中小企業國際化策略之研究－以台灣自行車零組件廠為例 - 政大學術集成

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(1)國立政治大學商學院企業管理學系碩士論文. 指導教授:于卓民,Chwo-Ming Yu. 立. 博士. 政治大. ‧ 國. 學. 中小企業國際化策略之研究－. ‧. 以台灣自行車零組件廠為例. Nat. io. sit. y. Internationalization Strategies of SME: The case of. n. al. er. Taiwanese Bicycle Component Manufacturers. Ch. engchi. i n U. v. 研究生: 邱玲君,Ling Jun Chiu. 中華民國一○○年七月 July, 2011.

(2) Abstract Facing with increase global competition, SME has to increase their competitiveness through internationalization. The objective of this research is to review the internationalization strategies of SME based on the analysis of case companies of the factors affecting internationalization decision, process and management, and then make recommendation to SME who are seeking for international opportunities. Our. research. addresses. internationalization,. factors. 立. the. questions. covering. including 治resource-based 政大. motives view. behind affecting. internationalization decision and host country selection, the entry strategy, process,. ‧ 國. 學. and internationalization management. Our findings suggested that founder’s ambition and relative size of restricted home market would motivate SME to internationalize.. ‧. Host country government regulation affecting product demand would also provide an. sit. y. Nat. incentive for SME to enter. Immobile resource endowments such as technological. n. al. er. io. know-how and cheap labor will induce firms’ sales and production division to. i n U. v. internationalize. During internationalization, SME would consider resource specificity,. Ch. engchi. the amount of resource commitment and control when choosing entry strategy. SME follows Root (1982) process in choosing host country by evaluating the market size and potential. As for the entry process, it is consistent with Uppsala model of internationalization. whereby. SME. increase. their. international. commitment. incrementally. During internationalization management, SME are more ethnocentric on the human resource perspective; meanwhile, marketing strategy on product and pricing for SME is rather homogeneous, except for distribution and promotion strategies which are adjusted based on market characteristics and channel structure.. III.

(3) Table of Contents. CHAPTER 1: INTRODUCTION 1.1 Research Background and Motivation. 5. 1.2 Research Objectives and Questions. 6. 1.3 Research Process and Brief Introduction of Chapters. 7. CHAPTER 2: LITERATURE REVIEW 2.1 Theories of internationalization. 10. 政治大 2.1-2 Transaction立 cost and internationalization. 2.1-1 Resource based View and internationalization. 13. ‧ 國. 學. 2.2 Motives to Internationalize. 11. ‧. 19. y. 17. 19. sit. 2.3 Factors affecting Entry Choices for SMEs. 23. 2.4 Entry Strategies. Nat. 2.4-1 Modes of Internationalization. n. al. Ch. engchi U. CHAPTER 3: RESEARCH DESIGN. er. io. 2.4-2 Entry Process: The Uppsala model of Internationalization 2.5 International Business Management. 14. v ni. 25. 3.1 Tentative Research Framework and Interview Outline. 29. 3.2 Case Selection and Research Process. 32. CHAPTER 4: INDUSTRY AND CASE ANALSIS 4.1 Industry Background. 34. 4.2 Case Description. 38. 4.2‐1 King Sword Case Description. 39. 4.2‐2 Chance Good Company Background 4.3 Case Analysis. 56 71. III.

(4) 4.3‐1 Implication for the different internationalization strategies. 80. CHAPTER 5: CONCLUSION AND RECOMMENDATION 5.1 Conclusion. 86. 5.2 Recommendation to firms. 90. 5.3 Future Research Suggestions. 92. REFERENCES Books and Articles. 93. Websites. 95. Acknowledgments. 立. 96. ‧. ‧ 國. 學. io. sit. y. Nat. n. al. er. . 政治大. Ch. engchi. IV. i n U. v.

