Firm Internationalization & Export Barriers in China
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Economic liberalization all around the world and the general phenomenon of internationalization has offered incredible amount of accessibility in various markets, investment and outsourcing opportunities for large multinational corporations in developing economies. An instantaneous consequences of internationalization process has received limited amount of research attention and is the developing presence of companies from developing countries in an incorporated global economy.
The decision of companies to go global is a dynamic concept and is not inclined to a singular approach. As an organization expands its operations into the international marketplace, its management have to face increased amount of risk with uncertain profitability. With the establishment of any new venture there is a learning curve that every firm follows even if best of planning practice has been followed (Wolf, 2012). Expertise in international market is developed gradually and during that time there is high amount of contingency situations present. Over the longer term these factors get stabilized as the company becomes gets acquainted with more knowledge and experience but in the initial period the path could be troublesome.
In order to achieve success in the international market an organization need to focus on three major areas i.e. effectiveness, efficiency and competitive strength. Efficiency is characterized by acquirement of market share in abroad market and by increased level of sales. Effectiveness is apparent by increasing profitability and competitive strength is reflected through increased amount of market share (Antoldi and et. al., 2012). The massive development in information and communication technology has made the entire world smaller than ever before and now customers and sellers from all around the world can transact in a virtual manner for any commodity within seconds. All these has led to increased amount of transparency in business, financial innovation and an increasingly inter allied nation that has mad international trade an elemental fact of economic life (Kolsi and Poyhonen, 2012).
In this respect the present study has been undertaken to assess the benefits of internationalization of business and the various export barriers to enter into the Chinese market. In current research report a primary and secondary both analysis have been undertaken to accomplish the research question and probable measures fur further survey. A research is carried out in one of the fish farming company origin from Norway named Nova Sea and focus have been given to analyze the major barriers that this firm faces to enter into the Chinese market.
Literature review helps in to focusing on the research question by articulating the knowledge gap and it gives attention on assessing the previously published articles and literature on the prescribed topic. Literature review section aids in seeking information from various sources and undertake a critical analysis in the area of research. In the present research report focus has been given on the assessment of firm internationalization and the various barriers of export in Chinese market .
The term international usually depicts either an attitude of an organization towards foreign activities or actual actions carried out abroad. The attitudes are basic decisions which are required to be accomplished at international ventures and the experience from global activities influencing these attitudes. In economics, firm internationalization has been seen as a process of enhancing involvement of enterprises in international markets although there is no fixed definition for internationalization. There are several theories that try to explain the reason behind international activities. According to author Andersen and Christensen – Globalization has redistributed places of employment and has given additional transformation pressure on firms, in the form of market turbulence, increased competition, swift technological and innovative skills and organizational costs to firms . In today’s business environment globalization and virtual economy are external factors that drive organizations to approach the global market from start up, giving birth to several new studies on internationalization strategy that represents an assessment of classical theories.
The basic assumption is that the organization firstly must develop in the domestic market and it is consequence of series of different incremental decisions. One of the most significant obstacles in internationalization is lack of wisdom and resources in a firm . These barriers could be minimized with the help of augmentation in decision making and learning about the foreign market and operations . Hence, the study will go through a review and assessment of various literatures on firm’s internationalization and barriers in export that arise in the market of China. The purpose of this paper is to identify and categorize several factors that act as a barrier in front of companies in China while approaching an international market and export.
An organizations decision of internationalization could be driven by various motives and is one potential strategy that is being utilized increasingly by many business firms to enhance the size and sale of the firm by increasing their market share, profitability and becoming an industry leader. It is one of the major attribute of current market entry strategy process in most of the organizations that determines the ongoing development and change in international firm in terms of scope, value, business ideas, and principles, nature of work and action orientation. The dimension of internationalization is associated to different aspects of strategy process and thus makes a company become transnational . The process of internationalization mainly focuses on the development of individual firm on its gradual achievement, incorporation and utilization of knowledge about foreign markets and operations.
