Internationalisation of Medium-sized Enterprises: An Integrated Approach to Management Consulting [1 ed.] 9783896448859, 9783896731555

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H

UWE SACHSE

Internationalisation of Medium-sized Enterprises - an Integrated Approach to Management Consulting

Verlag Wissenschaft & Praxis

Die Deutsche Bibliothek - CIP-Einheitsaufnahme

Sachse, Uwe: Internationalisation of medium-sized enterprises : an integrated approach to management consulting / Uwe Sachse. Sternenfels : Verl. Wiss, und Praxis, 2002 ISBN 3-89673-155-6

ISBN 3-89673-155-6 © Verlag Wissenschaft & Praxis Dr. Brauner GmbH 2002 D-75447 Sternenfels, Nußbaumweg 6 Tel. 07045/930093 Fax 07045/930094

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Preface If one takes a look around in today’s business world, one can recognize a major shortage: time, and a major requirement: speed, speed, speed. The ability of an organization to learn faster than its worldwide competitors has been identified as a major source for achieving a sustainable competitive advantage. The need to take a global view to markets adds to the already existing complexity. Many, especially of the medium sized companies try to ignore the necessity to cope with the internationalization challenge, thereby missing good opportunities and sometimes even risking the bare existence of the company. The reasons for that behavior may be manifold, however, one suggested cause may be the lack of a clear picture of when and where to embark on the internationalization process or how to upgrade already existing international activities. There is the fear, that such a process is costly, risky, complex and time-consuming. This leads then frequently to an “internationalization by chance”, that is rarely sustainable. Against this background it is obvious that there is a need for an approach towards internationalization, that takes the specific requirements of the medium sized companies into account, that is practical, less time-consuming and provides a holistic view. Vision and strategy are important starting points for an internationalization process. The development of an international corporate culture, putting global corporate values and principles into practice and the creation of a global identity are of utmost importance in this context. They provide a framework of reference and therefore limit the complexity of going global. Regional, functional, organizational, customer and product specifics suggest „hybrid“ solutions, a single orientation does not meet the requirements of today’s market places. The „adhocracies“ of global business on one hand and the increasing importance of knowledge as a main trigger for value creation on the other hand demonstrate the relevance of knowledge management. Clearly knowledge management is much more about human resources than about IT. Processes and incentives for capturing and sharing both explicit and implicit knowledge on a global scale demand careful attention.

These basic features of an international organization are not a precondition but rather a result of international activities. Internationalization activities, let it be export, strategic alliances or mergers & acquisitions, have to be build in the ongoing activities of the company. Therefore a flexible but at the time com­ prehensive approach towards internationalization is needed. The message for consultants in this field is clear: any intervention must add an immediate value to the companies international activities and at the same time help to establish sustainable international processes and structures. This has also implications for

international human resources development. Trainers and coaches are expected to deliver inputs which directly contribute to solving concrete business issues, tailor-made and just-in-time. The concept of „learning by earning“ can be perfectly applied to the development of international managers.

In this book Uwe Sachse suggests an approach to the development of inter­ national market-growth strategies for medium-sized enterprises, that meets the requirements of todays business world. He comes up with an integrated con­ sulting approach, that is comprehensive and at same time practical. Uwe Sachse built on the relevant previous work of the various relevant fields (e.g. inter­ national management, change management, intercultural management). As a special feature of this book the structure of the reflects the learning process of the author. Based on the results of the desk research he conducted an empirical survey and asked managers of medium sized companies for a feedback. The analysis of the data guided him to draw conclusions for the further development of his approach. I trust that managers of medium sized companies find this book useful and I do hope that it encourages many companies to face the challenge of the inter­ nationalization process.

Prof. Dr. R.-Dieter Reineke

(Head of the Post Graduate MBA-Program International Management Consulting at the Ludwigshafen University of Applied Sciences)

TABLE OF CONTENT

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Table of content TABLE OF CONTENT...................................................................................... 1 INDEX OF DIAGRAMS..................................................................................... 7

INDEX OF TABLES........................................................................................... 8 ACKNOWLEDGEMENT.................................................................................. 9

ABOUT THE AUTHOR................................................................................... 10 ABSTRACT........................................................................................................ 11

A. INTRODUCTION ........................................................................................ 13 1. Export and international business............................................................... 13

2. Main issue and objective of the work.......................................................... 14

3. Structure and method of approach.............................................................. 15 B. FUNDAMENTAL CONCEPTS.................................................................. 17 1. The term „medium-sized enterprise“.......................................................... 17

2. The term „internationalisation“................................................................... 18 3. Internationalisation - not only in the export department!....................... 18 4. Theories of internationalisation................................................................... 23

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TABLE OF CONTENT

5. Models of internationalisation for medium-sized enterprises................... 25 5.1. Institutional approach.............................................................................. 26 5.1.1. Degree of internationalisation........................................................... 26 5.1.2. Typologies of international orientation............................................. 26 5.2. Processual approach................................................................................ 27

C. DEVELOPMENT OF AN INTEGRATED CONSULTING APPROACH TO INTERNATIONALISATION OF MEDIUM-SIZED ENTERPRISES............................................................ 31 1. The general phase model for strategy consulting....................................... 31

1.1. Theoretical background.......................................................................... 31

1.2. Elements of the phase model.................................................................. 32

2. The integrated phase model for the internationalisation of medium-sized enterprises...................................................................... 33 2.1. Introduction............................................................................................. 33

2.2. Business Analysis................................................................................... 35 2.2.1. Project initiation................................................................................ 36 2.2.2. Environmental scanning................................................................... 37 2.2.3. Internal examination.......................................................................... 39 2.2.4. Competitive analysis.......................................................................... 42 2.2.5. Key factors of internationalisation (KFI).......................................... 43 2.2.5.1. Success factors from the perspective of the „industrial organisation theory“..................................................... 43 2.2.5.2. Success factors from the perspective of the „resource-based “ view................................................. 44 2.2.5.3. Success factors of the internationalisation of medium-sized enterprises (KFI)................................... 46 2.2.6. SWOT - Analysis............................................................................... 48 2.2.7. Positioning......................................................................................... 50 2.2.8. Change management aspects in the business analysis phase............ 53 2.2.8.1. Global mindset........................................................................... 53 Do you have a global mindset?.................................................. 54 Does your organisation have a global mindset?........................ 55 2.2.8.2. Advanced aspects of change management................................ 56 2.2.9. Summary of business analysis........................................................... 57

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2.3. Strategic Planning.................................................................................. 61 2.3.1. Strategy preparation.......................................................................... 62 2.3.1.1. Dialogue about the future...........................................................62 2.3.1.2. Future priorities......................................................................... 63 2.3.1.3. Market pre-selection................................................................. 64 2.3.1.4. Discussion on and focus of the strategic success position (SSP)................................................. 67 2.3.2. Strategy generation............................................................................ 69 2.3.2.1. The vision................................................................................. 69 2.3.2.2. The cores values....................................................................... 70 2.3.2.3. Determination of the strategic success position (SSP)............. 70 2.3.2.4. The strategic force.................................................................... 71 2.3.2.4.1. Low-budget internationalisation........................................... 72 2.3.2.4.2. Balanced internationalisation................................................ 72 2.3.2.4.3. Selection of the strategic force with the aid of the portfolio-concept........................................... 73 2.3.2.5. Targeting..................................................................................... 74 2.3.2.6. Balanced score card in the internationalisation process............. 74 2.3.2.7. Change management aspects in the strategic planning phase.... 78 2.3.3. Summary of the strategic planning phase.......................................... 79

2.4. Re-configuration..................................................................................... 81 2.4.1. Utilisation of strategy models............................................................ 81 2.4.2. Planning of the re-configuration........................................................ 84 2.4.2.1. Scope of the market expansion.................................................. 84 2.4.2.2. Timing of internationalisation..................................................... 86 2.4.2.2.I. Time of market entry............................................................. 87 2.4.2.2.2. Order of market entry............................................................ 90 2.4.2.3. Market-entry mode...................................................................... 92 2.4.2.3.1. Market entry strategies according to the degree of capital investment........................................... 94 2.4.2.3.2. Discussion of the market-entry modes.................................102 2.4.2.3.3. Strategic value of disinvestments (market exit)...................104 2.4.2.4. Marketing strategy..................................................................... 104 2.4.2 .4.I. The market segmentation strategy..................... 104 2.4.2 A2. Market stimulation strategy............................... 107 2.4.2.5. Strategy combinations / Strategy profiles..................................110 2.4.3. Implementation of the re-configuration.......................................... 111 2.4.3.1. International product policy...................................................... 113 2.4.3.2. International service policy....................................................... 115 2.4.3.3. International price policy.......................................................... 116 2.4.3.4. International distribution policy............................................... 117 2.4.3.5. International communication policy......................................... 118

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2.4.3.6. International brand policy........................................................ 120 2.4.3.7. Organisation and budgeting..................................................... 121 2.4.4. Change-management aspects in the re-configuration phase.......... 123 2.4.5. Summary of the re-configuration phase.......................................... 124

2.5. Monitoring........................................................................................... 127 2.5.1. Elements and contents of monitoring............................................. 127 2.5.2. Change management aspects in the monitoring phase.....................129 2.6. Change management in the internationalisation process...................... 131 2.6.1. Intercultural management................................................................ 135 2.6.2. Conflict management....................................................................... 136 2.6.3. Summary of the change management phase....................................137

D. EMPIRICAL SURVEY OF THE INTERNATIONALISATION OF THE MEDIUM-SIZED ENTERPRISE....................................... 139

1. Design of the survey..................................................................................... 139 1.1. Objective of the survey......................................................................... 139 1.2. Organisation of the survey methodology.............................................. 139 1.3. Sample and execution of the survey..................................................... 140 2. Result of the survey..................................................................................... 141

2.1. General characteristics of the sample................................................... 141 2.1.1. Participants in the sample................................................................ 141 2.1.2. Function of the interview partner.................................................... 141 2.1.3. General characteristics of the enterprises.........................................142 2.1.4. Current degree of internationalisation............................................. 144 2.1.5. Intensity of competition................................................................... 145 2.1.6. Target markets................................................................................. 145 2.1.7. Mode of strategy.............................................................................. 146 2.1.8. Foreign activities............................................................................. 148 2.1.9. Evaluation of the sample................................................................. 148 2.2. Single aspects of internationalisation................................................... 148 2.2.1. Introduction to the illustration of the results....................................148 2.2.2. The importance of internationalisation........................................... 149 2.2.3. Strategic planning of internationalisation projects...........................151 2.2.4. Internationalisation in times of change............................................ 154 2.2.5. Requirements for realignment in internationalisation projects...... 155 2.2.6. Success factors of the internationalisation project.......................... 157

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2.2.7. Employment of and working with consultants.................................160

2.3. Evaluation of the phase model for the internationalisation process.... 161 2.3.1. Applicability of the phase model......................................................162 2.3.2. Specific applicability to the enterprises interviewed........................162 2.3.3. Advantages- and disadvantages of the introduced consulting approach............................................................... 164 2.3.4. Effect of the application in the enterprise.........................................165

3. Summarising view and evaluation of the empirical study....................... 167

4. Critical assessment of the empirical study................................................ 169 E. RECOMMENDATION FOR ACTION FOR THE CONSULTING OF THE MEDIUM-SIZED ENTERPRISES..................................... 173 1. Frame conditions......................................................................................... 173 2. Internationalisation framework................................................................. 174

2.1. Business Analysis................................................................................. 176 2.2. Strategic Planning................................................................................. 176 2.3. Re-Configuration.................................................................................. 178 2.4. Monitoring............................................................................................ 181 2.5. Change management............................................................................. 181 3. The internationalisation road map............................................................ 184 F. CONCLUSION AND OUTLOOK............................................................ 187

G. BIBLIOGRAPHY....................................................................................... 191

H. APPENDIX.................................................................................................. 199 1. Handbook for internationalisation - Checklist........................................ 199

1.1. Project Initiation.................................................................................... 200 1.1. Project Initiation.................................................................................... 201

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1.2. ICP 1 - Analysis & Evaluation............................................................ 202 1.3. ICP 2 - Strategy Preparation................................................................ 206 1.4. ICP 3 - Strategy Generation................................................................ 208 1.5. ICP 4 - Realisation Planning............................................................... 211 1.6. ICP 5 - Implementation........................................................................ 214

1.7. Monitoring............................................................................................ 217 2. Project Information for the Participants.................................................. 219

3. Interview - Guideline................................................................................... 222 4. Marketing strategy per country................................................................. 223

INDEX OF DIAGRAMS

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Index of diagrams Diagram 1: Diagram 2: Diagram 3: Diagram 4:

Diagram 5: Diagram 6: Diagram 7: Diagram 8: Diagram 9: Diagram 10: Diagram 11: Diagram 12: Diagram 13: Diagram 14: Diagram 15: Diagram 16:

Diagram 17: Diagram 18: Diagram 19: Diagram 20: Diagram 21: Diagram 22: Diagram 23: Diagram 24: Diagram 25: Diagram 26: Diagram 27: Diagram 28: Diagram 29: Diagram 30: Diagram 31: Diagram 32: Diagram 33:

Customer-oriented alignment of employees in the internal and external corporate environment....................... 20 Change management in projects................................................... 22 Phase model of strategy consulting............................................. 32 Illustration of the process of internationalisation in medium-sized enterprises....................................... 34 Integrated six-step process for strategic businessanalysis............ 37 International product life cycle in different markets.....................50 Norm strategies in market attractivity - competitive advantages portfolio...................................................................53 Do you have a global mindset ?...................................................54 Does your organisation have a global mindset?........................... 55 Six major drivers of future change................................................62 Foreign-market attractivity, corporate-potentialportfolio............. 66 Frame of reference for internationalisation...................................83 Classification of market entry strategies....................................... 93 Dynamics of the market-entry strategies.....................................102 Matrix of possible competitive advantages................................. 108 Box of strategy options for international medium-sized enterprises, following Becker............................... 110 Modified Ansoff-Matrix.............................................................. Ill Structuring variable of the organisation management.................122 Internal function of the interviewees........................................... 142 Number of employees Turnovers of the enterprises interviewed.................................... 143 Market shares Export ratio of total turnover....................................................... 143 Degree of internationalisation..................................................... 144 Intensity of competition.............................................................. 145 Target markets............................................................................. 146 Mode of strategy......................................................................... 147 Importance of internationalisation (n= 17).................................. 149 Working with external consultants (N= 78, n=17)......................160 The integrated internationalisation process (IIP)........................ 175 Screening process of generating SSP for internationalisation.... 177 The internationalisation road map............................................... 183 Internationalisation log-book - main steps................................ 186

