External triggers External triggers External triggers to the External triggers to the internationalization process internationalization process Meta-level development in Meta-level development in the world economy the world economy PEST analysis PEST analysis Internationalization of Internationalization of industries: globalisation vs. industries: globalisation vs. localisation localisation (4C) (4C) Bi-polarisation Bi-polarisation
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External triggers External triggers to the internationalization process External triggers to the internationalization process Meta-level development in.
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External triggersExternal triggersExternal triggers to External triggers to
the internationalization the internationalization processprocess
Meta-level development in Meta-level development in the world economythe world economy
PEST analysisPEST analysisInternationalization of Internationalization of
industries: globalisation vs. industries: globalisation vs. localisationlocalisation (4C) (4C)Bi-polarisationBi-polarisation
TriadTriad 1/5 of global population, 4/5 of world 1/5 of global population, 4/5 of world
output (GNP)output (GNP) more manufacturing/service divisions more manufacturing/service divisions nationality of companies: outdatednationality of companies: outdated national government can not obstruct national government can not obstruct
or impedeor impede rraising import penetration: aising import penetration:
interlinked natureinterlinked nature
USA import:USA import:– 1970: 4.1% GNP1970: 4.1% GNP– 1980: 9.1 % GNP1980: 9.1 % GNP– 1990: over 18%1990: over 18%
Main competitors for indigenous Main competitors for indigenous firms are increasingly to be firms are increasingly to be
1995: 1995: Uruguay Round of the GATTUruguay Round of the GATT: significant : significant reduction in the trade barriersreduction in the trade barriers cuts in tarifscuts in tarifs bringing in farm products, textiles, servicesbringing in farm products, textiles, services intellectual property rightsintellectual property rights conditions: when a state allowed imposing trade barriersconditions: when a state allowed imposing trade barriers
World trade growth > world outcome=>World trade growth > world outcome=>
XXI. CenturyXXI. Century: interlinked economy is likely grow faster : interlinked economy is likely grow faster => international competition is increasing more => international competition is increasing more quickly than output growsquickly than output grows
EU, NAFTA: large unified regional trading areaEU, NAFTA: large unified regional trading area
Direct investmentsDirect investments raising exchange rates (Japan, Germany)raising exchange rates (Japan, Germany) hard to raise productivityhard to raise productivity
Foreign assets: Japan $514 bl, Germany $300bl Foreign assets: Japan $514 bl, Germany $300bl (1992)(1992)
World trade flows increasingly reflect the World trade flows increasingly reflect the locational decisionslocational decisions of international of international
competitors and not just the competitive competitors and not just the competitive position of indigenous nationally owned position of indigenous nationally owned
companies!companies!…never has an economy passed so quickly as Japan from non-
industrialised backwater, through industrial giant, and now towards threatened industrial dinosaur - all in one generation.*
- erroding cost bases- erroding cost bases home manufacturing base: less and less home manufacturing base: less and less
competitivecompetitive loss of export sales and employment - loss of export sales and employment -
adjustments (time leg)adjustments (time leg)
Undermines the success of the Undermines the success of the previously rapidly growing previously rapidly growing economies =>economies =>
Enables new countries to become Enables new countries to become preferred production base!preferred production base! Trade protection: only a temporary solutionTrade protection: only a temporary solution Protection removes the competitive pressureProtection removes the competitive pressure Protection removed: adjustment more Protection removed: adjustment more
The dynamics of the TRIAD world economy create The dynamics of the TRIAD world economy create instability and change, but there can be no such thing instability and change, but there can be no such thing as absolute winners or losers.as absolute winners or losers.
•Winning becomes increasingly expensive as wages and currencies are adjusted upwards.
•Loser economies, by contrast, are able to rejuvenate in the long term since an unemployed workforce is available at reasonable cost and backed by a week currency.
Time legs to this process ensure that the adjustment Time legs to this process ensure that the adjustment process is slow, with changes in political, technological process is slow, with changes in political, technological and social factors and social factors •either reinforcing the economic adjustment process either reinforcing the economic adjustment process •or retarding it.*or retarding it.*
External triggersExternal triggersExternal triggers to the External triggers to the
Disadvantage: adequate infrastructure adequate infrastructure reputation for poor qualityreputation for poor quality
Rejected as original equipment manufacturers => Rejected as original equipment manufacturers => only spare parts => only spare parts => low cost, low quality spares (half price) => low cost, low quality spares (half price) => undermines to supply original equipmentundermines to supply original equipment
LOW COST IS AN INSUFFICIENT LOW COST IS AN INSUFFICIENT COMPETITIVE BASE!COMPETITIVE BASE!
political forces: brought political forces: brought liberalizationliberalization
economic forces: responsible for economic forces: responsible for many of underlying dynamicsmany of underlying dynamics– cost differencialscost differencials– exchange ratesexchange rates– must recognise all inputsmust recognise all inputs– customers: not looking for low cost customers: not looking for low cost
at the expense of qualityat the expense of quality worldwide shift in economic worldwide shift in economic location: attributed to labor cost location: attributed to labor cost competitiveness; but:competitiveness; but:– productivityproductivity– qualityquality
Home based productionHome based production => => ccontinuing appreciation in ontinuing appreciation in the country’s exchange ratethe country’s exchange rate–drive down costsdrive down costs– locate production cross-border locate production cross-border – increase cross-border increase cross-border productionproduction
Otherwise: squeezed out of Otherwise: squeezed out of international marketsinternational markets
The location of low cost The location of low cost economic facilities is economic facilities is constantly changing!constantly changing!
Entry of KIA Motors into the US car marketEntry of KIA Motors into the US car market1994: replicate Japanese entry strategy in a high competitive market
- under-price products- similar quality- superior levels of standard equipments
Japanese producers: increase price (response to $/yen rate) => gap appeared at the bottom end
Toyota Corolla, Honda Civic: from $12.000Kia Sephia: $8.495
KIA strategy: replace Japanese models in the low KIA strategy: replace Japanese models in the low price segmentsprice segments
Japanese manufacturers: •unable to match the lower cost base of new entrants•unable to give premium price at luxory cars•increasingly caught in the middle
SSocial (lifestyle) changesocial (lifestyle) changesPowerful influence on customer choicePowerful influence on customer choice World is becoming a smaller placeWorld is becoming a smaller place
– reduced costs of int’l travelreduced costs of int’l travel– enhanced communication: information on enhanced communication: information on
productsproducts– worldwide homogeneity of consumers worldwide homogeneity of consumers
preferencepreference– convergence of customer requirements convergence of customer requirements
– cultural and language identitiescultural and language identities– national states, separate groups: national states, separate groups:
differences be recognizeddifferences be recognized
Lifestyle trends: critical external triggermay operate either •to accelerate the convergenceconvergence of the global economyor•continue to promote diversitydiversity
=> finance company => finance company operationsoperations
travel and transporttravel and transport
Promotes changes, adoption to changesPromotes changes, adoption to changessatellite technology more quickly, cheaply pan-country media, pan-continent media