Globalization, Localization and Internationalization Comparison
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"THE ONLY THING THAT IS CONSTANT IN TODAY'S WORLD IS CHANGE"- Dr. Mary Engelbreit (1983)
Looking at the world 20 years back, its a way too different place to live in today. Over the years numerous authors, writers and editors from the business world magazines have spoken about changes in organization. To survive in the competitive arena, one needs to be creative, organized, well equipped and most important he or she needs to be secure from the ongoing rivalry. It is not new that Information Technology has become one of the most important aspects in the business world. Its been talked about in most business houses across the globe since most of them have already entered off shore markets or are planning to do so. In short, we are witnessing a metamorphosis in which a business is being taken care off , handled or customised according to the market situation of the region of its existence
Going 3 to 4 years back one can easily gauge the trends changing in the business world, ( Lakshmi Mittal,2010). And trends setting in a very predictable and a monotonous fashion its discernible to the grandness and quality it carries. For any organization to expand its market share or addressable market, it is very important to have key and accurate information about the market , space or region it plans to hit.
Similarly United Breweries (Holdings) Ltd which is the centrepiece of this dissertation has been following the trend of vertical and horizontal market expansion. the company holds 63% of the market share for india in the beer business ( Annual Report, FY07-08). However having acquired the the scotch giant ( Whyte and Mackay) in the United Kingdom is a clear step towards the internationalization of the group at large. With Dr Manmohan Singh ( Prime Minister of India) forecasting a growth rate of 7 to 8.5 % in the economy it is very evident that offshore business are bound to flourish , ( TOI, 2010) .
Although according to Jan-Erik ,1997), in the last decade or so there has been a lot of appreciation for internationalization due to the intention to clear hunger for market expansion and increasing the addressable market share. Although theories and kinetics behind the concept of internationalization will be briefly discussed in third chapter titled literature review. However internationalization theories in India have always been parallel to the economies of scale in the industry. India's culture for drinking beer has grown in the past few decades. Beer companies have come and gone but not to many have sustained as Kingfisher beer.
Kingfisher the King of Good Time is a classic brand with a net worth of Rs 50 billion. Signifying energy, youthfulness, and freedom. It is a brand formed United Breweries group. Kingfisher is the largest selling beer in India covering 28% of the market share in the business. The brain behind the beer is the current chairman of the UB group Dr Vijay Mallya. The brand has made a name worldwide spreading over 52 countries. It all started from Bangalore, India in the 1980's leading to become the biggest liquor company in the world. The company's marketing strategy was what made them big and keen interest from the CEO himself made a difference in the sales.
However, with high competition in the market the marketing strategy for Kingfisher beer to enter different market segments was essential. Being a large firm it would have been easy to enter markets by pumping in money, but a different level of strategy is required to sustain in the industry (UB Group, 2006).
To make any small or large firm successful, steps need to be taken towards advancement. Steps to expand, enter and explore will benefit firms looking for success. Literature indicates that more the steps taken the better the performance. Therefore, according to some literature review entering a new market and exploring it to the fullest brings about beneficial changes for the firm. However in this paper, the investigation into a Indian Liquor company United Breweries - Kingfisher beer, as to how it has managed to capture a huge market not only India but also worldwide.
In the next chapter the author will discuss the basics of the project intended. However the foundation of any such project that requires extensive research and critical evaluation of the data collected. It is very important to be ethical while researching, gathering and correlating data so that no half or incomplete data has been put down in this piece of work without proper citation provided. Proper care would be taken so that no information is leaked out the academic institution and determine the organization that is being critically evaluated.
RESEARCH QUESTIONARE AND RATIONALE
2.1 ) OVERVIEW AND BACKGROUND:
India's culture for drinking beer has grown in the past few decades. Beer companies have come and gone but not to many have sustained as Kingfisher beer. Kingfisher the King of Good Time is a classic brand with a net worth of Rs 50 billion. Signifying energy, youthfulness, and freedom. It is a brand formed United Breweries group. Kingfisher is the largest selling beer in India covering 28% of the market share in the business. The brain behind the beer is the current chairman of the UB group Dr Vijay Mallya.The brand has made a name worldwide spreading over 52 countries. It all started from Bangalore, India in the 1980's leading to become the biggest liquor company in the world. The company's marketing strategy was what made them big and keen interest from the CEO himself made a difference in the sales. However, with high competition in the market the marketing strategy for Kingfisher beer to enter different market segments was essential. Being a large firm it would have been easy to enter markets by pumping in money, but a different level of strategy is required to sustain in the industry (UB Group, 2006).
