George Yip Model Of Drivers Of Internationalisation
Drivers for internationalization George Yip proposed his model of the drivers for the growth of international strategy among corporate organizations. He introduced four main categories of drivers that were key in determining the extent of globalization within a particular industry. Global strategies in the international hotel industry. Stage 1 (Drivers).
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The papers in this portfolio are all related to the strategic decisions that corporate organizations make in order to expand their share of the ever-growing global market, while ensuring that their competitors are not able to replicate their formula for success. Three of the papers discuss specific companies-Tesco, Rolls-Royce, Carrefour and Wal-Mart-thus giving the impression of a mini case study on how these global players strategize their way into market domination and superior firm performance. The third and final paper is a general discussion on George Yip’s model on internationalization drivers as these are applied in the civil aerospace engine manufacturing and the global grocery retailing industries.
Students, scholars and practitioners alike will benefit from the lessons and analyses made in these papers because they show a thoughtful and realistic look into the workings of different corporate organizations while utilizing different business concepts. At the end of the day, this portfolio is designed to show the student’s ability to comprehend and analyze practical business dilemmas in light of existing theory.
Drivers for internationalization
George Yip proposed his model of the drivers for the growth of international strategy among corporate organizations. He introduced four main categories of drivers that were key in determining the extent of globalization within a particular industry. These are:
Market globalization drivers
Cost globalization drivers
Government globalization drivers
Competitive globalization drivers
A company that exhibits less of these drivers is characterized as being local in nature, and conversely a company with a higher number of the drivers are becoming more global both in outlook and in operation. These drivers are not stand-alone, however, because they in fact influence on another in a cycle that determines a corporate organization’s readiness to join the ranks of global companies. Stated otherwise, these internationalization drivers are governed by four different factors: technology, social and demographic considerations, politics and legislation, and economic and political considerations.
All in all, should a company wish to transform its operations from that of a local industry to an international one, it should pay attention to the different factors that can make or break its ability to participate actively in the global market. While there are of course other factors that may influence a company’s eventual success in going global, Yip’s model gives us a simplified and practical view of what it would take for a company to launch itself into the global playing field and claim its share of global consumers.
Different industries and different corporate organizations vary greatly in their capacity for globalization, especially because the nature of the products/services they offer as well as the consumers who avail of them are vastly distinct from one another. Let us compare the global grocery retailing industry and the civil aerospace engine manufacturing industry as an example. We can compare the two in this manner:
Global grocery retailing industry
Civil aerospace engine manufacturing industry
Market driver
High
Low
Cost driver
High
High
Government
High
Low
Competitive
High
High
Countries that have the most advantageous combination of as many drivers as possible are preferred by global companies, as a market for their products/services, as a home base or both. As we can see from the table above, the global retail industry actually has better potential for pushing a global strategy. This is evidenced by the relatively recent entry of new global grocery retailing brands such as Wal-Mart into previously untapped markets like China. Because of the high tendency for globalization, other retail companies are also beginning to look in to the possibility of expanding their business overseas in order to benefit from a bigger customer base.
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Carrefour, Wal-Mart and the Chinese market
The entry of big international players in the Chinese local market in recent years has shown that China is the new gold rush for global companies looking to expand their share of the market. The global grocery retailing industry is just one of the many business sectors that have come to China to make the most out of the millions of consumers who will avail of their products and services.
The bid to make China the next biggest market for the global retail industry started in 1992 when the country opened up its retail industry to foreign investors like Carrefour and Wal-Mart. Carrefour entered the market three years later by opening a partnership with a Chinese management consulting firm, creating an entity called ‘Jia Chuang.’ While other companies treated the Chinese market as one big bloc of consumers, Carrefour looked considered it to be composed of many smaller markets. It opted to create regional offices which were in charge of the expansion programs for different areas of the country, instead of having a centralized national operations network.
Carrefour continues to carry out its expansion strategy by depending on local distributors, who supervise the delivery of their products straight to the stores from the regional centres. The company believes that flexibility is a priority consideration especially when operating in a relatively new market. The cost of development is lower because Carrefour is able to build its network store by store while keeping issues about uniformity of service and quality control in check.