INDEX OF TABLES

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Index of tables Table 1: Table 2: Table 3: Table 4: Table 5: Table 6: Table 7:

Table 8: Table 9: Table 10: Table 11: Table 12: Table 13: Table 14: Table 15: Table Table Table Table

16: 17: 18: 19:

Table 20:

Table 21:

Table 22: Table 23:

Characterisation of the different phases of internationalisation following Weber........................................................... 28 Characteristics of the „three Es“: An overview................................. 30 Evaluation with opportunity - risk matrix......................................... 39 Main characteristics of the Balanced Score Card for internal examinations.................................................................................... 41 Evaluation of the KFI in comparison to the competition and the resulting measures...................................................................... 47 Market Attractivity/Company Strength Criteria................................ 51 Examples of four screening levels for country selection systematic effect analysis................................................................. 65 Scoring model for the evaluation of different foreign markets......... 65 Different success factors of the “package of know-how”................. 71 Spectrum of the international strategy, following Scholl.................. 82 Twelve entry strategies and their variants....................................... 100 Segmentation evaluation for the identification of homogenous target groups.............................................................. 106 Product adjustment to foreign countries.......................................... 114 Types of different services............................................................... 115 The employment of communication policy instruments and introductory questions for the creation of a conception................ 119 Risk analysis.................................................................................... 128 Risk securement............................................................................... 128 Impact of activities........................................................................... 128 Integrated approach to the development of a comprehensive integration of the enterprise for the expansion of international business, part 1............................................................................... 133 Integrated approach to the development of a comprehensive integration of the enterprise for the expansion of international business, part 2...........................................................134 Entries for internal and external success factors from the perspective of the interviewed medium-sized enterprises. Multiple entries were possible (N=60, n=17)............. 158 Balanced-Scorecard Internationalisation...................................... 179 Balanced-Scorecard Internationalisation...................................... 180

ACKNOWLEDGEMENT

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Acknowledgement The work present here was part of the authors MBA-course and represents the final master-thesis. It was done in parallel to the author's professional activity as International Marketing Manager and beside the actual start-up phase of the foundation of his own consulting business. Days of vacation, week-ends and many evenings were worked on this. However, the result would not have been realize without the support of several people. In first place are, therefore, the study course director Prof. Dr. R.D. Reineke has to be thanked for providing important suggestions and advices during the determination of the subject. He was also a very competent interlocutor who provided important impulses and suggestions.

In addition to the interviewed people, my colleagues also earn to be mentioned. They produced interesting contacts, gave tips or were welcomed lecturers for individual chapters.

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ABOUT THE AUTHOR

About the Author Uwe Sachse is International Management Consultant in the area of marketing and strategic planning. His main field is the development of marketing and sales strategies and product- and brand positioning concepts. He has served as Marketing-Manager for several companies, including Electrolux, IBP and Schell, where he had direct responsibility for marketing and sales activities. Uwe has earned the MBA in International Management Consulting from the University of Lincoln/UK as well as the MBA in International Marketing from the ExportAcademy in Reutlingen and graduated Heat- and Energy Technology from University of applied Sciences in Gießen. He has taught on the faculty of several universities and currently lectures International Marketing at the University in Gießen. For Contact: Uwe Sachse, Neckarstraße 9, D-35625 Hüttenberg, Tel.: +49-6403-778-228, Fax.: +49-6403-778-229, email: [email protected]

ABSTRACT

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Abstract The subject of the work is the elaboration of an integrated consulting approach to the development of an international market-growth strategy for medium-sized enterprises.

With consideration to the current stand of theoretical aspects, the practical experience of the author and extensive literature research, the derivation of an integrated consulting approach was undertaken. The developed approach is comprised of the main phase elements of Business Analysis, Strategic Planning, Re-Configuration and Monitoring and includes specific strategic components of the internationalisation of medium-sized enterprises. As a further significant element, an accompanying change management is introduced for each phase in order to evaluate and expand on the specific development of the medium-sized enterprise regarding corporate culture change. The subsequently carried out empirical study confirmed the relevance, plausibility and applicability of the phase model. 88,2 % (from 15 enterprises) of the experts questioned affirmed that the presented phase model corresponded to the demands of the medium-sized enterprise. The originally derived consulting approach was then revised and supplemented on the basis of impressions gained through the results of the empirical study. As a result of this discussion, the internationalisation road map and the handbook for internationalisation could be developed as a tool for implementation.

INTRODUCTION

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A. Introduction 1. Export and international business Since 1991, the expansion of world export trade has risen nearly 50 % to its present value of over five trillion US dollars. Underlying this exponential growth, the last decade has witnessed significant changes to the context in which export trade is conducted. Restrictive commercial barriers have been eroded as a result of regional trading-block agreements and the General Agreements on Tariffs and Trade negotiations. Financial markets have been deregulated, foreign currency restrictions eased and transportation regulations and procedures simplified, all in a bid to secure and promote international sales activities1. The simultaneously occurring revolution through the use of e- commerce in enterprises involves further opportunities and risks which require enormous changes in international business for its efficient utilisation2.

Internationalisation has however long not been the sole domain of large corporations. The fact that globalisation is taking effect in all areas has in recent years been experienced in different ways by medium-sized enterprises in particular3. There are, for example, medium-sized enterprises in global sectors which have been forced all along to be internationally involved as a sole concentration on national product-market segments presents a low market potential. Similarly, tendencies towards national market saturation in the domestic market or increasing competitive pressure due to the developments in numerous medium-sized enterprises described above, gives them cause to consider activity in international markets for the securement or improvement of their competitive positions. Dependency on internationally-active enterprises can also determine the necessity of internationalisation for a medium-sized company. There may, of course, still be medium-sized companies today who realise and expand competitive advantages in nationally-oriented sectors only and do not consider internationalisation. In view of corporate-environmental and competitive dynamics however, these companies could well be the „candidates for internationalisation“ of tomorrow. Not even medium-sized companies in traditional markets can evade these tendencies and will be forced to rethink their competitive strategy4. For this reason, it will become increasingly important for

1 Cp. Mroz, Ralph P., p. 257, 1998. 2 Cp. Müller/Preissner, p. 141,2000. 3 Cp. also Hermans, A./Wißmeier, p. 475, 1995. 4 Gregory G. Dess and Joseph C. Picken said that today's peacock is tomorrow's feather duster, and in the business world, many peacocks have, in essence, become feather dusters over the past several years - or at least had their plumage dulled!

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INTRODUCTION

many enterprises to intensify their activity on the international level and, in particular, to expand their sales activities to foreign markets. Only the fewest medium-sized enterprises are able to manage such a project alone. The high volumes of investment and necessary willingness to change, which are required for overcoming internal obstacles, are not always immediately present. This is especially the case when good turnovers on the national market have been achieved in the last years and decades. Through the external assistance of a corporate consultant, the chances of meeting the high demands that accompany a successful international strategy, are increased. Most of the strategic approaches which come into play in these cases are characterised by a one-sided point of view. Either the external market demands are in the forefront (such as the strategic concepts of portfolio analysis, market attractivity, competitive advantages, customer satisfaction and customer-relationship management), or the internal corporate aspects are far too emphasised. Examples of this strategic alignment are the concepts of learning curve, core competencies, lean management or re-engineering. International strategies, however, require an equal treatment of both sides. Market requirements and competencies must be co-ordinated. In a figurative sense, the selected strategy for internationalisation and the corporate culture must be harmonised in order to lead to successful business in foreign countries5. If either sides of the same medal are not to become a bottle-neck for the medium-sized enterprise, this fact must be taken into consideration within the framework of the strategic planning

2. Main issue and objective of the work The objective of the following work is the elaboration of an approach to the development of international market-growth strategies for medium-sized enterprises. It is assumed that, depending upon the specific environment and situation of the company, different options of internationalisation can be of varying significance. This work also has the aim of taking aspects of the integrated consulting approach for overcoming existing barriers in the corporate culture into consideration and to integrate them into consulting within the framework of change management.

The main issues are on all relevant sales- and marketing elements with regard to international management All other areas of added value for operational creation of values are integrated where the topic necessitates it for thoroughness. 5 Cp. Krystek, U/Zur, E., pp. 511-526.

INTRODUCTION

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The chosen problem- and situation-oriented method of approach is meant to give the medium-sized enterprise a flexible frame of orientation so that it may systematise and evaluate the complex decision-making processes involved in the development and expansion of international business.

3. Structure and method of approach In accordance with the above-mentioned objective, the conceptual structure of the work is oriented on the following points of emphasis: In the first chapter, the aims and the structure of the work will be presented. In the second chapter, descriptions of the most relevant terms for internationalisation will be given, followed by a discussion of the current stand of theoretical approaches to internationalisation. This will be completed by the addition of models of internationalisation for medium-sized enterprises.

In the third chapter follows the derivation of a corresponding phase model6 for internationalisation of medium-sized companies, based on the practical experience of the author and extensive research. This will be supplemented by a detailed illustration of the individual phases of the model, the description of the structure and the method for assessing the potential for internationalisation. The phases of „Business Analysis“, „Strategie Planning“, „Re-configuration“ and „Monitoring“ will be described in detail. Of particular importance here is the integration of change management and its relevant elements for the internationalisation of medium-sized enterprises. As this module is a crosssectional topic, the most important thematical points of emphasis are presented in reference to the different phases. This method was chosen because it illustrates the dependency between the chosen internationalisation strategy and the simultaneous development of corporate culture. All further cross-functions, such as project management or controlling, are described in summary in the monitoring phase. Despite the lacking possibility to generalise recommendations, the presented method of approach (which includes own experiences and results) should enable the medium-sized enterprise to make an independent decision concerning the international strategic force and its realisation by weighing the advantages and disadvantages of the described options. Following this, an own empirical survey will be made concerning the question of how the evaluated companies undertook the conceptual structuring of the internationalisation and to what extent these medium-sized firms oriented 6 Cp. e.g. Kubr, Milan, p. 141; 1996; Niedereichholz, Christel, 1997.

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INTRODUCTION

themselves on the described frame of action. The design of the survey will first be presented before the results of the evaluation are given and discussed. The evaluation is based on 17 interviews which were personally carried out with managers, the majority of which from German companies. A critical assessment of the opinions and remarks of the companies concerning the utilisation of the model and the specific method of approach in international business concludes this section. In the fifth chapter, the results of current corporate practices and the theoretically-derived approach will be summarised and illustrated in the form of a strategic road map. The integration of single project steps into the entire process towards internationalisation completes the elements of the recommen­ dation for action.

A summarising conclusion in the sixth chapter suggests further developments and options for strategy consulting in international business. The work is completed by an extensive appendix with details on the collection of data, tables, checklists, a Powerpoint presentation with the topic „Internationali­ sation of Medium-sized Enterprises“ as well as „The Handbook for the Integrated Internationalisation Process - a checklist“. The instruction for action, which is formulated as a checklist in the handbook for the integrated internationalisation process, is a practical guideline for the medium-sized enter­ prise in its efforts towards internationalisation.

The paths to the development of an integrated consulting approach to internationalisation in medium-sized companies are formulated from the perspective of a consultant. Particularly in chapters 3 and 5 of this work, it will be attempted to develop a consulting approach with consideration to the specific requirements of medium-sized enterprises. The aspects of consulting psychology between consultant and client have been excluded, as well as the management of the consultant-client relationship before, during and after the actual consultation.

FUNDAMENTAL CONCEPT

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B. Fundamental concepts The central terms „medium-sized enterprise“ and „internationalisation“ will first be defined as the basis for further analysis. Then the term „integrated strategy approach“ will be discussed. Building on this, an overview of various theoretical approaches for internationalisation will be given and approaches specifically created for the internationalisation of medium-sized enterprise illustrated.

1. The term „medium-sized enterprise66 Due to their importance from the view of managerial economics, understanding medium-sized enterprises is of particular importance in Germany7. To define a medium-sized enterprise, the size of the enterprise and quantitative criteria, such as the number of employees and the volume of turnover are primarily used. A company with between 10 and 499 employees and a turnover of 1-100 million DM/year is characterised as a medium-sized enterprise by the Institute for Research on Medium-sized Enterprises. According to a definition at European level, a medium-sized enterprise should not have more than 250 employees and net capital funds of not more than 40 million euro8. In this work, the following qualitative criteria form the core of the characterisation, „A medium-sized enterprise is a legally and economically independent company with a high identity regarding ownership and management and a dependency of the owner on the economic destiny of the company“. In addition, it is to be assumed that the company has a low number of employees and a smaller market share (measured in total volume) in comparison to that of large corporations. This provision is valid without regard to a specific industrial Q sector .

7 Small and medium-sized enterprises represent a buying power of 258 billion DM yearly and can occupy a half a million open positions. They are the often-cited backbone of the German economy. See. Mittelstand in Deutschland (MIND), Gruner & Jahr, Impulse (Publ.), 1999. 8 Kommission der Europäischen Gemeinschaft (Publ.), 1996; Cp. Eden, H. in Krystek, U./Zur, E., p. 43, 1996. 9 Cp. Weber, Petra, p. 5, 1997.

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FUNDAMENTAL CONCEPT

2. The term „internationalisation“ Under the term internationalisation, a general increase in the business of a domestic company in foreign countries is to be understood10. This comprises all strategic activities of an enterprise concerning performance and evaluation which extend beyond the national borders of the country. Other terms, such as globalisation, multinationalisation or transnationalisation, are normally used analogue to this term. For a broader discussion of the term „internationalisation“, the basic model of Porter's „chain of values“ can be referred to. Through the use of this well-known chain of values, international competitive advantages can be strived for. Significant sub-parts of the „creation of values“, which are comprised of primary activities such as production, logistics and the providing of necessary resources, are combined into one international strategy and one or more of such strategically relevant activities show a lasting international network. Here, it must be taken into consideration that marketing and production are geographically placed closer to the buyer while the „early“ activities (procurement, production, parts of the logistics) are independent of the customer’s location and more concentrated in one area. The corporate aim of taking advantage of the economies of scale and economies of scope primarily determines the number of locations, while the striving to realise cost advantages related to location primarily influences the geographical placement11. The chain of values also demonstrates that internationalisation is not solely related to the sale of the products in foreign markets. Internationalisation can be of importance for each operational function and sub-part. This is why an integrated view, which considers all functional areas, is necessary. All activities surrounding the creation of values towards the achievement of international competitive advantages and the organisation of world-wide activities are of importance for the strategy-conformed configuration.