(5) Chapter 1 Introduction The chapter commences with our research background and purpose to provide a brief introduction of the bicycle component small and medium enterprises (SME), and the reason behind choosing these SME as our case companies. Taiwan is the place where world’s top end bicycles are assembled, such as Shimano, Giant, Specialized etc. These top end bicycles are supported by strong, innovative bicycle component SME in Taiwan. These SME have successfully internationalize over the years; hence, this chapter subsequently discusses about our research objectives and questions regarding the factors these firms consider, the process and the management of internationalization. The research process would be discussed at the . 政治大. end of this chapter with an overall presentation of the chapters to be covered. . 立. 1.1 Research background and motivation . ‧ 國. 學. Since the 1970s, there have been widespread researches on internationalization of multinational enterprises (MNE) from developed countries (Johanson & . ‧. Wiedersheim‐Paul, 1975). Little work has been done on the small and medium enterprises (SME) from small developing countries. Given that the size of domestic . y. Nat. sit. market for small developing countries is relatively smaller than foreign markets, firms . er. io. have to seek for international opportunities to grow, so called internationalization. . al. n. v i n C h a comparison Uof the industry with engchi. This research will describe and analyze the internationalization of two Taiwanese SME of the same . difference in their . internationalization strategy . Taiwan is the home of some of the biggest bicycle companies such as Giant and Merida. The success of these multinational bicycle companies are supported by the innovativeness of small and medium bicycle component suppliers in Taiwan. There are over hundreds of bicycle parts and components producers located in Taiwan, each specializing in a specific component such as frame, fork, suspension etc. These SME started as suppliers to original equipment manufacturer (OEM), working with whole bicycle companies in customized projects through trading companies in Taiwan, and gradually the SME design and export their original designed products directly to foreign countries. Internationalization has helped the SME to increase and maintain . 5.

(6) their competiveness through market expansion, resource and market accessibility. The research was conducted to serve as guidance for parts and component SME in Taiwan who would like to expand their global reach. In face of aggressive price competition from mainland China, the parts and component SME need to increase company value and seek for more market opportunities through international management. On the other hand, one of our case company‐King Sword is our researcher’s family business, and is the first bicycle lights manufacturer in Taiwan. King Sword’s business has been in the industry for more than thirty years, and has tried many different attempts to internationalize from production to marketing‐end, and . 政治大 was partly for the researcher to gain more insight about the industry through 立 analyzing and evaluating the international strategy of King Sword itself in contrast experienced both successful and unsuccessful outcomes. Hence, the idea of this case . ‧ 國. 學. with the second case company Chance Good‐ King Sword’s competitor who had successfully internationalize and build up a strong brand and distribution network . ‧. internationally. . y. period . io. sit. pre‐internationalization . involving . the . motives . behind . er. from . Nat. Internationalization strategy of SME in this research covers the period starting . internationalization, factors and resources and capabilities affecting internationalize . n. al. Ch. i n U. v. decision, to early stage of internationalization period regarding host county selection, . engchi. entry strategy and entry process, and then finally to on‐going stage of international management. 1.2 Research objectives and questions This paper seeks to investigate the factors considered by the small and medium enterprises (SME) to conduct overseas marketing and achieve international growth, and to explore the potential effects of SME’s experience, capability, and bargaining power on the decision with offshore outsourcing of their specific assets and on their choice of entry mode strategy. To summarize, in this research, the following questions will be address for the SME of bicycle components: RQ1: What are the motivations behind an SME’s internationalization? RQ2: What are the factors that affect an SME’s internationalization decisions? . 6.

(7) RQ3: What are the factors that influence the host country selection of an SME? RQ4: Which entry strategy was selected by an SME? RQ5: What is the entry process of an SME? RQ6: How do resources and capabilities of an SME affect its internationalization? RQ7: How does an SME manage its internationalization? Our research uses two small and medium bicycle lighting component manufacturers in Taiwan as case companies. Taiwan provides a good research base to this end because it has the reputation of the home to most of the top bicycle component manufacturers in the world. One of the strongest sectors in Taiwan, other than electronics, is bicycle parts and whole‐bikes. Faced with increased competition . 政治大 producer of bicycle parts to OEM to an innovator and distributor of new designs, 立 trendy, and high quality branded after‐market products. Research on the bicycle from China, the sector is undergoing restructuring, changing its image from a mass . ‧ 國. 學. component SME in Taiwan would benefit not only the bicycle component SME but also other Taiwanese SME, to serve as a model and guidance to engage in . ‧. internationalization. . y. Nat. . io. sit. 1.3 Research process and brief introduction of chapters . n. al. er. With increasing global competition, and growing competency of local firms, it is . i n U. v. critical for the SME in any industry to learn how to increase their competitiveness by . Ch. engchi. going international and how to manage operation outside of their home country. Our research process is as follows (Fig 1.1‐1): a. Literature Review: Upon confirming our research questions, research on related literature is conducted. b. Research Framework Development: Summarize and review the literature to ensure conformity with research questions, and develop our research framework. c. Case selection: Select two case companies within our scope for research interview. d. Interview and Data collection: Collect and summarize our interview result. e. Data Analysis: Compare and analyze the two case companies to our research . 7.

