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Internationalisation Notes

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Internationalisation The term globalisation was coined in the 1980s, where international integration became a
significant element of corporate strategy. Advances in technology, infrastructure and
communications have provided the scope for internationalised markets. Nike for instance,
has manufacturing operations in 45 countries and products are sold to almost every
country in the world. I will discuss the requirements for internationalisation and how it
can increase competitive advantage, and then the different organisational forms influence
the business level strategy of the firm.
Entering a foreign market has concerns. However, if a firm has established a significant
cost advantage in the domestic market, it may have a competitive advantage over foreign
incumbents. Secondly, well­differentiated products may enable the firm to extract market
share with ease.
Comparative advantage illustrates how natural resource availability can be exploited to
increase competitiveness through internationalisation. Michael Porter's Diamond
extended this theory by examining the dynamics in which particular industries develop
resources and capabilities that infer competitive advantage. The four elements are factor
conditions (created or natural resource specialisation ­ GM expanded into Brazil with old
US designs, as the technology was available at zero marginal development cost due to
how advanced it was over anything domestically produced); demand conditions
(consumer preferences ­ German motorists' love for quality engineering and
corresponding firms like BMW & AUDI); related and supported industries (industrial
clusters, i.e. Silicon Valley, develop); and firm strategy structure and rivalry. Internationalisation itself can directly add to competitive advantage. Firms can generate
greater economies of scale and expand market size. Buyers prefer low priced global
brands to higher­priced local ones. Look at Coca­Cola and Ikea. Ikea's typically Swedish
production orientation has generated huge cost advantages globally. Firms can also enjoy
greater access to raw materials and factor inputs, or perhaps a more advantageous
regulatory environment. IBM & HP have set up production operations in most of the top
ten indexed offshoring locations. Exploiting multi­market strategies can be beneficial.
Cross­subsidisation of finance and human capital across markets can establish a
strategically advantaged position in another market. For instance, GM used financial
resources and production knowledge from Europe to establish a strategic position in the
Tiger Economies.
After acquiring a global presence the enterprise enjoys a knowledge economy, with
access to tacit resources that are unavailable to the domestic firm. Firms like Nestle and
Kraft now depend on being global enterprises to provide a competitive foundation. There are various modes of entry into a foreign market for a firm. It ranges from
exporting via arms length market contracting (i.e. aerospace) to full integration via a
subsidiary (i.e. investment banking). For a firm to export, it must have a physical product
with low enough transport costs, sufficient market knowledge and production economies
to exploit. Though, exporting decisions may change as growth ensues, as licensing and
FDI operations tend to have lower variable costs compared to exporting. So as the

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