As for Wal-Mart, they see the challenges of the Chinese retail market differently. Unlike Carrefour, Wal-Mart is putting its investments on a centralized distribution system that is headquartered in Kengzian. The new centre boasts of a 40,000 square meter facility that has been created to handle simultaneous deliveries with up to 70 bays. But like Carrefour, Wal-Mart has also entered the Chinese domestic market by partnering with a local firm, a Taiwanese retail firm named Trust-Mart.
Wal-Mart’s emphasis on back-end operations is almost the exact opposite of Carrefour’s customer-first strategy, although the latter seems to be on the upper hand in terms of actual market share and profitability. However, at some point Carrefour will also need to pay attention to its back-end to maximize the strong dynamics among its stores. Its current strategy is working well for China’s market environment but new developments will have to be introduced in the future.
No global retailer has yet launched an all-out expansion into China without creating a joint venture with a local company, which is a strategy that enables them to ease slowly but surely into the market instead of going in without a clue as to how the market actually works from the inside. However, it would be more disadvantageous for a global company not to try breaking into the Chinese business scene. The market is rich with millions and millions of consumers who are only too willing to try new the products and services that have suddenly become available to them thanks to the opening up of the market. Care must be made in making these new foreign financial investments work in order to ensure that the companies will see good returns on their investments. Companies must not be deluded by the promise of a huge new market and fall behind their usual standards for doing business.
George Yip Model Of Drivers Of Internationalisation
Tesco’s core strategies and VMO
Tesco is one of the leaders in the global retailing industry. The company started in the United Kingdom in the late 1920s and has since grown to be one of the most robust and successful supermarket companies in the world today.
Tesco’s core strategy is founded on their desire to attract and maintain customers who will become their lifetime partners. The company espouses the belief that their corporate success is dependent on their ability to meet the demands of people-both the people who work for them and the people who shop with them. Tesco’s two-pronged approach misses out on no opportunity to improve not only their service and products, but also their international relationship with their staff.
This is reflective of the current thinking among corporate organizations today that a company’s human capital is more than just another factor of production-they are in fact the backbone of a company and they make it possible for the corporate strategies to be carried out effectively. Paauwe and Boselie (2002) point out that the emergence of such a breed of HR management has been brought about by the fact that human capital is now seen as a source of competitive advantage.
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As for Tesco’s commitment to their customers, the company is firmly rooted in the belief that going the extra mile to satisfy their shoppers’ needs and requirements will go a long way towards ensuring their loyalty to Tesco. Loyalty is key to maintaining and expanding Tesco’s share in the retail market. If Tesco can give a customer superior service, then there are higher chances that that customer will keep shopping only at Tesco. But before Tesco can be first to meet their customer’s needs, they embark on a focused and in-depth study of their shoppers in order to anticipate what they require.
Tesco employs what they call the “Every Little Bit Helps” strategy to ensure that they know exactly what their shoppers and their employees want. Tesco has designed five core business purposes:
Be a successful international retailer
Grow the core UK business
Be equally strong in the food and non-food sectors
Develop competitive retailing services
Put the community at the core of all business activities.
The “Every Little Bit Helps” strategy is Tesco’s way of translating these core objectives into actual strategies to help the company achieve its organizational goals. Without the concurrence of both strategy and purpose to guide a corporate organization, especially a global one like Tesco, there will be little chance for the company to have a clear direction of where it wants to go and how to go there. The core strategy and core purposes of Tesco are a way for the company to articulate what it wants to achieve within a given timeframe, as well as crafting the necessary steps to accomplish the goals that it had set for itself. As for Tesco, the company is imbued with the lesson that no organization will progress without considering the needs of its customers and its employees, so their approach is always to seek what is best for both in order to make the company number one.
Strategic alliances and Rolls-Royce
No man is an island-and even in businesses, this cliché rings true today. Some organizations, particularly small-scale ones or those that have only just started doing business, may be better off finding their own niche in today’s complex market, but there may come a time when they will have to form significant partnerships with other businesses in order to flourish and achieve sustained growth.
