SMEs Internationalization and Strategy System †MyAssignmenthelp.com

Question: Discuss about the SMEs Internationalization and Strategy System. Answer: Introduction The achievement of the organization aims and objectives are in most case affected significantly by the general international business environments and the conditions existing in particular countries where the organization wants to venture (Verbeke et al. 2014, p. 251). This makes it important for the organization to consider how the business environment impacts its internalization business decisions. This study seeks to provide an understanding of the strategies employed by the VADs (IT Company) in Malaysia for analyzing and engaging China as a foreign market. It focuses on the theoretical framework that a company needs to adapt to successfully venture into the foreign market, various market entry models, potential risks in the market, management responses, as well as recommendations that can be adopted by the company for effective operation in the foreign market. VADs is an integrated connecting ICT and BPO Company solutions provider in Malaysia that was established in 1991 and currently acts as a wholly owned subsidiary of Malaysian TM Berhad. It aims at bringing people together as well as business processes and technologies in a bid to enable more effective and dynamic use of ICT and BPO, and the company is the only service provider in the country that can offer end to end solutions as well as management services to the country business enterprise. It has already found its way to the foreign market by offering their services to other global business markets through partnerships with other companies as well as through establishing their company outlets in those countries (Alccer et al. 2016, p. 502). This is helpful as will help us understand how or some of the strategies the company or organization employed for analyzing and engaging in foreign markets. Theoretical framework and concepts for entry into foreign markets Foreign markets are characterized by some aspects which differ from one nation to another, and a successful venture into the markets calls for business owners to have an understanding of the customs and business etiquette of the foreign market. The company also needs to gather the historical data on the currency, value fluctuations, as well as import and export timelines in China and have an understanding of the countrys laws governing businesses in the country. The company thus required adopting a focus group to enable them to test the business environment in the prospective international markets as well as finding out their competitive advantages from other competitors in the same market (Laursen 2015, p. 106). To understand the engagement of VADs IT Company with the foreign market, it is important to understand some of the theoretical framework governing the decision to internationalize a business. In this case, we look at the theory of competitive advantage by David Richardo as well as the theory of factor endowment by Heckscher as guiding theories to international markets. The theory of competitive advantage provides that if a country or a business organization specializes in the production of goods and services whose production has a comparative advantage, it can better trade with other business organizations or countries than its competitors. Trading in foreign markets will then be better since the total output of goods produced from the company resources will have grown (Alcceret al. 2016, p. 510). This theory is very important as it helps the business organizations analyze the foreign business environment and make investment decisions based on the comparative nature of the advantages . VADs Company will, therefore, invest or venture in countries or foreign markets in which it has a comparative advantage in the provision of IT solutions and services in. On the other hand, the factor endowment theory by Heckscher-Ohlin also provides important aspects of engaging in foreign trade by arguing that business specialization will occur in industries where inputs are available at relatively low cost because of their abundance in supply. It is therefore important for the business organizations or companies to take into account the resource costs factor, if the resources for offering IT services are low in a certain country then the company can engage in that market and also by taking into account other factors affecting the foreign markets. Understanding the different models of entry into foreign markets by VADs IT Company A business organization or company will need to adopt an effective business model that works for them or provides an opportunity for the organization to achieve its aims and objectives. Some of the commonly used business models for entry into foreign markets include; an entry through direct and indirect export and import, entry through foreign direct investments, entry through franchising and licensing as well as joint venture and strategic alliances. The understanding of these models will help us understand the model that was employed by the VADs (IT Company) to get entry into the foreign markets, being a Malaysian based business organization (Verbeke et al. 2016, p. 85). A direct and indirect exporting and importing entry into foreign market involves a direct relationship between the exporting or importing business organization and the international suppliers or customers. The model has been said to provide a straightforward way of benefiting from foreign markets. However, it is al so believed to carry some significant risks especially when the organization depends on few customers or suppliers. However, in most cases, many business organizations have always combined this model with other models such as the foreign direct investments and foreign joint venture. Therefore it is mostly applicable where the company enjoys wide network coverage of customer or supplier base. The company however in addition to application of these models has a strategic business model that has been used to guide the company in achieving its set goals and objectives. The model outlines the strategies employed in to capture the IT industry through creation of telecom infrastructure, partnering with telecom companies as well as providing value added services to their clients. The model also outlines the corporate structure of the company, the business activities which outline the main services provided by the company as well as the functional component of the company which outlines the different departmental as well as managerial functions and relationships. The model also shows the company sustainable competitive advantage. Entry into the foreign markets can also be through foreign direct investments which can be defined as the objective