The internationalization theory has been developed by JohansonWiedersheim – According to this theory when faced with unknown markets, incomplete information and being in a situation of continuous incertitude, an organization develops itself in foreign markets by enforcing a process that progress by increments . The organization passes from one stage to another as it attains more of international experience. On the one hand internationalization process grows between the development of a firm in foreign market wisdom and on the other hand the rising commitment of its resources in the market .
The main purpose of this model is to evaluate and integrate a wide range of management approaches and concepts that focus on international marketing which is faced by the firm. According to author Williams and Naumann - This model helps in to analyze the management issues i.e. faced by a firm in the international markets and aids in to select and assess appropriate conceptual frameworks. The model also assists in identifying the trends of international marketing actions, design and develops strategies for customers and products and services of firms . Through this approach a firm can decide proper way to enter in the chosen foreign market and widen the international marketing conciliation strategies.
The five stages divide the risk and provide method to implement international marketing strategy chosen from suitable method of pricing and distribution.
As, in the current research report an analysis is being made on identifying the barriers in export in Chinese market, in this respect it has been observed that China has become one of the world’s biggest economy and a exporter in the global economy. However, there are certain challenges in the market of China which need to be rectified because the rapid development continues to offer huge opportunities with numerous potential for further expansion of trade and investment.
Export is the new focus of China and according to experts the growth of China’s export market collapsed with around 1% in July 2012, and it continue to go down until it reaches to a double digit if the nation does not takes a serious step to make things right. There would be uncertainties and challenges in export market going forward and the country need to focus its way towards its export market. A sound market strategy is required by firms of China to enter into the international market and in order to be successful in the international market it becomes essential for firms to achieve these five stage process of internalization properly with high end marketing capabilities . Moving on further in this research focus will be given to analyze the different internationalization models and does it helps an organization to globalize its operations.
Internalization is the process of augmenting international activity of an organization and this could be achieved through exports or from direct purchase of a factory in a novel market. According to Bateman - In order to invest in a foreign market it is vital for a firm to assess which one is provided to enter into the market and the mode of entry in it. The Uppsala model is one of the best known models that state how firms set their international process. This model presents a sequential approach, meaning that the company internalizes incrementally .
The Uppsala model assumes that there is lack of knowledge about the foreign market which is unfavorable to globalization. Hence, it proposes that the company should firstly establish itself in the domestic market and enhance and its commitment and resources in the target nation through different stages, developing into the next stage as sufficient amount of understanding and wisdom of foreign market conditions have been achieved .
Uppsala model has defined internationalization of a company as a process of experimental learning and incremental commitments that leads to an evolutionary development in foreign market. Johanson and Vahlne developed this approach in the year 1977, by referring to practical observations on Swedish production firms from their researches in the international business department of Uppsala University. One of the basic beliefs of this model is that the lack of wisdom is a significant hindrance in the development of various international operations . Therefore, this model has managed fundamentally with acquisition of knowledge and learning. It has been observed that the lack of market precise knowledge has forced Swedish firms to develop their operations internationally in small steps by undertaking incremental pledge decisions and moving towards close nations in order to minimize the market uncertainty .
The four stages depicted in this model above are referred as establishment chain in which the initial step is when organizations have no regular export activity and knowledge about market is acquired in the second step companies starts to export towards the target nation through agents or independent representatives as commitment made, the third step includes establishment of sales subsidiaries and analysis of current activities and ultimately the final step begins to produce or manufacture in the target nation (New Challenges, New Approaches: A New Model of Firm Internationalization, 2011). Therefore, one of the central aims of this model is to define how an organization learns and attains wisdom throughout its global operations. According to the authors, essential knowledge can be attained but due to its implicit character the most efficient solutions lies on the firm’s own operations .
