83 The Romanian Economic Journal
Strategies of Entering New Markets
Mihaela Belu Andreea Raluca Cărăgin Entering new foreign markets may be achieved in a variety of ways. Each of these ways places its unique demands on the company in terms of organizational and financial resources. Most of the times, entering international markets is not a matter of choice but of necessity to remain competitive in new or established markets. Our paper is going to analyze the possibilities that a company has when entering a foreign market, decision that is very important and which involves market assessment and analysis. Key words: Uppsala Model, Birkinshaw Model, exporting, franchising, licensing, strategic alliances JEL classification code: F21, F23, M16. The decision to go international represents an important commitment to go into a new line of activity, this being the reason why it should be taken step by step: obtaining information, analyzing them, formulating alternative action plans. (Tookey, 1975) Current literature provides us several approaches regarding the internationalization process. Dunning’s eclectic paradigm (1988, 1998) represents an important point of reference in analyzing the advantages resulting from the process. Dunning identifies three types of advantages: specific advantages (economies of scale, diversification), localisation advantages (market dimension, infrastructure) and internationalisation advantages (maintaining the quality of the products, reducing the operating costs on a Year XI, no. 27 (1) 2008
The Romanian Economic Journal
certain market). The developed model is focused on the advantages determined by the internationalisation process and less on the development process of the internationalisation of companies. A model that is focusing on the dynamics of the internationalisation process is The Uppsala Model, also called the „U Model”. The main scope to be obtained by applying the Uppsala Model is predicting the company’s evolution on foreign markets. Two elements are at the basis of the model: the notion of secventiality attributed to the process and the notion of physical distance. The internationalisation of a multinational company takes place step by step, according to the Uppsala Model, which minimises the risks regarding the new market (Johanson; Wiedersheim-Paul, 1975). Therefore, the company is being involved gradually (investments, control and profit), getting to the point of creating a production subsidiary which ensures also the selling of the products on the new market. The stages of the internationalisation process are presented in Figure 1. Figure 1. The stages of the internationalisation process Stage 1 Export Stage 2 Commercial agent Stage 3 Commercial subsidiary Stage 4 Production subsidiary
Source: Johanson; Wiedersheim-Paul, 1975 The concept of physical distance, the second element the Upssala Model is based upon determines the companies to select, in a first stage, the neighbour countries in order to reduce the cultural, economical, political differences. According to this approach, the bigger the Year XI, no. 27 (1) 2008
85 The Romanian Economic Journal physical distance, the bigger is the incertitude about the new market and bigger the risks associated to this market. In the view of the globalisation phenomena, there are numerous criticisms about the „physical distance” notion. Many papers have developed the subject of the company’s internationalisation; a special place holds J. Birkinshaw who analysed the problems regarding the role of the subsidiaries and the evolution of the mandated in the internationalisation process at the multinational’s level. Therefore, the papers elaborated by Birkinshaw and Hoods (1998) have shown that creating a subsidiary can be explained on the basis of the interactions between the decisions of the mother-company, the initiatives of the subsidiary and the specific conditions...
References: Tookey, D.A. (1975), Export Marketing Decision, Harmondsworth: Penguin Johanson; Wiedersheim-Paul, (1975), „The Internationalization of the firm – four Swedish case studies” Journal of Management Studies, vol. 12
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Birkinshaw J., Hoods, N. (1998), „Multinational Subsidiary Evolutiona: Capability and charter change in foreign owned subsidiary companies” , The Academy of Management Review, Vol. 23, N. 4, pp. 773 -795 Popa, I. (2006), „Negocierea comercială interna ională”, Editura Economică, Bucharest Welch, L. (1982) „Decision – making in the international context” in Proceedings of the Seminar on Management Decision-Making, Olso: European Institute for Advanced Studies in Management, June Cho KR, Radmanabhan R. (1995), “Acquisition versus new venture: the choice of foreign establishment mode by Japanese firms”, Journal of International Management l (3), pp. 255-285. Gatignon H, Anderson E. (1988), “The multinational corporation 's degree of control over foreign subsidiaries: an empirical test of a transaction cost explanation”, Journal of Law, Economics and Organization 4, pp. 304-336. Bradley, Frank (2002), “International marketing strategy”, Prentice Hall Mihaela BELU, Associate Professor, Ph.D., Departament of International Business and Economics, Bucharest University of Economics. Andreea Raluca CĂRĂGIN, Assistant Lecturer, Ph.D. candidate, Departament of International Business and Economics, Bucharest University of Economics.
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