L'internationalisation (document en anglais)

Going global: Prospects and challenges

I) What is the Internationalization?

A company is growing internationally when she develops his activity abroad (outside his own national territory). The internationalization is a growth strategy by developing new competitive advantages. This strategy is considered as the ultimate step of development for a firm.

A firm can have different reason to develop his activity globally. These reasons can be economical, political, juridical or technical. The internationalization offers many competitive advantages such as a cheaper and more qualified workforce, a better productivity, tax system, economies of scales, or less logistic costs.

Besides, the free trade areas incite many companies to develop their activity in a foreign country and the internationalization can also be a way to avoid the quotas or protectionist barriers.

Nevertheless, a company which is internationalizing must take account of various factors to choose the right country, the right product and the right market penetration.

II) The different steps and entry modes of the Internationalization

A) Timing of entry

We can distinguish firms which are internationalizing in two parts, the early entrant and the late entrant. Both of these timing entries have advantages and disadvantages.

The firms which are early entrant have a competitive hedge gained by being the first to introduce a product or service in a new market. They have the chance to build a brand loyalty, to enhance reputation, to get a technological leadership and to get the opportunity to grab the best market place. However, the cost of pioneering and the risks can be high.

The enterprises which are late entrant can enter the market by imitating or improving the existing products. The advantages are that the early has already tested the market and there is no barrier to the late entrant to get a large market share. So, the late entrants have less costs and less risks than the early entrants.

B) Entry mode

When a company decides to go global, the first step is to decide between three kinds of entry modes:

- Export mode

- Hierarchical mode

- Intermediate mode

1/Export mode

The company can choose between exportation and a distribution network abroad.

If the company decides to pick the export mode, she can select between three options:

- Direct exportation: The firm sells herself her products abroad. This solution could be risky and costly.

- Indirect exportation: The firm sells abroad by an intermediary. This solution is simple and cheaper.

- Cooperative export: Group of several companies that want to export by using the network of others firms which are already in the foreign market.

2/Hierarchical mode

If the firm decides to choose the hierarchical mode, she can pick between two options:

- Merger or Acquisition: The company can merger or acquire a foreign company in order to enter the market. This solution is less risky and quicker than green field

- Green field: The firm grows internationally his activity from ground zero. This solution is riskier than merger or acquisition but the company has a strong control of the operations.

3/Intermediate entry mode

There are four different types of intermediate entry mode:

- Licensing: The company can establish a local production in a foreign country without capital investment in exchange of payment for the licensor (this agreement can also be settle for marketing advice, the use of a trade name and a patent covering a process).

- Franchising: The company can provide the right to use trademarks, operating system, product reputation and continuous support system. The franchisee operates the business under the name of the company (franchisor) in exchange of payment (fee).

- Contract manufacturing: A local firm takes care of the production for the company. The firm still develops and controls the marketing, distribution, sales and servicing of her products.

- Joint ventures: The firm and a foreign company can join together to create a new business. This can create a synergy and the requested capital to enter the new market is cheaper. Various factors encourage the formation of joint venture such as social, technological, economic and political advantages. Nevertheless, this solution involves shared ownership.

C) Market selection

The market selection responds to five main critters:

- Market potential: The foreign market long term potential must be attractive. The market size, growth, competition, ease of access, prediction of demand and estimations are the keys critters to take a decision to enter the market or not.

- Cultural distance: This is the shared values and meanings of the members of a society. Cultural distance shows the difference of behavior of the customers between the host and the foreign country. It allows to the foreign company to see if his product can satisfy the needs and wants of the local market customers.

- Administrative distance: Different government policies can merge and create risk for the investor (corruption, tax system, regulation …)

- Geographic distance: Measure of the conditions of the infrastructures of the foreign country.

- Economic distance: The economic distance is a measure of economic disparity between two countries. It can reflect the efficiency in operation and lower cost and the similarities in the market segments.

III) Risks and hedging

Foreign exchange exposure is a measure of the potential for a firm's profitability, net cash flow and market

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