This research essay provides and proposes different internationalization theories to a chosen company on how to internationalize to a new finish. The survey would besides reflect the execution of the theories in existent life state of affairs for the proposed multi-national company. The theories of internationalization that are to be discussed are as follows:
Michael Porter ‘s Competitive Advantage of Nations Theory
John Dunning ‘s Eclectic Paradigm Theory
Learning Theory
Chosen Company
The chosen company for the intent of the research in is one of the successful UK retailing company, Marks and Spencer Group Plc ( M & A ; S ) . Marks and Spencer is a big Multi-National Company and has over 600 shops throughout United Kingdom and over 300 in 40 different states around the universe ( marksandspencer. com 2010 ) . This shows the dimension of the company that has 107 old ages of long history. It is a UK based company which was foremost registered as an Ltd company back in 1903 ( marksandspencer, 2010 ) . Harmonizing to Marks & A ; Spencer imperativeness release ( 25 May 2010 ) for twelvemonth 2009/10, the company made Net income before revenue enhancement ? 702. 7m ( old twelvemonth ? 706. 2m ) with 31 new shops opened and international gross revenues up by 5. 7 % ( marksand spencer. com 2010 ) . Although the overall net income was less in 2009/10 as comparison to the old twelvemonth but the company was able to well do net incomes even in the hard times of economic recession worldwide.
Figure – M & A ; S shop in Hong Kong
Beginning: ( wikipedia. org 2004 )
Despite of all the success that Marks and Spencer has achieved till this day of the month, there is still a batch of room for enlargement. There are a batch of feasible chances available for the company to research and internationalize in different new finishs around the universe.
New Destination for M & A ; S to Internationalize
The proposed finish for Marks and Spencer to internationalize its operations is Pakistan. While there are a few inquiry Markss about the economic system and stableness of the state in the current concern scenario, at the same clip it besides provides assorted chances to the foreign concerns for investing. There is non every bit much fierce planetary competition in Pakistan as comparison to the other neighbouring Asiatic states e. g. China, India and to some extent besides Bangladesh.
Figure – Pakistan Map
Beginning: ( iptu. co. uk 2008 )
Harmonizing to ( iptu. co. uk 2008 ) , “ The state ‘s biggest fabrication sector is textile industry. Pakistan relies to a great extent on its fabric industry which accounts for 45 % of its entire fabrication end products and about 8 % of state ‘s GDP ” .
The turning sector demands advanced machinery every bit good as advanced degree of work force. This clearly creates good concern chances particularly for a company like Marks & A ; Spence, which is a specializer vesture retail merchant. The company can profit from the resources of high quality fabric merchandises from Pakistan.
Michael Porter ‘s Competitive Advantage of Nations Theory
Michael Porter proposed four properties that influence the concern environment of a state ‘s local houses for planetary environment competition. These properties are linked together and therefore are mutualist harmonizing to Hill ( 2009 ) . The figure-3 shows the four properties of Porter ‘s competitory advantage and their linkage.
Figure: Porter ‘s Four Attributes of Competitive Advantage
Beginning: Porter ( 1990, cited in Hill 2009 )
Pakistan is one of the taking manufacturers of fabric in the universe and has natural resources and necessary skilled labor for garments production. These are the basic factor gifts of Porter ‘s theory. However the industry lacks province of the art machinery, expertness in fabric designing, branding issues and preparation of modern selling schemes as stated by Guitard et Al. ( 2005 ) which indicates the advanced factors of Porter ‘s theory. The industry chiefly emphasises on production and supplies ( e. g. export ) and is one of the richest and profitable in the state. Hence assorted competitory providers are present in the local market. This besides links to the related and back uping industries of porter ‘s theory e. g. embellishment, cotton ginning and fibre production, narration spinning, fabric weaving and knitwork, garments, man-made fabric and hose.
