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Executive Summary
Fukamo Automobiles Company is a leading cars manufacturer in Brazil. The company intends to roll out an internationalisation strategy to expand to other parts of the world. The objectives of the organisation include becoming a leader in the automotive industry.
The following report proposes an internationalisation strategy for Fukamo Automobiles Company. The strategy highlights the intentions of the company to tap into the European market.
The proposed plan illustrates a strategic alliance with automobile companies in Germany, such as BMW. The Germany automotive industry is expected to provide the company with the best opportunity for innovation, production technology, and expansion.
Company Background
Fukamo Automobiles was started in 1912. It is one of the leading cars manufacturing companies in Latin America with headquarters in Rio de Janeiro. The company intends to expand its operations into Europe. It hopes to develop and enhance its capabilities in product development and in research and design.
According to the management, the capabilities are important if the company is to attain its objective of becoming a leader in the industry. The major aim of this organisation is to gain technological prowess from the European venture. The development will help it to expand its operations throughout Europe and the USA.
The following report provides the management with a proposition for the best country to focus on in Europe. Investing in the proposed country is expected to provide Fukamo with the opportunity to attain the desired objectives.
In addition, the report provides advice on the preferred entry mode into the European country. Suggestions on how to effectively manage institutional and cultural differences and other issues are also made.
The Proposed European Country for the Venture
The preferred country for Fukamo’s internationalisation venture is Germany. The main goal for the company’s entry in Europe is to strategically derive technological innovations in automobile production. It is also aimed at enhancing Fukamo’s research and design capabilities.
Germany is the best destination due to various factors. The country accounts for 20.2% of the European automobile market. German automobile industry is dominated by such companies as BMW, Volkswagen, and DaimlerChrysler. They are leading and reputable companies in the global market.
The German automobile industry is very advanced technologically. The reality is evidenced by the influential automobile brands originating from the country, such as Mercedes Benz.
According to Hagiu and Clipici (2009), internationalisation entails adopting exchange transaction modalities in relation to international markets. The strategy involves both market selection and entry modes. German automobile industry provides Fukamo with these opportunities.
Pangarkar and Yuan (2009) highlight the issue of location in multinational businesses. Pangarkar and Yuan (2009) contend that this constitutes one of the major and complex decisions for these corporations.
The internationalisation strategy must enhance Fukamo’s operations through innovative technology and product and design. The company can be regarded as a born-global regardless of the fact that it has no presence in Europe or USA.
Chetty and Campbell-Hunt (2004) define born-global organisations as those that seek attainment of significant competitive advantage. The advantage is achieved through the use of resources and sale of outputs to multiple countries.
Germany has more than 125 years of experience in the production of automobiles. It is home to the world’s first internal four-stroke combustion engine (Germany Trade & Invest 2013).
The country, as a result, occupies a strategic position in relation to the global automotive industry. Its original equipment manufacturers’ (OEMs) account for 17% of the global production of passenger cars (Germany Trade & Invest 2013).
The automotive industry is the most important sector in Germany’s economy. The country has the highest concentration of OEM plants in Europe. It has an annual budget of $19.6 billion that is dedicated to research and design.
The investment is reflected in the environmentally friendly technologies originating from the country (Germany Trade & Invest 2013). It is estimated that about 10 patents are registered in the country each day. Such a number makes Germany the leading innovator in the world (Germany Trade & Invest 2013).
Fukamo is known for its extensive investment in research and development. What this means is that the operations of the company are compatible with the situation in Germany (Yip, Biscarri & Monti 2000).
Germany is strategically located in Europe. The location is essential for expansion purposes in the region. From Sweden, one can access the country in about 3 hours by train. A truck takes about 24 hours to travel from Spain to Germany. Ukraine is 30 hours away by train (Germany Trade & Invest 2013).
Institutional and Cultural Differences
Various institutional and cultural factors come into play with regards to internationalisation. The differences between Fukamo and other automobile companies in Germany are informed by these factors (Buckley 1993). The success of Fukamo’s internationalisation strategy is determined by these differences (Taggart 1998).
According to Hill (2010), the operations of international companies are affected by social, economic, technological, and political elements. The concepts of national business systems, culture, and institutions are very essential in internationalisation (Pan & Xiaolian 2000).
Institutional culture determines the impacts of social institutions on international organisations (Freyssenet & Lung 2007). National culture and institutions expand the span of the institutional approach (Leung & Ang 2008).
Hill (2010) conceptualises national business systems as formal institutional structures. The systems may be categorised into command (communist) and capitalist (liberal) economies (Hill 2010). The categories are generalised since national business systems vary between different countries (Madsen & Servais 1997).
Brazil and Germany share a common national business system, which is capitalism. However, the economy varies between the two countries. Germany exercises social market capitalism. In this case, strong social controls are imposed on business organisations (Hill 2010).
On the other hand, Brazil falls under the category of developmental capitalism (Hill 2010). Here, governments play a critical role in directing economic development. Cooperation between businesses and the state are either formal or informal (Luo 2001).