3. Internationalisation - not only in the export department! “Internationalisation is a phenomenon that involves the company as a whole”12. In the past, if a company had committed itself to internationalisation, then a sales

10 Cp. Linke, Wolfgang, p. 8, 1997; Macharzina, Klaus/Welge, Martin K./Kutschker, Michael/Engelhardt, Johann (Publ.), 1997. 11 Cp. Porter, Michael E., p. 62, 1991. 12 Cp. Perlitz, M., p. 9, 1995.

FUNDAMENTAL CONCEPT

19

representative was usually employed for the new countries13. Responsible for the co-ordination was the export department and the official-in-charge. Within the organisation of the company, enquiries for export belonged to the unpopular special products with much tailoring required on the standard range and low demand. The processing of enquiries from the „Far East“ belonged to the most exotic in the entire export department and were viewed with the corresponding suspicion. If the enquiries had additionally been sent directly from the customers without an own employee having had been on location, than it became really complicated. If the entire realisation of the project was not immediately put into question, than at least the date of supply. In short, the demands on the project management and the level of complexity always increased when enquiries from the export department had to be processed. Due to the comparatively low volumes, the motivation of the employees was not exactly high. Many of the things mentioned above always occur when single functional areas, activities, individuals or strategies are not connected to other areas and have no integrated character. The lack of a corporate strategy proves in this example to present a particular obstacle. At this point, one must begin. What does „ integrated approach “ mean?

The beginning of integration is found in the corporate strategy. This is to be developed through open dialogue between the departments and lead by the marketing department. The result is a market- and customer-oriented strategy with cross-departmental responsibilities and efficient realisation.

Developing an integrated corporate strategy is only the beginning. Many businesses discuss integration at length and in positive terms but then do little about it. This is because it is difficult to put into action successfully.

So how can we make integration an everyday reality? We can achieve this by ensuring that all employees can identify their internal and external customers and truly understand their needs, and by converting these needs into customer-driven, competitive and cost-conscious job objectives, monitored via performance appraisals and rewarded, when appropriate, with bonuses. Among the practical tools for achieving integrated internationalisation are: cross-departmental career routes, meeting customers in person, open and honest communication 13 A small anecdote from personal experience can describe the situation of medium-sized enterprises in the capital goods industry. With the words, „You are our new man for the „Far East“, please attend to our customers there and don't forget to win new ones“, began the introductory phase for Mr. Global. Following this were detailed explanations regarding budget and time frame, „Your turnover goal is currently X DM. In three years we want to achieve XY DM. Good luck and please create market demand“.

FUNDAMENTAL CONCEPT

20

(particularly on the part of the senior management), widespread bonus schemes and business-unit and category management.

Internal

External

• Consumers • Customers

Employee

• Customers • Costs

Diagram 1: Customer-oriented alignment of employees in the internal and external corporate environment.

This guarantees that internationalisation is no longer the sole responsibility of a single export department. Integration refers to the inclusion and responsibility of all areas, such as marketing, research and development, logistics, product management, quality controls, production and controlling. This integrated approach forces all functional areas and levels to align all daily work towards the demands of international business and to not think in national patterns only. Of importance here is that the two face-model be considered with regard to the planned integrated internationalisation. Each individual must be internally and externally directed towards customer aspects (see Diagram 1). Internally, the focus is on colleagues and cost aspects; externally, the customer and consumer are the focus of all efforts. The integrated view takes this association into consideration and includes all the different horizontal and vertical levels of the planned internationalisation. In order to be effective, it is of essential importance that the top-management without exception support the planned inter­ nationalisation. If only the export department is sent in to the race than it is similar to a manager of a soccer team being without a team. Success is hardly possible without the team.

As soon as people are concerned, different attitudes and preferences within the corporate culture also become an important area. The change management which accompanies an integrated corporate strategy fulfills the necessary requirements for the formation of an integrated process of internationalisation. The entire medium-sized enterprise is continuously aligned towards internationalisation and the organisation changed as a whole. For this reason, international change­ management programmes do not only comprise personnel management and training, but also the development of structures and processes for the entire

FUNDAMENTAL CONCEPT

21

organisation and the international corporate culture of the medium-sized enterprise. Diagram 2: Change management in projects - gives an overview of change-management activities in projects. The different elements of change management make the strategy for internationalisation a successful undertaking. In order for the corporate culture to be positively influenced and to prevent the company from suffering „culture shock“, it is necessary within the framework of the consulting to work on the enterprise as a whole. Many consulting modules are not only to be applied with the focus on one specific functional area but to be utilised with consideration to all relevant sections of the value creation chain and, in co-ordination with the level of internationalisation, to be integrated through a professional change management.

In summary, it is primarily the inclusion of all employees with consideration to the basic concept of internal and external customers which forms the basis and starting point of strategic planning. A profound understanding of the environmental conditions for the creation of future market opportunities and priorities follows and creates the platform for finding guidelines on the basis of which a target system is developed. The strategy development with the following realisation concludes this integrated approach. This method will now be taken as the basis for the further development and concretisation of the specific phase model. First, however, the most important theories of internationalisation will be discussed and supplemented by discussions on the topic of internationalisation in medium-sized enterprises according to the statistical and dynamic model.

FUNDAMENTAL CONCEPT

22

Diagram 2: Change management in projects^.

14 Voropajev, V., p. 18, 1998.

FUNDAMENTAL CONCEPT

23

4. Theories of internationalisation Within the general political-economic development, the globalisation of markets has taken place at various levels. Internationalisation after the second World War is characterised by three main phases. The first phase was caused by an increase in export as a result of the GATT decisions (General Agreements on Tariffs and Trade) and was meant to dismantle protectionist trade blockades. Through the different GATT rounds, the original customs burden could be reduced to under 5%. In the second phase of internationalisation at the beginning of the 1970s, deregulation and the intense integration of capital markets were introduced. The third phase, which began at the beginning of the 1980s15, is characterised by foreign direct investments and the globalisation of economic activities in all corporate areas. With the extensive networking through e-business, the next phase of internationalisation has already begun. Virtual companies create global networks and sell their products world-wide without physical presence. The general literature pertaining to this subject area is composed of three important approaches to research: 1. 2. 3.

The economic schools of foreign direct investment (FDI) theory, The behavioural school of the establishment chain (or stage) models and The relationship school of the network perspective

The general theory of Foreign Direct Investment explains internationalisation with the argument that businesses choose their optional structure for each stage of production by evaluating the cost of economic transactions. They therefore choose the organisational form and location for which overall transaction costs are minimised 18. Transactions perceived to be high-risk and requiring significant management time or other resource commitments are more likely to be internalised as part of a hierarchically-structured organisation. The Establishment Chain (or Stage) models draw on organisational growth, behaviour and learning theory to capture internationalisation, and are generally argued to be more dynamic than the FDI theory. Often referred to as the Uppsala models, they suggest that internationalisation activities occur incrementally and are influenced by increased market knowledge and commitment. For example, companies increase their foreign-market knowledge through initial expansion with low risk, indirect exporting to similar psychologically „-close“ markets. Over time and through experience, the companies increase their foreign market 15 Cp. Linke, Wolfgang, p. 8, 1997. 18 Cp. Anderson, E / Gatignon, H, pp. 1- 26, 1986; Dunning, J.H., pp. 411-436, 1989.

24

FUNDAMENTAL CONCEPT

commitment17. This in turn enhances market knowledge, leading to further commitment in more distant markets, including equity investment in offshore manufacturing and sales operations. Traditionally, the FDI theory and the stage models have represented the main schools of internationalisation research: 1) an economics school, and 2) a behavioural school. Both approaches imply that businesses exhibit some form of strategic decision­ making behaviour over time, with the planning centred in the hub or parent company. A more recent area of internationalisation research takes an alternative view and focuses on non-hierarchical systems in which businesses invest in the strengthening and monitoring of their position by building international networks. Such networks can involve customers, suppliers, competitors and others18. According to this school of research, internationalisation depends on an organisation’s set of network relations rather than one specific advantage. Therefore, extemalisation rather than internalisation occurs.

In this context, a formulation made by Bleicher from the year 1997 can be mentioned on the side. As a vision, the corporation without boundaries moves like an amoeba through different networks and utilises its strengths in the development and usage of intersystematical relations with high flexibility towards the goal of above-average success19. Considering the creation of purchasing portals of co-operations based on similar interests, this vision seems from today’s perspective to be a call for future international strategies. All three views provide a useful framework for the analysis of international operations, the patterns of international growth, and the processes involved in expansion to foreign markets. It is, however, difficult to capture the concept of internationalisation using only one theoretical framework. As with the story of the nine blind men and the elephant, where one man feels the leg and says it is like a tree, another touches its side and claims it is like a wall, while another states it is like a spear as he explores the tusks, and so on, it appears that there is “something for everyone” in internationalisation research. However, considering the principles of postmodernism in international management (such as suspension of space, compression of time and individualisation of references), the theories are facing a change in paradigm20. Through radical changes in the 17 18 19 20

Cp. Becker, Jochen, p. 315, 1998; Coviello, Nicole/McAuley, Andrew, p. 226., 1999. Cp. Johanson, J./Mattson, L. G., pp. 205 - 217; Becker, Jochen, p. 315, 1997. Bleicher, K., in: Krystek, Ulrich/Zur, Eberhardt, p. 586, 1997. Welge, Martin K./Holtbrügge, Dirk, p. 306.

FUNDAMENTAL CONCEPT

25

business environment, the static dichotomy of differentiation/unification, global/local and integration/responsiveness is surmounted by the simultaneous search for different forms of strategic orientation in various business areas, business units, regions, and episodes of internationalisation. The success of internationalisation is thus less dependant on the right decision between different alternatives, and more on the capacity of a simultaneous pursuit of comple­ mentary strategies.

Particularly from the perspective this work’s objective, the discussion of sustainable change in the classical internationalisation theory seems to be of especially high importance for the development of a framework of orientation for the internationalisation of medium-sized enterprises. For a better overview, the most important types and manifestations of the basic formulation of medium­ sized company internationalisation will be discussed in the following.

5. Models of internationalisation for medium-sized enterprises The different internationalisation theories described above were primarily derived from literature for multinational corporations. Other comparisons of internationalisation theories have also been published21. In the following, selected pragmatic internationalisation models and frameworks for medium­ sized companies will be described as a combination of these already existing theories. At the core, the challenge lies in the description of the current situation of the corporation and in the formulation of different phases of development. Unlike the internationalisation theories, the approaches to be described are considered to be quite application-oriented. Currently, however, these are descriptive classification-schemes and not norm strategies. They are to give an introduction to the typical situations of internationalisation and levels of development in medium-sized companies. The most relevant steps will discussed in detail in the discussion of the internationalisation process itself.

In the following, the institutional and processual models will be discussed with regard to the different models of internationalisation.

21 Cp. Perlitz, Manfred, p. 72, 2000.

FUNDAMENTAL CONCEPT

26

5.1. Institutional approach 5.1.1. Degree of internationalisation In the institutional approach, internationalisation is considered to be a static (time-related) mode of view. The „degree of internationalisation“ is in the forefront. The relation of foreign activities to domestic activities is measured.

As a rule, the following criteria are of importance:

Number of locations and subsidiaries Percentage of foreign production against domestic production Percentage of international recruitment of management Turnover in domestic/ foreign markets Number of employees in foreign countries compared to home country Share of turnover in export/domestic Amount of foreign direct investments22 The scope of internationalisation can be illustrated and evaluated using the above-mentioned criteria either through the internationalisation-index (naming different indexes for the evaluation of the internationalisation phase)or through an internationalisation profile (comparison domestic/ foreign using examples of different criteria).

5.1.2. Typologies of international orientation A further method for the assessment of the internationality of corporations is based on behaviour-oriented characteristics. The best known approach was developed by Perlmutter23. He sees the internationality of a business in the attitude of the top-management towards intercultural matters, such as foreign people, ideas and resources. He discriminates between the different concepts of management and the attitudes of the manager. The ethnocentric concept of management is centred on the native country, the polycentric on the host country (including an emphasis on individual countries), the geocentric concept is oriented on global aspects and the regional-centric management concept on regional aspects in the sense of orientation on homogenous groups of countries. These management concepts represent various levels of the international development of medium-sized enterprises. Ideally, a company develops over 22 Krystek, U./Zur, E.,p. 5, 1997. 23 Cp. Heenan, David A./Perlmutter, Howard V., p.18-19, 1997.

FUNDAMENTAL CONCEPT

27

time from ethnocentricity to the poly- or regionalcentricity and, finally, to geocentricity at the highest level24.

These mentioned criteria describe the situation in which the company currently finds itself. They do not however allow recognition of to what extent internationalisation activities are important for the development of an enterprise25. Furthermore, international businesses are characterised by a variety of attributes, attitudes, conditions and options for action. For this reason, the different phases experienced in an international business will be discussed in the following.

5.2. Processual approach

The processual approach is of a dynamic nature and takes the process of development in internationalisation into consideration. The individual phases of internationalisation within a process are analysed according to evaluation and documentation of internationalisation activities. With the introduction of such phase models, the grouping of companies and their internationalisation is possible. Here, all levels of internationalisation ranging from complete abstinence to intense participation in export are possible (see Table 1)

Aside from the description of the current situation, the before and after phases of internationalisation are shortly described as stages of a process. This makes clear how complex the process of internationalisation is and how the entire organisation of the company is involved. The expansion of international business therefore requires an integrated process which allows recognition of not only the different functional and specialised areas but also of the necessity of cultural and behavioural changes and the development of them in new directions on the basis of the given realignment. In the further course of the work, this point will be continuously returned to and an integrated framework of orientation for the internationalisation of medium-sized enterprises developed.

24 Cp. Kuhn, Joachim, pp. 937 - 957, 1998. 25 Cp. Pribilia, Peter, pp.1-11, 2000.

FUNDAMENTAL CONCEPT

28

Criteria

Stage 1

Stage 2

Stage 3

Stage 4

Stage 5

Stage 6

Stages in the interna­ tionalisa­ tion process

No international involvement

Pre­ involvement

Reactive involvement in unsolicited opportunities

Limited experimental involvement

Active involvement

Committed involvement

Venture/ awareness/ interest Nature of search process

None

Low

Sporadic

Moderate

High

Intense

No search

Limited, only selective search Disjointed, incremental

Intensive venture search, greater resource, commitment to search formal, structured planning and decision making

Dominant decision­ making mode Typical decision­ making skills utilised

Absence of international decision­ making None

Passive

Reactive

Intuitive and problem­ solving

Type

Home­ market oriented non­ exporting

Interested in foreign market non­ exporting

Low export business

Operation J

No export and no willingness towards future export

No current export but willingness to take up export within the next three years

Reactive or experimental exporting with correspon­ ding export potential Products are primarily offered on home market or close markets, no other forms of internationa­ lisation

Export (%)

0%

0-10%

10-20%

Proactive Highly and entrepre­ systematic neurial and informed decision making Actively Strongly exporting interested exporter

Conservative Increasing expansion of development international of different business, forms of mainly a internationa­ form of lisation internationa­ lisation strategy

20-35%

35- 50 %

Several foreign markets are taken into account, different forms of internationa­ lisation belong to daily work > 50 %

Table 1: Characterisation of the different phases of internationalisation following Weber26.