(8) questions. f. Conclusion and Recommendation: Summarize analysis result to provide conclusion and recommendation respectively. . Research questions . Literature Review . Industry Research . 立. 政治大. Research Framework . ‧ 國. 學. Case Selection . Nat. n. al. er. io. Data Analysis . sit. y. ‧. Interview and Data collection. i n C Conclusion and Recommendation hengchi U. v. . Fig 1.1‐1 Research Process The thesis is classified into five chapters, and the content of each is summarized below: . Chapter One: introduces the research background and motives, further discusses about research objectives and questions and finally concludes with the research process and chapter contents . . Chapter Two: reviews the literature regarding strategies of SME in internationalizing including motives, factors, process and management of internationalization. . . 8.

(9) . Chapter Three: presents the research framework, interview outline, our research process and scope, and finally presents the demographic of our case interviewees. . . Chapter Four: analyzes our case companies, and compares our findings to the literature and for any similarities or differences, and presents our research results. . . Chapter Five: concludes with a summary of our research findings, and provides recommendation for other small and medium component manufacturer and future research. . . 立. 政治大. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. . Ch. engchi. 9. i n U. v.

(10) Chapter 2 Literature Review . This chapter conducts a review of the related literature covering . internationalization of SMEs. The Chapter is classified into five sections beginning with the theories of internationalization, followed by motives to internationalize. The factors affecting entry choices are discussed in the third section with another section leading to the different kind of entry strategies and entry process. The chapter concludes with the management of international business. 2.1 Theories of Internationalization When firms internationalize, they should analyze to comprehend the . 政治大 core competitive advantage and apply these advantages to global market. 立 Firm resource can be assets, capabilities, organizational processes, firms’ . uniqueness, specificity and sustainability of their resources, in order to identify their . ‧ 國. 學. attributes, knowledge, etc, controlled by the firm and allows the firm to conceive and implement strategies to improve overall performance (Barney, 1991). . ‧. Wernerfelt (1984) proposed that firms resources are strength and weaknesses of the . sit. y. Nat. firm and can come in any form, tangible or intangible. Assets such as brand names, . io. er. in‐house knowledge of technology, employment of skilled personnel, trade contracts, and machineries are examples of firm’s resources. In short, resources can be . n. al. Ch. i n U. v. classified into three categories: physical capital resources, human capital resources, . engchi. and organizational capital resources. . As suggested by Barney (1991), firm’s resources should enable the firm to . improve overall efficiency and effectiveness, and in order to achieve that result, firm resources shall be a source of sustained competitive advantage of the firm. Sustained competitive advantage occurs when firm is implementing a strategy that is not possessed enforced or duplicated by any current or potential competitor, and must possess the following to major characteristics: resource heterogeneity and immobility. A firm who owns similar resources as other firms in the industries, and its resources is easily removable, firm competitive advantage is perfectly nullified. Hence, resource creates sustained competitive advantage for a firm when it has the following four attributes: a) valuable, as in exploits opportunities or counteract . 10.

(11) threats in the firm’s environment, b) rare among current or potential competition, c) inimitable by any firms, d) non‐existence of strategically equivalent substitutes. A framework has been developed to illustrate sustained competitive advantage (Fig 2.1) . Firm Resource Heterogeneity . 政治大. Fig 2.1 Sustainable Competitive Advantage . y. ‧. Source: Barney (1991) . Nat. Firm’s performance is correlated to the amount and kind of resources and . sit. . 立. Sustainable competitive advantage . 學. ‧ 國. Firm Resource Immobility . Value Rare Inimitability ‐History dependent ‐Causal Ambiguity ‐Social Complexity Substitutability . er. io. capabilities it possess. Capabilities and resources can create sustained competitive . al. v i n C hthan the level of Uheterogeneity affects firm’s structural heterogeneity rather engchi performance more significantly. In other words, firms able to utilize and exploit their n. advantage when they are heterogeneous. In terms of resource heterogeneity, . capabilities perform better than firms who simply possess or acquire additional resources (DeSarbo, Benedetto and Song, 2007). . . 2.1‐1 Resource based View and internationalization Resource is key element to the motives for expanding globally and the process of internationalization, influencing factors such as the kind of entry mode strategies, market selection. (a). Resource and motives for internationalization The first step to globalization is the motives and purpose behind . . 11. .

(12) internationalizing, affected by firm’s value and resources. The possible factors are: i) Using host country resources to build and strengthen company value In order to obtain inaccessible resources from their home country, firm would expand to gain access to better resources and immobile endowments in host country, for example, natural resources, efficiency, or strategic asset (Dunning, 1993). ii) To safeguard and augment resources In order to match and preempt competitors from gaining other market resources, firm would internationalize by protecting, augmenting . 政治大 Moreover, company would also expand to maintain customer relationship 立 with customers going global (Kotler 2008). advantage through the acquisition of new assets (Ping Deng 2003). . ‧ 國. 學. (b). Resource and entry market selection . The selection of host market is highly varied; take for example the structure . ‧. and competitive environment and characteristics of host country are factors . sit. y. Nat. to be considered. The selection of host country would also affect the . io. er. company’s long term strategic direction and capability development. If a firm’s objective is to increase research and development skills, one must . n. al. Ch. i n U. v. select the host country with related strong infrastructure in research and . engchi. development (Deng, 2003). (c). Resource and entry mode strategies One important factor to consider during entry mode strategies is the degree to which their firm’s activities and capabilities will fit the activities and capabilities of partners in the value chain of the target market. Anderson (2009) has proposed a matrix as illustrated below to evaluate value chain in foreign market entry decision. . . . 12.

