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Business strategy to expand a business in an international market?
The globalization of the economy, internationalization of businesses and emergence of new markets are all key themes in contemporary business. Whereas international business may once have been the province of organisations with sufficient scale and reach, these types of companies – typically multi-national corporations – no longer have a monopoly on this kind of business. Increasing numbers of firms, of varying scale, are confronted with compelling reasons for expanding their activities across multiple national boundaries. In some cases, such motivation includes the knowledge that success in international markets is a pre-requisite for survival; if competitor organisations succeed in international markets, they may achieve the scale and liquidity which affords them sustainable competitive advantage. However, scrutiny of the empirical experience of international expansion suggests that the apparent potential is by no means straightforward to achieve in practice. This raises questions about whether or not it is realistic to envisage a ‘best practice’ in terms of international expansion strategy. Can the latter be conceived of as a specific and transferable management skill, or is it instead reliant upon expertise in a particular sector of business, a market, or a national culture? After all, if proven strategists are found wanting, where can the organisation go in terms of its future practice?
Large, successful and sophisticated businesses have often found that international ventures do not fulfil their promise. Moreover, these failures do not feature in only one sector of the economy; retailers, manufacturers, transport and energy companies have all found that expansion in contemporary markets is easier to plan than to achieve. The relevant strategies were often developed by otherwise successful managers and executives, appointed because of proven track records in similar or parallel enterprises. The retail sector alone furnishes numerous examples of this problem. The previously ascendant US Wal – Mart group eventually abandoned its expansion into the buoyant German consumer market, selling up to domestic rivals Metro (Felsted and Jopson 2011). Sir Terry Leahy of the UK’s Tesco PLC saw his flagship Fresh n’ Easy store venture in the United States rapidly turn into a loss making enterprise (Felsted 2011). The point here is that these large, well-resourced businesses have been in the vanguard of market research techniques which employ benchmark digital data capture to measure consumer behaviour – yet they still failed. It may be that, as the statistics obtained by as Guler and Guillen show, (Appendix Three), firms prefer to target what they perceive as legally secure, politically stable hosts (2005, p.2) A number of empirical questions are raised by these developments. For example, how best can organisations secure and maintain the right kind of strategy formation capacity within their capabilities? Should strategic planning ever be thought of as a continuing capability, or should it instead be seen as a reflexive capacity, more likely to be brought into being by the specific conjunction of factors, i.e. a one-off development?
The purpose of the proposed study will be to ascertain answers to the following types of question, i.e.
Is there a ‘best practice’ of international business strategy formation which is transferable between business sectors?
Are some elements of strategy formation indispensable?
If so, what are the indispensable elements of strategy formation?
Do the business models of particular sectors render them more or less scaleable in terms of international expansion?
What constitutes the best practice in the development of business strategy for international markets? Such a question will obviously be subject to enormous variables across different sectors of the economy, or types and sizes of business. However, it may be argued that there will be a continued demand for this kind of business expertise, both in terms of strategy development and knowledge management.
3. Conceptual and Theoretical Foundations.
As Czinkota et al indicate, strategy formation should not be conceived as a generic activity or process, since it will to a certain extent be informed by the specific stimulus for the expansion itself, i.e. whether the perceived competitive advantage is based on technological or other kind of advantage (2009, p.228) This is an important consideration, since each organisation has its own motivation for wanting to expand into international markets, as well as varying levels of capability, resources, and preparedness. De Burca, Fletcher and Brown argue, there are numerous reasons for pursuing international expansion, the first of which lays in orthodox competitive strategy, i.e. ‘…in many industries, competitors can access customers almost anywhere…many customers that are going global want their key suppliers to be there to service them. Secondly, technology evolves at different speeds in different countries…if a business is located close to leading-edge technology development, it is likely to be closer to the early adopters phase of new markets…Third, economies of doing business are changing in terms of cost of funds, cost of labour, availability of specialised skills and opportunities for specialisation.’ (2004: p.560).
Some strategic factors are generic, in as much as no firm can realistically overlook them in international expansion. These consist of considerations such as control of the value chain, control of personnel resources, the securing of the necessary financial resources, and a realistic assessment of the associated risks (Muhlbacher et al 2006, p.405). Other factors will arise from the nature of the target markets themselves: emerging economies, for example, will not necessarily feature the ’embeddedness’ of mature Western markets (Doole and Lowe 2008, p.4). As Muhlbacher et al point out, ‘…many international marketing efforts fail not because research was not conducted, but because the issue of comparability was not adequately addressed in defining the marketing research problem…’ (2006, p.123). It is also important to consider the ‘…unconscious reference to our own cultural values when defining the problem we are attempting to research in international markets…’ (2006, p.123). For example, many studies of global expansion have as their focus the strategies of Western multinationals; however, given the flow of globalization, there is no logical reason why they should be restricted to this area. If anything, the strategies of Chinese, Middle Eastern and other corporations may become even more relevant. As Berger argues, globalization may be deemed the single greatest factor in contemporary business, and yet virtually all the assumptions made about it come ‘…either from opinions…or…general economic theories. Analyses based on hard evidence from the experience of societies dealing with these pressures are few and far between.’ (Berger 2006: p.7).
i. Research Design and Research Strategy.