26 Cp. Weber, Petra, p. 25 and p. 132, 1997.

FUNDAMENTAL CONCEPT

29

As a further approach for describing different forms of internationalisation, the model of Kutschker27 is to be introduced here. Similar to Weber, the individual level of internationalisation is divided into phases and differentiated by the intensity of internationalisation, the duration, speed, scope, and the importance of the future strategic force. The Kutschker approach takes the „Three Es“ („international evolution“, „international episodes“, and „international epochs“) into consideration. The incremental evolution takes place within the gradual expansion of international business processes through daily action. In this way, the intemationality through evolutionary improvements of export-business increases is based on better co-ordinated information and logistic interface or the unification of the operative processing of orders28. These improvements take place on a small scale and are as a sole evolutionary step of only a small importance. In sum, however, they are of high relevance and are often responsible for the temporary competitive edge of medium-sized enterprises.

Episodes of internationalisation are special occurrences or phases within the internationalisation. Within a definable period of time, they lead to a clear change in the intemationality of a company, affect large parts of the company, require considerable resources and are of a relatively novel character for the medium-sized company. Examples of such episodes are market entry to important foreign markets, the conversion of a trading company into a subsidiary or the carrying out of an international corporate-identity campaign. Contrary to the incremental evolution, these episodes are usually characterised by a high speed of change and are slowly reduced until the project is concluded. The epochs of internationalisation may take place over many years and cause profound changes in the company which involve fundamental strategic realignment and restructuring. The companies change their horizontal and vertical structure and experience a certain era of internationalisation. An example of this is the transition from being a national supplier to a global player. This process of internationalisation occurs neither solely incrementally nor in an evolutionary or revolutionary manner, but requires a chronologically and

27 Cp. Kutschker, Michael/Bäuerle, Iris/Schmid, Stefan in Macharzina, Klaus/Welge, Martin KJKutschker, Michael/Engelhard, Johann, p. 101, 1997. 28 Link, Wolfgang, p. 26, 1997.

FUNDAMENTAL CONCEPT

30

technically differentiated confrontation, as results through the three kinds of intemationalisationprocesses.

Characteristics

International Evolution

International Episodes

International Epoch

Scope

Small parts of the corporation

Whole units such as departments or SBU's; sometimes even the whole corporation

Whole corporation

Speed

Slow change

Rapid change

Can comprise periods of slow and of rapid change

Duration

Evolution occurs almost permanently; therefore it is never-ending; the single evolutionary steps, however, are of short duration

Several months up to several years

Several years

Relevance for future internationalisation

Any single step has only High relevance little relevance, the sum of all evolutionary steps can nevertheless be important

Table 2: Characteristics of the „ three Es

Essential for whole corporation; organisational identity undergoes a profound change

An overview29.

29 Cp. Kutschker, Michael/Bäuerle, Iris/Schmid, Stefan in Macharzina, Klaus/Welge, Martin K./Kutschker, Michael/Engelhard, Johann, p. 105, 1997.

START INTERNATIONALISATION PROCESS

31

C. Development of an integrated consulting approach to internationalisation of medium-sized enterprises 1. The general phase model for strategy consulting 1.1. Theoretical background A combination of two fundamental approaches from the perspectives of industrial economics and resource-oriented corporate management form the theoretical background30.

The „industrial organisation research“ model primarily focuses on the requirements and possibilities within the corporate culture for developing adequate competitive strategies on its basis. In this approach, the structural conditions of the sector determine the strategic behaviour of those involved31. The market structure influences, in the broadest sense, the market behaviour and market result. The competitive advantages and various sources of profit of the enterprise are mainly the result of external conditions in the sector structure and less from business-specific competencies and resource-based development. The fundamental „outside-in-perspective“, the observation of processes in the environment and their analysis in the context of the sector, is typical for industrial organisation research.

Unlike the „outside-in“ perspective of industrial economics, the „resource­ based“ view focuses on the study of individual companies and their strengths and weaknesses. The resources32 and know-how of a company are the primary aspects on which a company can build its identity and develop its strategy. The intangible resources play a particularly central role in the development and securement of lasting competitive advantages33. This association is useful for the development of a core competency or ability34.

30 Cp. Hungenberg, Harald, p. 51, 2000; Prahald, C./Hamel, G., p. 79, 1990. 31 Link, Wolfgang, p. 34, 1997. 32 To differentiate between resources, the availability of intangible and unique tangible resources is normally judged. Material resources, for example, include the production, logistics, computer hardware or capital of an enterprise. Examples of immaterial resources are brand names, patents, customer loyalty, the corporate culture, technological know-how, the reputation of the company, staff and organisational networks, the knowledge of the employees and other specific skills and abilities of the corporation. 33 Cp. Krystek, U./Zur, B, p. 512, 1997: The current discussion of culture was greatly influenced by the well-known 7 S-Model by Peters/Watermenn, which assumes an equal effect of „soft skills“ on the success of a company. The 7 S model is presented as a note: Soft - shared value, staff, skills; Hard - structure, systems, strategy. 34 Cp. Schmitt, Eckart, „Design School Model for Strategy Generation“, p. 25, 1997.

32

START INTERNATIONALISATION PROCESS

These associations and their effect on success factors of internationalisation will be described in the chapters 2.2.5. Key factors of internationalisation (KFI).

1.2. Elements of the phase model

As a conceptual framework for describing and explaining processes which are generally applicable, the well-known phase structure (see Diagram 3) of complex decisions is usually employed35. Typically, one can differentiate between the phases of preliminary analysis (collection of data), analysis and evaluation of the status quo, development and selection of the target-concept in the future concept phase, realisation planning, actual realisation and monitoring (follow up).

Diagram 3: Phase model ofstrategy consulting36.

In the first phase, data on the company and its environment is collected. In the second phase, the evaluation of the collected data and current status of the enterprise follows. The third phase involves the development and selection of the target-concept, which gives information on the actual future positioning of the enterprise on the basis of its goals. In the realisation planning phase, the strategy for the achievement of the goals is developed and concretely formulated. The phase of realisation describes the single measures and activities for the achievement of the main goal. An accompanying project management is the final 35 Cp. Niedereichholz, Christel, 1996; Kubra, Milan, 1996. 36 Cp. Niedereichholz, Christel, p. 154, 1996; Kubra, Milan, p. 22, 1996.

START INTERNATIONALISATION PROCESS

33

element of the phase model and involves the necessary controlling of costs, deadlines, and resources37.

2. The integrated phase model for the internationalisation of medium-sized enterprises 2.1. Introduction

The phase model described above will now be supplemented by different management elements and detailed change-management components which are relevant for internationalisation. The area of change management is of immense importance as it has been noticed that resulting changes and influences on the organisation and the employees in the organisation do not always have a positive effect on the end result38. Mental barriers and fear of losses are the direct results of such changes. If this problem is recognised and confronted early enough, then there are good chances that the projects will be successfully implemented. It is the mentality of the enterprise in particular which must be developed for the internationalisation of the medium-sized enterprise. Only then can the internationalisation successfully and sustainably progress. Through the inte­ gration of the change management, the medium-sized enterprise is in a position to implement internationalisation strategies and expand the degree of the internationalisation.

With consideration to the elements of the conventional phase model of strategy consulting described in Diagram 3: Phase model of strategy consulting , the integration of specific internationalisation modules and the harmonising of the integrated phase model with the internationalisation of medium-sized enterprises results from the necessity described above.

37 Note: Concerning the internationalisation process, the phase model could be as follows: 1. Internationalisation Diagnosis, 2. Internationalisation Design, 3. Internationalisation Coaching. 38 See: Spalink, Heiner, p. 16, 2000: Studies have shown that ca. 90 % of all cases do not fail due to the actual change concept but on the implementation and the negligence of the factor „human being“ with all of its emotions, fears and reactions.

34

START INTERNATIONALISATION PROCESS

Diagram 4: Illustration of the process of internationalisation in medium-sized enterprises.

These specific internationalisation modules build the main points of emphasis for internationalisation and the inclusion of the entire enterprise under the aspect of the “integrated” approach. The model is therefore comprised of the elements: Business Analysis, Strategic Planning, Re-Configuration, Monitoring and Change-Management (see Diagram 4: Illustration of the process of inter­ nationalisation in medium-sized enterprises). The development of a consulting approach to internationalisation requires several tools for the structuring of its phases. For each phase there is a description of the most important actions. These descriptions give the content and background for better understanding. Further­ more, the graphic illustration of the “integrated process of internationalisation” clarifies, at a glance, at which place in the process we find ourselves and how the current status of the project influences the actual project. To improve clarity and make for easy reading, each phase is marked with a graphic element which expresses the status of the internationalisation process.

BUSINESS ANALYSIS

35

2.2. Business Analysis

The first phase of the integrated consulting approach to internationalisa­ tion is Business Analysis. It is an important element of every current­ analysis for assessing the status quo of an enterprise and its environment. It begins with the assessment of opportunities and risks in the general and specific environment. The following strength/weakness analysis of the enterprise gives an indication of the possible strategic success position. Both aspects, the internal resources (core competency, special abilities and strengths) and the external opportunities (market, customer, competition) must be successfully combined39. Of importance in this association is to achieve better transparency of internal and external conditions so that a vertical analysis may be carried out. An extensive analysis of competition is also an element of the integrated approach. The goal of the medium-sized enterprise is market leadership in the chosen sector. To conquer this position of market leader, it is necessary to know which standard is set by the competition. After all, the point is to surpass the competitive level, to be better than the best competitor. The assessment of the „Key Factors of Internationalisation (KFI)“ is the next step. For the illustration of the KFI, the main factors for a successful internationalisation must be identified. The four steps, which have been carried out thus far, are related to the KFI in the SWOT analysis40 and summarised in statements. With the assistance of different positioning models, the aim of the strategy determination phase is already introduced in an early phase. The determination of the current position is the aim of the last analysis module.

The two main points of emphasis in the Business Analysis phase are „Facts & Findings“ and „Analysis & Evaluation“, which represent the beginning of the project, the execution of the analysis and the evaluation of the starting point.

39 Cp. Simon, Hermann, 1996; The term „strategic fit - matching strength and opportunities“ is often used in this context. 40 SWOT-Analysis is a classic form of internal and external businesss analysis and stands for „Strength / Weakness / Opportunity / Threads - Analysis.

36

BUSINESS ANALYSIS

2.2.1. Project initiation

As in all successful projects, it is necessary to officially introduce the beginning of the project in a meeting. Through a declared proposal by the senior management, the employees are to become aware of the upcoming tasks and a forum for the start of the project set. This can take place within a workshop meeting, a strategy meeting or an other corporate meeting. Especially effective is a meeting called only for this purpose where the chief executive officer (CEO) or another top manager describes the starting position, sets the first general goals and gives the core theories of internationalisation as a framework for orientation and motivation. Of crucial importance is the positioning of the project within the enterprise and the clarification of its priority and importance. This strengthens and develops the motivation and commitment of the employees. At this point, the company begins its process of transformation. As soon as such a declaration is given through leadership and persuasion, the company begins its exploration of the endless range of the opportunities and risks of international business. Discussions on the importance of the project begin here at the latest. Fears and hopes arise without exact knowledge of the actual scope and possible effects on the company and the personal situation of the employees. The next step is normally the „kick-off meeting“, in which, if necessary, a team (for example, steering committee and change team) is formed and the fitness for work created by the provision of an organisational framework. After the demands and tasks have been defined, the collection of data and the evaluation of the information can begin. Instructions for proceeding in this are given in the next paragraph. It is especially necessary in the first phase of „Fact & Findings“ with the collection of data and data analysis to appoint certain individuals with the tasks of monitoring deadlines and quality. After the importance of the project has been conveyed to the organisation through a top-down approach and the team has been formed, the single steps of analysis for the relevant areas must be carried out and the necessary information collected, organised and evaluated. The recommended method for this is described in the following as a guideline in six steps:

BUSINESS ANALYSIS

37

Diagram 5: Integrated six-step process for strategic business analysis41.

The individual “screening steps“ are then given and the concepts, which are necessary for examining the medium-sized enterprise from the perspective of the integrated approach, described.

2.2.2. Environmental scanning

To secure the awareness of environmental changes, strategic early warning systems42 must be introduced. With the use of such systems, a medium-sized enterprise can recognise or discuss potential discontinuities early enough to be able to make an internationalisation decision specific to the company. The basis for the formulation of international strategies is formed by the strategic analysis of the information which is focused on the general and specific corporate environments. 41 Cp. Davidson, Hugh, p. 189, 1997; From Müller, quoted in Krystek, U./Zur, B, pp. 465 - 473, 1997, Müller discriminates between four basic areas for the analysis of information: frame conditions of the actual trade, demand profile of current and potential customers, market dynamics and behaviour of competitors and relevant technology- and process-innovation. 42 Fink, Alexander/Schlake, Oliver/Siebe, Andreas, p. 43, 2000.

BUSINESS ANALYSIS

38

Characteristic of the analysis of the general environment is that its changes can affect all enterprises in a given sector. The difference lies in the varying degrees of effect of the examined criteria on the specific company to be consulted. The general environments are to be defined and compared to some main development tendencies. The general environment of „globalisation“, for example, can be referred to for the internationalisation of medium-sized enterprises. For globalisation, individual development tendencies are assessed according to priority and the opportunities and risks, which result from this assessment, are applied to a period of time of 3 to 5 years. The recognition of threatening developments and the introduction of corresponding counter-measures to guard against threats for the company, are crucial. The assessment of opportunities is carried out in a similar way, also on the basis of development tendencies. In the general environment of „regulation/deregulation“, for example, the effects of reduced duties in certain countries are to be recognised and the resulting opportunity taken with active measures, such as the reevaluation of market entry for the countries in question43. Of importance here is the consistent method of the measure, also as preparation for the SWOT-analysis, for optimal determination of the strategic approach to internationalisation. Following the analysis of the general environment is that of the specific environment of the medium-sized enterprise. These two environments are of immense importance for the medium-sized enterprise on its way to the „right internationalisation strategy“. It is, however, surprising to note how many undesirable developments have occurred in the last years as a result of a lacking systematical approach for this kind of environment analysis. The following areas, summarised as terms, are viewed as the most important business-specific environments: Consumers / Customer Competitors Suppliers Market development Service levels Costs New production technology

New product technology Substitute/Surrogate Acquisitions Regulation Related Markets Price developments Information technology

Although the early recognition of risks is the centre of interest, the specific environmental scanning is also wonderfully suited for diagnosing opportunities 43 See: Niedereichholz, Christel, p.50, 1997.

