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Managing International Relations May 8, 2008

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Title: Managing International Relations May 8, 2008


1
Managing International RelationsMay 8, 2008
  • Tuija Mainela
  • D.Sc., Professor
  • Department of Marketing

2
Lecture theme Network approaches to
internationalization How network theory
helps to understand the internationalization of
firms?
3
Network approach to internationalization
  • Network theory
  • Markets-as-networks
  • Different national networks are always connected
    to each other
  • Companies are always dependent on each other
  • Network relationships and knowledge
  • Long term relationships needed for extensive
    knowledge creation
  • Price and Quality
  • Deliveries
  • Services before, during and after delivery
  • Resources and Organization of the counterpart
  • Development possibilities

4
Questions of interest in network approaches
  • International interdependence between firms and
    within industries
  • How the surrounding business network context
    influences internationalization?
  • How a firm can use existing relationships when
    creating a new relationship in international
    markets?
  • How the internationalization of the firm takes
    place concurrently with internationalization of
    customers, suppliers and competitors?

5
Network model of internationalization (Johanson
and Mattsson 1988)
  • Internationalization of the production net
    (market of interest)
  • Firms whose activities, both complementary and
    competing, are linked on the basis of product
    areas
  • e.g. a heavy truck net firms manufacturing,
    distributing, repairing and using heavy trucks
  • Number and strength of relationships between
    different national production nets
  • Internationalization of the firm
  • Extent to which the firm occupies positions in
    different national nets
  • Ways to establish and develop positions
  • Extension establishment of a position in new
    national nets
  • Penetration increase in resource commitments in
    those networks in which a firm already has a
    position
  • Integration increasing co-ordination between
    positions in different national nets

6
Network model of internationalization
Johanson J. and Mattsson L-G. (1988).
Internationalisation in industrial systems A
network approach. In Ford (1997) (2nd ed.)
Understanding Business Markets Interaction,
Relationships and Networks, 194213. London
Dryden Press.
7
Case exercise
  • Read the story of the entry to Polish market by
    KWH Group (20 min).
  • Answer the following questions (25 min)
  • Describe the international experience of KWH.
    Would you consider its degree of
    internationalization as high or low? Why?
  • Describe the internationalization of the Polish
    market. Would you consider the degree of
    internationalization as high or low? Why?
  • Who were the actors involved in the initial
    planning of the modernization of district heating
    pipelines in Poland?
  • Which other relationships of KWH were of benefit
    in its selection as the technology partner
    to SPEC?
  • Draw a figure of the network for joint venture
    entry to Polish market.

8
Low Degree of internationalization of the market
/net High
Low Degree of inter- nationali- zation of
the firm High
  • Early Starter
  • Little knowledge of markets and adaptation
  • Export agents used to compensate
  • new internal knowledge creation
  • own inexperience of adaptation
  • lack of position in the market
  • Also customers inexperienced
  • agents are the legitimacy creators
  • Foreign direct investments for big firms
  • Late Starter
  • The firm is pulled to international markets
  • Makes use of home market relationships
  • Often sales units abroad
  • RD units also typical
  • International Among Others
  • Makes use of current network position for market
    penetration and expansion
  • Quick establishment of sales units typical
  • Investments in one market serve as bridges to
    others
  • Joint ventures, acquisitions, mergers
  • Lonely International
  • Easy to get access to new networks
  • Suppliers, customers and competitors not
    international yet
  • Lonely international pulling also
    them?
  • Lonely international a bridge
    builder?
  • Foreign direct investments typical
  • Coordination of different networks

9
Mainela, T. and Puhakka, V. (2008). Embeddedness
and networking as drivers in developing an
international joint venture. Scandinavian
Journal of Management, 24(1), 1732.
10
Ways of Negotiating and Acting to Develop Market
Position
  • Convincing
  • actions of the managers to persuade the critical
    stakeholders to a favorable decision
  • via third parties
  • via personal trust creation
  • Compromising
  • acting to achieve a win-win solution in
    situations of disagreement
  • via personally trusted intermediaries
  • Resourcing
  • resource acquisition through interaction
  • via friends and acquaintances
  • via normal contractual channels

11
  • Internal organizing
  • strategic decisions to
  • change the organizational structures
  • improve quality
  • add new products or
  • change e.g. the logistics of the firm to better
    serve the customers
  • Adding weak ties
  • Strengthening existing ties
  • Legitimizing
  • gaining external approval and credibility for the
    venture
  • Venture-based
  • Lobbying to influence political decision making

12
Network approach to internationalization
  • Network relationships and internationalization
  • Entering a new market establishing a position
    in a network new to the firm and its current
    counterparts
  • Micro-position relationships with a specific
    counterpart
  • Role the firm has for the other firm
  • e.g. a secondary supplier of fine paper and of
    know-how for printing purposes
  • Importance to the other firm
  • e.g. the share of seller of the total purchases
    of buyer
  • other transfers between them
  • Strength of the relationship
  • e.g. strength of knowledge and social bonds

13
  • Network relationships and internationalization
  • Macro-position relations to a network as a
    whole
  • Identity of other firms
  • e.g. lists of customers, suppliers, etc.
  • Role of the firm
  • e.g. a full line distributor of fine paper in
    southern Sweden
  • Importance of the firm
  • e.g. 50 per cent market share and market leader
  • Strength of relationships
  • e.g. strength of bonds

14
Network approach to internationalization
  • Network relationships and competitive advantage
  • Company-specific i.e. difficult to copy
  • Relationships influence
  • availability of information what is going on in
    the market?
  • timing of information when does the information
    reach the firm?
  • spread of information e.g. reference customers/
    partners take care that the company is on view in
    positive way in the right place
  • Basically, network theory suggests that
    internationalization process is
  • more complex and
  • less structured than earlier internationalization
    theories claimed
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