This section of the report presents a theoretical statement that ultimately forms a basis for the survey to be undertaken. This chapter will aid in to explain and further assess the research question that rose in the literature review section. The various methods, approaches, strategies and processes included in the research would be depicted here in this chapter of dissertation. It mainly depicts the practical framework as well as diverse methods puts up in the report accomplished. In order to achieve objectives effective and outcomes of many issues, numerous research instruments and philosophies are developed in this section.
In the current research report with the help of different research tools, the researcher will try in to obtain findings for further research in the area of internationalization of a firm that should be selected by a company for a strategic move and analyze the diverse barriers that arises while entering into new international market.
Research strategy section includes the different methods and data collection tools and assessment of accumulated data. This section of the report defines the various methods used in to evaluate the data and its benefits in the research process. There are various techniques available to collect and interpret the empirical data. The two main methods mostly utilized in research strategy are;
The research strategy selected in the study will be in qualitative form and further analysis would be made with the help of case study approach. Case study method will help in to assess the phenomenon directly and relate it with the theoretical findings. In order to trace the internationalization process and the several barriers that acts as a hindrance for the company in to globalize them . In this context the researcher has selected the company Nova Sea to interpret the case study, in this area analysis would be made to know about its products, export barriers and the international market available for the company to develop.
Case study approach will aid in to collect and present the detailed information about the chosen company and it can also refer to smaller groups. The strength of this method is that it provides a range of evidence through documents, artefacts and observation method. Case study method will also present an opportunity to acquire the data directly from specific case and analyze the same which could be related with the theoretical findings .
This approach will also include some limitations because research could not be generalized as it gets narrowed down to an individual or a group. It acts as a hindrance and difficult to generalize the outcomes. The design of current case study will be based on single case and the assessment of a single phenomenon. The organization that has been selected here in is Nova Sea and interprets its barriers to internationalization .
Case study method has been selected here to analyze the outcomes because it will acts as the best possible way to acquire the most suitable answer. This method will provide justification to research process because through this researcher can evaluate and comprehend the barriers of entering into new market in a forms internationalization process . By using Uppsala model researcher will undertake the study and identify the several barriers attached in the way. Reports of company and interview will help in to analyze the case of the selected company.
Initially the research question will be defined and focus and purpose of the problem will be explained to the respondents. In the next step a case study of Nova sea would be analyzed in respect to internationalization and the several barriers they have to face in the global market. The data will be collected by analyzing company reports, interview and website of Nova sea, The acquired data would be arranged in a sequential manner because large amount of data would be achieved from various sources. Finally the collected data would be analyzed in a qualitative manner.
Analysis of data is one of the most significant section in a research and it immediately succeeds the data collection section. Data analysis is systematic process for evaluation of data that has been achieved through primary research. It offers a conclusion to the research issue and also forms an appropriate inference. It is mainly of two types quantitative and qualitative. In the qualitative method generally themes are prepared to form meaning from the acquired data, on the other hand quantitative assessment includes statistical or graphical representation of information. This techniques’ is basically a mathematical process that gives a accurate and specific analysis of data. The methods used under quantitative form are regression, correlation, MS-Excel and SPSS .
In the present research report the collected data will be interpreted in a qualitative form by the using thematic analysis to interpret result of every question from the questionnaire. The acquired data from secondary and primary sources would be represented in a qualitative form with the help of thematic analysis and outcomes will represent qualitatively. In the present research report the Uppsala model developed by Johansson and Vhalne in 1975 would be used and then the gathered empirical data on Nova Sea and its internationalization barriers would be shown.During the analysis aim would be given to evaluate the research question and identify the barriers that act as a hindrance to Nova Sea to reach into international market in context of the selected theory.
A case study is defined as qualitative method to undertake a research and plays a crucial role in the analysis of present research report. In the current report the researcher will be using a descriptive mode of case study; it will need a description of the theory that will establish the overall framework for researcher to follow the method in the entire study. The present research is designed to analyze the export barrier that firms faces in internationalization in Chinese market. In this context researcher has selected a well recognized company that deals in export of Salmon fish in Norway .