The current state of the global business landscape today has forced organizations to come up with more creative ways of surviving and keeping ahead of their competitors. Some of the more important aspects that most companies today are focusing on to improve their overall performance are enhancing their brand identity, connecting with customers and attracting competent and highly-skilled workers (Isidro, 2000).
Moreover, today’s corporate managers are also facing a highly competitive environment “that is increasingly complex, globally cantered, and technologically uncertain where there is a critical need for dynamic, flexible, and proactive responses” (Miles, Preece, and Baetz, 1999). It is no longer enough to emphasize on creating and opportunities on their own, because independence also has its drawbacks.
As a result of the various pressures that companies are facing, there is now an increased tendency among them to favour forging strategic partnerships and alliances as a viable business option. Elmut and Kathawala (2001) are also of the opinion that strategic alliances among corporate organizations are one of the most recent trends in the business community that have made it possible for companies to stay afloat despite serious drawbacks and difficulties.
In the case of Rolls-Royce, the company has entered into almost 30 separate partnerships with different firms all over the world to help expand its share of the global market and build on its knowledge and technology base. Of the four reasons that Elmut and Kathawala (2001) outlined for the emergence of strategic alliances, it appears that there are two primary reasons for why Rolls-Royce has chosen to partner with different firms. For one thing, the company stands to gain from such partnership in terms of entering new markets with which it is unfamiliar. Brokering a deal with local corporations allows Rolls-Royce to expand its market while at the same time benefiting from the expertise of an old-timer in the market.
Secondly, Rolls-Royce is also into strategic partnerships in order to obtain new technology and best quality at the cheapest cost. The company has four business divisions, all of which need intense research and development funding. Instead of going through their own R and D cycle, Rolls-Royce can share their knowledge and technology with their strategic partners at a much lower cost, thus ensuring that each division is well-maintained but is not draining the company’s resources for continuous R and D. While Rolls-Royce can actually provide the funding for its own R and D, it is more cost-efficient for the company to trade information with its partners and make the product or service immediately available in the market.
It must be noted, however, that it is not just Rolls-Royce who stands to reap all the wonderful benefits from the strategic alliance. Their partners also take advantage of the Rolls-Royce brand name and the company’s existing network of contacts, suppliers and customers, giving the other partner a fair competitive advantage over its competitors in the local market. Strategic alliances are all about creating good working relationships with other companies in the industry and pooling together resources for the mutual benefit of the partners.
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There are four industry drivers: market drivers, cost drivers, government drivers and competitive drivers Yip 1992. Market drivers are customer needs and tastes become more common, the existence of global customers and transferable marketing between difference countries. Costs drivers are scale economies, favourable logistics, and country specific differences. Government drivers are numerous and include eliminate all tariff and non tariff barriers, liberalise trade policies, subsidies outlawed, ownership restrictions and technical standards compatible for all industries. Competitive drivers are competitors’ global strategies and country interdependence. Yip’s globalisation drivers on various industries are shown in table 3 of appendix 2. No other industry is more international than civil aviation industry which ranks first out of twelve industries in market and competitive globalisation drivers and second for cost globalisation drivers. The graph shows the airline and retail business are affected differently by the drivers. Market, cost and competitiveness drivers cause the airlines business to go for high globalisation. Government driver plays a key role on the domestic products.
Barriers to Globalisation
Governments impose legal and regulatory barriers can hinder the flow of goods and services and the movement of capital and people. Many states still maintain numerous tariffs on imports of goods due to various reasons. Developed countries impose particularly high tariffs on goods coming from underdeveloped countries. Subsidies can take the form of financial grants and tax concessions and are often given to protect domestic firm from foreign competitions such. In Japan, the government protects the farmers’ interest through various rules and regulations. The western countries impose an embargo on high technology transfer to communist countries including China. Control on Capital in China and many other undeveloped countries can take the form of either controls on inflows or outflows of foreign direct and indirect investment. Government department, nationalized industries and public utilities often spend large amounts of public money purchasing goods and services. In the tendering process, government will often favour domestic companies over their foreign rivals even when domestic firms are less capable and more expensive. Border controls affect trade in goods. Exporter and importer may require filling in export/import forms. The customs officers may stop vehicles and check goods at the frontier. This will take time and add additional cost to traders’ transport thus make goods less competitive in the foreign market. Many barriers remain to the movement of professionals and lobour force. Technical standards, operation licenses and regulations can be formidable barriers. There are thousands of different technical specifications relating to goods and services which can effectively protect domestic markets from foreign competition and consequently restrict trade.
