Push Oriented Concept In Process Of Internationalization Economics Essay

The literature about the procedure for internationalization has been using the "push-oriented" concept which states that the outward movement of the organizations is driven by strategic objectives. However, predicated on the recent phenomena of newcomers and latecomers MNCs, internationalization is reconsidered to be always a "pull" process as well. John A. Mathews (2006) argues that the best explanation for internationalization nowadays is "the process of the firm's becoming included in international financial activities". He emphasizes on the top use of the word "integration" which includes both the "pull and press" idea of previous creators' explanations. Internationalization is taking into consideration the global economy as pre-existing and offering resources to the companies which aim for participation in the international global market.

The conceptual and theoretical frameworks developed about the drivers of businesses to internationalize begin from the idea that firms extend abroad for their capacity to work with their advantages in the variety countries. This concept was formulated by Hymer (1960) and Kindleberger (1969), who built up on even preceding idea of internationalization discussed in conditions of international trade and FDI rather than in conditions of the precise firm's activities.

Theoretical perspectives that clarify the level and structure of FDI or MNCs activities change from conventional economic theories (Caves, 1971; Hymer, 1976; Kindleberger, 1969), internationalization models (Buckley & Casson, 1976) to Duning's eclectic paradigm (Dunning, 1988, 2006). The eclectic paradigm predicated on the experience of Anglo-American successful-international businesses alongside the Uppsala college (Johanson & Vahlne 1977) have been the dominating conceptual models in IB research regarding the internationalization of firms from developed countries. The international business books provides explanations of the motivations and issues, entry method decisions and characteristics of MNEs from developed countries. Unfortunately, there is no one theory that points out the outward FDI from appearing country economies which is the major matter of this dissertation (Buckley et al. , 2007; Luo & Tung, 2007). Prior work on producing economies or third world MNCs has been adapting the deal cost theory in order to clarify the style of internationalization (Kumar, 1982). Most recent observations by Bonaglia et al. , 2007; Luo & Tung 2007; Mathews, 2006 have argued that the international extension of EM MNCs is much more complex and requires attention from different perspectives.

The Eclectic Paradigm: OLI Framework

John Dunning, a finding scholar of the international business, discusses in his works the present day capitalism which suggests that big businesses from developing economies are becoming important players in the global overall economy. He traces the road through which these firms be successful to expand abroad by creating joint ventures in home market segments, after that extending into regional market segments and later becoming self-employed by purchasing out its OECD-based partners. Dunning's work, Multinational Corporations and the Global Market (1993), discusses the eclectic paradigm which predicts that is essential for a corporation to own specific advantages in order to successfully make investments in foreign countries. Also, the overseas location must become more attractive set alongside the one at the home country. Relating to Dunning, increasing abroad is best mode of maximizing those specific to the business advantages. Therefore, a question rises if companies from rising or change economies possess such kind of advantages with location-specific ones as well as if you'll be able to internalize them.

The possession, location, and internationalization (OLI) point of view is based on international companies which can certainly ding the resources and the functions to expand abroad if they wish to achieve this. Dunning combines several factors that offer a greater explanation of MNE or FDI activity in available markets and emphasizes on the importance of both structural and purchase cost insufficiency for MNE activity.

The first factor, the "ownership advantage", is the actual advantage derived from increasing the firm's proprietary belongings abroad (brands and proprietary systems). By doing so the organization brings greater vitality against its domestic competitors in sponsor markets. The second factor is the "location gain" which the firm has when you are able to assimilate activities across countries with different factor and learning resource costs. This benefit is a particular to a country and dictates the decision of production site of the firm. Previous, the "internationalization edge" which derives from building economies of opportunity and scale by internationalizing the firm's activities surrounding the foreign parts. The latter advantage determines whether foreign production will be sorted out through licensing or FDI.