(13) 政治大. 立. . ‧ 國. 學. Fig 2.1‐1 Activities of value chain and international strategy Source: Anderson, 2009 . ‧. The matrix supports Dunning’s (1988) primary competitive advantage for a foreign direct investment in which there must be complimentary activities . y. Nat. sit. of value chain participants which also fit with their activities . al. er. io. (internalization). It also helps firms to exploit, utilize and match existing . v. n. capabilities with complimentary resources in order to enhance overall . Ch. performance (Fig2.1‐1). . engchi. i n U. 2.1‐2 Transaction cost and internationalization Transaction Cost analysis (TCA) on the other hand helps justify vertical integration decisions, firms use to assess the appropriateness of establishing a manufacturing site in the foreign market. In the beginning, an assumption is made that the market is competitive (ie. existence of many agents/distributors) under TCA approach, and the threat of being replaced under such condition would force market to perform efficiently, and hence a low control approach would be preferred (Anderson and Gatignon, 1986). TCA propose that the firm integrates when asset specificity is high in order to retain control over their specific advantages. Other factors have been . . 13.

(14) determined in the relationship between asset specificity and entry mode choice whereby firms characterized by low specificity assets are still likely to integrate when the costs are low and ability to integrate are high (Erramilli and Rao, 1993). 2.2 Motives to Internationalize There is a rationale for firms to exercise internationalization, and most firms share some common motives. Several researchers have different points of view for the intention behind internationalization which are briefly summarized in table 2.2‐1. Yu (2000) has performed a complete analysis on the reasons behind firms going international. He divides these reasons into proactive and reactive. Proactive applies . 政治大 differentiated according to eight different conditions: 立 1. Resource Acquisition: occurs when home country does not provide . to firms’ ability to seize opportunity and utilize their own advantage, and can be . ‧ 國. 學. specific resources, and firm would have to seek from host countries. 2.. Low cost: low material or labor can be an incentive for firms to invest in . ‧. host countries. . Government: Incentives provided by host country governments such as . sit. y. Nat. 3.. io. Seizing new market opportunity: countries with increased disposable . al. n. 4.. er. low tariff, low financing cost, etc. . Ch. i n U. v. income or governments’ open door policy would attract firms to enter markets. 5.. engchi. Utilizing competitive advantage: extending firm’s competitive advantage such as brand, technical skills, marketing ability, etc. . 6.. Attaining economies of scale or synergy: Foreign sales can assist firms to attain economies of scale in production when demand in home country decreases; and the knowledge and management skills are transferrable to other foreign countries. Both economies of scale and synergy can reduce operating cost. . 7.. Risk reduction: Firms can diversify their financial risk from regional financial crisis or economic fluctuation by investing in multiple locations. . 8. . Founder’s ambition: an entrepreneur’s ambition driving a firm to 14.

(15) internationalize in the firm’s early years. Reactive are firms internationalizing due to changes in external environment, and can be differentiated according to four different conditions: 1. Trade barriers 2. Internationalization of customers: In order to serve their customers globally, firms would follow and expand their international operation. 3. International competition: Rivalries action will trigger firms to internationalize 4. Changes in home country environment: Unfavorable changes in home country environment would drive firms to move out. Researcher . 治政 Table 2.2‐1 Motives to internationalize 大 Motives 立 ‧. ‧ 國. 學. Dunning (1993) a. Market seeking: involves seeking immobile endowments in host countries, and creating new markets and protecting against action of competitors in oligopolistic markets. b. Resource seeking: availability of resources and incentives offered by host governments and economies of vertical integration. c. Efficiency seeking: attained economies of scale and scope; this factor is more supply‐oriented than market‐oriented. . sit. n. . al. er. io. Kotler (2008) . y. Nat. Yip (1995) . i n U. v. a. Market driver: factors such as common customer needs, global customers and channels, transferrable marketing and lead countries. Lead countries are places where Innovation usually occurs, driven by the local innovative competitors or demanding customers b. Cost driver: global scale economies, steep experience effects, favorable logistics and differences in country costs. c. Government: Favorable trade policies, for example, the reduction of tariffs and quotas, local content requirement, ownership restrictions d. Competition: high exports and imports and competitors from different continents . Ch. engchi. a. Risk reduction through market diversification b. When there is more trade between countries, and competitors in different areas interact a lot with each 15.

