Models for International Business Evaluation Essay

Introduction

In the current age of globalization and its impact on businesses, organizations are growingly embracing business internationalization as a strategic way of succeeding in the global market. In fact, companies have adopted different approaches to globalization so that they could gain competitive advantage in new international market and tremendously improve their financial performance outcomes.

The management teams of business organizations cannot ignore globalization, which explains their focus in developing global strategies guided by international business models (Schott 647). There have been shifts in international business as emerging markets increase their influence at the global stage. In addition, intense competition in local markets have made business establishments shift to global markets.

Major international business organizations indicate a change of trend in global business, which would eventually result in economic power shift. Consequently, most organizations, both small and big increasingly evaluate the potential of international markets and implement strategies to facilitate global expansion.

The retail industry is among those expanding at a high rate and saturation as well as increasing competition in the traditional markets highlights the need for international expansion. The current study focuses on the internationalization strategies adopted by Wal-Mart in its expansion to emerging markets under the three main models for international business.

Wal-Mart – organizational background

Wal-Mart is the leading multination organization in the retail industry with its headquarters in the United States. With annual revenue of more than $421 billion and sustained profitability, the company has a substantial financial basis to pursue its internationalization strategies. The company employees over 2 million employees worldwide, the company is the biggest employer in the private sector.

The high number of employees and excellent financial results demonstrate that the firm has successfully utilized international business models to enter new international markets. Sam Walton founded the company in 1962 with a mission of selling products to customers at a discount to enable them lead a better life.

The expansion of the company was based on establishing stores in small towns initially and grew to its current multinational status. Currently, the company has operations in more than fifteen countries in the developed and developing regions. The growth strategy of the company resulted in rapid expansion over the years and the internalization models have been vital in ensuring success in the global markets (Schott 648).

Models for business internationalization and application in Wal-Mart

The current analysis of Wal-Mart’s internationalization is based on the three major models. These are the stage (Upsalla) model, the network model of internationalization and the transactional cost analysis model (Doherty and Tranchell 166).

The Stage (Uppsalla) model

The model was developed by Swedish researchers in 1970. The researchers were based at the University of Upsalla, and they focused their research studies on Swedish manufacturing companies. According to the model, the underlying principle of an organization’s decision-making process is the objective of achieving sustainable growth and profitability through strategic development when working under the lowest risk levels.

Through the model, Wal-Mart and other multinationals choose the market for expansion and mode of entry. Expansion approaches enable companies to identify untapped markets, which could be used to increase their revenues. The mode of entry that firms utilize to establish themselves in new markets is essential because it helps to project the future performance outcomes in the new markets.

The model advocates for business internationalization to begin from the nearest markets because it is easy to understand the opportunities and operate at low-risk levels (Doherty and Tranchell 166). The model considers psychic distance, which refers to variations in the political system, language and culture.

The model guides the company in choosing the entry method such as direct exportation, licensing, joint venturing and having fully owned subsidiaries. Other entry methods are vital with successive approaches in ensuring success.

In moving to international markets, the company makes three major considerations. First, is the level of market commitment, which determines the level of resources invested in the new market. Second, the company considers the general knowledge, which the company can use in establishing business in the international market.

This has been possible considering the company’s long term experience through operations on other international markets. Third, the company considers human resources capabilities and another resource capacity to improve knowledge levels, creating more value and ensuring stronger commitment (Schott 649).

The transactional cost analysis model

According to this model transactional processes are the main determinants in business internationalization. Using this approach, business expansion to the global market continues to the level where there is a balance between internal and external cost of doing the transaction. Using this model, the minimization of cost is at the center of every decision made for expansion.

In its internationalization strategies, the company integrates processes to its internal structure as a way of minimizing transaction costs. The analysis process considers aspects of market searching, contracting, monitoring and enforcement of the internationalization, which contribute to the overall transaction costs.

The company considers costs going to the search process, which includes the collection of information to determine and analyze possible export intermediaries. Contacting cost considered include negotiating and formalizing of business agreements between the company and its international markets.

Monitoring costs result from monitoring the internationalization agreement to ensure that every requirement is fulfilled. Enforcement costs result from ensuring the actual implementation and managing for reluctant partners in implementing internationalization agreement.