Norway is the leading country with in the production and export of salmon in the world. The salmon farms has spread itself along the coast line, the water which are holding a stable temperature of (4-15 °C) makes it an excellent environment for salmon farming. Fresh salmon is the main product of export out of Norway. Increased production of seafood is an important part of the answer to the global food challenge and Norway manages some of the world's richest fisheries and aquaculture resources and can significantly enhance supply .
The company Nova Sea was founded in year 1972 by Steinar Olaisen, he was country’s leading farmer and exporter of Salmon in that period. Nova Sea has its main head office in Lovund at Helgelandskysten. During the earlier time when several companies involved within the farming industry were facing disappointments and the domestic fishing industry was struggling to survive in the market, there was one man who did not give up his beliefs was Steinar Olaisen. He was having strong belief in the cause and with the assistance of his close relatives and his hard work with several experiments and trails he made his wish possible to depopulation and a strong depression in local trading industry in farming .
Nova Sea was the first company that offered first batch of salmon for farming in the northern Norway where the ship was shipped through plastic bags and by seaplane during the early 1970s. When the local fishing industry was struggling hard to survive and there was very little optimism among the people of the island community, Nova Sea survived and continues to run in accordance with basic principles of integrity, honesty and shipped the products in international market and now the firm is filled with optimism and is in full bloom .
The company is having approximately 200 employees and has production at an average annual turnover of 1000 million kroner. This positions the firm as one of the largest firms at the coast of Helgeland. The production facilities are located in 11 municipalities along the extensive Helgeland coastline. The administration and industrial facilities of Nova Sea are situated at the island of Lovund in the municipality of Luroy. Harvest and packaging is accommodated in this site before distribution into domestic or international market.
Nova Sea faces one of the barriers is that they do not have enough amount of employees to produce the amount of tonnage so that they can enter into the Asian market with full capability. But firm is introducing 50 new employees in 2013 to ensure that they can manage this critical situation. There is a huge potential in the rising economy which is getting stronger and stronger every year, mainly in South East Asia and China. In order to expand the market operations Nova Sea has started exporting its products in countries close to their own domestic market like Denmark and Sweden.
This company holds a highly professional and dedicated staff that incorporates several full time veterinarians and biologists. Nova Sea is focused towards its one vision i.e. “to provide customers products that is safe, healthy and good for them”. This firm has developed a system that constantly monitors its products and supply is managed according to it, it ensures the best possible condition for the salmon with respect to animal welfare through, temperature, feed, environment and nourishment (Nova Sea, 2013). The products are supplied with full traceability documentation of nutrient content and customers want it to be delivered at their place. Nova sea makes commitment to always produce salmon natural requirements is properly maintained and supervision of every activity with attention towards the environment is the major factor.
Findings section aids in representation of all the result that has been acquired from the research it presents the main outcomes that are being achieved from the final research that has been undertaken with specified aims and objectives. The researcher has to evaluate suitable method with most effective information could be achieved data analysis gives a clear image of the survey that is generally achieved through two diverse methods qualitative and quantitative analysis. It is one of the most complex and mysterious section of the report that evaluates the ultimate end result of the survey.
In this research report a primary data analysis was undertaken in Nova Sea that deals in fish farming in Norway. A survey was undertaken among some of the employees of the organization to represent the information. The accumulated data from the respondents were assessed with the help of thematic analysis in which representation of outcomes were made by preparing distinguished themes. Through this focus would be given to analyze the external and internal barriers that firms faces prior to enter into the international market.
Theme 1 – Internationalization has helped in Nova Sea to achieve a competitive position in the market.