(16) other. Firm should internationalize to match and preempt competitors who are expanding into major international markets. c. Serving customers expanding globally d. Saturated or declining demand in home market, firm has to seek new market and expand to achieve economies of scale. e. Host country markets provide better profit opportunities. Yu (2000) . a. Proactive factors: based on firm’s willingness to seize opportunity and exercise their advantage: include resource acquisition, low cost, government incentive, new market opportunity, risk reduction, founder’s will b. Reactive factors: influenced by external environment, such as trade barriers, internationalization of customers, international competition, and changes in home country market . 立. ‧ 國. 學. Deng (2003) . 政治大. ‧. a. Resource seeking: resources exploitation for operation and secure continual supply of material b. Technology seeking: investing in developed countries for sophisticated technology, learning, and compensating for their competitive disadvantage c. Market seeking: protect or sustain existing markets or to explore or promote new markets d. Diversification seeking: the benefit for risk diversification e. Strategic asset seeking: to maximize overall corporate performance by protecting, augmenting advantage through the acquisition of new assets, or by a partnering agreement with a foreign firm . n. er. io. sit. y. Nat. al. Ch. engchi. i n U. v. Firms are usually motivated to internationalize due to changes in external or competitive environments. We can summarize the rationales for firms to internationalize into four key elements: market‐oriented, profit‐cost oriented environment changes and external incentive. 1. Market‐oriented: to protect or maintain existing market or transfer competitive advantage to new market. 2. Profit‐cost oriented: to attain efficiency through economies of scale or scope . . 16.

(17) and increase overall corporate financial performance 3. Environment changes: saturated or declining demand in home market, and supporting customers’ global expansion 4. External incentive: home or host country government incentive or opportunity arises due to changes in host country market environment. 2.3 Factors affecting Entry Choices for SMEs While, an in‐depth discussion of the different theories and approaches of internationalization have been done, this section is focused on identifying the factors influencing the entry choices for SMEs. Researchers have found the following factors . 政治大. as the key determinant in entry mode for SMEs. a. International experience: . 立. SMEs usually have fewer managerial and financial resources when compared to . ‧ 國. 學. Multinational enterprises (MNEs), hence joint‐venture are usually the most favored entry mode for less experienced SMEs to reduce cultural barrier risk. . ‧. However, SMEs who have accumulated experience incrementally in dealing with . y. Nat. international operations would prefer establishing wholly‐owned subsidiaries . io. sit. instead (Pinho, 2007). Consistent with the Uppsala model, SMEs composed of . n. al. er. management teams with experience in handling foreign markets will conduct equity mode of entry. . Ch. b. Resource ownership advantage . engchi. i n U. v. In align with the ELC theory, when firms have the ability to innovate and have invested specific asset in foreign market, they tend to prefer equity ownership in order to protect the proprietary asset, minimize investment risk and safeguard tacit know‐how (Pinho, 2007 and Cheng, 2008). In relation to preserving know‐how and minimizing risk, it has been suggested that manager of less‐capable firms perceives higher risk with increasing level of ownership, while managers of more‐capable firms perceive lower risk with increasing level of ownership (Forlani, Parthasarathy and M. Keaveney, 2007).. c. Resource Specificity In order to retain control over their specific advantage, firm integrates when . 17.

(18) asset specificity is high. Meanwhile, when the costs are low and ability to integrate are high, firms characterized by low specificity assets are still likely to integrate. d. Organizational Capabilities Firms with stronger organizational capabilities, whereby they are flexible and can easily adapt to the foreign market by developing new concept and products to fit the demand, would prefer establishing wholly‐owned subsidiaries. It is also important to note that the SMEs adaptive ability and its propensity for equity ownership increases with its incremental internationalized experiences (Cheng, 2008). . 政治大 Bargaining power is the relative bargaining position and outcomes of interaction 立 between firm and host government in cross‐border affairs. Level of government . e. Bargaining power‐Level of government intervention or assistance . ‧ 國. 學. intervention, for example on market access, would influence SMEs decision between a joint‐venture or equity ownership entry strategy. The deeper the . ‧. amount of government intervention, the likelihood of SMEs pursuing a joint . sit. y. Nat. venture over an equity ownership would increase (Cheng, 2008). Another key . io. er. factor influencing SMEs export decision is the level of government support program for export market development assistance such as trade fairs and export . n. al. Ch. i n U. v. workshop. Export assistance program helps inexperienced managers to overcome . engchi. mental barriers and accumulate experiential knowledge which in turn leads to higher commitment to export and more international operation (Shamsuddoha, Yunus Ali and Oly Ndubisi, 2009). f. Degree firm’s activities and capabilities fit the activities and capabilities of partners in the value chain From a resource based view, firm’s resources and capabilities enables the firms attain their strategic goals and increase overall performance. Structural capabilities‐the ability for the firm to utilize and exploit their capabilities significant affects the performance of the firm (DeSarbo, Benedetto and Song, 2007); it is hence important for firm to exploit possible opportunities by evaluating the degree firm’s activities and capabilities fit the activities and . 18.