BUSINESS ANALYSIS

39

which arise in the different environments and for reacting to them with the correct measures. Finally, an opportunity/risk view (see Table 3: Evaluation with opportunity - risk matrix) follows for the defined environments according to the criteria of probability of entry, effect of the prognosticated development and evaluation of the individual opportunity/risk potential for the medium-sized enterprise being consulted. Opportunity/ risk description

Probability of entry

Effects on result

Evaluation of opportunity/risk potential

1. 2.

Table 3: Evaluation with opportunity - risk matrix44.

The comparison of opportunities and risks and their evaluation with the help of the opportunity/risk profiles, which determine the strategic starting point for the formulation of internationalisation strategies, completes the analysis phase of environmental scanning. In the evaluation that follows, the high level of intuition typically found in medium-sized enterprises is also taken into consideration.

2.2.3. Internal examination

In the consulting process, business analysis is one of the most important tools for the integrated development of internationalisation strategies for medium-sized enterprises. The objective of the internal examination is to evaluate all sub-parts of the business according to their success potential, their strategic relevance and the implementation concerning the aspect of competition. All areas in which there is necessity for concrete action must be examined. For the summarisation of data in the SWOT analysis, facts and findings from the Balanced Score Card approach may be employed. For this purpose, further information relating to the main characteristics of the Balanced Score Card is necessary. Some examples of this information are listed Table 4. For the second level of the internal examination, some areas of interest of high importance are presented as examples. These include information on areas

44 Cp. Niedereichholz, Christel, p.59, 1997.

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critical for the determination of the status of the medium-sized enterprise for internationalisation. Sales trend audit - This is to be understood as tabular overviews of the current number of sales according to countries, product groups and customers in comparison to the previous year and with consideration to the budget for the following year. The market volume, market potential and market shares of the relevant product groups and countries supplement the information. All internal market examinations regarding marketing and organisational planning are also summarised and processed in a result-oriented manner.

Industry capacity analysis - This area is to include the most important information on capacity development of national and international competitors within the core sectors and to indicate capacity development and shifting in the future.

Competitive position audit - With the help of the criteria to be defined, the current competitive position in comparison to the best competitor in the domestic market and all relevant international markets is to be assessed. The criteria are to be weighed and evaluated by a group of experts. Innovation audit - As a main tool for the evaluation of innovations, a comparison is made between the market launch of new products or services in the last five years and the share of turnover of these innovations. This overview can also be employed to assess the internationalisation potential relating to individual countries.

Customer relationship audit - The quality of the customer relationship is to be examined according to its effectivity for future business. All information concerning customers (number and scope, customer segmentation, the image of the company, degree of familiarity, buying behaviour, rate of complaints, service behaviour, loyalty, rate of repeated orders, strategies for the strengthening of already-existing customer relationships and the winning of new customers) are of interest. This information should primarily give an overview of the demandprofile of current and potential customers.

BUSINESS ANALYSIS

For the financial perspective:

For the customer perspective:

For the business process perspective:

> > > > > > > > > > > > > > > >

> >

For the perspective employee / learning

> > > > > > > > > >

41

Capital profits/ own capital profits Turnover growth Productivity ROI (Return on investment) EVA (Economic value-added) ROCE (Return on capital employed) Cash flow Market share Number/Percentage of regular customers Customer satisfaction Number of newly-won customers Customer profitability Innovation process Turnover share of new products and services Time of product development until the next product generation BET (Break Even Time) Period of time between the beginning of the development to the reaching of the break even point Delivery time MCE (Manufacturing cycle effectiveness): Production or processing time (is always < 1) Failure rates Call rates Process cost rates Relation of service employee / customer Satisfaction with service Satisfaction of employees Fluctuation rate Employee productivity Investments in further education/training per employee Number of suggestions for improvement per employee

Table 4: Main characteristics of the Balanced Score Cardfor internal examinations.

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The described amount of information already indicates an extensive examination. Also with consideration to the aspect of time, the evaluation of strengths and weaknesses is of great breadth. Special emphasis, however, should be placed on a pragmatic summarisation of the most important information for the determination of the starting point. Medium-sized enterprises are particularly limited in their room for manoeuvre and resources. This is why the support of a consultant is to be recommended here as the best, quickest and most successful path. For the evaluation of the information, it is recommendable to carry out a benchmarking of strengths and weaknesses with regard to the different given perspectives45. Following this, the results are to be discussed analogue to the opportunity-risk evaluation. Whenever extensive sector know-how is called for, the discussion and development of team solutions is an essential part of the „integrated internationalisation process“. Only through the inclusion of the team and selected employees can the necessary commitment be achieved.

2.2.4. Competitive analysis

The analysis and evaluation of direct and indirect competitors has often been discussed and described46. Here, only the most important characteristics are to be presented in the context of the objective of this work.

To carry out a competitive analysis as preparation for an internationalisation strategy, the most important national and international competitors must first be identified. These usually include a majority of national competitors who also play an important role in other countries and markets. Yet it is especially important to integrate competitors into the evaluation who are not yet major players in the core markets of greatest importance for the medium-sized enterprise. For this reason, it is sometimes necessary to make a distinction concerning the importance of the competition according to core markets. Finally, performance- or assessment criteria are defined as a measure for evaluation and basis for the comparison to competition. Criteria such as the market share per region, the turnover per region, the country strategy (range, price, conditions, communication, etc.), strengths/weakness and the status of the operational organisation per region can be used. The determination of the degree of fulfillment of the criteria, the visualisation of the illustration and an analysis of opportunities and risks with regard to the degree of fulfillment concludes one of the possible forms of analysis. Furthermore, as a supplement to the elements

45 Cp. Niedereichholz, Christel, p. 71, 1997 46 Cp. Backhaus, Klaus, p. 135, 1995; Niedereichholz, Christel, p. 131, 1997; Porter, Michael E., p. 617, 1991.

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already mentioned, the future perspective and change potential of the competitive environment is to be analysed.

The following questions can indicate important aspects: Who is the competitor? Now? Five years from now? What are the investment priorities, objectives and goals of our major competitors? How important is our specific market to each competitor and what is the level of its commitment? What are the competitors' relative strengths and limitations? What weaknesses make the competitors vulnerable? What changes are competitors likely to make in their future strategies? What effect will the competitors' strategies have on the industry, on the market and on the own strategy? What is the specific country product and price policy? What is the current status of the internationalisation stage?

Similar to the previous steps of analysis, the results of the competitive analysis phase are to be analysed and evaluated by the team appointed by the medium­ sized enterprise.

2.2.5. Key factors of internationalisation (KFI)

To introduce the topic of success factors of internationalisation, the different perspectives of the approaches, “industrial organisation” and the “resourcedbased view” are referred to. According to the different theories, success factors will be introduced in this context. The differentiation between “outside-in” and “inside-out” clarifies the perspective for the determination of success factors.

2.2.5.I. Success factors from the perspective of the „industrial organisation theory“ Approaches to industrial economics are primarily focused on requirements and possibilities in the corporate environment for the development of suitable competitive strategies. The structural conditions of a sector determine the strategic behaviour of those involved 47. In this approach, the market structure 47 Cp. Link, Wolfgang, p. 34, 1997.

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44

influences, in the broadest sense, the market behaviour and the market result. Competitive advantages and different profitabilities of the enterprise are due more to the external conditions in the sector structure and less to the businessspecific competencies and resource-based development. Porter has distinguished himself through various publications on the topic of the organisational structure analysis of the industrial sector. A sector produces a high profitability when the enterprise in this sector is able to protect itself from the threat of new rivals through market-entry barriers, neutralise the bargaining power of suppliers and buyers, prevent supersession through substitute products and limit competition. According to Porter, the attractivity of a sector and the relative position of the competitor within the sector determine the choice of competitive strategy. The following of a strategy should fundamentally lead to a creation of values which, from the customer perspective, is of particular value in that it creates added value in the market. Typical in the industrial organisation research is the basic ,,outside-in perspective“, the observation of occurrences in the environment and their analysis with regard to the sector.

From the perspective of industrial organisation, the following success factors are of particular relevance:

Concentration on customer needs Specialisation Flexibility Quality Pioneer striving Sector-specific success factors48.

2.2.5.2. Success factors from the perspective of the „resource-based“ view

While the industrial economic approaches primarily focus on requirements and opportunities in the corporate environment, the resource-based approach of strategic management concentrates on the specific resources and know-how of the enterprise.

Unlike in the ,,outside-in„ view of industrial economics, the focus is now placed on the analysis of the individual enterprise and its strengths and weaknesses. The resources and abilities of an enterprise build the primary dimensions with which

48 Cp. Petra, Weber, p. 101, 1997.

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an enterprise can develop its identity and strategy49. With consideration to this aspect, the following scheme is to be followed for the strategy formulation: 1. 2. 3.

Identify the unique resources of the enterprise Search for the markets in which these resources can achieve the highest profits Decide in which manner these resources can be most efficiently utilised for generating a profit50

To distinguish resources, a differentiation is normally made between the availability of unique tangible and intangible resources. The material resources include, for example, the production, logistic, computer hardware or capital of the enterprise. Examples of immaterial resources are brand names, patents, customer loyalty, the corporate culture, technological know-how, the reputation of the enterprise, personnel and organisational networks, the knowledge of the employees and other specific skills and abilities of the enterprise51. The intangible resources are attributed a central role in the development and securement of lasting competitive advantages. The development of a core competency or core ability profits from this connection.52.

Important characteristics of resources relevant for competition of the medium­ sized enterprise are listed in the following: Personality Mentality regarding internationalisation Management know-how Corporate culture Organisational structure53.

According to the course of analysis presented thus far, medium-sized enterprises are mainly dependant on one of the strategies on the basis of the corporate strengths for activity in new, attractive markets. The identification of concrete strengths and the expansion to then be undertaken with regard to the future positioning, present a considerable demand on the realignment of the enterprise 49 Cp. Prahalad, C.K./Hamel, G., 1992, have determined the term „core competency“. Under this term they understand a bundle of different abilities and technologies which generate customer benefit and open entry to a wide spectrum of markets. 5(/Link, Wolfgang, p. 55, 1997. 51 Allee, Verna, pp. 36 - 39. She develops value management through value networking with stakeholders. The exchange of goods, services, turnover, knowledge and intangible benefits is, in her view, especially important. 52 Cp. Bouncken, Ricarda B., pp. 865 - 885, 2000. 53 Cp. Weber, Petra, p. 124, 1997.

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on its path to a successful internationalisation phase. In the next chapter, the necessary method for assessing internationalisation potential will be described.

2.2.53. Success factors of the internationalisation of medium-sized enterprises (KFI) The two main values of KFI are that they enable an enterprise to judge its current fitness in general and specifically for entry to new markets and to identify priority areas for building competitive advantages. An edge over competitors in any of the KFI is likely to be important and exploitable.

Based on the strength-weakness profiles of relevant competitors, the analysis of the potential of the medium-sized enterprise is carried out using key factors for success in internationalisation. It must be judged whether the previous or the new strategy of the enterprise enables the realisation of competitive advantages. This approach is based on the assumption that there are only a few relevant and long­ term valid success factors which considerably influence the success of an enterprise. As a rule, these KFI are assessed through analysis of the positive corporate success and its causes.

As an aid for the assessment of the different success factors, the steps of the analysis can be applied to different levels54: Cross-sector success factors Sector-specific success factors Success factors of strategic groups within a sector Success factors of a business unit or line of business (medium-sized enterprises which are active in more than one field of business or market segment)

In this work and with consideration to the integrated consulting approach, the determining KFI for the sector or market of the medium-sized enterprises are identified through brainstorming55 by the strategy team, prioritised and finally concluded with a comparison to the most important competitor. While determining and evaluating the KFI, it must be taken into account that success factors are also susceptible to various influences and can change. The change can either pose a threat to the enterprise or present an opportunity. 54 Weber, Petra, p. 100, 1997. 55 Further methods are interest and idea markets, idea laboratories, creativity thinkshops, innovation scenarios and idea agents.

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Naturally, the enterprise itself can change the success factor through innovation56. Determination of KFI

Weight (%)

Degree of profile compared to the most important competitor (benchmarking)

Measures for strengthening the KFI

1. 2.

Table 5: Evaluation of the KFI in comparison to the competition and the resulting measures.

Visualising the potential analysis occurs with the help of a profile overview in which the most important key factors and the classification of the medium-sized enterprise in comparison to the most important competitor is shown. The following factors (skill mapping) have proven to be key factors for the realisation of a successful internationalisation strategy:

Internationally available trained managers and workers Adaptability (cost competition, tackling complex structures) Perseverance (liquid reserves, consensus in the management) Innovative ability Flexibility-internal and external Market/country know-how Willingness to take risks Leadership Marketing orientation Intercultural management abilities Mental fitness Communication skills (national language, personality)57

To assess the potential of a medium-sized enterprise, the following questions can be useful: 1. What is the potential with regard to a competition-oriented management? (Assessment of potential through outside-in view.) 2. What is the potential with regard to the strengths and weaknesses for internationalisation? (Assessment of potential through inside-out view)

56 Davidson, Hugh p. 213, 1997. 57 Cp. Schmitt, Eckart, p. 124, 1997; Weber, Petra, p. 85, 1997.

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Only through a strategic fit between the competitive advantages taken from a bundle of skills and the attractive opportunities in the market is a successful international positioning possible58. A skill or resource is only then a source of lasting competitive advantage when it has passed several tests. First, it must be superior to the competition and of value for the product market. Second, it may not be easy to imitate. Third, it must not be easily replaceable by an alternative skill. Fourth, it must be consistent. Fifth, it must be difficult to transfer. If an employee leaves the enterprise and takes the skills with him/her, then it is the employee and not the enterprise which benefits from the skill. The key to developing and retaining competitive advantages lies in the creation of a bundle of unique skills which, together, fulfill the criteria. Even the enterprise who makes the first move can lose its advantage if a bundle of unexchangeable skills are not readily available. With each new skill that supplements the bundle, the competitive advantages increase as the combination becomes more and more difficult for competitors to imitate or replace and it becomes more difficult for employees of the enterprise to acquire them59.

