarily an engineer with a good understanding of the issues. Therefore trying to recruit from thousands of miles away is not possible, as the company does not have a specific product". Therefore setting up a manufacturing unit was the most appropriate option for the company to embark on.
Another challenge faced by Zarlink was the urge to remain in its domestic market rather than going international. The reason given was the dedication, quality and educational level of the UK staff and employees. However, the organisation realised that its customers were outside the UK, that is, United States and the European Union.
In terms of competition, IAC did not have problem with competition as they believed they were the players in the market. However, Zarlink was worried about the few number of players existing in its market.
IAC also faced new challenges in delegating management responsibilities and to develop the routines and structures in place to handle the growth of the firm.
Company stimulation for expansion
This section describes how these two companies overcome the above obstacles to internationalisation stimulated by specialised niche market, motives for growth, unique concept and international brand potential.
Both companies employ various specialist strategies and these can be considered in terms of multi-market strategy and total market strategy (Check it this is true). Zarlink uses a multimarket strategy whilst IAC uses a total market strategy.
These firms have been placed under each strategy according to the description given by each company respondent. Zarlink operates in a niche specialised market as a result of the speciality and importance of the growing medical market due to aging population. On the other hand IAC as already stated above do not have a specific product (Expand). As stated by Zarlink: "we targeted medical implant electronics growing market in the field of healthcare. We chose to focus on a niche within that market which is big for us, but too small for major players". IAC's expansion abroad on the other hand is a response to opportunity and planned strategy. Quoting from IAC's research interview: "growth in South Africa is a long-term strategic aim, but we were responding to opportunities in the first instance which prompted research and purchase of a manufacturing unit",
The two firms studied believe they are unique, however, Zarlink feels that it has something different within the unique areas. According to Zarlink each of their products are made with creativity and originality without surrendering to all the pressures of competition in similar areas with similar product around the world. Zarlinks operates specialised fabrications with highly integrated solutions to help its customers simply design and lower costs as well as reach market in the fast possible way. The company has come up with the world's first swallowable medical devices supporting new monitoring, diagnostic and therapeutic applications (Zarlink, 2009). IAC on the other hand believe that the organisation does not have any form of uniqueness but they are "just good".
International brand potential
Zarlink designs, manufactures and supply electronic modules for implant devices. Zarlink argues that "the distinctiveness of the concept is something that is acceptable and useful across the world and this can be translated into sales in countries as a result of the growing medical market due to the aging population".
IAC on the other hand
Management was stated as having a pivotal role to play in the international decision-making of the organisation. The positive attitude towards international expansion in both companies is a result of the company's needs to take risks and take advantage of seen opportunities. Years ago Zarlink operated in the telecom business; however, years later telecom became globalised rather than nationalised. As a result Zarlink was losing its market faster to it bigger competitors. Management saw opportunity and gap in the market - a niche. As a result the company moved completely from the telecom to manufacturing medical, optical and communication products. However, IAC aspires to take their business global as a result of management's intention to grow and expanding the business, taking advantage of existing market.
Entry mode choice
The findings appear to show that both companies used a single international entry mode: Agent Distributors (Zarlink) and Greenfield (IAC). Due to the barrier of financial commitment shown above it could be argued that there was the willingness and necessities for both companies to consider trade off between absolute control of ownership and higher risk equivalent of wholesale agreements. Zarlink's mode of entry choice involves setting up international sales team. Initially the company considered acquiring another company or setting up a greenfield operation, however it decided it not have use for it. It also considered a joint venture and as already said above the benefits did not outweigh the limitations imposed. The usage of low-cost and low-control entry mode strategies arguably reflects not only financial limitations and constraints placed on the company at the initial stage but also the nature of the business and its products dictates which market the company had to enter and the kind of entry mode it should embark on. According to Zarlink it chose distribution as a mode of entry due to the small nature of the business. IAC on the other hand entered through purchasing a manufacturing unit. The reason is that South Africans like to buy local as a result management wanted to see investment made locally hence purchasing a factory. IAC arguably had to adapt the entry mode to local requirements, as they had to act quickly as the opportunity arose in the market. The company did consider using agents but that entry did not suit their product portfolio as they needed to have complete control over their business operations.
It was found in this research study that managerial characteristics in supporting international expansion were, using dedicated local persons to manage overseas sales team which included regular customer visits as well as using modern electronic communications (Zarlink). IAC's management support given to its international firm is a full engineering support which comes directly from the parent company in UK. Both companies keep in touch with what is happening with every facet of the business. Both companies make extensive visits to each of their overseas businesses either to distributors (Zarlink) or to set up operation (IAC). Through these relationships they learn about markets, their local conditions and the needs of their customers. As a result both organisations are able to assimilate within the rest of the organisation what changes and improvements need to be made.
