Good Example Of Theories Of Internationalization Report
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Report: internationalization at Wal-Mart
Internationalization has been accruing a lot of popularity within the diverse sectors or industries across the globe. As such, internationalization, which entails market venture into new markets within the international environment, has become a highly recommended option for the diverse organizations towards sustenance of profitability. Admittedly, the inculcation of an in-depth evaluation of what internationalization entails and use of diverse decision making tools such as entry modes situational analysis have become fundamental for successful outcomes. Most fundamentally Wal-Mart has been on the frontward path towards market entry into diverse foreign markets. The internationalization prospect in US’s retail industry has been highly evident with various organizations making market entry into emerging and developing economies. Thus, this paper will examine internationalization at Wal-Mart as it ventures into Mexico.
There prevail diverse theories that accentuate and determine the diverse approaches that an organization can incorporate towards successful internationalization. As such organizational investment into in-depth comprehension of the evident theories is important in order for the most profitable approach to prevail. Thus, towards successful venture into Mexico an in-depth analysis of Dunning electric paradigm, learning theories of internationalization and network theories is plausible for Wal-Mart to maintain profitable outcomes within the new market. Hence, a clear analysis of the theories is as follows:
Dunning electric paradigm
John Dunning is accredited for the development of the electric paradigm theories through various publications that explained within an in-depth mandate what the paradigm explains. From the analysis of the theory developed by Dunning, there are three fundamental factors that determine the international operations of businesses (Sternquist 2007, p.87). Ownership advantages, location advantages and internationalization advantages. Hence the Dunning electric paradigm is also referred to as the OLI paradigm. Thus, the theory asserts that large or multinational businesses such as Wal-Mart generate or develop competitive advantage within their local environment and transfer the competitive advantages to the international spectrum (Sternquist 2007, p.112). Transfer of the competitive advantage from the analysis of Wal-Mart to a given country is dependent on the locational advantages through the inculcation of the foreign direct investment due to the ownership advantages. In regards to Dunning it is evident that there prevails close interaction or linkage between ownership advantage and international advantage. Through the incorporation of ownership advantage and international advantage the transactional cost mitigation is bound to prevail through a country level analysis mandate by the organization (Plunkett, 2008, p.57). However it is imperative to comprehend that the significant drawback of the dunning electric paradigm is the prospect that it exudes too much eclectic. Within many ways the three factors for foreign direct investment within an organization like Wal-Mart is over determined. Most fundamentally the prospect of being too eclectic emanates from the ownership advantages. From the analysis of the Dunning electric paradigm there is no extensive or in-depth analysis of the various external facets of legal, social and country factors that are imperative for effective decision making (Audretsch, 2008, p.172). Dunning asserts that the country factors can be shifted into ownership advantages. Furthermore dunning argues that the prevailing facet of county factors can be mitigated through the inculcation of strategic alliances with organizations within the foreign market. Mitigation of the country factors as per the Dunning electric paradigm it through accessibility to the partner organization resources towards ensuring mutually beneficial outcomes. Most fundamentally, the examination of the location advantages denotes the organization evaluating the various differentiating beneficial aspects within the new country of operation. Level of regulation, growth in telecommunication and infrastructure are some of the aspects that entail the locational advantages (Barry & Weinstein, 2009, p.351). On the other hand, international advantages as aforesaid are highly linked to the ownership advantage. Thus, from the analysis of dunning the international advantages may entail the intangible facets such as transactional costs, institutional advantages and so forth that are critical towards the ownership mandate. Thus it is imperative that an organization like Wal-Mart within an in-depth mandate examines the ownership, location and international advantages within their market venture (Sternquist 2007, p.115). As an example of analysis of Mexico, it is evident that there prevails various reasons emerging from location international and ownership advantages that played a critical role towards market venture into the region. The most fundamental reasons were market saturation in US, financial strength of the company, economic pressure and internal growth needs (Kotler, 2006, p.333). Hence the analysis of the cultural geographical and growth capabilities was imperative towards sustenance of profitable outcomes at Wal-Mart.
Learning theories of internationalization
The internationalization process of an organization is highly complex and doubting that exudes crucial challenges for diverse organizations. Thus for large organizations such as Wal-Mart expanding into new markets it is imperative to undertake intricate decision making due to the competitive nature of the new market. Thus venture into the new markets entails that the firm’s existent knowledge and capabilities are not applicable in the new market (Brik, Rettab & Mellahi, 2011, p. 309). Admittedly it is imperative that the organization invests into the diverse learning processes or theories towards comprehending the novel market. The new market of operation exudes diversity in various facets which calls for comprehensive inculcation of the evident knowledge and capabilities in the new market. It is highly advisable for a firm like Wal-Mart to accumulate knowledge and learn within an in-depth mandate of the operational dynamisms in Mexico. Thus, internationalization is dependent on the inculcation of three main learning theories as per the analysis of Meyer (2007, p.33) the experiential learning, congenital learning and inter-organizational learning are highly advisable for any organization.