With the help of the described method of approach, it becomes clear how good the enterprise in question should be prepared and equipped for market entry or penetration. In this analysis, however, not all success factors that play a role in international business must be considered. The main point is more to identify the most important factors and subject them to a similar evaluation. The findings won in this chapter will be screened in the following before being used as a starting point for the strategy formulation (see Diagram 31: Screening process of generating SSP for internationalisation).

2.2.6. SWOT - Analysis This familiar technique is the final step in the strategic groundwork. It translates the four previous steps into a format which provides the basis for developing a winning strategy for the internationalisation of medium-sized enterprises. The SWOT analysis is a summary of the companies' strengths and weaknesses, and of the opportunities and threats facing them. If, in this context, a positive environmental development meets with a corporate strength for example, than this is generally interpreted as an opportunity as it will be assumed that the enterprise is in a better position than the competition to use the development to its advantage.

58 Cp. Suckrow, Carsten, p. 94, 1996. 59 Baghai, Mehrdad;Coley, Stephen;White, David, p. 114, 1999.

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The information gathered in the previous five phases of the analysis serve as an aid. The quality of the SWOT analysis is directly connected to the execution of the previous steps and should always stand in direct relation to the assessed KFI. The SWOT analysis should also not only be confined to international marketing issues or one area of interest but cover the corporate operation as a whole. For example, relevant topics could include technological opportunities and risks, the company’s relative cost position versus competitors, comparative service levels, attitudes towards investment and risk, degree of marketing orientation and core competencies. For a practical illustration, the main findings of the steps thus far can be related to the different functional areas and formulated. This more classic measure will now to be supplemented by the „Balanced Scorecard“ approach 60. The BSC serves, in this case, as an aid for documentation and, at the same time, as a planning and monitoring tool for the internationalisation process. This part of the analysis should include the internal potential and the difficulties of the enterprise with consideration to the four perspectives of the BSC. The financial aspect, the customer perspective, the business process perspective and perspective of employee/leaming are in the forefront. In accordance with the objective of the internationalisation process, further expansions of perspective concerning the factors leadership, management, culture, market orientation and internal core areas (organisation, planning and steering) are to be taken on (see chapter 2.3.2.6. Balanced score card in the internationalisation process). Using the Balanced-Scorecard method allows a supplementation to the environment and business analysis within the current analysis of the present situation. It has, however, been expanded to include an analysis of causes and effects and a formulation of first measures towards the integrated improvement of the corporate situation according to the internationalisation strategy.

The helpful aid of BSC is usually first employed as a tool for implementation after the vision and the goal have been formulated. The relatively early use in the development of the conception for the internationalisation of medium-sized enterprises has the aim of carrying out of a treatment of „inside/outside“ questions and, in an early phase of the discussion process, to immediately make a connection between the status quo and future-concept. The future-oriented process which comes into effect fulfills the requirements of the integrated approach with analysis of all significant functional areas in a medium-sized enterprise. It is precisely this ability to successfully implement strategies which represents one of the most important qualifications in the internationalisation 60 Kaplan, Robert S./Norton, David P., p. 75, 1996.

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process. A feedback system, specially suited to the demands of inter­ nationalisation serves the successfully implementation of corporate strategies. As the basis for the development of internationalisation strategies, the determination of the current strategic position is the final method of approach for analysing the potential of the medium-sized enterprise.

2.2.7. Positioning

To illustrate the strategic starting point in relation to the assessed opportunities and risks from the general and specific environment, different models and methods can be used61. Especially useful is the determination of the current position with regard to the life cycle62.

Diagram 6: International product life cycle in different markets63.

Here, the analysis of the enterprise within its life cycle and the resulting different phases are to be taken into consideration. Depending on the phase character, the market conditions and, correspondingly, the direction of the strategy change; the position of the enterprise in the environment must be illustrated with regard to a certain length of time, such as five years, and the current position determined 61 Davidson, Hugh, p. 253, 1997; McDonald, Malcolm, p. 179, 1995. 62 McDonald, Malcolm, p. 177, 1995; Becker, Jochen, p. 258, 1997; Meffert, Heribert, p. 334, 1998. 63 Arnold, Queilch in: Sloan Management Review, p. 15, 1998.

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with consideration to turnover volume. The medium-sized enterprise can then use this information in its decision-making process for formulating a strategic force for the future internationalisation strategy. An adjoining portfolio analysis defines assumptions concerning the competitive advantages, market attractivity and positioning of the enterprise, single strategic business units or products of the medium-sized enterprise in the planned internationalisation and, through this, allows an integrated business analysis.

For determining the starting point for the internationalisation of a medium-sized enterprise, also according to the principle of integrated development, the positioning of medium-sized enterprises will be discussed using the „directional policy matrix“ model64. First, in a pre-selection, the foreign countries are to be reduced to a few core countries. These countries represent, for example, the most important turnover regions or countries with the highest potential. The reduction to „lead countries“, which represent the country regions, is a usual method of approach.

Based on the terms of market attractivity and relative competitive position, the current position of the medium-sized enterprise for the defined countries is assessed. The following criteria can be used for the two main characteristics: Market attractivity

> > > > > > > > > > > > > > >

Market size Market growth Market profitability Real pricing trends Competitive intensity Threat of new entrants Power of customer Technology role Market barrier to entry and exit Technical standards Degree of concentration Physical distance Maturity and volatility Intercultural attitudes Human factors, such as unionization and community acceptance

Company strength > > > > > > > > > > > > > > >

Company expansion rate Market share Reputation Profitability Technology Image People Quality Promotion Price Service Product range Product strength Product safety Product convenience

Table 6: Market Attractivity/Company Strength Criteria.

64 Me Donald, Malcolm, p. 151, 1995.

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Only a comparison of both dimensions enables a sensible selection of one or more specific country markets, where an expansion of capital activities makes sense from the environment and business perspective. It must, however, be taken into account that the criteria taken for the concrete formation of the dimensions are to be determined by the individual enterprise. The different countries are to be evaluated in comparison to each other. After the evaluation of the country markets, a pre-selection among the most important countries is possible and can be used in the course of the further process. The level of attractivity of the analysed foreign markets can be now connected to the position of the enterprise in relation to the most important competitors in foreign markets. The scoring model necessary for this can clarify the position within the different countries, product groups or in comparison to the competition. The portfolio management is based on the assumption that so-called norm strategies can be derived from this (see Diagram 7). The strategy options presented should represent the basis for discussion and serve as an introduction for the strategy finding process. From the perspective of the medium-sized enterprise, the three most important strategy options are outlined in the following.

Investment- and growth strategy This strategy is suitable for individual countries or products with a high market attractivity. The strategy has market leadership as its goal. This strategy also applies to new products for countries which have recently been entered or are to be entered with middle to high attractivity and a weak competitive position of the own enterprise. Important is the expansion of the market share through expansion of the range or markets. Selective strategy This is recommendable whenever a leading market position has already been achieved in certain countries or with certain products. Through product differentiation, the market position can be improved. Cost-reducing potential with the use of synergetic effects strengthen the position.

Decline- and withdrawal strategies This variant can be employed in problem markets but also in not very promising markets. In these cases, markets or products are concerned in which lasting or temporary losses occur and the cash flow is negative.

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Market Attractivity

High

Medium Slow Reduction or Withdrawal

Increase Investment or Reduce

Intensive increase of investment

Increase Activity and Investment (Leadership)

Securement and careful development

Increase Activity, Growth

Low Fast Reduction or Withdrawal Slow Reduction or Withdrawal

Skimming Potential

I--------- 1 Decline- and Withdrawal strategy I-------- -I Selective Strategy I

1 Investment- and growth strategy

Diagram 7: Norm strategies in market attractivity - competitive advantages portfolio65.

Through the early application of the portfolio analysis, the strategy concepts can be considered and discussed even before the actual strategy planning. The strategy finding process is introduced. The strategies characterised as norm strategies have the task of giving an aid for orientation during the discussion of the strategic force and can only introduce, not replace, the following areas of strategic planning. It is also clear at this point that this is an iterative process which follows a sequential approach but allows an early examination of positioning through a constant feedback and review loop.

2.2.8. Change management aspects in the business analysis phase

2.2.8.I. Global mindset The realisation of planned internationalisation in a medium-sized enterprise also means the beginning of changes undertaken to better perceive the environment and take advantage of the so-called „window of opportunity“. It is always astounding to observe that some corporations recognise opportunities and take 65 Peren, Franz, W/Clement, Reiner, pp. 71-77, 1998.

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them, while others are not able to perceive the possibilities at all. Why do two corporations faced with the same information reach different strategic conclusions? The reason is, the mindset66.

Mindset refers to the cognitive filters through which we, as individuals or organisations, observe and make sense of the world. None of us are omniscient; we are selective in what we observe and biased in how we interpret what we observe. We acquire these cognitive filters through a process of learning from experience. Thus, the greater the diversity in the experience of two individuals or organisations, the more likely it is that their mindsets will be different67. For the reasons mentioned, the question of „mindset“ in the context of strategic fitness for internationalisation is an element of business analysis. Of interest is the development of the mindset of all employees, top managers and the owner. Due to its high importance, this aspect is introduced at an early stage in the internationalisation process in order to allow an appropriate amount of time for the development of the global mindset. In this case, the path is the destination68. From the view of a consultant, the mental fitness of the employees and the corporation is an important indicator of the cultural basis and the client’s corresponding ability to internationalise. The following boxes contain two sets of diagnostic questions that individual managers and organisations can use to assess the extent to which their mindsets are currently global. Do you have a global mindset? >

> > >

When you interact with others, do you assign them equal status regardless of national origin? Do you regard your values to be a hybrid of values acquired from multiple cultures, as opposed to just one culture? Do you consider yourself as open to ideas from other countries and cultures as you are to ideas from your country and culture of origin? Does finding yourself in a new cultural setting cause excitement rather than fear and anxiety? When visiting or living in another culture, are you sensitive to the cultural differences without becoming a prisoner of those differences? Diagram 8: Do you have a global mindset ? 69

66 Markides, Constantinos, p.13, 1997. 67 Govindaranjan, Vijay/Gupta, Anil K. in: Financial Times - „Mastering Global Business“, p. 141, 1999. 68 Development of a different mindset - key features are: realistic expectations, a cosmopolitan and collaborative outlook, high levels of trust and a willingness to learn from one another. All these need to be backed up by the ability to set goals and negotiate when conflicts arise. 69 Govindarajan, Vilay/Gupta, Anil K. in: Financial Times, p. 143, 1999.

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Does your organisation have a global mindset? >

> > > > > >

Is your company a leader rather than a laggard in discovering and pursuing emerging market opportunities in international business? Do you consider every customer, regardless of nationality, to be as important as a customer in your own domestic market? Do you draw your employees from the international talent pool? Do employees of every nationality have the same opportunity to move up the career ladder to the top? In scanning the horizon for potential competitors, do you examine all economic regions of the world? In selecting a location for any activity, do you seek to optimise the choice on a global basis? Do you view the global arena as not just a playground (that is, a market to exploit), but also a school (that is, a source of ideas and technology)? Do you perceive your company as having a universal identity and many homes rather than a national identity? Diagram 9: Does your organisation have a global mindset?70

In the case of organisations that are neither global nor planning to become global, the question of whether a global mindset would be an asset or a liability is difficult to answer. This is because the decision not to become global may itself be the result of a pre-existing, perhaps nonglobal, mindset. In other words, mindsets often work like self-fulfilling prophecies. The more global an organisation’s mindset, the more likely such an organisation is to value global mindsets and vice versa. The next overview presents a detailed list71 of the multiplicity of levers that an organisation can use to create a collective global mindset: Composition of the board of directors - mix of nationalities, international experience, language skills Choice of locations for board meetings/intemational sales meetings/export meetings Background of the chief executive - international experience, language skills Distribution of the time spent by the chief executive in various regions Composition of the executive committee / Steering committee / Project team mix of nationalities, international experience, language skills Executive selection procedures which screen for openness to diversity and change

70 Govindarajan, Vilay/Gupta, Anil K. in: Financial Times, p. 143, 1999. 71 Govindarajan, Vilay/Gupta, Anil K. in: Financial Times, p. 144, 1999.

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Executive career ladders that reward international experience Performance measurement and incentive system that motivate senior managers to optimise not only local but also global performance How successful a company is at exploiting the emerging opportunities and tackling the emerging challenges crucially depends on how intelligent it is at observing and interpreting the dynamic world in which it operates. A global mindset is one of the main ingredients of such intelligence.

2.2.8.2. Advanced aspects of change management In accordance with the objective of this work and in addition to the method for strategy development and its implementation, the accompanying measures of change management represent an important requirement for successful internationalisation. In this chapter, the statements and activities are added to the classic project management to include the most important aspects of intercultural management. The relevant characteristics of project management are a part of the entire process and will not be listed in detail72.

At the beginning of a planned internationalisation, the development of a project identity with one common language and a transparent value system for the orientation of the team members is in the forefront. The development of a platform for communication supports the formal communication and creates the basis for trust and credibility. These are the foremost requirements for the formation of networks within the team and the enterprise. This strengthens the motivation and commitment of the team. The transformation should be taken on with courage and a great deal of resolution. This conduct has an indirect signal effect and adds the necessary pressure on the organisation to begin with the changes. The necessary measures 73 are presented as a „set of activities“ in the following:

Ring in cultural transformation with courage and resolution Development of a project identity through the „leadership vision“ (button­ down approach) Sensitise towards main issue - create awareness Positioning of main issue - give priority Form uniform language and culture (also, set project rules) 72 For more information, compare Madauss, Bernd J., 1991. 73 Cp. Spalink, Heiner, p. 13, 1998; Dehner, Klaus in: Frankfurt Allgemeine Zeitung, 20.8.2000, Three-phase programme - Create productive insecurity and prevent fear.

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Create a platform for communication (effective, efficient, easy to use communications and knowledge system) Development of a formal and informal network (exchange of experience and opinions) Position of teams in the organisation, position of and communication between team members in the organisation Initiation of value-oriented culture changes Sensitising towards problems/requirements of value-oriented intercultural communication Set formal and informal project design relating to core countries / lead countries Accompanying Human Resource Development (in the first phase, fact finders and process specials are needed) with training/further training plan, conflict training/coaching plan Initiate monitoring (team performance report) Expectations and fears of the team members Team-building steps (norming, storming, forming, performing) The above-mentioned measures are always adopted with the same goal, the transparency of power within the organisation, the securement of the ability to work and the development of know-how (monitoring of education and cultural milestones/interface workshops). One could pose the question, „But don’t senior managers do all this already?“ The truth is, no, they do not. In the heat of the battle of competition, managers often do not pay attention to possibilities which present themselves. The experience of the author has shown that the method of business analysis is an effective method of approach to assessing opportunities for growth. Its value as a tool for diagnosis is that it brings one to look at each area in a specific order. Although this method is quite simple, it can help medium-sized enterprises to examine several possible opportunities. Moreover, the comparison of opportunities by the management team leads to a productive discussion on the priorities of the enterprise. Crucial is the filtering of information to knowledge relevant for action.