Technology facilitates several kinds of benefits to business to opt for international operations and even the smallest business can achieve large amount of customers in every time zone. Through internationalization Nova Sea has itself capable enough to enter in different nations and cultures and fulfill the anticipations of customers accordingly. Internationalization has helped the firm to achieve a competitive position in the market because through this firm can sell all its products according to the regional requirements, because in sea food it is possible that some of the products could not be liked in other areas and vice versa . In this situation firm can deliver its product with the requirements of region and can deal in maximum variety. One of the significant advantages that the firm has been able to derive is the increased life cycle of organization as Norway is having a small limited market and through increasing its presence in different countries Nova Sea has been able to manage its operations and achieve competitive niche in the market place.
Theme 2 – Asia is a potential market for company
Most of the respondents replied that Asian countries are the potential market for company where demand is continually rising in both developed and developing nations. Since fish is considered as a significant source of animal protein and demand is expected to rise in upcoming future, mainly in this nation where population is increasing to its largest. Because of situation of demand and supply the prices of fish is expected to increase and there is already a movement towards attainment of lower value species as the increased value stocks becomes depleted. Prices in sea food to some extent will regulate demand and supply and is probability that high price will drive out some minor players in the industry. Asian countries presently represent the largest region within the international sea food market and are leading ahead in production and import of farmed fish by making significant contribution in the food chain of region and generates maximum of employment opportunities.
Theme 3 – Several internal barriers to internationalization of firm
Many of the respondents replied that Nova Sea faces huge amount of barriers in diverse areas while entering into the global market. The barriers to internationalization having a significant impact on entry mode choice were identified as foreign market attractiveness, foreign business practices being incompatible with domestic business, venture management characteristics, distribution access and adapting to foreign market needs. Nova Sea has started their internationalization with other countries that is close to its one domestic market to gain market knowledge, and there after moved it into more distant markets.
Theme 4 – Faces competition from other Norwegian salmon exporters
It has been found from the analysis of the data that Nova Sea faces intense amount of competition from the domestic and international players. There are several firms that have analyzed the potential market in Asian and other countries and are focusing towards internationalization of its operations, in this situation the firm has to design various competitive strategies in order to achieve a market niche.In this modern era where business are increasingly affected by actions of international competitors as an outcome of globalization process. It occurs mainly because of the contracting business distance and technology has enabled to access any market far fling parts of the world. In this respect Nova Sea needs to constantly monitors its operations and acquire competitive advantage in more and more markets.
The present research report is undertaken to assess the export barriers to enter into the Chinese market. As many of the nations liberalize and open up markets by taking apart government barriers to entry, there is also a concern that these barriers could be replaced by less transparent private barriers. There is also a debate rising whether competitive law enforcement is adequately dynamic to safeguard anti-competitive conducts that limits the foreign competitors to enter into a different market. Indeed implementation cooperation among competitive and regulatory authorities has initialized rising support for internationalization of competition policy in order to ensure a suitable and effective smooth enforcement of competition law and to avoid the risk of jurisdictional conflicts.
The internationalization of competitive policy brings in complex challenges for policy makers and in this respect it is significant to praise that essential differences remain in the substantive competition policy standards and implementation processes of main global trading countries, notwithstanding more than a decade of union in analytical techniques. These kinds of variations are extensively ingrained and show the different legal, cultural, economic and historical traits of respective nations. Hence, any movement towards the enforcement of multilateral rules on competition policy will need additional deliberations especially highlighting these issues .
In this context the present research report was undertaken to analyze the different challenges that an organization has to face while internationalizing its process and the scope available for export of goods in Chinese market. In this regard an organization i.e. Nova Sea was selected as the area of research. Nova Sea basically deals in farming of salmon fish since decade and has globalized in its operations in many parts of the world. The company planned to enter into the Chinese market to expand its business but due to several challenges associated with it and barriers that came in front for firm to enter into the business .