Zarlink's main driver and vision to expand internationally is to "create value in a focussed market for our stakeholders particularly shareholders, local suppliers, owners and employees. IAC's vision in comparison was purely for expansion purposes and adding to this the company states: "the challenge of building a similar model in South Africa was the incentive". The move of both businesses into new international markets is arguably an indication of the ability of the company to both create and respond to opportunities for foreign market development of the business. For example, the identification of a niche in the medical market was an important factor for Zarlink in the start up phase of the business and their move away from telecommunication.
Decision-making in directing the company overseas are quiet different in both companies. IAC operate a centralised decision-making process. IAC states that although the team are involved in the decision-making, it is primarily driven from the managing director. The reason is that "everyone else has specific tasks to perform". Zarlink on the other hand operate a decentralised decision-making that is decisions are taken locally. For IAC the attitudes of decision-makers towards relationships externally with business partners and sometimes competitors played an important role in their internationalisation efforts in South Africa.
In terms of finance injection Zarlink used local Welsh Assembly Government (WAG) training grants to train local employed engineers to become "business people". Zarlink also used UK government and European Union Seventh Framework Programme (FP7) to develop new technologies which helped facilitate the company's development and expansion. IAC in comparison financed its international operations in-house apart from the odd grant for travel assistance from the Wales Trade International (WTI). Explaining further, IAC states: "it takes so long to get money out of the WAG that it is impossible to operate slow enough to be able to apply. Unfortunately we live in a real world where decisions have to be made when the opportunities arrive - not six months later".
From the lessons learnt from their operations overseas IAC states "nothing can be done without expensive, in-depth local knowledge and lots of visits. Talking face to face works, but emails do not. You have to see the thing on the ground to gauge a proper opinion particularly with people". Zarlink of the other hand due to the nature of the business it states: "design in cycle takes about four years; therefore it is essential to allow plenty of time for the market to develop and relationships to mature".
Forming networks was found to be significant for both companies providing the essential support and help to international business operations. The ability of management to network on a more formal basis with business organisations was found important for both organisations. For instance, in the case of Zarlink the company found the ability of management to use exhibitions conducted and set up by MediWales impacted the international expansion of the business due to the nature of the business. Zarlink states that: "MediWales for example, will put on big stand up that a small company could not afford, purchase market into and share results. They will also organise trade missions that are difficult for SMEs to do". IAC also believes forming network relationships drive expansion. IAC states "you need to deal with real people to make an impact. We do not sell widgets and therefore we cannot just send a catalogue. The customer must believe that we can do the job". For both companies using networks help because "someone has the exposure and expertise you do not have".
Resources limitations are evident especially at the early stages of the firm's growth and expansion. IAC found that the viable way to expand under the conditions of internationalisation is the business relationships with its customers and partners and sometimes its competitors. Zarlink on the hand developed extensive distributor networks which enabled the company to establish extensive after-sales service and customisation capabilities through networks. IAC overcame their lack of knowledge of South Africa through the interactions and involvement in networking.
This research shows that there is a greater focus on incremental innovation, that is improvements to products, service and process in response to customer needs and radical innovation that is new products, services, process and new markets.
IAC operates incremental innovation stating that "we utilise other people's products in innovative ways to fulfil the ambitions of our customer base". According to the company most of their innovation strategies is focused on internal marketing against the usual external customer focused way of doing business. According to IAC the company believes in hard work rather than innovation stating that: "innovation can easily be seen in many small ways throughout the organisation, but no innovation can take the place of hard work.
In comparison Zarlink is more of radical innovation company due to the nature of the business. A company such as Zarlink constantly operate in a grey area for innovation and technology. Therefore for Zarlink the time to come up with new product and market the product takes about four to five years and hope to capitalize on those innovated products for about two to three years. However, the company looks forward to having the product exist on the market for its purposeful use for about ten years before they come up with a new product. Due to the high involvements of technological innovation in an organisation such as this it is essential for Zarlink to collaborate with another organisation. As such the company always collaborates using EU funding as well as with Universities such as Cardiff, Southampton, Netherland (IMEC) and Germany (IMTEK).
Both organisations have their own individual and distinctive histories, but they also exhibit similarities in strategy and internationalisation. These similarities are of two types: Zarlink has clearly achieved strong and in some cases leading competitive positions on a global scale, for example, their medical ......... is being used by top five medical companies in the world. IAC's operations are regional, that is not extended far beyond UK and South Africa. Zarlink have achieved strong global positions. Their products can be found in ...... countries worldwide. The company also have a strong market share in key markets especially in the medical segment, and also has a significant share of the global market.
Distinguishing characteristics held by Zarlink in the initiation role that innovation has played in their internationalisation considering coming away from telecom. It can be said that the development of product innovation was the spur to Zarlink's rapid globalisation. IAC in comparison have followed a different path from Zarlink. Unlike Zarlink, they have focused their sales in UK and South Africa showing a preference for direct involvement in marketing, control and manufacturing offshore. Again unlike Zarlink, IAC has not launched on a path to global reach by a world-leading innovation. As a result the product scope of IAC has not been focused by the need to concentrate all the organisation's resources on one globalising product. As a result it can be argued why the product portfolios of IAC is broader than Zarlink's product portfolio.