International networks of customers, technology, researchers, suppliers and distributors have emerged over the years. Internationalization is traditionally viewed as a process through which a firm moves from operating solely in its domestic marketplace to international markets. Recently, we have noticed the obvious evidence of internationalization. This report looks at the Uppsala research which suggests that firms internationalize gradually as their perceived risk of foreign market decreases. The Internationalization is presumed to be more steady and gradual. This theory believes that firms enter markets that are psychically close to home market first and then gradually expand into other markets that have a higher psychic distance from the home market. The world trade and foreign direct investments are continuously growing making all the countries to have become more close knit and interdependent. In many context European companies have to be dependent on the US laws. Thus this theory doesn’t fit in the new rage of activities in which the psychic distances are already decreased; the knowledge and the local and international data are easily available from agencies or firms. This development has helped the new businesses to enter directly into large markets.
This report further reviews the European and US markets to understand the macro environmental activities of various companies which are interdependent.
As internationalization progresses we understand multinationals have a more extensive global production base and longer experience at managing that base than the other firms, thus potentially creating a source of competitive advantage.
1.0 Aims and Objective
The aim of this paper is to analyze and discuss the internationalization of business and global marketing issues. The report further aims to critically analyze the global marketing environment and its influence on the marketing activities of the firm.
This report has entirely relied on secondary data collected through various resources such as books, journals, news, and internet websites.
Multinational marketing, global marketing, or international marketing are only the terms mostly used to describe the international marketing activities. But there are vast differences between global marketing and international marketing. Over the past decades there has been global emergence of the economies. An increasing number of firms face immense pressures to compete on a global basis. Many firms attempt to expand their sales into foreign markets and international expansion provides new and potentially more profitable markets. In order to perform on the international scale successfully a company needs to know how to manage, integrate and create new marketing strategies which will enhance the opportunities for economies of scale and competitiveness. Thus this report is an effort to discuses in detail the process of internationalization and the theoretical approach of the Uppsala model giving the exact picture of international marketing. This report further analyses the macro factors of internationalization by considering the European and US companies which are interdependent and contribute towards the global economy.
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The dynamic view of internationalization has been investigated since the 1970s by many scholars. The exact definition of internationalization is very difficult to obtain as it is a continuous process of activities. This section will discuss various learning’s by some of the scholars. According to Johanson and Vahlne (1977) internationalization is a process where a company gradually increases its international involvement. Luostarinen (1979) further views internationalization where he states that a company becomes international by establishing its first contact abroad. Thus they identified a sequential process of international development. Another quite similar definition is the one by Welch and Luostarinen (1988), They see internationalization is a process that leads to the increasing involvement in international operations across borders.
Some others are mentioned accordingly, Internationalization is defined as “the process of adapting firm’s operations (strategy, structure, resource, etc.) to international environments”. (Jonathan L. Calof and Paul W. Beamish 1995)
Internationalization theory has been developed with the concentration on the process by which companies develop their international operations. Internationalization focus is to understand and to explain the reasons leading companies to internationalization and how this is carried out. (Welch & Welch, 1996)
One of the interesting definition is by Moberg(1990) He also states that internationalization can be seen as a process or a chain of development, and a company under internationalization goes through a learning process. This process will gradually increase a company’s market and establishment knowledge. This report would like to futher clarify the Moberg(1990) definition for the further understandings.
The factors driving a company towards international markets can be a single event or the result of the combination of internal and external forces. Internationalization generally occurs when the firm expands its R&D, production selling and other business activities into international markets. Internationalization may occur in a relatively continuous fashion, where the firm undertakes incremental steps over the period of time (freeman, 2002).
When practicing the process of internationalization a company goes beyond exporting and becomes much more directly involved in the local marketing environment of a given market. (Global marketing strategies. jeannet/Hennessey, sixth edition)
Different levels of uncertainty and unfamiliar problems are encountered in these markets, such as legal restraints, government controls, weather, fickle consumers, and the other uncontrollable elements. of the. It is very important to understand these uncertainties and also have the knowledge of the different social, cultural, economical and political aspects of the market..
The internationalization process is describe as when the company amends their marketing strategy with the understanding of all the above factors including how they sell, advertise and distribute to fit new market demands and becomes more experienced in operating in various foreign markets.
The marketing principles and concepts are universally applicable then why International marketing is considered complex and diverse. International marketing is defined as the performance of business activities designed to plan, price, promote, and direct the flow of a company’s goods and services to consumers or users in more than one nation for a profit. This means that the international marketing activities take place in more than one country. The apparent, “in more than one country,” accounts for the complexity and diversity found in international marketing operations. The environment within which the marketer must implement marketing plans can change dramatically from country to country or region to region. The difficulties create by different environments are the international marketer’s primary concern.