In order to overcome several barriers Nova Sea adopted many kind of policies in its organizational and marketing structure, so that it can achieve a competitive position in the market. From the undertaken research it has been found that company has to face many of the challenges in respect to internationalization. One of the significant factor that was found from respondents were competition pricing due to which firm was facing intense challenge; the pricing of the volume of fish is a kind of bulk commodity, and thus very market-oriented and prone to hard and transparent competition, the price is basically the same for all and it worked like a stock exchange. It is also hard for company to advertise its products to find the right kind of customer and had a great future in the Chinese market before the boycott. Now the buyers need to take percorsens before buying the fish. And because Nova Sea do not have any foreign represent for their brand.
Nova Sea also faced intense amount of competition due to distance to export the goods that ultimately makes the cost high of commodity. This makes mandatory to rely on customers to there when goods are delivered and it is because the company is not having any warehouse in which fish could be stored. Deliver of product is also affected by reliability and capability because the firm is dealing in product which is a living creature and lives in sea and is dependent on numerous external factors like wind, weather and climate etc .
The outcome derived from the data also reflected the key issues in terms of competition that Nova Sea faces in present market situations. There are several competitors present and exists in exporting in Chinese market . There are various fish farming organization that fights for similar customers and also competitors in the Chinese region that is keen of capturing new customs and markets, with more knowledge and a bigger network of contacts. This makes the market entry strategy much more difficult, because company founds its buyers on one initiative and so they need to play their cards right, and sell their product on the basis of their reputation and quality .
This is the part where I'm concluding my project. Through this project I have answered my research question: barriers that Nova Sea need to overcome to enter a new buy understanding the theoretical framework (Uppsala model) and chosen case study (Nova Sea). So through this section I'm going to summarize the results found and perspectives for future internationalization and market entry. Internationalization of a business organization is driven by several factors and it is one of the significant potential strategies that are being used increasingly by most of the business companies to enhance its size and augment the sales by rising their market share and revenue and achieve a competitive position in the market. It is one of the significant attribute for to enter into a market and in most of the firms that defines the ongoing development and changes in globalized organizations in terms of its value, scope and nature of work. The element of internationalization is linked to diverse aspects of strategy process and thus makes a company become transnational .
In today’s modern business era technology allows business to be in global operations and even the smallest firms can have customers in different parts of world. The tastes and preferences vary from country to country, all these factors basically depend on the cultural aspects of regional people. In this respect many a times it has been found that some global organizations tailor different product offerings according to the geographical locations and while some other undertake an international strategy by selling the similar product worldwide. The biggest advantage that a firm achieves from an internationalization strategy is that it enables a firm to influence economies of scale and when similar goods are offered all around the world, firm can purchase its raw materials in bulk by significantly saving the organizations investment per year. Economies of scale can safeguard a firm’s money in respect to labor, packaging and cost associated in marketing .
When ever an organization decides to undertake its business at global level many factors acts as a barrier in growth and development of organization, in current research report where the firm Nova Sea undertook a decision of expanding its business operation in the market of China it has to face many of the challenges in this regard. Finding shows that a major barrier for Nova Sea is the cultural difference . Challenges are common in any internationalization process. The difference in culture is also a barrier Nova Sea has so far just export to Europe and Russia, with their future product that they will start to sell to China in 2013. The one thing that both the nations have in common is that both of them love the Norwegian salmon" and this is because of the Norwegian salmon's freshness and quality. But the cultural miss communication should be taken seriously as language barrier between two countries is a common and a thing that should be avoided .
China is a market in which Nova Sea want to export, but that the current situation makes it difficult for them to find Chinese importers that want to buy form Norway. As mentioned earlier the political instability is always a factor that is a current problem or someday can be findings shows that the political situation in China is a current and on-going conflict between China and Norway . As a move towards liberalization trading, China has continuously recued some of its administrative barriers to trade. It has been found that by the end of year 1997 the categories of import goods which is subject to licensing control were managed and reduced to 35 and most commodities except the 16 crucial ones that are currently under state of monopoly to all enterprise given in export and import rights.
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