As Marshall and Rossman argue, a research design should be able to ‘….generate data appropriate and adequate for responding to the research questions and will conform to ethical standards.’ (2011, p.56). In this instance there are several levels of design options to be acknowledged in the overall form of the research. In paradigmatic terms, this is a predominantly qualitative study, which nevertheless acknowledges the points made by Collis and Hussey regarding the relationship between the phenomenological and the positivist positions. As they point out, the distinction between them can rarely be maintained in the context of practical research processes (Collis and Hussey 2003, p.48). This is a point also made by Jupp, who concedes that research paradigms may need to be reconsidered during the process itself (2006, p.213).
At the preparatory stage, it is obviously important to demonstrate that there is a justification for this research, i.e. a ‘gap’ in the relevant knowledge as presented in the relevant secondary literature (Longnecker 2009, p.134). An exhaustive survey of all the relevant secondary literature may be an ambitious objective given the resources available to this study; however, this must be pursued until it becomes clear that the same or similar points are constantly being re-discovered. As Winkler and Metherell point out, the cautious researcher should see a ‘…consensus of opinion among experts that can be used to judge the reputation of an author or source.’ (2011, p.62). By this means, as Patzer points out, a viable context for the study may be established (1995, p.6). It is anticipated that the gaps in the literature will mostly be those arising from new developments in the dynamic of globalization; as Stevens et al argue, ‘old’ information ‘…is not necessarily bad information; however, in many dynamic markets, up-to-date information is an absolute necessity.’ (2006, p.98). As Saunders et al (2009) acknowledge, any generalization based on secondary data should acknowledge that it has been influenced by the culture, predisposition and ideals of those who originally compiled it (p.272).
The study will take account of the major theorists in the relevant areas of scholarship, such as Porter on competitive advantage and national competitive advantage, and Mintzberg et al on strategy. Work such as that of Jones in Multinationals and Global Capitalism: From the Nineteenth to the Twenty-first Century (2005) will be consulted in order to orientate the study empirically. Detailed studies of niche areas such as De Burca et al’s work on SME strategy (2004), and Phan et al (2008) on entrepreneurship in emerging economies will also be important. It will also acknowledge anti-globalisation theorists such as Lynn, through the arguments he presented in his End of the Line, the Rise and Coming Fall of the Global Corporation, (2005).
Conducted on a qualitative basis, this will be an inductive rather than deductive study, since it cannot realistically proceed on highly defined questions or areas of enquiry. Rather, its purpose is to make the initial foray into a new and under-research area which will inform a more deductive approach in the future. Consequently, the questioning will be exploratory rather than descriptive in nature, allowing participants the maximum scope to relay their reflections. As Rubin et al (2010) point out, when engaged in descriptive research, ‘…we try to identify or describe events or conditions…When doing explanatory research, we look for underlying causes and explanations of events. Exploratory research encompasses what is referred to as interpretative research, as a way of making sense of events.’ (198).
Strategy formation, whatever its focus, represents an important aspect of competitive practice in commercial markets. For this reason, there may be finite limits to the extent to which contemporary practice will be meaningfully discussed or shared for the purposes of an academic study. However, participants may be more likely to share worthwhile observations where past practice is concerned, or where they are no longer involved with the business or organisation in question. Participation will be sought from twenty individuals in relevant organisations, and the interviews will be conducted by e-communication as far as is possible due to the budgetary limit of £1500 (excluding labour). The survey(s) themselves will be conducted within a two week period as far as is possible, to retain the cross-sectional format. It is anticipated that some of this budget will be absorbed by travel and associated expenses where online research is not possible.
The representative nature of any research depends to a significant degree on the sampling methods on which it was based. As McGivern points out, the most representative samples are those based on random or probability sampling, in which all elements of a particular population have an equal or proportionate chance of being included (2006, p.277). However, this approach has obvious implications in terms of both resources and outcomes. A genuinely random sample would involve a wide initial recruitment process and a lengthy period of filtering, during which the most relevant participants could be identified. This in itself would require significant resources and time, and would not necessarily produce the most suitable cohort for a specialist research project. The value of focused business research must be linked to the insights provided by the participants, and only those with the requisite experience and knowledge can provide this. Consequently, a non-probability or purposive sampling approach was deemed most appropriate, with practitioners from both past and present international businesses invited to participate.