Beer drinking culture in India has been evident from a time where it was a colony of the British Empire. Although the roots of kingfisher can be traced back to United Kingdom where it originated and from there on got transported to India where it is currently headquartered.
2.2) RESEARCH QUESTIONARE AND RATIONALE
The author intends to critically evaluate the following question wherein coming out with precise and definitive answers would be the main intension through the literature review.
What is internationalization- A concept.
History of internationalization ? and its First traces of scholarly articles?
What sort of theories are there in internationalization?
History of UB group ? what sort of a product profile does it have?
How does organizational culture affect internationalization? ( A kingfisher Prespective)
What is the international and domestic marketing theory of UB group?
Internationalization strategy, Its annual accounting, public listing?
Kingfisher entry in different markets how and when were they done and how did it help them grow as a brand?
Financial development and economic growth of the company?
comparision between globalization , localization and Internationalization?
Conclusions with regards to organization, market trends, supply chain management and consumer behaviour.
The above set of questions are based on an overview of the concept of internationalization and the current market position of the organization in discussion. However it is said that there is no right or wrong answer to any question since the exsistence of knowledge and correlation of data. But the author intends to answer the above set of questions with precise knowledge and proper citation ( references).
2.3) IMPORTANCE AND PURPOSE OF STUDY
Internationalization is an ongoing and never ending process with regards to vertical and horizontal growth of an organization. For large and public enterprises it is necessary to enter the international market because of the growing competition in the local and regional market. And for any such decision for going international it very necessary to have adequate financial reserves, equally qualified man power and a management. And given the competition in the current domestic market that kingfisher beer addresses, it one of the pressing priority for such a step.
Figure 1: MARKET SHARE
The above figure shows that the competitors are fast catching up with kingfisher and thus making it more evident from to foray for greener pastures with regards to new business initiatives. Although it still remains the market leader even in the current market share but comparing 63% in FY07-08 and 48% FY 09-10 it is clearly evident that the company is losing grip. The reason behind such a drastic change is because fosters and knock-out which subsequently new entrants hold about 37% of the market share , ( Yogin Vora, 2009).
This indeed is an alarming situation for UB group that is the parent company that owns many of brands like Kingfisher Beer. However earlier this decade, the business world saw the takeover of Whyte and Mackay Scotch Whiskey by United Breweries. And with all the other international beers like Fosters, Budwiser and Carlsberg entering Indian markets it has become substantially important for UB group and Kingfisher beer to look for greener pastures. Hence a very crucial assumption is that market knowledge is acquired and collaborated from the current business activities in the market. But then to counter this experimental knowledge it is very important to have accurate forecast or one has to be in a capacity to manipulate the market trends.
LITREATURE REVIEW AND ANALYSIS
3.1) INTRODUCTION TO INTERNATIONALIZATION (A FORMAL APPROACH):
This chapter will futher intend to put light and give detailed information on the said subject ( IE : Internationalization of Kingfisher Beer). But to start with it will explain the makeover shift in the way business has changed in the last decade after the industrial revolution hit India. And finally it will conclude with detailed example and critical evaluation of kingfisher beer's current market with regards to entering the international markets. It will also try and explain how does culture play an important role in terms of expansion of business and setting up base outside home turf. However the literature review will also attempt to answer all the research based questions put forth for creating a base of the research.
The literature review also tends to put light on subject like comparisons between internationalization, globalization and localization.
Definitions are always abstract with regards to its relativity,( M Oviatt, 2000).