First and foremost organizational level experience, within a traditional mandate has been considered as the most fundamental and primary learning mechanism in the internationalization process. Thus, the Uppsala stage model was constructed on the basis that organizations slowly accumulate knowledge as they expand into new markets or undertake international activities. Within the experiential learning it is imperative to acknowledge that lack of cross cultural information is a crucial obstacle or hindrance to the international expansion. Thus, from the analysis of the experiential learning, Wal-Mart should invest into a more systematic approach towards learning of the various facets that denote Mexico. As the first approach, the company should undertake entry modes that are not highly resource oriented such as exporting licensing and so forth. An entry mode that is less resource dependent ensures that the company can mitigate or handle the perceived risks within a simpler manner. The concept of minimal resource investment reduces the level of commitment within the new market of operation thus enabling the company to examine the market within both a profitable and gradual mandate. However it is imperative that Wal-Mart acknowledges that the concept of experiential learning is intertwined to the behavioral theory of the organization. The organizational behaviors and actions are perceived as the basis of past activities or routines (Meyer 2007, p.33). As a company invests into other markets it accumulates knowledge and makes the necessary changes in structure and operational mandate. The development of a routine in regards to international venture develops an absorptive capacity of the business which is critical in its internationalization and future learning of both new and related knowledge pertaining to the new market.
The concept of congenital learning is highly applicable to organizations that lack international experience. As such through congenital learning internationalization can be facilitated by the evident founder’s knowledge which was acquired during the pre-start up international experience. Thus, the aforesaid form of congenital learning arises from the knowledge resources that opts accumulated into the firm through the founders past experience within the internationalization prospect (Vargo & Lusch, 2004, p.15). The founder’s past experience plays a crucial role in the imprinting and laying forth the most plausible approach towards international market dominance. During the first phases of internationalization the founder’s knowledge base plays a critical role in the formulation and implementation of the initial internationalization strategy. However, in the instance that the first operations commence the firm begins to accrue knowledge base. The linkage between the congenital learning and experiential learning is bound to result into a more accurate and timely start up approach within the international sector.
Vast research as revealed that organizations accumulate knowledge from other organizations through access to each other’s knowledge base, interactions and observation (McDougall & Oviatt, 2005, p.538).. Thus in the context of internationalization the concept of inter-organizational learning approach has focused on the performance outcomes regarding to knowledge acquisition within the cross border arrangements. In the recent times, there has been an advocacy for the inculcation of partnerships or parent subsidiary relationships towards extensive learning. The incorporation of networking among organizations is bound to influence the international market entry prospects and selection of the most plausible decisions (Nodalska 2007). Furthermore, the networking approach is bound to catapult the international growth prospect of the business within a profitable and revenue yield mandate. Thus, within the analysis of Wal-Mart the concept of inter-organizational learning denotes both vicarious learning and modeling. The concept of vicarious and modeling denotes the business copying and observing other organizations that have their operations in Mexico. As well, through undertaking mutual observation knowledge transfer is bound to prevail (Russell, 2010, p.69). As exchange partners mutual relationships between Wal-Mart and already operational organizations within Mexico is bound to lay forth a highly plausible foundation for the internationalization approach. A steadfast relationship between Wal-Mart and the local organizations is bound to result into profitable outcomes.
Network theories of internationalization
The networking theories of internationalization are highly recent. Thus the concept of network theories emerged due to the extensive research into industrial marketing and purchasing. As such through the analysis of the two facets of operation, the notion of the importance of long term and stable relationships towards internationalization emerged (Nodalska 2007). Thus, the network theories put extensive emphasis on the notion that the network of a firm denotes a wider system than the organizational itself or the evident relationship among two forms. In regards to the Johansson and Mattsson’s network theory, the focal firm is highly interconnected to its own business network (Akehurst and Alexander 2009). However within the internationalization process, the firm should also cover the holistic network structures evident in the foreign markets. Thus the existing domestic networks in some instances may exceed the country borders in the instances that a form reaches the international market. Thus in few instances, the company can incorporate the domestic networks towards formation of new networks in the foreign or international market (Sheth & Uslay, 2007, p.304). ‘. Hence, there prevails both direct and indirect connection between the firm and country networks that can be used towards successful internationalization process. Thus through the analysis of Johansson and Mattsson’s network theory it is evident that the internationalization of Wal-Mart depends on its present position within the local and international network. The development of the internationalization process within the business should thus depend on two aspects. The organization itself and its market influence are two factors that are bound to impact on Wal-Mart in its market venture into Mexico (Gerhad, 2008 p.44). Admittedly, in the instances that Wal-Mart is increasingly internationalized, there can be evident of positions and capability for further expansion within the international networks. On the other hand, a firm that is minimally internationalized is bound to evidence reduced possibilities in setting up profitable or beneficial networks. Moreover firms that have diverse market assets in the network structure dependent on the level of internationalization (Nodalska 2007, p.1175). Thus, through the Johanson and Mattsson’s network theory, there are three fundamental ways that Wal-Mart can incorporate to become international:
Set up positions within the country based networks that are increasingly new to the organization. In other words, it entails international extension of the foreign market entry
Development of existent positions in the country based networks for further growth or penetration
International integration: Enhance coordination between the existent positions in the diverse country based networks
Thus, from the analysis of Johanson and Mattsson’s network theory, it is imperative for Wal-Mart to acknowledge that the level of internationalization the networks evident and its market influence are highly imperative towards successful outcomes (Johanson & Vablne, 2008, p. 92). An in-depth analysis of the aforesaid aspects is bound to ensure profitability in its market entry into Mexico.