of business entity in one economy by obtaining a lasting interest in a certain enterprise resident in another economy. However, this type of foreign market entry requires some degree of management control as it involves other trade governing policies. Entry into the foreign market can also be done through licensing and franchising in which these terms are used to imply a contractual agreement whereby a license or franchiser obtains a license or franchise in using the intellectual property in return for a financial gain (Johanson Mattsson, 2015, p. 122). In most cases, organizations use this model as a quick strategy that is relatively low to risks in international expansion. The most important is an entry into the foreign market through joint ventures and strategic alliances. It is a strategy that has effectively been adopted by VADs in achieving its current success in Global IT Industry. It has been achieved through collaborative business strategies with many foreign partners. Joint ventures are business agreement between business organizations involving a joint equity control and ownership of the business. A strategic alliance occurs through a non-equity cooperative agreement between two or more independent business organizations with a motive of gaining an effective competitive advantage through business cooperation in research and development, business production, as well as marketing and purchasing (Yan and Luo, 2016, p. 2). It has been the best strategy that the VADs IT Company has used to venture into foreign markets through partnerships with other international business organizations offering integrated connectivity/ ICT/BPO solutions to differen t parts of the world. Some of their partner business organizations include; Cisco Company, the Blue Coat Company, McAfee Company, the IBM Company, HP Software Company, Lenovo as well as the Microsoft and Oracle IT Global companies among others. All these partner companies have their networks in other different markets as well as their country of establishment. Such partnerships have provided the company with great competitive advantage and provided an easy strategy for entering into foreign markets (Dunning, 2014, p. 2). Since these partner companies have been established in different countries, they help each other in understanding the needs of the market of a specific country and venture the market collectively. It also reduces the costs associated with establishing different businesses and also provides a wide network of client coverage and engagement through the provision of quality Integrated connectivity, ICT as well as BPO services globally. Analysis of actual or potential risks in the foreign market Having established its foreign markets through partnerships with other global organizations or companies in the IT industry, VADs IT Company is facing a threat of actual or existing risks as well as potential risks. These need to be taken into account and addressed if the company has to achieve its primary motives of profitability, international recognition, and business growth as well as have a competitive advantage. Some of these risks have been looked at in the above section of the factors affecting an organizations decision to enter into a foreign market (Cavusgil et al. 2014, p. 11). The most common actual as well as potential risks include the different political and economic stability as any instability resulting from these renders the environment unsuitable for investments and business growth. Although these factors are not constant and keep on changing it is important that the management of the organizations takes them seriously. It is also important for them to analyze the government business regulations and monitoring and these include the policies governing business activities and general trading policies (Toulova et al. 2015, p. 8). If the regulations and policies are favorable then the there is an opportunity for growth. There is also the risk associated with labor market difficulties which have been high due to the increasing demand of IT experts in different economies, and therefore the company should take into consideration this risk and get to understand the labor market dynamics in the foreign countries. The company is also facing the risks of cultural pitfalls where some communities in the country are still using traditional systems of production or are resistant to any technological advancement which makes it difficult for the company to venture into such markets. It is opposed to its expansion in Germany where they use specific technologies in their production or service provision (Gnizy et al. 2014, p. 483). There is also a risk of currency instability and exchange restrictions where the latter is not common as compared to the former, but all currency instability can be controlled through effective monetary of fiscal decisions however the risk of exchange restrictions may have negative implications for the growth of the business. Management Responses intended for the foreign market Gnizy et al. (2014) point out that building a market entry requires effective participation and support from the management of a company. Time is a crucial factor that comes with the need for an intelligence system to ensure all other management processes such as operational functions, supply chain, logistics, cross-cultural and market issues, and human resource functions are all coordinated by the policies of the market and objectives of the company. For instance, the company has carried out large investments through promotion campaigns across the big cities in China to ensure many people are aware of the company and the services it offers in the country. Considering the cultural differences, the company has offered marketing job opportunities to the Chinese community who can effectively translate the business in their language that is understandable to the rest of China, an aspect that is aimed at limiting language barrier. Access to the markets is also an important factor in making an entry into a foreign market decision. The management of any business organization will be interested in taking the opportunity of the existing large and emerging markets in that specific country as well as the access to a certain regional trading area. For effective decision making it is recommended for the company to conduct a SWOT analysis comparing other different countries including Germany, Japan and South Africa. Compared to China, these countries have been known to have great competition in the information technology industry as they are known to use specific technologies in their businesses and therefore the technological culture in the countries is conservative as it is in the case of Germany. Compared to the economy of china these countries are growing at a slow rate