Drivers against Barriers
Globalisation involves the fusion of economic, cultural, political, and physical between nations and countries. There are historically barriers between countries due to geographical distance, cultural and ideology difference, and national interest. Globalisation promotes mutual reliance between countries through all forms of drivers such as the cost drivers, government deregulation, mutual recognition of technical standards and qualifications. If drivers diminish, the barriers will become larger. After China entered the WTO in 2000, the government drivers effectively change the policies and regulations to enable the free trade and investment.
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Conclusions
China is the emerging force in today’s business world and its domestic market bears huge growth potential for Tesco. Tesco is competing with others multinational companies such as Wal-Mart and Carrefour. The retail industry is not considered to be a prestigious industry by the Chinese government and is therefore not sanctioned like the state owned infrastructure and heavy industry sector. Local government would like to upgrade the city image by closing down some of the street wet markets. As Chinese getting wealthier, they are looking for better quality goods, services and good brand names. Foreign-funded retailers can normally meet the expectation of the younger generation. After knowing the macro environment of China, Tesco can formulate its China market strategy. Tesco can find a partner with local knowledge and deploy stores in major cities, and then gradually expand towards the second and third-tier cities. Domestic supermarkets mostly start in a central region, and then radiate towards the periphery areas. For example, Lianhua started in Shanghai, Better-Life in Hunan and Jiangxi, Meet-All in Shanxi, Wu-Mart and Jingkelong in North China and New Huadu in Fujian respectively.
In the coming China’s twelfth five-year plan, the annual GDP growth is expected to be 7-8%. Along with China continue to reform under the new leadership and increasing people’s income, the development of China’s supermarket industry will have the following trends in the future:
Firstly, other than the first-tier big cities (Beijing, Shanghai and Guangzhou), the second-tier and third-tier cities (Chongqing, Xian, Tianjin and Chengdu) will have a faster growth rate,
Secondly, the suburbanisation of big cities will promote the growth of the suburban supermarket market. The urban expansion and population growth will expand the urban surrounding areas, thus the centre of retail industry will proliferate to suburb from downtown.
Thirdly, the focus of supermarket operation will shift from just selling goods to service quality. Along with the continuous increase of consumer’s income, the expectation and demand for consumables will have great changes. Besides quality and price, consumers will pay more attention to factors such as brand name, convenience and shopping experience. Furthermore, the quality of commodities provided by various supermarkets will have a dwindling gap, so the competition of the supermarket industry in the future will focus more on the service level.
The civil aviation industry ranks highest for market globalisation drivers because end users in different countries have the same needs for the products and the customers search the entire world for suppliers. The major players of the civil aero engine are Pratt & Whitney, General Electric, CFM International and Rolls Royce. Competitive globalisation drivers are high. Cost globalisation drivers in aero engines industry is rank high because of huge development cost and one single national market is not enough to pay back the investment.
By 2030, China will need more than four thousand aeroplanes. Aero engine is one of the essential components installed on the aeroplane. As in the foreseeable ten years, China is still unable to produce the national civil aero engines for commercial usage. Rolls Royce should formulate its China’s market short, medium and long term strategy to catch the business opportunity. Short term strategy should include setting up of marketing and after sale support office in Beijing. Medium term is to set up maintenance repair shop in China to provide better support and reduce the maintenance cost. In China twelfth five year plan, China plan to invest RMB100M to develop a national aero engine. The Chinese Authority is seeking foreign partner and international collaboration. Rolls Royce medium term strategy can be working with the Chinese partner on licensed production of Rolls Royce engines to power the Chinese aircraft. For the long term strategy, Rolls Royce can entered into international collaboration with the Chinese partner in the design, development and production of advanced commercial aero engines.