Entry modes for decision making
Market entry into the international market is dependent on the available entry modes and clear comprehension of the new market characteristics or features. As such, from the evaluation of Wal-Mart the market entry modes that are available for the organization include:
Acquisition is an approach that entails the purchase of another business within the same sector in the new market that Wal-Mart prefers to venture into. Thus the internalization approach is highly recommendable for a business that exudes financial strength and prefers to avoid the daunting task of setting up a new subsidiary in the market. The acquisition approach in regards to Wal-Mart should entail undertaking an in-depth evaluation of the Mexican market and the various organizations available within the retail industry. Through an in-depth research into the diverse retail organizations, the company can make the right choice in regards to the acquisition approach (Akehurst and Alexander 2009, p.124). However, it is imperative that Wal-Mart acknowledges that the acquisition approach is highly expensive and capital intensive. The purchase of an already established retail store should entail contractual agreement and consultation to make the most plausible purchase within a plausible pricing mandate.
Foreign direct investment
Foreign direct investment entails undertaking a more steadfast and intense approach in market entry. Accordingly foreign direct investment should entail the organization setting up a new store in Mexico. The foreign direct investment should denote Wal-Mart consulting effectively with the government and the relevant institutions in regards to the process of setting up a new store in the various regions in Mexico (Akehurst and Alexander 2009, p.129). As such, the foreign direct approach, similar to acquisition is highly capital intensive. Wal-Mart as a large retail store should not compromise on its culture and structure in setting up a new store in Mexico. The evident conformity to the organizational culture and structure should lead to major capital investment. Thus compromise on the financial investment into other projects should be evident in the foreign direct investment approach.
Franchising denotes entering into a contract with another organization already established in Mexico to use Wal-Mart’s brand and operational culture and structure. Through the contractual agreement, Wal-Mart will collect an agreed payment in form of revenue. Thus the company that will contract with Wal-Mart will be regarded to as the franchisee (Akehurst and Alexander 2009, p.133). The inculcation of the franchise approach is bound to ensure that market presence within Wal-Mart will be in a wider scope since franchising agreements can be numerous with diverse retail stores in the country.
Strategic alliance denotes partnering or associating with another organization within Mexico or US towards making market entry into Mexico. A strategic alliance approach is highly effective since a synergy of resources is bound to prevail. The organization that partners with Wal-Mart contributes in form of finance, human resource and intellectual resource. Through the strategic alliance approach, an evident sharing of risks to market entry into the market is bound to prevail (Joshua &Chi, 2007, p.221).
Thus, from the evaluation of Wal-Mart there are two approaches in their internationalization into the Mexican market. As the first approach, the organization should incorporate the acquisition approach. From the analysis of Wal-Mart, the organization has financial strength towards acquiring any organization that is already established within the market. Acquisition of the retail store within Mexico should necessitate or simplify the operational approach within the organization since the acquired organization already has the necessary resources and comprehension of the new market of operation. The concept of knowledge and capabilities towards profitable outcomes is bound to prevail due to the human resources within the acquired organization that will be crucial towards laying forth the right approaches in capturing the market. On the other hand, the strategic alliance should construe towards partnering with large retail organizations in Mexico. As a clear example the organization can partner with Central American Retail Holding Co. the Central American holding company is among the largest retail stores that has been operating in Mexico and other Central American countries. The partnership approach will enable a synergy of efforts, knowledge and facilitate learning for Wal-Mart towards success in the new market.
Business operations within the international spectrum are dependent on the strategy used. Thus, in the internationalization approach by Wal-Mart into Mexico, it is imperative that an in-depth analysis of the market prevails and inculcation of the evident internationalization theories. Emphatic and comprehensive use of the aforementioned internationalization theories is bound to ensure profitability within the new market.
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