2.2.9. Summary of business analysis

Through the environment and business analysis, a medium-sized enterprise becomes aware of the existence of current and potential developments in the global environment, the specific corporate environment and the own competitive position in the case of activity exclusively in the national product/market sector.

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After the external information concerning different countries has been tied to the strategic success factors, there is the possibility of a selection of countries and the creation of an overview of potentially attractive country markets. This portfolio can serve as a basis for discussions concerning market-expansion decisions.

Furthermore, the challenge lies in gathering information on future developments of potential customers and competitors. A broadening of perspective from the basis of pure status-quo thinking is therefore necessary for the assessment of upcoming social, legal and technical frame conditions and their evaluation according to their consequences and opportunities for the course of business and the internationalisation strategy. Following the Market Due Dilligence, it is important to investigate the worst and best possible developments in order to obtain a wide scope of possible scenarios. The status-quo analysis is, in principle, an element of almost every strategic planning meeting and carried out in many corporations even several times in a business year. However, due to the increasing pressure of daily business, this process of „stepping back and looking in the mirror“ is, in most corporations, rudimentary. It is to be strongly pointed out here, that status-quo analysis is absolutely necessary and should be the basis of every decision in an enterprise, regardless of the number of employees or the amount of turnover aimed at. A continuously changing environment requires a coherent leadership and steering of the enterprise for which the described phases create the basis.

Concerning the demands of the accompanying change management, changes in processes are all the more effective, the more employees are included who will be most effected by the changes of internationalisation. The higher the level of participation, the less persuasion work will be necessary. There is no substitute for the participation of employees if acceptance and commitment are to be fostered. Commitment is the key quality for real and lasting change. If change in the context of internationalisation is understood by those who are expected to change and if these also participate in the implementation of changes, then the transformation is considerably easier to carry out74. Viewed in sum, the execution of the status-quo analysis defines the field of decision. Above all, the seldom and mostly rarely occurring cases in which the core competency of an enterprise meets with the specific requirements of a market should be identified. Particularly in foreign business, this opportunity arises more often through different development opportunities than through a 74 Cp. Spalink, Heiner, p. 73, 1998.

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focus on a few markets. In such a phase in which the strategic window is open, the medium-sized enterprise must make every effort to take advantage of this „window of opportunity“75. For this, it is of course necessary that the results of the business analysis phase be presented to those who know how to use them most effectively. Only when an enterprise proceeds according to the „open-bookmanagement“ principle, are the conditions for a successful development of the internationalisation process possible76.

In the Business Analysis phase, the extensive analysis of the enterprise and its environment were determined and, with the help of the Directional Policy Matrix (DPM), defined according to countries and product groups or customers as the basis for discussion and the strategic starting point for the development of an internationalisation strategy. In this work, the requirements for the further internationalisation of medium-sized enterprises will be presented and, in the following, the phase of Strategic Planning described.

75 Cp. Meffert, Heribert, p. 66, 1998. 76 Cp. Dess, Gregory G./Picken, Joseph C., p. 18 - 34, 2000: „Share information, and you share the burdens of leadership“.

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2.3. Strategic Planning

The strategic planning phase is comprised of different elements of strategy preparation and stra­ tegy generation. In the strategy finding, the senior management of the medium-sized enterprise is to present and discuss different options. This opinion-making process automatically results in the module of strategy genera­ tion. The vision or core value is determined by the owner itself and his or her directors. The information analysed thus far and the determination of the starting point can be of great service at this point in the process. Following this, the strategic force is to be defined and the target system installed.

The positioning and target setting could, in principle, also represent a basis for a strategic decision, but in order to prevent the initiation of targets and strategies based on operational decisions, the sequence of order has been set as stated. Important is that interdependent decisions be made at management level regarding the fundamental areas of targets, positioning and strategy. The discussion of which decision should be made first reminds one, from the perspective of the medium-sized enterprise, of a certain „chicken-egg“ issue. In this context, it is the opinion-making process which is crucial. This process is usually wearisome and complex. Constant feedback and learning loops to reached decisions arise. The consultant has the task of ensuring that this part of the process is carried out with patience and high professionality. The owner should not allow him- or herself to be discouraged in their planned internationalisation and should not ignore sceptics, but take their arguments into consideration. As the high number of feedback and learning loops are desirable, it is not crucial to stick to the sequential order which seems quite rigid as first glance, but to prevent the classic „muddling-through effect“. The strength of the process described lies in the continuous supplementation and optimisation of the knowledge basis through the iterative view of the fixed sub-phases.

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2.3.1. Strategy preparation

The strategy preparation process, with its elements of „dialogue about the future, future priorities, country pre-selection and competitive advantage“, introduces the phase of strategy development and gives the medium-sized enterprise the possibility to review the results achieved with regard to changes in the environments which have possibly occurred.

Important in this phase is the assessment of the strategic success position. Nearly all strategic elements will be focused on this bundle of competitive advantages. The enterprise should first however clarify how it judges the future in its area or sector and which priorities are to be derived from this.

2.3.1.1. Dialogue about the future To prepare for the setting of a strategy, it is necessary to have a distinct vision of the future. All too often though, companies leapfrog straight from analysis to strategy, omitting the vital step of future vision. Companies which fall into this trap usually make strategies that apply to yesterday’s rather than tomorrow’s conditions. Such strategies are unlikely to last long and very likely to be changed frequently, thereby losing their effectiveness.

The following areas have already been analysed in the environmental scanning and can therefore be supplemented here as a starting point. There are six major factors driving future change which need to be closely studied and understood: 1. Customer needs 2. Channels 3. Technology 4. Regulation 5. Costs, pricing, profit 6. Competition Diagram 10: Six major drivers offuture change77.

To recognise the future development, a detailed examination of all of the listed areas is necessary. As a result, however, the same questions are always of high importance:

77 Davidson, Hugh, p. 228, 1997.

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What will the future be and how well are the existing areas likely to serve this? Looking at trends in other industries, what are they like? What alternative might emerge in future? How are they changing? The next step involves a number of marketing principles78 which can be summarised as follows and which play an important role in the structuring of the corporate vision and the future strategic force:

Get a real perspective and deep understanding of the past Determine how the impact of each of the six key drivers will change in the future Develop scenarios to assign future probabilities over time Use imagination to change the rules Familiarise yourself with the latest selling formats and technology tests Challenge today’s price/performance assumptions against the future With the help of these main principles for a better understanding of the future of the medium-sized enterprise, its future priorities are determined.

2.3.1.2. Future priorities

To prepare for the strategy definition, the medium-sized enterprise should select its priorities from the following groups and relate them to a time-frame of five years: Markets Customers Consumers Technologies Areas of entry and exit, acquisition, disposals This focus on the relevant areas makes clear how important it is that the management have an idea of future priorities. This introduces discussions that efficiently determine the actual time frame for the strategy preparation. In practice, for example, the owner can ask the directors of the different business units or functions to write down their visions. Each manager for each area is to look into the future in doing this. Only this ensures an integrated approach. This 78 Davidson, Hugh, p. 240, 1997.

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horizontal process sharpens the view and fosters motivation even in the „unpopular“ areas. As a result, extensive impulses are set by the enterprise, for the enterprise and formulated by experts, and the development of a futureoriented process is set forth. Another method is the „opportunity workshop“, in which, through the guidance of the consultant, the collected information and experience of the managers are used to assess and discuss the most important future opportunities.79. This can be proceeded with as follows:

1. Identifying main opportunity areas 2. Generation of ideas relevant to opportunity areas 3. Screening and concept testing 4. Prioritised opportunity list

As in every good workshop, the result and the further tasks of the participants are to be determined at its conclusion. After the extensive discussion regarding the future development of the direct environment of the medium-sized enterprise, markets are to be selected in the framework of the international activities. First, the previous portfolio is to be fundamentally reevaluated with the help of the individual assessment steps. The method required for this will be described in the next chapter.

2.3.1.3. Market pre-selection Against the background of pursuing activity in international markets, the medium-sized enterprise must compare potentially attractive countries (which have crystallized from the environmental scanning) to competitive and resourceoriented corporate potential80. This can be graphically illustrated through the use of the portfolio-concept.

First, with the help of cross-corporate factors, a risk index must be determined from the sum of countries and expert knowledge on certain regions and countries developed. Along with the secondary statistical data from relevant information pools, all possible contacts from international fairs and exhibitions are to be utilised for this. Using well-known risk indexes such as the BERI index (Business Environment Risk Index), the Political Risk Letter or other

79 Only one question is relevant in this context: „Where are my windows of opportunity (WOO)?“ 80 Von Krystek, U./Walldorf, E.G. in Krystek, U./Zur, 1997: „Länderspezifische Chancen und Bedrohungen“, pp. 443-463.

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systematical judgement concepts for country risks81, a general judgement can quickly be made. The countries are to be selected by the medium-sized enterprise through a multi-stage filtering procedure based on the most important criteria. One can proceed as described in Table 6: Filter level

Criteria for selection

1. Filter

Political situation, Legal conditions

2. Filter

Population, Gross national product

3. Filter

Housing Demand, Building Investments

4. Filter

Market potential, Technical regulations, Resource availability

Table 7: Examples offour screening levels for country selection systematic effect analysis.

After markets have already been filtered out due to restrictions in the first filter, a continuous questioning of selection criteria follows in the next steps, leading to a pre-selection and finally to the setting of remaining markets for a marketing strategy per country. For the further procedure, a scoring model is to be used for a general classification of the market attractivity of the selected countries. Filter level

Criteria for selection

1. Filter

Political situation, Legal conditions

2. Filter

Population, Gross national product

3. Filter

Housing Demand, Building Investments

4. Filter

Market potential, Technical regulations, Resource availability

Table 8: Scoring model for the evaluation of different foreign markets.

Table 8 illustrates the method of approach. In the chapter on portfolio-analysis (see 2.2.7. Positioning), further indicators of market attractivity are given and can be supplemented. The selected countries receive a certain number of points and, as all countries are evaluated according to the same method, can also be qualitatively compared to each other. The country with the highest level receives 81 Backhaus, Klaus, p. 216, 1997.

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the corresponding number of points and possesses the greatest country attractivity. For the evaluation and judgement of promising markets, other requirements besides country-attractivity elements are to be taken into consideration. Here, differing processes for market evaluation and market entry must be taken into account82. High

Promising Markets

Abstinence Markets

Core Markets

Peripheral Markets

Low Weaknesses

Corporate - Potential

StrenBhs

Diagram 11: Foreign-market attractivity, corporate-potential portfolio.

Following in the next stage and building on the results of the competitive analysis with regard to market attractivity, is the determination of the typologies of countries. This means that the foreign markets that have been filtered are placed within the portfolio with the help of assessed scoring. This method of approach is to be viewed as an intermediate stage for making a qualified pre­ selection from a variety of countries. If the typology (see Diagram 11: Foreignmarket attractivity, corporate-potential portfolio) is followed then the medium­ sized enterprise is to then initiate a plan of work for the countries which can be classified as core markets.

Using developed internationalisation know-how, promising countries can win on attractivity and a market entry can be considered. Whether it is worth entering peripheral or occasional markets primarily depends on the prognosis of future 82 Arnold, David J./Quelch, John A., p. 7, 1998. They introduced a framework for action which comprises the screening stages of Assessing Long-Term Market Potential, Identifying Business Prospects and Predicting Potential Profits.

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environmental conditions. Abstinence markets are markets proven to be unattractive country markets in which, for this reason, entry is not sensible. Practical experience in the implementation of internationalisation measures has however shown that country risks should be evaluated separately from the internationalisation motives. At every stage of internationalisation, other factors arise which are of importance for the individual enterprise. For this reason, it is sensible in this context to include the reasons for internationalisation in the analysis.

In the end, the decision regarding which foreign markets come in question for an expansion will not depend on one single factor. A combination of several environmental and business-specific factors, and above all, the relative competitive situation, should provoke the initiative

2.3.I.4. Discussion on and focus of the strategic success position (SSP) For the further preparation and identification of strategy options for internationalisation, the results of the SWOT-analysis and the key factors of internationalisation (KFI) can be used to discuss the single positions of the foreign markets based on competitive advantage:

compatibility with enterprise/ corporate identity compatibility with customer demands focus on relevant customer categories prospects of economic success sustainability of the alternative independence ability of the management for realisation realisation into a marketing strategy and marketing instruments

The assessed KFI (see chap.: 2.2.5. Key factors of internationalisation (KFI)) are now to be examined and evaluated with regard to these criteria. As discussed in chap.: 2.3.1.2. Future priorities, successful medium-sized enterprises invest a great deal in the world-wide search for new ideas and opportunities. They follow important factors such as demographic tendencies, technological advance and legal changes. Sometimes one unique insight can bring lasting advantages. Most opportunities are however apparent to all competitors at the same time. Even a hidden opportunity in the market is quickly revealed and imitated by competitors through the fast action of the enterprise

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who makes the first move. The value of the original insight is quickly decreased and the market players scramble to attain positional advantages.

In the rarest cases, one single competitive advantage is sufficient. What counts in the end is the bundle of know-how which every competitor employs to successfully grasp the opportunity. The competitor with the strongest bundle of unique know-how has the best chances of becoming the winner. Lasting success is only guaranteed through a bundle of relevant know-how which is difficult to imitate. This bundle is attained when the starting position is continuously improved83. The sum of the concrete single success factors is decisive. It creates and secures success potential. The degree of fitness between the variables determines the internal and external success relevance. The winner is the player with the optimal bundle of know-how84. The basis for the strategy generation of the enterprise has now been set. The most important basic elements have been taken into account and prepared in a decision-oriented manner. Now that the individual elements of the phase for determining the strategic success position have been discussed in detail in the previous chapters, the following chapter on “strategic generation” will focus on the creation of the vision and the target.

83 Baghai, Mehrdad/ Coley, Stephen/White, David, p. 102, 1999. 84 Baghai, Mehrdad/ Coley, Stephen/White, David, p. 120, 1999.