Looking at the current business scenario and geographic becoming practically non existent one can easily gauge out the importance of going international or changing regions for market expansion. This only happens when an organization is financially sound with regards to infrastructure, cash reserves, goodwill from financial institutions and proper vision. The alcohol market in western India alone stands at Rs 3,000 crore ( IE 1 £ = Rs 74.232) which makes it a million dollar business, (Yogin Vora, 2010). And even after beer not being a drink that originated in India the CAGR of the beer industry in India is at 14.3%, which is much higher than other countries, (FT.COM. Arp - 2010). Even yet ,according to the same source till date 90% of the market trend are still controlled by UB group and SAB Miller. However for entering international markets, it is necessary for any company to gauge the multitude of the events and actions (Jan Jhonson, 2001).
To make any small or large firm successful, steps need to be taken towards advancement. Steps to expand, enter and explore will benefit firms looking for success. Literature indicates that more the steps taken the better the performance. Therefore, according to some literature review entering a new market and exploring it to the fullest brings about beneficial changes for the firm. However in this paper, the investigation into a Indian Liquor company United Breweries - Kingfisher beer, as to how it has managed to capture a huge market not only India but also worldwide. India's culture for drinking beer has grown in the past few decades. Beer companies have come and gone but not to many have sustained as Kingfisher beer. Kingfisher the King of Good Time is a classic brand with a net worth of Rs 50 billion, signifying energy, youthfulness, and freedom.
Kingfisher is the largest selling beer in India covering 28% of the market share in the business. The brain behind the beer is the current chairman of the UB group Dr Vijay Mallya although the business of beer making was bought by Mr. Vitthal Das Mallya .The brand has made a name worldwide spreading over 52 countries. It all started from Bangalore, India in the 1980's leading to become the biggest liquor company in the world. The company's marketing strategy was what made them big and keen interest from the CEO himself made a difference in the sales. However, with high competition in the market the marketing strategy for Kingfisher beer to enter different market segments was essential. Being a large firm it would have been easy to enter markets by pumping in money, but a different level of strategy is required to sustain in the industry (UB Group, 2006). Speaking about the marketing strategy, any complaints, disagreements and grievances can be directly mailed to the chairman of the organization (Company Report, 2009). The marketing strategies of the organization would be discussed in the sub chapters of literature review.
3.2) HISTORY OF INTERNATIONALIZATION AND TRACES OF THE FIRST SCHOLARLY ARTICLES:
It is very debatable for to discuss about managerial or operational practices because when one set a date about their origin a few years down the line someone comes up with an alternative thought or proof to change the dates or years of origin. For example, most people would say that information security first came into practice during WW1 (World War1) when the French invaded the Spanish empire after failing about 12 years ago due to cipher created by the Spanish military personal.
But then what explanation can one give about the messages created by Julius Caesar in C50 BC, who used the same theory in a nomadic manner for passing on secretive messages without getting leaked out?
Considering researched articles and the information on public domain which are open to end users like the author himself the first traces of scholarly articles about internationalization dates back about 30-to-50 years. In the year 1978 a few authors actually discussed and critically evaluated the theoretical line of internationalization which is not long back. This topic is fairly new has never been tapped on or discussed in detail with regards to modelling an organization at the size of kingfisher or for to mention UB Group.
Internationalization as a process has been viewed to enhance and expand the current addressable market and to start new business initiative outside home turf. Although there is no set definition for internationalization. Several authours in the past have discussed a lot of theories regarding international trade for example absolute cost advantage, ( A Smith, 1776) ,Comparative Cost Advantage, ( David R, 1817) to name a few. However in the sections below some of the relevant theories to kingfisher Beer and UB Group would be critically analysed. But looking at the current financial of this organization one can easily make out that even after having a deficit of 14% the company is still showing profits with regards to revenue, (Annual Report,2009).
Internationalization of the firm and organization of the first world are bound to happen since the industrial revolution has hit the Asian sub continent. This is because of the cycle which has been set in this particular motion. Today it is every evident for the service industry organizations to look for other horizons for revenue. For example TATA CONSULTANCY SERVICES have crack a $100 BN deal with a company that is backed by the Chinese government, (Company Report,2009). This gives the researcher a positive approach to the concept of internationalization. Though the concept of internationalization only sticks to an outwardly research and aspects. But in the retrospect it is very important to look at both sides of a situation. Although over a period of a few years, one finds a very positive evidence of linear integration of outwardly internationalization and the organization's internal growth and performance.