Another of import property of Porter ‘s theory is merchandise demand conditions in the state. There is a high fabric and garments ‘ demand in Pakistan, around 79 % of the production stays at place and the staying 21 % is exported based on 2008/09 statistics study ( aptma. org. pk 2010 ) . Domestic competition is tough in the first phases of fabric production as there is heavy bunch of early production industry. Another of import factor is Governmental policies and support for abroad concerns, harmonizing to a study published by universe bank on “ easiness of making concern in 2011 ” Pakistan ranked ( 83rd ) above Brazil ( 127th ) , Iran ( 129th ) and India ( 134th ) out of 183, proposing it is easier to put and make concern in Pakistan than other emerging economic systems ( doingbusiness. org 2010 ) .
Harmonizing to Porter ‘s phases of development, Pakistan can be classified as Factor Driven Economy.
Sing the factors discussed based on Porter ‘s competitory advantage theory, Marks and Spencer has the ideal chance due its expertness in designing, selling and branding schemes to setup a concern in Pakistan.
It is suggested that the company should foremost put in puting up a joint production unit with one of the big local fabric production company. This is due to the handiness of low-cost and copiousness of natural stuff and skilled labors ( basic factor gifts of porter ) . Furthermore the company could maximize production end product by puting in the latest machinery and engineering ( advanced factor gifts of porter ) . This investing could convey gross every bit good as set company ‘s bridgehead in the state. It is a positive start for the company for internationalization. The company could so supervise the environment and other concern chances every bit good as addition information about the local civilization and other local and abroad rivals in the country.
In future, Marks and Spencer could obtain supplies from its ain ( proposed ) production subordinate in Pakistan as it has many of its mercantile establishments in India and China, the neighbouring states of Pakistan. This would increase feasibleness in providing stuffs as the company could profit from the low bargaining power of providers in Pakistan. It would so be reasonable to get down looking at opening a Marks and Spencer shop in the state ( porter ‘s Firm Strategy, Structure & A ; Rivalry ) . As discussed earlier there is a great demand of manner planing apparels in Pakistan. The state has figure of entrepreneur manner interior decorators some of which are Junaid Jamshed, Aijaz Aslam, Maria B. , Elan, Teejay, Pakistan Institute of Fashion Design, Pink Studios and assorted other trade names ( fashioncentral. pk 2010 ) . In contrast there are barely any large international trade names such as Marks and Spencer, in Pakistan. Therefore the trade name name of M & A ; S itself would be a large hit in the state ( Porter ‘s Demand Conditions ) .
John Dunning ‘s Eclectic Paradigm Theory
John Dunning ‘s Eclectic Paradigm explains internationalization by uniting different economic theories under one theory. It involves different signifiers of internationalization methods. Tormenting ‘s describes three factors of economic advantages of a house, which is besides known as OLI-Model.
Ownership Advantages ( By Production, i. e. Foreign Direct Investment )
Location Advantages ( Foreign Direct Investment, Franchising etc. )
Internalization Advantages ( By Licensing Technology and besides Joint Ventures )
The figure-4 explains different manners of market entry and how it is categorised in different competitory advantages of a house as explained by Tormenting ( 1988 ) .
Figure – Form of Market Entry and Categories of Advantages
Beginning: Dunning ( 1988, cited in wikipedia. org )
Harmonizing to this theory the Franchising and Partnerships ( Joint Ventures ) are of import signifier of market entry. Marks and Spencer already internationalises its operations by spread outing through Franchising and Partnerships ( marksandspencer. com 2010 ) .
The company besides exports its merchandises to 80 states outside UK including Pakistan via online, telephone and in shop ( UK ) orders ( marksandspencer. com 2009 ) .
Hill ( 2009 ) says, “ By location-specific advantages, Tormenting means the advantages that arise from using resource gifts or assets that are tied to a peculiar foreign location and that a steadfast finds valuable to unite with its ain alone assets ( such as the house ‘s technological, selling, or managerial capablenesss ) . ”
This is exactly the instance with puting in Pakistan, the resource gifts for cotton and fiber are rich in Pakistan while Marks and Spencer specialises in its technological, selling and managerial capablenesss. In relation to that there are assorted quality providers available with low dickering power hence it could cut down the production costs of M & A ; S. It is hence suggested that Marks and Spencer opens its mercantile establishment in Pakistan and obtain supplies locally. This is Internationalisation by entirely owned direct investing FDI scheme. The company would derive ownership, location and internalization advantages. The company would besides cut down distribution costs ( as merchandises are produced locally ) , production costs and dealing costs. The company trade name is good known and popular globally ; this in itself is a competitory advantage particularly in the absence of major international garments retail rival.
