Lesson 1 Export Administration PDF

PAHS 054: EXPORT ADMINISTRATION SESSION ONE: THEORIES OF INTERNATIONALIZATION LECTURER: EBENEZER ODAME DARKWAH [email protected] College of Education School of Continuing and Distance Educ...

PAHS 054: EXPORT ADMINISTRATION SESSION ONE: THEORIES OF INTERNATIONALIZATION LECTURER: EBENEZER ODAME DARKWAH [email protected] College of Education School of Continuing and Distance Education 2023/2024  OUTLINE Network Theory Stages theory Theories of Attributes Internationalization Merits Attributes Limitations Limitations 1. Stages theory 2. Network theory  INTRODUCTION Internationalization is the process of increasing the involvement of enterprises in international markets. Internationalization is not a static but a dynamic process. It involves – Entry into new markets – Variation and standardization of products – Changes in mode of operations Albaum et al. (2005) define internationalization process as the successive development in a firm’s export engagement in terms of – the geographical spread in the markets, products and operation forms, – the change in export management philosophies and. – organizational behaviour from the beginning of the process to the end  THEORIES OF INTERNATIONALIZATION Export business is international trade and international trade is backed by several theories; however, emphasis will be on: – the stages theory of internationalization which holds that entry into the international market follows a step-by-step fashion, and – the network theory of internationalization which suggests that the best way of internationalization is by building networks (links/relationships/associations) to facilitate trade, instead of the sequential (step by step) entry proposed by the stages’ theory.  STAGES THEORY OF INTERNATIONALIZATION The theory argues that for a firm to gain successive entry into foreign markets, it ought to proceed in a consistent step-wise fashion, along some organizational continuum (chain) According to this theory, –internationalization is seen as a slow and gradual process –Close markets are explored before more distant countries/markets are considered –Through accumulated experiential knowledge, more resources are committed to the foreign market A TYPICAL INTERNATIONALIZATION PROCESS Market Begins from the domestic market, entering first neighbouring and environmentally similar markets. Positive experience from these markets encourages entry into new and environmentally different markets Goals No clearly defined goals at the beginning. Profit goals assume importance with experimental success Products A gradual increase in product types and variants, reflecting adaptation to requirements of specific markets. Products may be subsequently standardized to fit regional and global market requirements. Entry Modes Responding initially to unsolicited and sporadic export orders, followed by indirect exports through merchant companies, and then, direct exports to importers, ending with establishment of sales subsidiaries and/or production units in selected markets. Organization Start as occasional tasks of a single person in the firm, progressing to a full-time job of a marketing officer, later, an export department may be established, perhaps with regional units, an international division may be established at a later stage. Management No marginal attention to start with. Commitment grows gradually with experience and success, leading gradually to full commitment where home market receives only peripheral attention. Knowledge None or ad hoc and inconsequential knowledge to start with, knowledge is acquired gradually through experimenting, at a later stage active and systematic information collection and analysis is undertaken.  LIMITATIONS OF THE STAGES THEORY The impression that to achieve internationalization, a firm's forward progression is inevitably progressive, consistently cumulative and irreversible is not always true. Furthermore, there is evidence of firms leap-frogging into later stages by strategic moves conditioned by internal and external changes. Internationalization process will be slow if firms based their international decisions largely on experiential learning The choice of entry strategies/modes does not always correspond to the sequential step by step approach suggested by the stages’ theory There is the tendency of firms to take similarities between neighbouring countries for granted. The idea of having a strong domestic market base before venturing into international markets is not exactly applicable in most developing countries  NETWORK THEORY A given market is seen as a network of relationships. Internationalization is therefore achieved by firms through the development of business relationships with actors abroad, thereby building a network position in the foreign markets. – An actor may be an individual, a department in a company, a whole company or even a group of companies – The roles and strengths of the actors are identified and thus, provide an understanding of possible constraints and opportunities for its operations – Positioned within the foreign network, the internationalized firms develop further relationships or linkages with other actors.  NETWORK THEORY A basic assumption in the network approach is that; – the individual firm is dependent on resources owned or controlled by the actors. The exporting firm gains access to this important resource(s) by developing and maintaining long-lasting relationships to serve its economic objectives. – The network brings together actors such as export distributors, agents, foreign customers, consultants, public agencies, customers, competitors, and other business partners  ATTRIBUTES OF NETWORK THEORY The parties build mutual trust and confidence in each other’s ability and willingness to fulfill their respective commitments. Mutual learning and knowledge concerning areas of resources, marketing, organization and developing possibilities also accrue. – Reliance on complementary resources of partners Information flow is more comprehensive and reliable The parties adapt to each other’s needs and gradually become interdependent because of the possession of high degree of mutually beneficial assets.  MERITS OF NETWORK THEORY Useful in gaining market-specific knowledge and valuable as a source for market entry Firms that pursue opportunities in foreign markets enabled by network resources experience greater international growth than those that do not adopt this strategy Firms can gain access to the other firms’ experiential knowledge without necessarily going through the same experiences Interpersonal and inter‐organizational relationships are viewed as the media through which firms can gain access to a variety of resources to gain competitive advantage NETWORK THEORY  DEMERITS OF THE NETWORK THEORY It does not consider the importance of the decision maker and firm specific attributes in the network development. – The neglect of inter-personal linkages, the decision maker and the firm characteristics that emerge when firms take opportunities to penetrate, extend and integrate in the international market through their networks. For instance, managers of firms might not be interested in internationalizing over fear of losing control over the enterprise or other personal grounds Secondly, it cannot determine how problems of internationalization can be overcome by the firm through their networks/relationships. Thirdly, the model does not take the formality of relationships into account. – For instance, neglecting several external factors such as relationships with competitors, intense domestic competition and unsolicited orders  FOOD FOR THOUGHT Do you think it is better for firms to achieve internationalization status through experential learning or through business networks/relationships? Do you think firms have to leverage both experential knowledge and business networks/relationships to successfully gain entry and sustain their enterprise on the international market?  Trial Question 1. What is internationalization in export administration? Critically examine the stages theory of internationalization. 2. Comment on the view that, comparatively, the Network theory is miles ahead of the Stages theory in explaining the concept of internationalization