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The Process of internationalization in Emerging Markets

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    The Process of internationalization in Emerging Markets

    The Process of internationalization in Emerging Markets

    To take the benefit of financial growth and business opportunities of Emerging markets . we first need to reach there it is a type of internationalization, as the firms are moving across boundaries to develop business by exploring new opportunities. The firms used different modes to enter in international market like exporting, licensing, subsidiary, joint venture or strategic alliances.






    Internationalization in Emerging Markets

    Export (Intermediaries) (producer/customer relationships)

    In exports through intermediaries an exporter/importer network is established. It is established for the task of marketing/purchasing a product/service package. This international marketing and purchasing of products and know-how through this direct exporter/importer network means that a vertical network in the exporting region (for example a supplier‟s supplier network) is indirectly connected to another vertical network in the importing region (for example a buyer‟s buyer network) (Jansson 2007). According to Jansson & Boye (2010) agent or distributers are generally independent representative and considered an indirect link between supplier and customers.
    SME‟s with limited resources use this intermediation way to enter in new markets. It is less risky and does not required SME‟s self presence in the market. Agents or distributers are helpful with market information and contacting with customer where language and culture is considered a barrier especially in emerging markets. It requires limited investment to enter in the foreign markets through intermediation (Jansson & Sandberg 2008).
    The problem in this relationship is having no control on performance of intermediary because firms are fully depended on intermediaries for sales. It is hard to stop agent or distributer to involve in another business activity because it decreases its focus on SMEs business. Intermediary never provides the exact information about the customer or market development because it‟s in his own interest to create a gap between supplier and customer (Jansson 2007).
    Intermediation is good in the beginning of internationalization process but not helpful in the longer run (Jansson & Sandberg 2008). More risks are involved than benefits in this mode of internationalization.
    The second type of export is the direct producer/customer relationships. In this the experiential knowledge of the parties is high. Direct producer/customer relationships do not suffer from the lack of direct contacts customers. They are highly committed and extensively adaptive. Supplier change, alter or develop the production and logistic system to fulfill the demand of the customer. The customers transfer the knowledge to buyer to improve the products. This amount of transfer of the knowledge show the trust of parties on each other (Jansson 2007).
    The relationship develops mainly because the suppliers willingly adapted the production system and the logistic system to the demands of the buyers. To make it possible for the supplier to improve the quality of the products, the buyers share their knowledge with them. This is especially true for relationships involving outsourced products, where the knowledge gap is large at the outset of the relationship. Communication through the information and know-how linkages played a critical role. The social linkage is very important in these relationships, otherwise the communication would not work properly. The social linkage is closely related to the information and know-how linkages. When the parties trusted each other, the exchange of information and knowledge became more open and reliable. Social relationships tend to become underdeveloped when barriers like these exist (Ibid).To overcome these issues, firms can look for establishing subsidiary or joint venture which are more suitable and long lasting way to enter in foreign market.
    Subsidiary

    When firms need to increase their control on business in foreign market, they consider different business structures to support business activity in foreign market such as subsidiary.
    According to Jansson & Sandberg (2008) subsidiaries not only provide strong business presence in foreign market but also effective in dynamic business environment where competition is extensive. The business through own subsidiary provide a direct contact with customer where firms have the great opportunity to build trustworthy relationship with clients and also learn the market tacit knowledge. Firms reduce cultural differences, geographical distance by establishing subsidiary although it takes time but it is in the longer interest of an organization. Firms can take advantage of low labor cost by placing production unit in emerging markets. Establishing a subsidiary in a foreign market shows firm‟s commitment towards internationalization in particular market. Direct contact with customer provides firms the opportunity to build trust between customer and supplier, once this relationship established the barriers start to reduce.
    Although subsidiary has its own benefit but some demerits also present. As described in Johanson & Vahlne (1977) one problem with subsidiary is that a firm needs resources to establish it, which is good for MNCs but SMEs don‟t have enough resources to establish their own subsidiary. The risk rate is high because SMEs invest in a foreign market where conditions are different from home market.
    The business opportunity converts into a great loss, if company unable to manage the things.In dynamic business environment where firms need to increase their control and want direct customer attraction the subsidiary is the best option (Jansson & Sandberg 2008). The problem with the subsidiary is that it require massive investment which may be possible for MNC but it is hard to manage for SMEs (Johanson & Vahlne, 1977).