(19) capabilities of partners in the value chain before internationalizing. 2.4 Entry Strategies Considerable researches have been done on international market entry mode strategy, mainly focusing on two major directions. First one focuses on developing individual theories such as transaction cost analysis (Anderson & Gatignon, 1986) and resource‐based theory (Erramilli and Rao, 1993). The second focuses on integrating several theories in Eclectic theories (Dunning, 1988) and evaluating the process of internationalization in Uppsala Model (Johanson and Vahlne, 1977). This section would cover brief review of transaction cost theory and resource based view, . 治政 country selection, and finally, a summary of factors 大 influencing entry choices for 立 SMEs. . followed by an overview of entry modes, the process of internationalization and host . ‧ 國. 學. . 2.4‐1 Modes of Internationalization . ‧. In this section involves an overview of the four basic alternatives to become internationalize, and also a comprehensive review on the three theoretical views of . y. Nat. er. io. strategy. . sit. internationalization to identify the determinants for the choice of SME’s entry mode . al. n. v i n Ch their home base, and selecting the best structural arrangement is a critical strategic engchi U In the face of increase global competition, firms are beginning to expand beyond . decision that a firm has to make. The entry mode is a crucial determinant of future opportunities and strategic options accessible to the firm. According to Root (1982), there are five alternatives modes of entry and expansion: indirect exporting, direct exporting, licensing, joint venture, and wholly‐owned subsidiaries. . Exporting involves transferring the product or services to the target market outside the manufacturing country. Kotler further differentiates exporting from indirect exporting and direct exporting in a way that home country intermediaries are involve in selling and marketing the manufacturer’s products and services for indirect exports; meanwhile, producers of direct exports would ship and market products to target country’s middleman or end‐consumers themselves. Airbus is an . 19.

(20) example of direct exporter who manufactures most of their aircrafts in Blagnac, France and ships them worldwide. Licensing is a contractual agreement between the company and one or more local partner firms. The company grants the right to use trademark, patents, company’s title, technology, or operational method to the local partnership firms and in return, the company receives an initial fee and/or payment for some percentage of future sales. Many companies in coffee and fast‐food industry like Starbucks and McDonalds use this strategy to enter foreign market. United States firm Starbucks set up a licensing agreement with Uni‐President to sell Starbucks coffee in Taiwan. Direct investment in foreign operations is required under both joint venture and . 政治大 risk, management and profit of the new start‐up; however, it is often the partner 立 with the highest number of equity ownership who is decision‐maker. Meanwhile, . wholly‐owned subsidiaries. Under joint venture, organizations share the ownership, . ‧ 國. 學. parent company of foreign subsidiaries assumes full ownership and responsibility for management and operation in foreign market. . ‧. The level of commitment and control increases along the different entry mode, . sit. y. Nat. starting from exporting with almost none or the least amount of resources dedicated . io. er. to significant amount of control and resources invested in wholly‐owned subsidiaries (Table 2.4‐1a). In the previous research conducted, the characteristics of each . n. al. Ch. i n U. v. different entry mode can be differentiated according to (Osland, Taylor and Zou, 2001): . engchi. 1. Quantity of resource commitment 2. Amount of control 3. Level of technology risk Researchers have found strong correlation between the above three factors (Woodcock et al, 1994). Increased resource commitment, increases the amount of control and lower the amount of technology risk. The following graphs explains the correlation between these characteristics and the entry mode . 20.

(21) . Wholly‐ owned subs . Control . Joint Venture Licensing Exporting Required Resources. Fig 2.4‐1a Control and required resource for international strategy . Technology Risk High . License . ‧. JV . y. Nat. sit. Control High . n. al. er. io. Low . ‧ 國. 立. 政治 Source: Osland, Taylor and Zou, 2001 大. 學. . Export . Ch. engchi. i n U. v. WOS . Low Fig 2.4‐1b Control and Technology for international strategy . . Source: Osland, Taylor and Zou, 2001 . . The amount of resource commitment is either dedicated tangible (ie machineries and equipments) or intangible assets (ie managerial skills) that cannot be used for other purposes without incurring additional costs. Wholly‐owned . . 21.

