Essentials of internationalization for SMEs and MNEs

Dr B K Mukhopadhyay (The author is a Professor of Management and Economics, formerly at IIBM (RBI) Guwahati. He can be contacted at m. bibhas@gmail.

com) Dr. Boidurjo Rick Mukhopadhyay(The author, international award-winning development and management economist, formerly a Gold Medalist in Economics at Gauhati University)The OECD in 2008 gave one of the crispest definitions by saying that Internationalization is the process by which firms “initiate, develop, or sustain business operations in overseas markets” and participate in international trade. Therefore, it includes everything from exporting, opening offices and managing operations in other countries to selecting partners, building linkages with foreign investors, and also at the same time integrating into global value chains.

The above applies to both SMEs and large corporations that choose to internationalize. In simple words, Internationalization is the process of going global. Several works have captured Internationalization as the process of increasing international operations by participating in global markets in various forms.

It could also be perceived as the process by which firms could increase their awareness of the direct and indirect influences of international transactions on their future, while at the same time can establish and conducting transactions with other countries directly. Naturally, therefore the process takes a long time and includes several incremental decisions and strategies. It involves various outward and inward products, services or resources transferring across national boundaries.

For example, think of the extended supply chain of coffee chains such as Starbucks or Costa and also fast fashion or sportswear brands like Zara, Uniqlo, Under Armour or Nike. While some companies prefer the gradual path considering one market after the other, taking into consideration time and knowledge; others avoid a step-by-step approach. It is important and interesting to know more about how firms internationalise because it is not simply about exporting or setting up business units in host markets, but also about understanding how for example multinational companies enter emerging markets like India, Brazil or South Africa amongst the BRICs that typically involves a great deal of risk due to volatile markets in the sense of both political and economic activity.

So, it becomes more about understanding the process of how firms strategies to enter the market. The example of TATA is exceptional, and after sealing the deal with Land Rover and Jaguar in the UK, it solidified its global presence more than ever. Why do SMEs need to internationalize? The primary forces behind Small and Medium Enterprises (SMEs) considering internationalising are first, to reduce costs and prices while also accessing and using technology that allows connectivity.

In the process, this connects people and locations. With increased connections and technology use, more opportunities at the international level could be identified. Secondly, increasing the internationalisation of SMEs could change different countries’ institutional environments and expectations.

e. g. , continuous demolition of trade barriers, facilitated by financial deregulation.

This could lead to the improvement of innovation capabilities and capacity in firms. Thirdly, expanding operations into other countries after world economic restructuring that followed the fall of socialism in Russia and Central/Eastern Europe, and geographical expansion of markets in Asia, particularly China. These new markets have experienced exponential growth and investment.

Role of the state in supporting the internationalisation of SMEs When it comes to MNEs, they tend to rely heavily on their diplomatic, secure, and information services from their home country while they operate in a host country. e. g.

, an Indian company (home) with operations running in China (host) is not always straightforward since some countries that are dominating and strategic players in certain sectors tend to align with the objectives of their home government, this might affect their flexibility in host countries. This, therefore, leads them to rely on the government to protect international operations. As a study shows that MNEs can certainly internationalise with home country risk protection tools (that is working with diplomatic missions and government support), but how their subsidiaries abroad perform may be affected by the inability to link the home countries’ national obligations and stakeholder expectations in the host country.

Another study by Lu et al investigated the effects on the performance of Chinese companies in the face of the phenomenon of internationalization from two distinct perspectives: growth and profitability. At the domestic level, the provincial governments (similar to state governments) make it difficult for family businesses to enter different provinces by setting high entry costs for companies from other provinces. At the international level, studies show that Chinese companies suffer, from what they called low legitimacy in the country of origin, due to the reputation of their institutions in the global market.

In the end, these companies feel that they are treated discriminately and are prevented from entering other countries by the governments of the host countries. In Brazil, 96 per cent of the small companies are family businesses and a good percentage of them are supported by credit cooperatives. Such integration between institutions and government policies plays a fundamental role in stimulating the internationalization process.