The network model of internationalization

The network model on business internationalization portrays the global industry comprising of other organizations involved in the production distribution and consumption of products and services. In the network, organizations are connected to one another through the exchange of goods and services.

In other words, the model asserts that no company could thrive in an international market without relying on the products and/or services of other organizations. The basis for analysis in the network is the transaction between firms. Indeed, in its expansion, Wal-Mart relies on the wider network to get resources some of which are controlled by other stakeholders and need effective coordination for expansion to be effective.

Effective coordination between companies results in mutual interactions to achieve positive sustainable growth and survival in the business. The network model for internationalization highlights major aspects that link companies in the global market, such as technical, cognitive, legal, social, administrative and economic factors (Doherty and Tranchell 166).

Considering these factors the company commits significant resources, time and effort to establish effective relationships. There are direct and indirect associations between firms. Direct relations are for those firms that have actual transaction interactions. Indirect relationships are with the firms that interact with organizational counterparts (Schott 650).

As indicated in the discussion, a company interacts with others from micro positions, with specific partners and macro positions, with the whole network.

Over the years, business internationalization defined Wal-Mart’s position in various markets, its integration and strength in the market. In this regard, the company achieves internationalization of the organization through three major ways namely direct international extension, penetration and international integration.

Additional insights

Additional insights on models of business internationalization are drawn from the article, New thinking in international trade? A case study of the Day Chocolate Company, which indicates the importance of ensuring stakeholders benefit from the company’s international expansion. Just as the three models propose, the company considers the cocoa farmers as strategic shareholders and equity owners in the organization.

The subsequent good relationships result in improved status of farmers and the sustained growth achieved by the organization. Critical insights drawn from the article is the significance of placing strategic partners at the center of organizations expanding to international markets.

The article U.S. Apparel Retailers ’ International Expansion: an Application of the Uppsala Model, “elucidates the U.S. apparel retailers’ internationalization by proposing a theoretical framework that incorporates the antecedents of U.S. apparel retail firms’ international market involvement and investigating the effects of international activities on firm performance”.

Implications for business internationalization

The analysis of models for business internationalization using the case of Wal-Mart has several implications for business internalization in general. Top of the implication is the need for managers to combine practical experience and theoretical perspectives in the business globalization strategies (Doherty and Tranchell 166).

Through the theoretical models, organizations learn critical lessons about internationalization by understanding the socio-economic and cultural factors in the new mew markets.

The corporate center should take part in the implementation of expansion strategies, and organizational management, particularly the chief executive officer should engage with other partners directs or indirectly to achieve the benefits of business internationalization.

Indeed, while companies have different ways of expanding to new markets, internationalization models indicate the need of engaging stakeholders to achieve sustainable growth in the new countries.

As the internationalization models indicate, involving everyone in the expansion process enhances transparency and provides organizations with ways of managing potential implications on business operations. More importantly, the models emphasize on the importance of keeping in mind long term objectives of the company while addressing immediate objectives.

Conclusion

Globalization resulted in transformation in the conventional aspects of international relations and the business sector responded particularly well with many organizations expanding to international markets. From the analysis of models for business internationalization using Wal-Mart as the case study, the study examined three major models namely the stage, transactional cost analysis and the network models.

Considering the heavy investment of financial, human and other resources, the models provide vital insights to guide organizations in developing and executing their internationalization strategies. Using the models for business internationalization, companies have a broader picture of factors that determine success or failure in the international market.

The factors to consider in internationalization include market size and potential for growth, competition intensity, political and legal factors, the GDP, population distribution in the rural and urban areas as well as the socio-cultural environment.

From the case of Wal-Mart, the company implemented its internationalization strategies based on guidelines of the models, which made the company hugely successful in most of the markets entered. The insights provided from analyzing the models and the case of Wal-Mart have major implication for the company and other intending to implement internationalization businesses.

Works Cited

Doherty, B., and Sophi T. “New thinking in international trade? A case study of The Day Chocolate Company.” Sustainable Development 13.3 (2005): 166-176. Print.

Schott, Peter K. “Across-product versus within-product specialization in international trade.” The Quarterly Journal of Economics 119.2 (2004): 647-678. Print.