(22) subsidiaries and foreign direct investment (FDI) usually require the most amounts of resources to be devoted. Control defines the company’s ability to influence system, methods and to participate in decision‐making and operations in foreign market. Under licensing, Rights are granted to the licensee to run and control the business in exchange for some payment to the licensor. Unlike export where firms are not involved in any selling or operational process for their product, under licensing, licensor usually participates in the marketing and communication of the product in foreign market, a phenomenon that are usually observed in the fast food industry (ie McDonalds). In a joint venture, control usually belongs to the largest shareholder who has higher level . 政治大 the fullest control and decision‐making process for its wholly‐owned subsidiaries. 立 Technology risk involves the likelihood of a firms’ assets (tangible or intangibles) of equity ownership and directors on the board. On the other hand, firm possesses . ‧ 國. 學. would be inadvertently transmitted to another local firm. Particularly under licensing, risk of licensor’s know‐how being imitated and reproduced by the licensee in the . ‧. future remains high. Meanwhile, partners might obtain knowledge and technology of . sit. y. Nat. the business under joint venture. A Wholly‐owned subsidiary bears least amount of . io. er. technology since it is fully controlled and operated by parent company. Figure 2.4‐1b shows the correlation between technology risk and control with the four different . al. n. entry mode. . Ch. engchi. i n U. v. Researches have shown increasing relationship between ownership level and perceived risk, however, studies are further extended to examine the relationship between the capability for firm to control an international venture and the amount of perceived risk that managers associate with the different entry strategies. It was proven that manager of less‐capable firms perceives higher risk with increasing level of ownership, while managers of more‐capable firms perceive lower risk with increasing level of ownership (Forlani, Parthasarathy and M. Keaveney, 2008). The process in determining the type of entry mode could be complex and profound; hence upon investigating the alternatives of the different type of entry mode and its characteristics, a review of the three theories of internationalization is conducted to evaluate its impact on choices of entry mode in further section. . 22.

(23) 2.4‐2 Entry Process: The Uppsala model of Internationalization The Uppsala framework is a dynamic model which holds that firms increase their international involvement on an incremental approach through gradual acquisition, integration and knowledge development (Johanson and Vahlne, 1977). The establishment of foreign operation is said to follow a chain‐export, independent representative (agent), subsidiary, production, an incremental fashion (Johanson & Wiedersheim‐Paul, 1975). The model assumes that firm is risk‐averse, and the decision to internationalize is influence by the perceived opportunities and risk. The model puts emphasis on the . 治政大 of resources to foreign affects the changing aspects‐ the decision of commitment 立 markets and how current activities are conducted. The stronger market knowledge, two major static aspects‐ market knowledge and commitment of resources, which . ‧ 國. 學. the more likely it is for new ventures to make additional commitment into the market (Johanson and Vahlne, 1990).. ‧. Market knowledge particularly experiential knowledge itself cannot be . y. Nat. transmitted and has to be progressively gained during the operation in the country to . io. sit. assist in perceiving and formulating market opportunities. Meanwhile, market . n. al. er. commitment is comprised of two factors‐the degree of commitment and the amount . i n U. v. of commitment. The degree of commitment to a market is higher when more . Ch. engchi. specialized resources being allocated to that specific market and resources are being integrated with other value activities of the firm. Three exceptions, however, are cited by Johanson and Vahlne (1990) in their model of incremental market commitment from increasing market knowledge: 1) Firms with larger resources tend to make larger internationalization moves; 2) Market knowledge that can be gained through methods other than experience and market conditions are relative stable and homogeneous; 3) Firms can generalize their prior experience to markets with similar conditions. Nevertheless, the Uppsala model describes the importance of knowledge acquisition contributing to the better understanding of international markets, and to some extent predicts the stages of internationalization of firms (Zou and Ghauri, . 23.

(24) 2009). Kotinen and Ojala states that family business is more likely to proceed stepwise internationalization steps favoring first indirect entry export (Kotinen and Ojala, 2010). One important decision in the Uppsala framework is the selection of countries to enter. Root (1982) has developed a process for host country selection (Fig 2.4‐2), which involves three primary decisions: preliminary host country selection、selection of host country with high market potential, and selection of target country according to company local sales potential. Preliminary host country selection involves analyzing consumer and user characteristics, estimating the market potential using primary and secondary data . 政治大 indexes. After having a list of host country candidates, firm should analyze the 立 industry market potential as in the most probable sales amount in a specified period. . such as import/export and consumer statistics and other social and economic . ‧ 國. 學. Finally, company should evaluate sales potential by considering factors such as entry criteria, competitiveness, sales channels, and finally end‐user. . ‧. n. er. io. sit. y. Nat. al. . Ch. engchi. 24. i n U. v.