Several governmental stimuli are available in both Brazil and Uruguay, e. g. , the Uruguayan government and the Inter-American Development Bank (IDB) helps initiate the internationalization project for Uruguayan wines and the support given by the Brazilian government in some rough years for the reduction of the reserve of table wines even with the stagnation of exports.

Examples of successful Internationalization of MNEs The international business machine corporation (IBM) was the first company to produce computers for governments, and then educational facilities and large businesses. IBM entered the personal computer market in 1981 with the IBM PC, which helped start the personal computer revolution. What IBM did uniquely was the fact that other companies began making computers that were compatible with IBM, which made IBM PCs the industry standard.

With time and more recently, IBM has invested heavily in artificial intelligence, as well as self-healing computer technology. IBM’s more recent success is due to its ability to adjust and adapt during changes in the computer and technology industry. In adjusting to the changing times, IBM also recognized what needed to be eliminated, and divested products and markets that they had developed over the past century.

The company is solely heavily focused on innovation, achieving more patents per year than any other players in the industry. At the same time, the company reached out to address global problems, such as the management of water, Smarter Planet, and other similar initiatives. These strategies, comprehensively, have helped sustain IBM’s internationalised nature and operations.

IKEA focuses on combining high functionality with quality and design in its products, while keeping prices as low as possible, especially by keeping the assembly of the furniture directly at the hands of the customer. Their goal has always been to provide furniture that makes everyday life easier and is available to everyone, all of this while keeping sustainability in mind. The IKEA Group works with a franchise System and multiple different companies, all under the IKEA Brand.

The company has grown significantly over the past decades, with revenues reaching a billion dollars recently. IKEA has over three hundred stores in 55 different countries and is the third-largest consumer of wood worldwide. The Austrian company, Red Bull does global marketing so well that many Americans assume it’s a local brand.

One of its most successful tactics is to host extreme sports events all over the world. From the Red Bull Indianapolis Grand Prix to the Red Bull Air Race in the United Kingdom to the Red Bull Soapbox Race in Jordan, the brand’s powerful event marketing strategy takes them here, there, and everywhere. Red Bull’s quick-witted advertisements and packaging have helped this brand go global.

They also ‘glocalize’ well in international markets, when necessary. Airbnb, a community marketplace for people to list and book, accommodations around the world, is based out of San Francisco, California. Airbnb has grown to 1,500,000+ listings in 34,000+ cities worldwide.

Heavy marketing on social media offered a good level of success. One of the most popular marketing tricks they hatched was in 2015 when they started this campaign of #OneLessStranger, the company asked communities where they were based to perform random acts of hospitality for strangers, and then take a video or photo with the person and share it using the hashtag. Spotify: Another successful and interesting company (voted to be one of the best global companies in 2018) that expand from Sweden into other countries so quickly.

The company’s goal has always been about helping users find something new. It’s one thing to select a genre of music to listen to — it’s another thing to select a ‘mood’ to listen to. Spotify gets users to listen to music that goes beyond their favourite genres, and instead satisfies habits and lifestyles that people share all over the world.

In the process of doing so, it allows international artists to access listeners from other countries simply because their product is being categorized in a different way. Spotify now has offices in 17 countries around the world. While all seems positive when businesses choose to internationalize, there are political, regulatory, currency and country-level risks that they encounter as they go through the process of going global.

At the ground level in international markets, the performance, cultural norms, and role of interlocutors are critical factors. Also, the aspirations and attitudes of counterparties can be somewhat difficult to predict, which could affect the nature of partnerships that are created. More often than not, cultural factors and social capital also play a huge role in determining survival and success in a host market.

Despite there being cases that illustrate dos and don’ts and academic frameworks that are useful for businesses who intend to internationalise, the above variables are constantly changing so recommendations are very much contextual. .