3.3) THEORIES OF INTERNATIONALIZATION AND OTHER BUSINESS MODELS:
The process and models of internationalization have been manifested in a lot of ways and processes. There has been two types of approaches in terms of evaluating the dynamics of an organization while stepping up to internationalization. This sub chapter will discuss different theories that are pertaining to UB Group and its brand kingfisher Beer.
The electric theory of internationalization which is the base of in most cases where a company or an entity expresses its desire to expand its operations in other territories, (Johanson and Vahlne 1999).
THE UPPSALA MODEL OF INTERNATIONALIZATION:
It is very important for any company or organization to have an adequate knowledge of the market it tends to enter. For this, one needs to have a theoretical model in place. Because such a model interprets into a fundamental interaction between the development of knowledge of offshore commercialized places while operational developments within the organization and on the other hand with the increasing commitment of the offshore markets. Although having a more specific model for a precise knowledge is very important keeping all aspects and sides of internationalization in consideration. However according to Johanson and Vahlne (1990), it is very authoritative to make a distinction between the change and aspects of the market which is also a very important part of Uppasala Model of internationalization. As far as the said model is concerned market knowledge and commitment are said to affect the strategy the most which in turn affects current activities and commitment decisions.
The below figure shows how the model actually works.
FIGURE 2 : THE INTERNATIONALIZATION OF A FIRM.
SOURCE: J. JHONSON (1990),"The Mechanics Of Internationalization", International Marketing Review, Vol 1 No 1, pp. 11-23.
The above figure clearly explains the model and its relation to internationalization. A critical assumption is always based on the data received on market knowledge which also include perceptions and problems, (J. Jhonson,1990). According to Figure 1, there two aspects to the theory that are change and state aspects. The state aspects comprise of market commitment and market knowledge, the change aspects are current business activities and commitment decisions. Initial leeds and critical analysis about a competition generates new business initiatives. According to the above model, it is assumed that market commitment and market knowledge are assumed to affect decisions pertaining to arrangement and agreement to supply resources to the off shore market. Making the cycle a part of the integrated business operations is very important to have business continuity.
The above model implies to a behavioural theory of the organization (Cyert and March, 1963). Further according to the same authors, a distinguishing feature of the internationalization process is that the organization is beamed as a vaguely bracketed classification in which different entities have a different part to play and follow a set protocol with regards to the progress and growth of the organization in the off shore market. The actors that are engaged in international market have different ideas, perceptions and concepts to place their products in the core running competitive market. The uppasala model denotes that experimental knowledge is also assumed as primary knowledge while predicting market uncertainty. This in turn generates business opportunities and subsequently a driving force in the international market. However to discuss the core competencies of this theory and model would take an entire article which would not be a profitable idea with regards to over viewing the entire concept of Internationalization.
Although the Uppasala Model is traded off as precisely a generic model which can be blended into any organization but the critical evaluation of the said model puts light on factors that cannot be over looked with regards to the profitability. A few drawbacks are that the model is too preordainative in nature, does not put much light on the interlinked economies across the globe. The model further does not work for service industries. This model cannot be applied to the UB group since it does not apply to highly internationalized firms. The demographic locations and country borders are no longer considered to be a hurdle with regards to expansion. This model is territorial with regards to data collection and collaboration.
THE TRANSACTION COST ANALYSIS MODEL (TCA):
To a different approach to models, TCA is more off a straight out model with regards to critically evaluating the same. While entering new markets it is important to have perfect competition since this could lead to an additional transaction cost while markets fail to comprehend the expenses in promoting products. To minimize costs it is important to employ a safeguard to which will explain the cost for irregular expectations to promote the product. Time is a witness for the frictions between the buyer and supplier with regards to the commercials discussed. The foundations to this are opportunistic behaviour which leads to self interest eventually. To safeguard this a corporate governance contract should be signed or agreed to protect the intrest of both parties. While the UB group is one of the most respected organizations in the Indian sub- continent this will work exactly in its favour.
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