Even though, Dunning's paradigm provides an appropriate framework detailing the FDI activity of EM MNCs, it is challenged by visible authors (Luo & Tung, 2007; Mathews, 2006) because of its assumption that EM MNCs should own ownership advantages in order to use internationally. Dunning's concept does not take into consideration the circumstances where businesses can derive advantages by their expansion abroad to be able to gain access to resources that are not available at their home country. Therefore, it could be concluded that EM MNCs do not have the same motives as MNCs from developed countries - the property exploitation motive instead they may be driven by property seeking one (to build up ownership advantage) such as technology, brand and distribution networks, and management experience which compensate for his or her capability cons. Finally, corresponding to Makino (2002) property exploitation point of view considers FDI as the transfer of firm's proprietary investments internationally and in property seeking, the FDI is a way of acquiring tactical resources. Therefore, both investments seeking and asset exploitation motives are distinct but at exactly the same time complementary motives which may be together observed in the expansion models of EM MNCs.

The Alternative LLL Framework

Mathews (2002, 2006) is one of the writers who criticizes Dunning's OLI construction. He feels that the EM MNCs extend internationally in search of resources and customers that are not otherwise available. Mathews proposes a altered OLI framework, a far more globalized one, which contains considerations that apply to the recent EM MNCs motivated by source of information linkage, leverage and learning (LLL platform).

The first one, linkage identifies the concentrate of EM MNCs not independently advantages but on the people that can be obtained internationally. Mathews considers the global orientation as a way to obtain advantage because of the opportunities that can be found by a firm by its expansion to the global market alternatively than at its local one. The problems of this suggested outward orientation are higher compared to the ones of inward orientation - overcoming problems of market intellect and doubt of the grade of knowledge available. The tool access as a motive is "an attempt to access external resources to be able to offset the weaknesses of the investor" (Chen and Chen, 1998: 446). Globalization offers opportunities for sites such as joint projects or other collaborative partnerships as a mean of getting accessibility to the new market. By using those linkages, latecomers such as EM MNCs, can sketch themselves into a world of exchange and resources of advantage.

The drivers of reference leverage targets the resources themselves and exactly how accessible they can be in conditions of limitability, transferability and substitutability.

Lastly, learning results from the repetition of linkage and leverage techniques when the organization starts to perform its operation increasingly more effectively. Table 1 depicts the variations between Dunning's OLI and Mathew's LLL platform detailing the success of MNEs over their opponents at home (Mathew, 2006)

Table 1 Why do MNEs out-compete their home competitors? OLI and LLL platform compared

Criterion

OLI

LLL

Resourced utilized

Proprietary resources

Resources reached through linkage with external firms

Geographic Scope

Location established within vertically integrated whole

Location tapped within international network

Make or buy?

Bias towards functions internalized across national borders

Bias towards businesses created through external linkage

Learning

Not part of the OLI framework

Learning achieved through repetition of linkage and leverage

Process of internationalization

Not area of the OLI construction: MNE's international reach assumed

Proceeds incrementally through linkage

Organization

Not part of OLI platform: company could be multinational or transnational

Global integration wanted as latecomer advantage

Driving paradigm

Transaction cost economies

Capturing of latecomer advantage

Time frame

Comparative static observations, checking one point in time with another

Cumulative development process

Uppsala Sequential International Process Model

The evolutionary strategy of internationalization is also quality of the Uppsala sequential international process model matching to which the firm's avenue of foreign extension is sluggish and incremental, with frequent loops of experimental learning (Johanson and Vahlne, 1977). The firm focuses on its development through gradual acquisitions and integration. The sequential Uppsala model is mirrored not only in conditions of the data about foreign marketplaces and operations, and the depth of dedication of the firm to the overseas market, but also in terms of the variety of modes found in product offerings of geographical penetration (Welch and Luostarinen 1988: 158-9). The model reveals that typically firms begin to internationalize by exporting to a country via an agent followed by establishment of sales subsidiaries and by the end starting to produce in the variety country. This sequence of phases specifies a growing determination of resources to the market. However, as latecomers, EM MNCs need to accelerate their activities of internationalization to become able of finding up with the traditional MNCs. Therefore, the prevailing criticism against this model is the fact that internationalization is not always a step-by-step learning process of its levels because the data of foreign enlargement can be gained from other organizations rather than mimicking other firm's internationalization experience (Eriksson et al, 1997) and by arranging a network with others (Johanson and Mattson 1986).