(25) All Countries . Preliminary Screening: 1.. Consumer/User profile . 2.. Direct Estimates of Market Size . 3.. Market Size Indicators . Prospective Target Countries . 政治大. Estimate industry market potentials: . 立. 1. Top‐Down Estimates . ‧. ‧ 國. 學. 2. Bottom‐Up Estimates . High‐Market‐Potential Countries . n. a 1.l. Entry Conditions . CCompetition Audit hengchi 3. Distribution Channels 2.. 4.. er. io. sit. y. Nat Estimating Company Sales Potentials: . i n U. v. Consumer/User . Target Country . Fig 2.4‐2 Roots Process of host country selection 2.5 International Business Management . International Business Management covers organizational functions such as . human resource and marketing management. Structures and controls of . 25.

(26) international business are not elaborated since our cases involve SMEs that have relatively simple organizational structure than huge global enterprises. a. Human Resource Management Human Resource management includes recruitment, incentive programs, and expatriate management. The company has to decide the organization labor structure, using local management team or expatriates, and factors to consider regarding finding the suitable expatriate. Firm’s preference in recruiting host country management team can be differentiated into four types: 1) Ethnocentric: hiring home country managers for management 2) Polycentric: hiring host country personnel for management . 政治大 4) Regiocentric: hiring personnel from the same host country region for 立 management 3) Geocentric: considering competency of the personnel regardless of location . ‧ 國. 學. There are nevertheless positives and negatives for using home country or host country managers. It is therefore important to consider three factors when . ‧. deciding on the candidate (Yu, 2005) . Desirability of the manager: if the manager is qualified for the position . sit. y. Nat. i). io. Competency of manager: host country market and technical knowledge . al. n. ii). er. considering their personal characteristics and/or adaptability. . Ch. and capability possessed by manager iii). engchi. i n U. v. Company Goal: Goal that firm seeks to attain would affect characteristics of management and the kind of manager to use. . b. Marketing Management International marketing management involves determining the marketing mix‐the four Ps starting from product, pricing to place and promotion (Fig 2.5‐1 Marketing mix in international management). . . 26.

(27) 政治大 Fig 2.5‐1 Marketing mix in international management 立. ‧ 國. 學. . . 1) Product: involves deciding on the characteristics of the product including design, . ‧. branding and packaging. Firm would decide if standardization of product quality, feature and design is suitable considering market’s homogeneity. On the other . Nat. sit. y. hand, for an OEM firm, it has to determine if private branding is acceptable, and . io. er. if using uniform brand globally. Firm would consider if labeling the exact country of origin is suitable for its products. The company would also decide which kind of . n. al. Ch. i n U. v. product to be distributed in different market depending on host country . engchi. economic, regulation and market growth pattern. . 2) Price: company would calculate the price of product for exporting to different regions, which is referred as price escalation in exporting. However, company would also adjust product price based on host country market characteristics and competitiveness. If fixed costs are already covered by home country market, firm might adopt marginal cost pricing in host country. There are five important factors that firm analyze when determining host country market price (Yu, 2005): a. Company strategy: what the firm is seeking in the market b. Cost: including manufacturing, transportation and marketing cost c. Demand: price corresponding to demand and the level of price elasticity . . 27.

(28) d. Competition: degree of product differentiation from customers and host country market concentration e. Government Regulation: host country government setting price ceiling and price floors f. Distribution Channel: capability and efficiency of the distribution channels g. Product life cycle: stage of each product life cycle corresponding to the market. 3) Place: the characteristics of distribution channels vary from country to country. Developed, developing, under‐developing nations and culture affects the kind of distribution channel structure. On the other hand, factors such as consumer . 政治大. pattern and level of competition affects the kind of distribution method a firm . 立. should adopt. . 4) Promotion: promotion activities cover advertising, sales, promotion and public . ‧ 國. 學. relation. Advertising involves determining the use of standardize or customize advertisement depending on the host country environment, target market, . ‧. advertising goal, consumer behavior and cost factors. On the sales perspective, . sit. y. Nat. firm would either use home country expatriates or local sales personnel. The . io. er. benefits for using local sales personnel are as follows: a) firm can avoid political and sensitive issues; b) multinational companies provides better welfare than . n. al. Ch. i n U. v. local firms, and hence can attract talented personnel; c) cost for expatriates’ . engchi. allowances can be saved; d) better market knowledge can reduce the period for firm to adapt (Yu, 2005). Promotion activities are adjusted according to host country market regulation, and SMEs usually participate in all kinds of trade shows for promotional activities. . . 28.