1. University of Cagliari, Faculty of Economics, a.a. 2012-13
Business Strategy and Policy
A course within the II level degree in
Managerial Economics
year II, semester I, 6 credits
Lecturer:
Dr Alberto Asquer
aasquer@unica.it
Phone: 070 6753399

2. Business Strategy and Policy
Lecture 7
Internationalisation Strategy

3. Introduction
1. What is internationalisation?
2. Where do firms go international? The “global shift”
3. How do firms go international?
4. What issues do international firms face?
5. What kind of institutions do support internationalisation?
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6. Summary

4. 1. What is internationalisation?
Internationalisation is the process through which a firm expands its
business outside the national (domestic) market
Firms go international:
to enter new output markets
to reduce costs and enhance competitiveness
to exploit their own core competences in new markets
to share risks over a larger market
to take advantage of lower labour cost, lower taxation, cheaper
natural resources
(sometimes, because the domestic market is just too small for
company growth)

5. 1. What is internationalisation?
Firms generally go international by exporting their products first, then
by establishing sale representatives in the foreign countries, and
then possibly setting up production facilities
Eventually, international firms may develop into:
Multinational corporations (MNC): a firm that carries out its value
chains in more than one country. It is generally headquartered in
one home country while it also operates in one or more host
countries.
Trans-national corporations (TNC): a MNC that does not identify
itself with any specific nation, but acquires truly international (i.e.,
not country-dependent) features and high local responsiveness
British East India
Company, est. 1600
Royal Dutch
Shell, est. 1907
Siemens, Berlin,
est. 1847

6. 1. What is internationalisation?
Example: Cobra beer
1989
Est. Fulham, London
First brewed in
Bangalore, India,
by Mysore Breweries
Exported to the UK
1990
Licensed and brewed
in the UK by
Wells & Young's
1997
Subsidiaries
Exported to
about 45 countries
2009
Majority of the firm
acquired by a
US-Canada brewer

7. 2. Where do firms go international? The “global shift”
Theories about international trade and localisation:
Absolute cost advantage (Smith, 1776)
Comparative cost advantage (Ricardo, 1817)
Size of economic activity and distance (“gravity model of trade”)
Market imperfections to exploit (e.g., proprietary technology,
exclusive control of inputs, scale economies, control of distribution
channels, etc.)
Higher returns to scale and network effects that (possibly in
conjunction with favourable government policies) shield industries
from international competition (“new trade theory”)

8. 2. Where do firms go international? The “global shift”

9. 2. Where do firms go international? The “global shift”

10. 2. Where do firms go international? The “global shift”

11. 3. How do firms go international?
Entry strategies into foreign markets include:
Merely exporting a firm's products into a foreign market, possibly with
the support of trade brokers
Licensing a firm's production and marketing process, or asking for
royalties to be paid for the use of firm's assets and resources
Franchising a firm's business
Directly undertaking production and selling in a foreign country
a) through a 'multinational approach' by adapting to local markets
b) through a 'global approach' by mass-marketing the same product
Strategic alliances and joint ventures with foreign firms

12. 3. How do firms go international?
Entry strategies into foreign markets include:
Merely exporting
Licensing or asking for royalties
Franchising a firm's business
“Multinational approach”
“Global approach”
Strategic alliances and joint ventures

13. 4. What issues do international firms face?
Internationalisation strategy brings about some issues, for example:
Managing cultural differences
Facing risk of exchange rate fluctuation
(e.g., €/US$)
Coping with unwelcoming host government policies

14. 5. What kind of institutions do support internationalisation?
Among various institutions that support internationalisation, an
important role is played by the
Chambers of Commerce Abroad
They are business associations established as private sector
organisations, based on the principle of freedom of association,
and that operate for the interests of their members without any
obligation to assist the government (i.e., CCA are akin to so-
called 'Anglo-Saxon model' rather than 'Continental model' CC).

15. 5. What kind of institutions do support internationalisation?
Among various institutions that support internationalisation, an
important role is played by the
Chambers of Commerce Abroad
They generally originate from the spontaneous gathering of
businessmen and/or business company executives based in the
same local area within foreign countries, that later apply for
recognition of CCA status from home country public authorities or
home national association of CC.
The CCA play a silent albeit substantive role in trying to shape
institutions and regulations of foreign markets (e.g., Amcham
Belgium; Cowles, 1996, 2001, and Peterson and Cowles, 1998),
although they have not been largely researched so far.