The responses obtained will most likely involve insights from past as well as present strategy, so that the study may be said to have a wide chronological focus. However, this study should be seen as a cross-sectional rather than a longitudinal one, since its resources do not permit a longer research process. It may be, however, that further study is possible later, is the research objectives and questions are refined. As Yin cautions, despite the care taken to ensure that a sample is representative of some larger group, the number in a qualitative study ‘….will likely be too small to warrant any statistical generalisation….’. However, the findings may be sufficiently replicated in similar situations, allowing them to be ‘…generalized to other similar situations.’ (2010, 226).
The questions will be ordered into three sections, i.e. a binary or closed question Yes/No section, a Likert-scale multiple choice section, and an ‘open’ section of discursive enquiries. Each section in the sequence will be developmental and complimentary, allowing the juxtaposition of positivist and phenomenological findings, as in Appendices One and Two.
iii. Data Analysis
As Wolcott (2001) has argued, ‘…good qualitative research ought to confound issues, revealing them in their complexity rather than reducing them to simple explanation.’ (p.36). Whilst it is not envisaged that this limited research will uncover any conceptually original points, it is planned that a balance of positivist and phenomenological data will reveal contextual clues in the contemporary environment which may contribute to further investigation. This will be pursued according to the schema of analysis set out in Appendices One and Two.
5. Ethical Considerations
There are two levels of ethical responsibility involved in this proposal, i.e. that owed to the respondents, and that inherent in the conduct and evaluation of the work itself.
This research will be conducted on the basis that the participants themselves should have the maximum control over the conduct and outcome of the research process. This implies that they should be informed, prior to participation, of the possible uses and availability of the published research results (Tracy and Millar 2009, p.102).
This proposal also acknowledges the ethical responsibilities which arise from the interpretation of the research results themselves. As Gill et al point out, the researcher, ‘…through developing his/her research design, is usually trying to test hypotheses generated from a theory, through data collection, in order to see whether or not the theory survives those attempts at falsifying or disproving it.’ (2010, p.72) As an inductive study, this research will not be aiming to prove or disprove a particular idea. It will, however, rely for its value upon the originality or otherwise of the information uncovered. Responsible assessment of this should avoid inflating its significance or originality when drawing up the conclusions; where similar findings have appeared earlier or elsewhere, this will be drawn to the attention of the reader. The research findings should be closely linked to the evidence which supports them, and where some of this does not support the argument, this should also be acknowledged (Gray 2009, p.192).
Overall, the background issue may be said to fall into two areas; firstly, what kinds of expertise are necessary to assure the development of successful international strategy, and secondly, how may this be effectively researched? As Gravetter and Forzano have cautioned, it is all but impossible for a single research study to eliminate all threats to validity, therefore, ‘…each researcher must decide which threats are most important for the specific study.’ (2011, p.171). The single greatest problem in this research is the choice between a study which looks at the issue as it occurs across all sectors, or one which concentrates on a single business sector. As will be discussed further, this dilemma also has to be solved in a manner which takes account of the resources available for the work itself. As Patton advises, ‘…deductive hypothesis testing or outcome measurement aimed at confirming and/or generalizing exploratory findings, then back again to inductive analysis to look for rival hypotheses and unanticipated or unmeasured factors.’ (2002, p.57).
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Appendix One: Questioning Sequence.
Section One: Binary/Closed Question.
It is possible to identify a ‘best practice’ model of international business strategy formation, which is transferable between business sectors. Yes/No/Neutral.
Section Two: Likert Scale Question.
It is possible to identify a ‘best practice’ model of international business strategy formation, which is transferable between business sectors. Strongly Agree/Agree/Neutral/
Section Three: ‘Open’ Question.
How would you identify a generic ‘best practice’ model of international business strategy formation, i.e. one which is transferable between business sectors? Please explain in your own words.
Appendix Two: Data Integration in sequence.
Appendix Three: Foreign Capital Investments by U.S. Firms by Host Country, 1991-2002.
Number of Ventures
Source: Guler, I., and Guillen, M. F., ‘Knowledge Institutions and Foreign Entry: the internationalisation of U.S. venture capital firms’, [online], available at http://www-management.wharton.upenn.edu/guillen/NewFolder/IntVC18.pdf , [Accessed 17th March 2012]., p.46.