It is deserving observing Pakistan ‘s policy on Foreign Direct Investment. Harmonizing to European Commission ( cited in iptu. co. uk 2008 ) , “ Pakistan has one of the most attractive foreign investing governments in South Asia. The industry sector where foreign equity investing up to 100 % is permitted in most instances is the most unfastened. ”
This refers to the 1 of the factors to detect when sing FDI based on location ( Government Factors ) . Clearly Government policies indicate willingness in welcoming foreign investing in the state.
larning theory
Another signifier of internationalization can be done by the phases theoretical account of internationalization called the Uppsala Model proposed by Johanson and Vahlne ( 1977 ) .
Harmonizing to this theoretical account deriving market cognition is critical as it determines the house ‘s committedness to internationalization. It is besides called the driving force of the internationalization procedure. The absence of market cognition is called psychic distance, which are those factors that prevent or disturb the flow of information between providers and clients as stated by Vahlne and Wiedersheim-Paul ( 1973 ) . These include difference in linguistic communication, faith, civilization, instruction, concern patterns and industrial development, by Johanson and Vahlne ( 1977 ) .
Marks and Spencer should internationalize by Establishment Chain form of internationalization, observed by phases of Uppsala theoretical account.
Figure – Upsala Model, Stages of Development Pattern
Beginning: Johanson and Vahlne ( 1977 )
Given that the Company has established its web site for export to different states including Pakistan, suggests there is no regular export, hence it stands at the first phase of constitution concatenation of internationalization with no market experience. The company could get down exporting on a regular basis via gross revenues agent or distributors to derive some kind of market experience. The information gained is regarded as superficial at this phase, which is 2nd phase of Establishment concatenation. However greater market cognition can be gained from company ‘s subordinates in the neighbouring state, India. The civilization, linguistic communication, concern pattern, instruction and even faith is same in some countries of India as Muslim population in both states are similar about 160 million in India and 174 million in Pakistan ( Wikipedia. org 2010 ) . Marks and Spencer should obtain market cognition from India and so work with the local garment ‘s company in Pakistan as a joint venture, 3rd phase of constitution concatenation. This is a good platform to get down the internationalization procedure because it would cut down psychic distance to some extent as a new market entrant in a new finish. This is due to company ‘s presence in the bing market in South East Asia.
Marks and Spencer would derive incremental experience with clip and better its market cognition and hence cut downing psychic distance and uncertainness. The more company additions experience and cognition about Pakistan the more it would cut down uncertainness about concern environment and hence increasing trust and cut downing control over its subordinate. The company could so travel from the 3rd phase to 4th phase of internationalization by holding a production unit in Pakistan harmonizing to Uppsala Model.
decision
Although there are assorted troubles for abroad concerns to see investing in Pakistan i. e. political instability, security concerns and rising prices but at the same clip, the state possess assortment of good chances to pull foreign investing.
The presence of Marks and Spencer in Southeast Asia ( India ) emphasises it ‘s willingness to put in that part. The company has the experience and gustatory sensation of the regional civilization which overlaps in those states in Southeast Asia. Therefore puting in Pakistan would non be foreign to the company. Furthermore the competitory advantage of resources and low-cost skilled labors along with moneymaking equity keeping policies for foreign investing are excessively large a factor to overlook.
By looking at the economical conditions of Pakistan in a relevant context, it is good suited for Marks and Spencer to put and internationalize its operations in the state. The company ‘s benefits would non be limited to net incomes merely but it would besides hold the chance for a executable production unit. This would cut production costs and besides increase productiveness for its local and abroad subordinates from its production unit based in Pakistan.