    Both business styles have merits and demerits in first way the risk and profit both are low, company is highly depended on intermediary. The later provides strong control over business on foreign market with high profit margin but the risk ratio increased at maximum level.
    Two more entry strategies which can be used as an alternative to subsidiaries are acquisitions and joint ventures.
    Acquisition

    Acquisitions of other firms are to secure critical relationships when there are threats from competitors. It can also help to establish relation with suppliers and customers. By acquiring a company the firm thus becomes involved in a set of business relationships and by way of interaction in these relationships it gradually develops in response to the value generated by these relationships (Forsgren, Holm & Johanson 2005). As disscused above that the SMEs have limited resources and it is hard for them to acquire any foreign firm.
    Joint Venture

    International joint ventures normally defined as JV‟s that involve firms from different countries cooperating beyond national and culture boundaries. The majority of international joint ventures involve two partners, one from a foreign country and the other from local country. Joint ventures are legally and economically independent organizations operate as standalone firms who engage in regular business activity like any other independent firm (Yan & Luo 2001).
    Firms seek partnerships to stay ahead of the competition in today‟s global economy. There are multiple uncertainties a firm can get through joint ventures including lack of knowledge of local market, risk sharing, and ability to combine different value of chain strength. Joint venture with local firm help to reduce this gap, on the contrary it is also a good option for local firm to learn foreign technology (Byung 2008).
    According to Jansson & Boye (2010) SME‟s traditionally home market oriented so they have a disadvantage in international trade. Therefore, these firms considered as low degree of internationalization. This problem can be resolve by developing a joint venture where two or more than two firms work together in order to get competitive advantage. This can be achieved by sharing resources. Joint ventures open new business opportunities.
    According to (Brassington & Pettitt (2006), QickMBA (2010) and Backlund & Suikki (2005) SME‟s looking forward for joint ventures due to their limited resources. The intension of doing business in cooperation is using external resources of partner to increase the proximity.

    It also helps for establishing relationship. Joint venture is a beneficial tool in those markets where uncertainties high or trade barriers gave advantage to local firms over foreign firms. Joint venture not only able to reduce to cultural differences but also helpful in those markets where political instability effect the business performance. The potential of high sale volume increase the importance of joint venture in such countries like India and China. Joint venture is a favorable option in those countries where cheap labor force and good raw material available. Foreign companies just provide the technical facilities in that case. Under the umbrella of joint venture, two firms merge its resources in order to obtain the benefit which is helpful for both firms; one can learn the market knowledge and other can get the technical knowledge. Foreign firms can work as a local business entity in this way and get the inside knowledge of market. It is also favorable in investment point of view because SMEs has limited resources so joint venture will be the good option for firm to enter in international market.
    Joint ventures are the most common and secure way to enter in international markets for SMEs due to limited resources (Kirby & Kaiser 2003). It is considered the best entry strategy for SMEs that minimize the risk of the firm in foreign market and increase the productivity. JV is a beneficial tool to learn new market knowledge while having a direct interface with customer.
    Normally there are five main reasons for a firm to choose joint venture as entry mode: market entry, risk sharing, technology sharing and joint product development, as already discussed it also helpful to conform according to government regulations. Joint venture provides an opportunity to build political connections and business relationships (Kirby & Kaiser 2003).

    #2
    Hello,

    The process of internationalization in emerging market is very beneficial for financial growth and exploration of new business opportunities. This amazing post of yours clearly explained everything about this process.
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