16. The CCA perform various activities:
influencing economic and social actors for creating and seizing
new business opportunities,
working with rule-making organisations that affect international
trade and foreign investments,
preventing potential conflicts with stakeholders and minimising
political risk,
and actively engaging the media and other public arenas for
safeguarding image and reputation of their members.
The meaning of what they do – sometimes labelled “business
diplomacy” – can be better defined by drawing some conceptual
boundaries between their activities and those of other related
concepts (Lakoff, 1987).
5. What kind of institutions do support internationalisation?

17. Field of
activity
Organisational
venues
Desired
performance
Objectives of
the activity
Mode of
operation
Role of
actor(s)
Diplomacy
(Lee and
Hudson,
2004; Satow,
1917; Saner
et al., 2000)
Inter-governmental The pursue of
peaceful means for
conducting business
between states
To build and sustain
positive and
constructive relations
between states
Advising, organising,
negotiating, information
gathering and analysis,
rules compliance,
ambiguity handling
Facilitators
Economic/
commercial
diplomacy
(Rana, 2002;
Lloyd, 2003;
Coolsaet,
2004; Yeung,
2004)
Inter-governmental or
business-
government
The pursue of
economic gains and
advantages for
countries
To promote exports,
attract inward foreign
investments, and
stimulate other
economic activities
Advising, networking,
negotiating, gathering
information and
analysing it, and conflict
handling
Professional
'salesmanship'
Business
diplomacy
(Saner et al.,
2000)
Inter-governmental or
business-
government
The pursue of
economic gains and
advantages for
business companies
To establish
favourable conditions
for business
companies' activities
Creating and seizing
business opportunities,
safeguarding image and
reputation of
business companies,
affecting rule-making,
conflict prevention
Entrepreneurial
broker
Public
relations
(Hutton, 1999;
Bernays,
1955; Harlow,
1977)
Inter-organisational
or personal
The pursue of the
interests of the
organisation or of the
public
To actively reap
opportunities or react
to threats
Communicating,
cooperating, issue
management, gathering
information,
defining responsibilities,
embrace change,
anticipate trends.
Strategic
relationship
managers
5. What kind of institutions do support internationalisation?

18. Let us look at CCA established by four main EU countries...
Germany (Die Deutschen Auslandshandelskammern, AHK)
about 40,000 companies associated in 80 countries
France (Union des Chambres de Commerce et d'Industrie
Francaises à l'Etranger, UCCIFE)̧
about 25,000 companies associated in 78 countries
Italy (Assocamereestero)
about 24,000 companies associated in 49 countries
The UK (British Chambers of Commerce Abroad)
in over 90 countries
in 15 Asian countries (Bangladesh, Cambodia, China, India,
Indonesia, Japan, South Korea, Laos, Malaysia, Philippines,
Singapore, Sri Lanka, Taiwan, Thailand, Vietnam)
5. What kind of institutions do support internationalisation?

19. Country of origin
Host Germany France The UK Italy
Bangladesh 1996 1991
Cambodia 1998
China 1981 1992 1980s (1950s) 1991
Hong Kong N.A. 1986 N.A. 1997 (1993)
India N.A. 1977 N.A.
Indonesia 1970 (1924) 1979 1990s
Japan N.A. 1918 1950s 1972
South Korea 1981 1986 1977 2000s
Laos
Malaysia N.A. 1991 1964
Philippines N.A. 1919 1997 2011
Singapore 2004 1979 1998 (1974) N.A.
Sri Lanka N.A.
Taiwan 1981 1991 N.A.
5. What kind of institutions do support internationalisation?