According to the internationalization process theory, during the procedure of international development, learning is moved through institutionalized organizational techniques (decision-making procedures and corporate policies) which help comapanies' progress through acquisitions of site-specific knowledge (Andersen, 1993). Even though importance of learning refers to EM MNCs, their commitment to size of opportunities tend to be large and not necessarily engage step-by-step process. Another contradiction to the Uppsala model's recommendation that as the firm's determination to the coordinator country raises and the entry setting is riskier, the firm's mature staff' control must increase as well (Hennart, 1989; Hill et al. , 1990). However, regarding EM MNCs, they are more likely to use senior management team which is localized rather than representatives from the business's home country.

Springboard Perspective

As mentioned earlier in the paper, the platform which analyzes the internationalization of EM MNEs is considered to be unique compared to the one of traditional MNEs. One of Luo and Tung's (2007) empirical work reveals a springboard potential according to which EM MNEs use international enlargement as a springboard to gain access to tactical resources as well as to reduce their constrains at home both institutional and market ones. Through the use of that kind of outward purchases these companies are getting to be more effectively competitive against their global competitors. The authors focus their studies at the top six attractive global business locations - Brazil, Mexico, Russia, China, and India. The next factors are being taken into consideration in the observation of the countries' MNEs: their motives and strategies, facilitating pushes, risks and troubles of these internationalization. EM MNEs usually face many cons when expanding abroad because to be the so called "latecomers" to the global market. However, they effectively overcome obstacles by hostile and risk-taking strategies, by acquiring or directly buying significant belongings from older MNEs to become able to compensate their weaknesses. Hence, most of the EM MNEs do not follow a particular way of internationalization or a style of selecting entry settings and country locations.

According to Luo and Tung (2007) EM MNEs are forced to invest in another country for their position as latecomers, the strong presence of competition at the domestic market, the quick enhancements in technology as well as product development, and finally their institutional obstacles at home. It could be figured nowadays EM MNEs are much less path dependent compared and much more risk-taking set alongside the traditional MNEs and the "Third World" ones.

According to Luo and Tung (2007), the "springboard" perspective characterizes EM MNCs activities as recurring since they use succeeding acquisitions of international companies through which they gain brand consciousness and access to foreign customers. It also distinguishes itself from the "leapfrog" EM MNCs which entails late entrants finding and catching up with earlier mover's companies by keeping away from risks in scientific obsolescence and possession of technological diffusion to competition (Anderson and Engers, 1994). Therefore, "springboard" strives for further extensive strategic gains beyond the overdue comers' advantages and most importantly it links back to you a company's international extension to its operations at home. EM MNCs successful overseas businesses are highly dependent on their sales, market, and manufacturing activities at its home bottom part. Hence, it can be figured the long-term functionality and effective performance of EM MNCs is based on their abilities to constantly control their activities at home while seeking opportunities by integration in foreign countries.

Springboard Motivations

The "springboard" point of view outlines several behaviors of EM MNCs companies which relate with their motivations and reasons of extension abroad. This type of companies internationalizes to be able to compensate for his or her competitive down sides through acquiring companies with high technology or superior developing facilities, therefore contradicting Dunning's ownership-specific completive good thing about foreign growth. As latecomers, EM MNCs face many cons; therefore by path-independent strategy of acquiring international companies they become able to overcome their deficiencies in the consumer basic, brand recognition, and technical areas. Hence, their outward FDI is influenced by "pull" factors such as need for specific resources, managerial know-how, and usage of consumers. Since the traditional MNCs have previously joined the EM MNCs countries, companies from emerging economies use international growth as a counter-attack.

Many EM MNCs enter into their competitors' home countries in search of market show and a way to become global or transnational. Some outward foreign direct purchases are also brought on by the companies' wish to avoid or beat trade barriers. Companies with creation of standardized products depend on exporting abroad by using intermediaries or marketers. In this manner they assist in their massive production capabilities and set up links with customers from other countries. EM MNCs' home markets are seen as a many institutional voids such as poor legal safeguard of ownership privileges, no enforcement of regulations and non-transparent judicial system, inefficient market intermediaries; and politics instability - unpredictable changes, interference of the government, corruption and bureaucracy.