The similarities between the two countries’ business systems make Germany the ideal location for Fukamo’s internationalisation initiative. The technological, research and design, and innovative benefits in Germany outweigh the cost of business in the country (Jones 1999; Kogut 1988).
Fukamo Automobiles Company is familiar with capitalism. The familiarity will facilitate integration into the European and the US economies (Jones 1999).
The company will adapt to the global economy with ease. The formal and informal organisational structures in Germany support those in Brazil (Huei-Ting & Eisingerich 2010).
The influence of national culture on Fukamo as it enters Germany and the larger Europe cannot be underestimated. The culture is associated with subjective constructs, which include beliefs and values (Kim & Hwang 1992).
According to the institutional theory, organisational culture is affected by institutionalised variables among societies (Williams & Martinez 2012). The impacts of these variations on Fukamo should be mapped out.
Williams and Martinez (2012) define national culture as a system of shared values and norms. The values and norms give rise to a way of life.
The concept of national culture is critical in determining the entry of an organisation into another society (Wild, Wild & Han 2010). Hofstede’s cultural framework can be used to analyse the situation in Brazil and Germany. From this perspective, it appears that national culture between the two countries differs.
The success of Fukamo in Germany will depend, to a large extent, on the approach adopted by the company with regards to cross-cultural awareness and development (Wild et al. 2010).
The company needs to identify the unique competitive advantages in the German culture. Conforming to the ethics of the host country is also important (Bradley & Gannon 2000).
Fukamo Automobiles’ Entry Mode
According to Malhotra, Ulgado and Agarwal (2003), there are several strategies that can be used to attain internationalisation. The internationalisation concept can be analysed from a multi-theoretical perspective in relation to timing and mode of entry.
Various entry modalities and moderating influences play a major role in determining the success of the selected mode. Two major approaches are applied in internationalisation. They include the strategic and the sequential approaches. The interfirm networks, experiences, and personal relationships explain the various stages and processes of internationalisation.
Studies have shown that sequential entry is less popular in developing countries compared to the strategic approach (Malhotra et al. 2003). The latter is highly preferred especially in technology accumulation (Balcet & Enrietti n.d).
Malhotra et al. (2003) advance several theories in relation to modes of entry. The theories focus on expansion and foreign direct investments. They include resource advantage, market imperfections, strategic behaviour, and transaction cost theories.
Others include network and internationalisation theories, as well as the eclectic theory of international production (Rugman & Verbeke 2003).
The resource advantage (RA) theory is applicable to Fukamo’s expansion to Germany. Under this theory, firms compete on the premise that resources are heterogonous.
In addition, the resources are immobile. The second premise is that intraindustry demand is very diverse. Consequently, firms need to diversify in size, scope, and profitability.
As indicated, some resources are diverse and static. As such, some firms exhibit comparative advantage. The advantages translate to superior performance and competitiveness.
It appears that TA theory supports the international trade theory, which highlights the issue of comparative advantage (Hofstede 1980). It is also comparable to organisational capability theory (Andersen 1993).
Fukamo has access to informational, physical, legal, relational, and human resources. It should enter the German market with the aim of developing its comparative advantage, societal resources, and capabilities.
The objectives constitute the main goal of leadership in technology, innovation, and market expansion. They are geared towards the establishment of sustainable competitive advantage for the company (Davis, Desai & Francis 2000).
According to Malhotra et al. (2003), internationalisation, together with the preferred entry mode, is associated with a number of processes. They include exporting, licensing, and joint ventures. Others are licensing, franchising, and strategic alliances (Malhotra et al. 2003).
Fukamo should embrace contractual agreements to address these entry modes. The approach is in line with the company’s internationalisation objectives.
It is apparent that the German automotive industry is more vibrant compared to that in Brazil. In light of this, collaboration and contractual arrangements would support the company’s expansion initiative.
Contractual agreements include strategic alliances, joint ventures, and collaborations with leading German automobile companies.
Conclusion
Internationalisation is common among many organisations aspiring to remain competitive in the global market. The proposed internationalisation strategy takes into consideration the expansion aspirations of Fukamo.
Adherence to the strategy provides a firm foundation for the implementation of the plan in the company. Globalisation presents organisations with opportunities to expand their market share, presence, and dominance through internationalisation.
Trade deregulation and liberalisation have opened up new markets and blocs. Strategic internationalisation can be effectively used to ‘scramble’ for the growing international markets. Strategic alliances are effective as far as access to these markets is concerned.
References
Andersen, O. 1993, ‘On the internationalization process of the firms: a critical analysis’, Journal of International Business Studies, vol. 24 no. 2, pp. 209-231.
Balcet, G. & Enrietti, A. The impact of focused globalisation in the Italian automotive industry. Web.
Bradley, F. & Gannon, M. 2000, ‘Does the firm’s technology and marketing profile affect foreign market entry?’, Journal of International Marketing, vol. 8 no. 4, pp.12-36.
Buckley, P. 1993, ‘The role of management in internalization theory’, Management International Review, vol. 33 no. 3, pp. 197-207.
Chetty, S. & Campbell-Hunt, C. 2004, ‘A strategic approach to internationalization: a traditional versus a “born-global” approach’, Journal of International Marketing, vol. 12 no. 1, pp. 57-81.