20. Common membership services
(access to members directory, subscription to newsletters and bulletin, access to
sectoral industry publications and country reports, participation to social events,
workshops, and seminars, attendance to language courses, benefits from CCA's
media presence, and access to job seekers databases)
“On demand” services for members
(provision of information on specific companies or markets, the search and screening
of potential suppliers and business partners, the organisation of and assistance for
business meetings and trade missions, the organisation of and assistance for
participating to trade fairs and exhibitions, the legal assistance for the establishment
of businesses, business domiciliation and secretary services, legal assistance and
advice, translation and interpreter services, advertisement and sponsorships, and
employment services)
Consultative and policy advocacy functions
(members' committees focused on various thematic areas such as corporate social
responsibility, industrial relations, education, young professionals, government
relations, policy and consultation, sustainable development, taxation and regulation;
they also serve to share information and updates on legislation, policy initiatives,
government officers' political orientations, and turnover of key officers positions within
the governmental bureaucracy)
5. What kind of institutions do support internationalisation?

21. Type of CCA Activities Orientation
'Proto-CCA' Maintenance of registered address, at least
minimal networking between members, emergent
visibility
Establishing membership
base and enlarging
membership
'Transit node' Gathering data and providing general information
on the country and industries, facilitating
networking through social events and other venues
Strengthening ties between
members and diffusing
information
'Service provider' Providing legal assistance and advice,
advertisement and sponsorship, translation and
interpreter services, organisation and assistance
for business meetings and trade missions, and
organisation and assistance for participating to
trade fairs and exhibitions
Meeting business needs of
specific members
'Prospector' Gathering data and providing information on
specific companies and markets, searching and
screening potential suppliers and business partners
Realising business
opportunities
'Policy advocate' Managing issue-specific committees, formulating
policy issues, and communicating issues and policy
proposals to policy-makers
Representing policy positions
on international trade and
foreign investment issues
within policy-making venues
5. What kind of institutions do support internationalisation?

22. Type of CCA Activities Orientation
'Proto-CCA' Maintenance of registered address, at least
minimal networking between members, emergent
visibility
Establishing membership
base and enlarging
membership
'Transit node' Gathering data and providing general information
on the country and industries, facilitating
networking through social events and other venues
Strengthening ties between
members and diffusing
information
'Service provider' Providing legal assistance and advice,
advertisement and sponsorship, translation and
interpreter services, organisation and assistance
for business meetings and trade missions, and
organisation and assistance for participating to
trade fairs and exhibitions
Meeting business needs of
specific members
'Prospector' Gathering data and providing information on
specific companies and markets, searching and
screening potential suppliers and business partners
Realising business
opportunities
'Policy advocate' Managing issue-specific committees, formulating
policy issues, and communicating issues and policy
proposals to policy-makers
Representing policy positions
on international trade and
foreign investment issues
within policy-making venues
'Escalation' at the EU, rather than domestic, level:
Instance: establishment of European-ASEAN Business Centre in
Thailand, by Eurochambers and various EU member states' CCA,
under the patronage of the EU Commission.
It aims to “drafting, publishing and dissemination of joint European
industry position papers and lobby them to the Royal Thai
Government in regards to new and existing regulations; supporting
with trade related information, legal analysis and advisory services
(IPR & Standard Helpdesk); organizing 'European Flagship' events/
conferences, seminars and EU pavilions at trade fairs to foster the
European dimension in the business community; and interacting as
the European business voice in Thailand” (EABC, 2011).
5. What kind of institutions do support internationalisation?

23. Contemporary institutional and political context includes EU's
efforts to intensify bilateral or regional trade relationships with
Asia ('Global Europe: Competing in the World', EU DG Trade,
2006)
The coming into force of the Lisbon Treaty (2009) moved
international trade policy, including trade of services, trade-related
intellectual property rights protection, and foreign investment, to
the exclusive competence of the EU
Instance: Free Trade Agreement (FTA) between the EU and
South Korea (signed 6.10.2010, come into force 1.7.2011). It is
unprecedented in terms of scope and rapidity of tariff liberalisation
and removal of non-trade barriers across several sectors
(including automotive, pharmaceuticals, and consumer
electronics).
Regarded as a “template FTA” for other similar negotiations
5. What kind of institutions do support internationalisation?

24. 6. Summary
Main points
Internationalisation - the process through which a firm expands its
business outside the national (domestic) market – is pursued because
of several reasons
The rapid growth of Asian economies triggers a 'global shift' of
traditional established patterns of international trade and FDI
Successful internationalisation calls for a careful entry strategy and
capacity to cope with various issues
Internationalisation of firms may be supported by various public and
private organisations – including Chambers of Commerce Abroad