All of the described factors challenge the competitiveness of the domestic firms, therefore pushing them to get further development at foreign market segments - opportunity-seeking drive. For instance, niche players from Russia, and countries from Central and Eastern Europe (CEE) are powered by a desire to get a foothold in the bigger EU. They seek market opportunities by growing with their neighboring CEE countries seeking better legal safety overseas. Facing the institutional and political hurdles is both financially and time-wise costly; therefore companies try to select more translucent and useful country environments which allow EM MNCs to focus on producing and utilizing their competitive advantages.

EM MNCs use internationalism as a springboard in order to secure favored treatment offered by emerging market governments. The so called "reverse investments" happen when EM MNCs first make an investment abroad by building a subsidiary, and then make use of it as a "foreign" unit to invest at their home country. By doing so the company receives financial and non-financial benefits such as cheaper land fees and usage of scarce resources provided by emerging market government authorities. Many appearing market governments provide financial privileges for stimulating their business to increase internationally (Andreff, 2002).

Finally, EM MNCs develop internationally as a springboard to allow them to utilize their competitive advantages in other appearing markets. Among the specific characteristics of EM MNCs is that they are countrywide giants at home, being experts in mass development they disperse internationally to other growing countries to make technologically standardizes products. Hence, they generate a low-cost position of a latecomer offering prices ideal for local consumers that allows them to effectively contend with companies from industrialized countries that have entered much early. It could be figured companies from appearing markets are less likely to seek opportunities for inexpensive development because of their home supply which allows them constant access to low-cost advantages because of their vertically integrated global development system.

Table 2 International Extension of Appearing Market MNEs: a springboard perspective

Springboard Alternative and Internal Issues

Following the key motorists for internationalization in line with the springboard perspective, it is important to provide and review the exterior and inside issues which affect EM MNCs to get overseas. Luo and Tung (2007) identify five main factors you start with the role of the government in the MNCs activities for heading global. The liberalization of administration policies is a critical issue which influences outward foreign immediate investment. The theoretical and empirical findings of the last mentioned topic are reviewed down the road in the paper's literature review. Second factor indicated by Luo and Tung is the organization entrepreneurship and strong inspiration for stepping into important marketplaces. For EM MNCs the discussion between the corporations of rising countries and their corporate and business entrepreneurs is vital for the decision-making of the internationalization strategy. To be able to successfully expand and operate in another country, corporate executives in EM MNCs need to recive politics support gives them the capability to be unbiased and follow their own development strategies without the engagement of institutional legacies (Andreff, 2002).

Springboard behaviours in outward FDI are also influenced by the determination of advanced countries' MNCs to sell their strategic sections or create partnerships that allows EM MNCs to obtain or cooperate with rivals in order to increase their competitive advantage and international experience. The fourth factor which influences EM MNCs' international strategy is the big competition of advanced countries MNCs needed to be faced domestically. To be able to successfully contend with these competitors, companies from emerging countries take extreme steps by aggressively extending their size and scope through capital investments in new tasks or reinvesting accumulated retained earnings in already founded projects. The final concern, quick changes in the technology and market environment alongside the increased globalization of the world's current economic climate, motivates EM MNCs to expand overseas. The existing competitive environment which international companies from appearing economies face is seen as a high tech facilities, shorter product life pattern, and increased awareness of knowledge and information importance.

Internationalization Challenges

The springboard point of view does not only provide EM MNCs with latecomer's opportunities but with some unique global issues on their behalf as well. The first concern identifies by Luo and Tung (2007) is the disfavored market environment at the home country such as poor accountability, lack of transparency, and vulnerable corporate federal. These factors drop company's reputation and reduce home and global shareholders' self-assurance. The measures which need to be taken in order successfully to handle the country's instability is that the EM MNEs to appoint top professionals of the essential frontline products. Using the services of well-known international accounting companies can be an option for enhancing the financial accountability in the company.

The second concern based on the springboard point of view is the post-acquisition level issues such as establishing effective working connections with web host shareholders, fitted the variety and home companies' cultures together, aligning their goals and integrating both companies' operations. Having less previous experience in cross-cultural acquisitions and mergers induce major problems for EM MNCs. Therefore, they need to have sufficient knowledge in global planning and execution; the companies should be able to plan ahead the entire product and reference related issues before engaging into risky extension.

Third challenge, the lack of global experience and managerial competence,

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