Davis, P., Desai, A. & Francis, J. 2000, ‘Mode of international entry: an isomorphism perspective’, Journal of International Business Studies, vol. 31 no. 2, pp. 239-258.
Freyssenet, M. & Lung, Y. 2007, Car firms’ strategies and practices in Europe. Web.
Germany Trade & Invest 2013, The automotive industry in Germany. Web.
Hagiu, A. & Clipici, E. 2009, The internationalization strategy in a global age. Web.
Hill, C. 2010, International business: competing in the global marketplace, 8th edn, McGraw Hill, New York.
Hofstede, G. 1980, Culture’s consequences: international differences in work-related values, SAGE Publications, London.
Huei-Ting, T. & Eisingerich, A. 2010, ‘Internationalization strategies of emerging markets firms’, California Management Review, vol. 53 no. 1, p. 114.
Jones, M. 1999, ‘The internationalization of small high-technology firms’, Journal of International Marketing, vol. 7 no. 4, pp. 15-41.
Kim, W. & Hwang, P. 1992, ‘Global strategy and multinationals’ entry mode choice’, Journal of International Business Studies, vol. 23 no. 1, pp. 29-53.
Kogut, B. 1988, ‘Joint ventures: theoretical and empirical perspectives’, Strategic Management Journal, vol. 9 no. 4, pp. 319-332.
Leung, K. & Ang, S. 2008, Culture, organizations, and institutions: an integrative review. Web.
Luo, Y. 2001, ‘Determinants of local responsiveness: perspectives from foreign subsidiaries in an emerging market’, Journal of Management, vol. 27 no. 4, pp. 451-477.
Madsen, K. & Servais, P. 1997, ‘The internationalisation of born globals: an evolutionary process?’, International Business Review, vol. 6 no. 6, pp. 561–583.
Malhotra, N., Ulgado, F. & Agarwal, J. 2003, ‘Internationalisation and entry modes: a multitheoretical framework and research propositions’, Journal of International Marketing, vol. 11 no. 4, pp.1-31.
Pan, Y. & Xiaolian, L. 2000, ‘Joint venture formation of very large multinational firms’, Journal of International Business Studies, vol. 31 no. 1, pp. 179-189.
Pangarkar, N. & Yuan, L. 2009, ‘Location in internationalization strategy: determinants and consequences’, Multinational Business Review, vol. 17 no. 2, pp. 45-46.
Rugman, A. & Verbeke, A. 2003, ‘Extending the theory of the multinational enterprise: internalization and strategic management perspectives’, Journal of International Business Studies, vol. 34 no. 2, pp. 125-137.
Taggart, J. 1998, ‘Strategy shifts in MNC subsidiaries’, Strategic Management Journal, vol. 19 no. 7, pp. 663-681.
Wild, J., Wild, K. & Han, J. 2010, International business: the challenges of globalization, 5th edn, Pearson Education, Inc., New Jersey, USA.
Williams, C. & Martinez, C. 2012. ‘Government effectiveness, the global financial crisis, and multinational enterprise internationalization’, Journal of International Marketing, vol. 20 no. 3, pp. 65-78.
Yip, G., Biscarri, G. & Monti, J. 2000, ‘The role of internationalization process in the performance of newly internationalizing firms’, Journal of International Marketing, vol. 8, no. 3, p. 10.
Appendices
Appendix I: Germany Automobile Market Value:$billion, 1999-2003
Appendix II: Germany Automobile Market Volume Forecast: Units Million, 2003-2008
Appendix III: Germany’s Strategic Location in Europe
Source: Germany Trade & Invest (2013).
Appendix IV: World’s most Competitive Auto Location
Source: Germany Trade & Invest (2013).
Appendix V: Internationalisation Strategy: A Reflection
Personally, I learnt a lot in relation to development of an internationalisation strategy, especially its application in the global business platform. The difficult part involved developing the strategy in line with the stipulated procedures.
Choosing the best entry mode also required critical considerations. In spite of the various elements related to the internationalisation process, I realised that there was lack of a ‘merged’ or comprehensive theoretical framework.
The framework should have provided explanations on the internationalisation process, timing strategies, and entry modes.
However, analysis of existing literature enabled me to develop a unified framework for the strategy. The internationalisation strategy developed was customised to fit into the objectives of Fukamo Automobiles Company.
Analysis of the various foundational theories regarding internationalisation and entry modes helped me to develop a conceptual framework. The framework enhanced my understanding of the concepts of internationalisation and entry modes.
I used this knowledge to address the expansion objectives of Fukamo Automobiles Company. I provided the management with suggestions on how to implement the internationalisation strategy.
A review of the impacts of technology, national cultures, as well as social and economic challenges provided information on international markets.
An organisation venturing into the global market must be prepared to cope with these challenges. If the company fails to deal with these issues, its chances of success in international markets are minimised.
The undertaking informed my knowledge in relation to internationalisation and international markets. With this knowledge, I am well prepared to work for a multinational corporation in the future. The challenge of understanding and excelling in the current global market is thrilling when exploited using internationalisation.
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