3.1 UPPSALA MODEL
Internationalization has different theoretical approaches but this report will focus on the Uppsala school approach. The Uppsala internationalization model was introduced by two Swedish professors, Johanson and Wiedersheim-Paul, from the University of Uppsala in 1975. This theory was derived from the study of Internationalization of four Swedish companies. It explains how companies gradually strengthen their activities in foreign markets and how their learning affects their investment behavior. (Johanson and Vahlne 1977, 1990).
According to this theory internationalization evolves stepwise at a relatively slow pace because of the market regulations and organizational learning’s. This model is based on the four core concepts which are Market knowledge, market commitment, commitment decisions and current activities. On the basis of these four concepts, the model predicts the basic pattern of firms internationalizing.
The Uppsala model is supported by many studies which have shown both small and large enterprises passing through distinct and gradual stages during the development of their international affairs (Johanson and Vahlne, 1990; Oviatt and Phillips-McDougall, 1994). These different stages and their characters give companies different experiences and knowledge about an international market. (Johanson & Wiedersheim-Paul, 1975). At every stage a company sustains previous knowledge and acquires new. According to Johanson et al (2002), it is the aggregated knowledge that is the base for further movement into a newer and more mature stage in the model.
In the first stage organizations acquire experience from the domestic markets then they aspire to move for the foreign markets. In the specific country investments are then carried out sequentially, concurrently and cautiously. Firms start their functioning from geographically and culturally closer countries with the learning of the firm’s people operating in that market and move gradually to more distant countries. In the third stage companies start their foreign operations by the traditional exports. This model proposes that the sales begin with sporadic export orders, which are then followed by conventional export orders. This transformation helps the firms to focus and progressively move ahead on more concentrated and challenging operational modes such as sales subsidiaries. And then in the final stage, the firm acquires increasing levels of empirical knowledge only if they obligate to the higher levels of resources in the market.
As this model is almost 30years old there is a need to criticize and acclaim. Over the years the world has become more homogeneous that consequents in decreasing the psychic distances. As an effect of continuous growth in world trade and foreign direct investments the number of people with experience of doing business abroad has increased. Over the last 20years the international consulting firms and agencies have experienced tremendous growth making it possible to buy knowledge. One can easily get the local and international data such as market potential, local buying standards, possible entry modes, competitors, market potential, distribution system etc. from these agencies or firms. This development has helped the new businesses to enter directly into large markets.
3.2 Advantages of Uppsala.
The new entrants in certain industries have recently become more spectacular.
The pace of the internationalization process seems to have speeded up as Firms seemed prone to leapfrog stages in terms of psychic distance at an early stage.
This model has gained strong support in studies of a wide spectrum in countries and situations. The research confirms the important factors about the export behavior and the relevance of cultural distance.
3.3 Disadvantages of Uppsala.
The model is to deterministic (Reid, 1983; Turnbull,1987)
The model does not take into account interdependencies between different country markets(Johnason and Mattson, 1986)
Studies have shown that the internationalization process model is not valid for the service industries.
The model is not valid in situations of highly internationalized firms and industries.
4.0 GLOBAL ENVIRONMENTAL FACTORS (PESTLE)
Investment and job creation by European companies in the United States are very substantial, having created thousands of jobs in the USA. Companies operating internationally with the sale subsidiary are referred to as multinational corporations (MNC’s). Companies like Nestle, McDonalds, Volkswagen, ABB, Zurich Insurance, Allianz, Electrolux, Daimler, BMW, Novartis, General Motors, Sony, and General Electric, Siemens etc are some examples. We will consider some companies to understand their political, economical, social, technological, legal factors.
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4.1 POLITICAL FACTORS
Political decisions can impact on many vital areas of business. Different markets focus on different areas of concern like health, worker protection, and environment. These elements are seen in the government control of the licensing of the restaurants in the respective states. There are certain groups in Europe and the United States that cacophony state actions pertaining to the health implications of eating fast food. They have indicated that harmful elements like cholesterol and adverse effects like obesity are attributable to consuming fast food products.
The international operations of McDonald’s are highly influenced by the individual state policies and regulations enforced by each government. There are impending legal dispute in the McDonald’s franchise in India where certain infringement of rights and violation of religious laws pertaining to the contents of the food. There are also other studies those points to the infringement of McDonald’s Stores with reference to the existing employment laws in the target market. Like any business venture, these McDonald’s stores have to contend with the issues of employment procedures as well as their tax obligations so as to succeed in the foreign market.