and therefore may not provide enough market for the VADs IT Company to sell is products and services. Hence the company will enjoy large economies of scale in china. There are also strict business regulation policies and rules as compared to China where the policies are convenient to investors including having favorable tax policies. This will therefore help the organization to gain first mover advantages as well as increased competition in China since it has a comparative advantage in the production of certain technologically related goods and services (Galiani et al. 2014, p. 130). It is also important to evaluate the business access to human resources since they form important aspects of the business. The company has ensured that the resources can be acquired at a relatively low cost making the market suitable at it will relate to low production cost and high-profit margin for the business. Recommendations for achieving a competitive advantage in China The success of entry into a foreign market is dependent on the suitability of the market (Verbeke et al. 2014, p. 428). The suitability of the market also differs from one business organizations as the decision to enter a certain foreign market is dependent on other factors. An analysis of some of these factors will help us get an understanding of how suitable is the VADs Berhard IT Company can expand in China as a foreign market. The most underlying factors, in this case, include primary business motives, the changing international environments, the country specific factors, access to market factors, access to resources as well as the cost reduction factors affecting the Chinese market. Every business organization is driven by certain primary motives including profit making opportunities, business growth, attaining international recognition as well as having a competitive advantage. The growth of the IT industry globally has increasingly brought a lot of competition in economies by different companies which have called for effective business strategies to succeed in China (Laursen, 2015, p. 110). Having a joint venture and strategic alliances with the Chinese market can thus help the management of the VADS Berhad IT Company to achieve growth, profitability, reduce operational costs as well as gain international recognition. It is also important for the company to understand the changing international environments by looking into changes resulting from international states of China (Serrat, 2017, p. 640). It is hence recommended for the company to evaluate issues concerning peace and stability, Chinese economic growth in compassion to other emerging markets, increase or reduction in trade barriers, and technological innovations in the country that can support the business. The process will help the organization to prepare itself effectively by conducting a cost benefit analysis of the market and taking appropriate measures. The assessment of Chinese economic growth will help the company to develop effective future strategies for the future continuity of the business. It should also understand the Chinese specific factors which may affect the entry into the foreign markets which involve looking into a country political and economic stability, the culture and business instructions, the supportive governmen t policies as well as the absence of the nuisance costs. If the political and economic environment of the country is stable, then the market is suitable for investment whereas the market will also be suitable if the culture of the country as well as of the business institution supports the use of IT in its business activities (Gnizy et al. 2014, p. 491). Favorable government policies such as tax reduction, removal of import and export quotas, import tariffs, and conducive business environment also make China an ideal market for investment. If these costs are high or the policies do not support the foreign investments, then the market becomes unsuitable. Conclusion Engaging with foreign markets has not always been easy for many businesses; however, with the many available opportunities, many business organizations are seeking for opportunities to go international. It is therefore important for each business to develop effective strategies for analyzing and engaging with the international markets through having an understanding of the foreign business environments as well as the international trading guidelines and principles which will give them a competitive as well as a comparative advantage in the foreign markets. It therefore important that the organizations develop effective business models for entry into the foreign markets which will help them achieves its primary goals and objectives. List of References Alccer, J., Cantwell, J. and Piscitello, L., 2016. Internationalization in the information age: A new era for places, firms, and international business networks?. Journal of International Business Studies, 47(5), pp.499-512. Cavusgil, S.T., Knight, G., Riesenberger, J.R., Rammal, H.G. Rose, E.L., 2014. International business.Pearson Australia. Dunning, J.H., 2014. The Globalization of Business (Routledge Revivals): The Challenge of the 1990s. Routledge. Galiani, S., Schofield, N. and Torrens, G., 2014.Factor Endowments, Democracy, and Trade Policy Divergence. Journal of Public Economic Theory, 16(1), pp.119-156. Gnizy, I., E. Baker, W. and Grinstein, A., 2014. Proactive learning culture: A dynamic capability and key success factor for SMEs entering foreign markets. International marketing review, 31(5), pp.477-505. Johanson, J. Mattsson, L.G., 2015. Internationalisation in industrial systemsa network approach. In Knowledge, Networks and Power (pp. 111-132). Palgrave Macmillan UK. Laursen, K., 2015. Revealed comparative advantage and the alternatives as measures of international specialization, Eurasian Business Review, 5(1), pp.99-115. Serrat, O., 2017. Learning in strategic alliances.In Knowledge Solutions (pp. 639-647).Springer Singapore. Toulova, M., Votoupalova, M. Kubickova, L., 2015. Barriers of SMEs internationalization and strategy for success in foreign markets. International Journal of Management Cases, 17(1), pp.4-19. Verbeke, A. Kano, L, 2015. The new internalization theory and multinational enterprises from emerging economies: A business history perspective. Business History Review, 89(3), pp.415-445. Verbeke, A. Kano, L, 2016. An internalization theory perspective on the global and regional strategies of multinational enterprises. Journal of World Business, 51(1), pp.83-92. Verbeke, A., Amin Zargarzadeh, M. and Osiyevskyy, O., 2014.Internalization theory, entrepreneurship and international new ventures. Multinational Business Review, 22(3), pp.246-269. Yan, A. and Luo, Y., 2016. International joint ventures: Theory and practice. Routledge.