Financial markets worldwide have been significantly disrupted in the wake of the global financial crisis. A number of financial investors have been facing difficulties providing capital to the markets due to their deteriorating financial conditions. These economical factors have a major impact on a firm’s behavior. If Toyota is unable to raise the necessary capital under appropriate conditions on a timely basis, its financial condition and results of operations may be adversely affected. Economical risks faced by Toyota are subject to currency and exchange rate fluctuations. Toyota is sensitive to these fluctuations and is principally exposed to fluctuation value of Japanese yen, the U.S. dollar, and the euro.
Its consolidated financial statements are presented in Japanese yen. Changes in foreign currency exchange rates may affect Toyota’s pricing of products sold and materials purchased in foreign currencies. High prices of raw materials and strong pressure on Toyota’s suppliers could negatively impact Toyota’s profitability.
4.3 SOCIAL FACTORS
The Coca-Cola Company claims that there beverage is sold in more than 200 (www.virtualvender.coca-cola.com). The Company is a registered trademark of The Coca-Cola Company in the United States. Coca Cola is known as COKE or in the European and American countries as cola or pop (www.trademarkia.com/coke-71468708.htm l). Many U.S. citizens are practicing healthier lifestyles. Consumers from different age groups are increasingly concerned with nutrition. On this occasion the company has introduced other cola drinks such as Diet Coke, Caffeine-Free Coca-Cola, Diet Coke Caffeine-Free, Coca-Cola Cherry, Coca-Cola Zero, Coca-Cola Vanilla, and special editions with lemon, lime or coffee.
In response to consumer insistence on a more natural product, the company has stated that it plans to remove E211 or sodium benzoate, the controversial additive used in its products, including Sprite and Oasis as soon as a satisfactory alternative is found. This additive is related to DNA damage in yeast cells and hyperactivity in children. (www.dailymail.co.uk/news/article-1021820/Diet-Coke-drop-additive-DNA-damage-fear)
4.4 TECHNOLOGICAL FACTORS
New technologies create new products and new processes. MP3 players, computer games, online gambling and high definition TVs, Television shows are all new markets created by technological advances. Jetix Europe, formerly Fox Kids Europe, is one of the leading pan-European integrated children’s entertainment companies with localized television channels, program distribution and consumer products businesses. They have the ownership of one of the largest libraries of children’s programming in the world. there library includes major global programming franchises such as Power Rangers, Spiderman, X-men, inspector gadget and Goosebumps etc. It includes diverse genres of programming like live action animation, education etc. Fox kids Europe had presence in 57countries in Europe and the Middle East, broadcasting in 17 different languages, and reached 32million households. The Walt Disney acquired more than 99% of the shares in Jetix Europe. The animation channel refers to the process of producing high-quality animated films, which regularly use detailed and the latest digital technology. Fully animated films can be done in a variety of styles many of the Disney animated features are examples of full animation. Jetix has been able to capture so much of market share on the basis of the technology.
4.5 ENVIRONMENTAL FACTORS
The Body Shop International plc the global manufacturer and retailer of naturally inspired, ethically produced beauty and cosmetics products. The brand is recognised and respected both internationally and domestically for its approach. They have over 2,400 stores in 61 countries, with a range of over 1,200 products. The Body Shop has consistently produced quality products that appeal to its consumers. It is the first international cosmetics brand to be recognised under the Humane Cosmetics Standard for there Against Animal Testing Policy. It is distinguished for quality products as every product is animal cruelty free and vegetarian which is produced in an ecologically sustainable approach.Along with the environmental concerns research and development organisation of The Body Shop is one of the company strength, which has the ability to make innovative new products.
6 LEGAL FACTORS
For a successful business operation it is important that the businesses consider the legal issues involved in a particular situation and should have the capability to anticipate ways in which changes in laws will affect the way they must behave. During the 1990s, Nike faced criticism for use of child labor in Cambodia and Pakistan in factories it contracted to manufacture soccer balls. Although Nike took action to curb or at least reduce the practice of child labor, they continue to contract their production to companies that operate in areas where inadequate regulation and monitoring make it hard to ensure that child labor is not being used.
Internationalization has viewed by many scholars and understood that is a process through which a firm moves from operating solely in its domestic marketplace to international markets. This report looks at the Uppsala research which suggests that firms internationalize gradually as their perceived risk of foreign market decreases. Internationalization is more steady and gradual. In the todays world where countries are interdependent on each others the knowledge and the local and international data are easily available from agencies or firms. This development has helped the new businesses to enter directly into large markets. The report has also undertaken considerations of the European and US markets to understand the macro environmental activities of various companies this gives a fair idea of how internationalization countries are .This analysis has helped to get a clear understanding about multinationals extensive global production base and longer experience at managing that base are the important factors contributing towards internationalization and globalization.
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