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2.3.2. Strategy generation

2.3.2.I. The vision Only a clear basic alignment in an enterprise makes it manageable and successful in the future85. This basic alignment is carried and determined by a strong vision. The vision formulates an ambitious demand in order to mobilise the enterprise and is a decisive element for carrying the further interlocking of time and business factors86. This, however, requires a high amount of determination concerning the core targets of the enterprise. The visions must foster enthusiasm, identification and also acceptance. The vision must also be bold enough to call forth and sustain a mobilising wave of enthusiasm in the enterprise87. As a basis for increasing the degree of internationalisation, the medium-sized enterprise must define the corporate vision. All further future commitments concerning the product programme, customers and future country markets will be directly influenced by the vision of internationalisation and realised, step by step, through the establishment of the target system. The following basic questions serve for the development of the vision:

Where do we have to go? How do we have further develop ourselves? How can we secure our existence/growth? What are our dreams? The target is centred on an ambitious further development of the areas of action and competence of the enterprise. Here, it is necessary to clarify the vision on several dimensions. Related to environment- and business-specific areas, the main aspects of interest lie in the technical accessibility, the degree of acceptance and the degree of profitability. Relating to the development of the enterprise towards internationalisation, the important positioning possibilities include the degree of innovation, the area of innovation and the innovation period of products or services for the selected country market88. On the basis of these guiding dimensions, medium-sized enterprises can define their vision and determine their vision profile.

85 f.e Our vision is to be the leader in product excellence, to aquire and secure such a position that we undergo a profound change in our attidudes and behaviour during the product-development process. 86 Collins, James C./Porras, Jerry I, pp. 65 - 77, 1996, A vision is stating what one does and wants to do, but also what one does not want to do. 87 Dalewicz, Victor, pp. 1-14, 2000. 88 Cp. Becker, Jochen, p. 46, 1997.

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2.3.2.2. The cores values As a further important measure for preparing for the strategic target, the core value must be formulated. It should be short, clear and meaningful for all employees, customers and suppliers (for example, „Fit for Europe“). The vision is the basis for the formulation of the guiding principle of the enterprise and represents something similar to the fixed star for the sailor crossing the Atlantic. As the most important point for orientation, it determines all actions and, in times of temporary difficulties, is able to give trust and prevent the loss of focus on the common goal. The core values, the most important element of internationalisation, is to be internally and externally formulated. Its concrete statement should underline and support the vision by demonstrating its importance. In this work, an analysis and reevaluation of the basic beliefs and core values of the enterprise will not be undertaken. The integrated consulting approach does however allow recognition of whether the so-called basic corporate beliefs, in the sense of a „constitution“, are lacking89 or whether the social responsibility of the enterprise to take the most important stakeholders into consideration has found acceptance. For the determination and the formation of an „internationalisation culture“ in a medium-sized enterprise, basic values such as loyalty, enthusiasm and identification are essential requirements for a successful transformation from being a purely national supplier to becoming a real multinational enterprise90. These basic beliefs can be formulated within a guiding principle and value workshop.

For practical reasons, this work will limit itself to the determination of the corporate objective as a starting point for the internationalisation strategy, in which first the vision as fixed star and then the corporate purpose will be defined. The core values can be formulated according to the areas product/market combination, (target of the enterprise, international area of activity, foreign market activity, international customer basis, products, procedure and service) or the internal organisation (mental disposition, intercultural demand, employees, organisational structure and quality).

2.3.2.3. Determination of the strategic success position (SSP)

The strategic success position (SSP) is developed from a bundle of know-how of one or more core competencies to a competitive advantage91. The success position must be recognisable to all employees, customers, suppliers and 89 Cp. Becker, Jochen, p. 29, 1998. 90 Cp. Conners, Roger/Smith, Tom, pp. 10 - 13, 2000. 91 Baghai, Mehrdad/Coley, Stephen/White, David, p. 102, 1999.

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competitors. It must sustainably bring the enterprise in a better position than its competition. Consulting practice has shown that this can be achieved by taking a bundle of the most important know-how of the medium-sized enterprise and combining it to a strategic success position92. All resources are to be concentrated on this “bundle of know-how”. The information from the „Business Analysis“ serves as a kind of critical glance into the corporate mirror.

Different success factors of “bundle of know­ how”

Customer impact

Avoidance of dispersion of energy

Improvement of our own strength

Existing competitors

Sustainable

1. 2.

Table 9: Different success factors of the “package of know-how

With the help of a previously set plan for evaluation, the selected SSP are to be evaluated and then expressed in clear statements. These serve as a basis for the setting of the target.

Once the examination of the criteria: customer impact, avoidance of the dispersion of energy, improvement of the corporate strength, the existence of competitors and sustainability has been successfully completed, the determination of the strategic force may begin.

2.3. Z.4. The strategic force For determining the strategic force, it is important for the medium-sized enterprise to decide with which intensity an international activity is to be initiated and carried out. The senior management must answer the question of what importance the international market expansion is to have in the future. Here, the areas of national and international market activity, which often compete with regard to necessary resource potential, play an important role. The enterprise-specific level of intensity depends on whether the resources needed for internationalisation are available and also on the attitude of the decision makers. 92 Niedereicholz, Christel, p. 195, 1997.

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The mental attitude of the decision makers determines the degree of intensity and is reflected in the behaviour towards stakeholders, particularly towards customers, and towards competitors in the international markets93. The attitude of the owner towards the expansion of international business can be characterised by two extreme forms: the conservative „low budget“ inter­ nationalisation and the „balanced internationalisation“94.

2.3.2.4.1 . Low-budget internationalisation

The strategic force of a conservative internationalisation (low-budget strategy) is normally characterised by a step-by-step procedure of reducing possible risks. The focus is primarily placed on foreign markets whose competitive conditions are similar to those of the domestic market. This strategy has its origins in low turnovers in the home country and is used to compensise for losses through activity in new markets. The advantages for the medium-sized enterprise lie in the visible risks and comparatively low complexity. In Germany, for example, a conservative-oriented enterprise would be active in the neighbouring countries, who are characteristically similar, and then take a defensive stance accompanied by a strong striving for security. The conservative strategy is, of course, only possible in certain sectors with low international dynamics. In all sectors where market niches grow with a high speed of innovation and then disappear just as quickly, a different more offensive strategy is needed95.

23.2.4.2. Balanced internationalisation In an offensive strategy, the „balanced strategy“, foreign markets are approached according to the aspect of the proactive use of potential. Through a concentration on own strengths, differentiation advantages are used with consideration to competitive advantages. Activities are carried out in correspondence with the actual, available resources and a temporary competitive advantage in a specific niche is utilised. This behaviour can be observed above all in sectors which possess high international dynamics and in which medium-sized enterprises proactively occupy market niches as „conquerors“. An early establishment of the competitive position opens up good opportunities for the enterprise when the promising market becomes the growth market of the future. The execution of this strategy option in medium-sized enterprises requires a great deal of personality and a clear orientation on internationalisation. The enterprise must take 93 Cp. Weber, Petra, p. 190, 1997 94 Cp. Weber, Petra, p. 191, 1997. 95 Cp. Weber, Petra, p. 191, 1997.

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opportunities with a high degree of flexibility and willingness to take risks. Weak personalities with low leadership quality will not choose this strategy96.

2.3.2.4.3. Selection of the strategic force with the aid of the portfolio-concept The strategy is only then to be determined when the target system has been formulated. For this, it is necessary to first assess the strategic force. With the aid of the portfolio concept, and based on the previous position of the enterprise in the global competitive environment, the future position can be defined according to country priority. It is recommended to integrate all core countries into this perspective. Naturally, clusters of countries which represent certain regions or lead countries can be formed for practical reasons. The aim of a multi-stage portfolio analysis is a balanced strategy generation at the level of the enterprise and the product-country level. As the basis for the definition of the strategy, the management receives different target-positionings per main country. In some cases, depending on the chosen product, the line of business is to be similarly illustrated with regard to countries. The geographical expansion can clearly illustrated with this tool. The further advantage of a simultaneous examination of product and country portfolios for the medium-sized enterprise is that it allows a flexible consideration of all individual products connected to certain countries but also beyond countries. Similarly, countries can be analysed without neglecting product areas and their specific situation97. The multiply-structured portfolios, however, only take countries into consideration in which the enterprise has already begun activity or established business contacts. In this case, the market entry barriers/foreign market attractivity portfolio can be employed. With the help of a scoring, the different criteria of the two main characteristics of market entry barriers and country attractivity be evaluated and therewith allow a differentiation between the characteristics of the enterprise and the market entry barriers. Through the use of this approach, the medium-sized enterprise receives a further overview of additional internationalisation opportunities. As a further tool for determining the fundamental force, a strategic force can be recognised with the help of the life cycle of the enterprise or the product with the greatest turnover share through a differentiated gap-analysis98. In connection 96 Cp. Weber, Petra, p. 193, 1997. 97 Link, Wolfgang; p. 125, 1997. 98 Cp. Canals, Jordi, p. 5, 1999. Here, the„Growth Gaps Concept“ from Canals can be mentioned. Four gaps are differentiated: 1. Gap betweeen customers future and current demand, 2. Gap between customers needs and the products or services currently offered, 3. Expectation gaps in current products or service, 4. Efficiency gap in the operational processes

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with the product-market combination, a first orientation on strategic frames for action is also possible". After the most important strategic force has been determined, the setting of a general target for the medium-sized enterprise follows.

23.2.5. Targeting The task of the new or changed strategic target should be to build on the findings of the “Business Analysis” in order to re-position the enterprise more successfully. In the context of the internationalisation of medium-sized enterprises, an expansion of 40% of the country portfolio within the following five years would, for example, already represent an important goal. All further sub-goals could be fitted to the task of the future strategic force.

To improve the impact for the enterprise, the main target is then defined according to the different areas within the enterprise and its environment. The areas from the product-market combination and the participants in the international creation of values in the enterprise should especially be taken into consideration. A stated time frame and the naming of the individual responsible for its monitoring, completes the strategic targeting100. The furthering and decisive demand of the internationalisation process is the realisation and a corresponding high degree of fulfillment of the targeted goals. The balanced scorecard (BSC) is introduced at this point as a tool for the realisation of the targeting. With the help of the BSC, it becomes possible to carry out an effective monitoring which takes strategic objectives, measure, targets and initiatives into consideration.,

2.3.2.6 . Balanced score card in the internationalisation process

The basic concept is that the financial target goal is associated with the potential of the areas of customers, internal processes and employees in a strategy- and vision-oriented manner. The achievement of an organisation will be introduced on a clear board („score card“) as the „balance“ and viewed from four perspectives101. At its core, the balanced scorecard serves the clarification and interpretation of visions and strategies into concrete actions, communication and connection of strategic targets to initiatives, the creation of plans, the formulation

99 Cp. Becker, Jochen, p. 414, 1997. 100 Niedereicholz, Christel, p. 196, 1997. 101 Kaplan, R.S./Norten, D.P., p. 8, 1996.

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of requirements, the consensus regarding initiatives and the improvement of the feedback and learning in the internationalisation process. The concept of the strategic scorecard is above all a communication and learning concept for the effective implementation of the chosen internationalisation strategy. Through the focus of the set strategic frame for action, defined targets and selected initiatives become clear. Through the employment of the four management sub-processes (finances, customers, processes and employees), a link according to the cause-effect principle is made and all resources utilised in a target-oriented way. Through the fact that all perspectives are equally illustrated next to each other, immaterial assets are given the same importance as the monetary, material aspects.

In the method of approach, the medium-sized enterprise must ascertain that a main target be formulated and that a target system with various sub-targets be developed. Following this, the sub-targets are to be integrated and given strategic objectives, measures, operative targets and a programme of initiatives for the different perspectives. Four main perspectives can be distinguished: 1.

The financial perspective represents a superior perspective. It measures the financial success of the enterprise in the context of internationalisation and is therefore of high importance for entrepreneurs and shareholders (especially with regard to the aspects of foreign investment for the construction of factories, win and loss distribution in joint ventures or the earnings from license fees). The success of the other perspectives is always reflected in the financial perspective.

2.

The customer perspective is oriented on increasing customer satisfaction and the acquisition of new customers. It also attempts to provide controlling elements for all areas in order to increase customer value. This includes, for example, that the customer in the foreign country be given the same service as the customer in the home country. Should this necessitate decentralisation of production and marketing to the regions in question, than this would be legitimised by the increase in customer satisfaction and a directly improved BSC.

3.

The internal process perspective evaluates and examines all internal activities towards the creation of values, such as: the processing time for orders, delivery times, shortening of the development time of new products, the time for the creation of product samples or also general approaches to the continuous improvement of the course of processing. Only the processes in the enterprise which are critical for success, the so-called core processes,

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are to be identified. This includes not only existing resource-intensive processes but also all strategic processes necessary for the fulfillment of customer needs in international business.

4.

The employee or learning perspective focuses on the development potential of the employees and managers of an enterprise and how they can use and expand their possibilities in the context of the enterprise. The intercultural aspect of creating a global mindset, the ability to settle conflicts and working in a team play a very important role in internationalisation. The internationalisation of a medium-sized enterprise can only then be successful when extensive accompanying activities for limiting and avoiding the insecurity of the employees are carried out.

The internationalisation process in medium-sized enterprises also requires an expansion to include other relevant perspectives:

In the potential perspective, the most relevant success factors for the enterprise are taken into consideration and integrated into the target system. The internationalisation requires information on market and product development relevant to the concrete target. The critical success factors become clear to all participants in the internationalisation process through the cause-effect connection. Especially critical in the internationalisation process is the perspective of leadership. Particularly in the accelerated strategy implementation, leadership at the different levels is essential and should be an integrated element of every internationalisation BSC. The question of leadership in the enterprise and its placement within the framework of the internationalisation is to be developed according to strategic (planning), operative (implementation) and social (leadership behaviour) leadership102. All questions concerning the organisation of export activities and the central or decentral organisation of the export department are part of the strategic leadership in the sense of corporate planning. The operative management involves questions of the concrete realisation (steering and monitoring). In the area of social management, the leadership conduct during international activity is summarised. Incentive systems, culture and conflict management play an important role here. Essential in this context is that the management recognise aggressive potential caused by insecurity at an early stage and effectively defuse it. However, conflicts that must be carried out should be identified and openly discussed. This method is in any case better than

102 Krystek, U./Zur, B.; p. 6, 1997.

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wasting energy on the avoidance of conflicts. At the first sign of insecurity, managers should promote total fitness through relationship coaching103.

In a further approach to target systems with multidimensional indexes, Wurl/Meyer104 apply the concept of the „success factors-based balanced scorecard66. The main characteristics of the strategic success position and the balanced scorecard are combined. This means that the previous perspectives are replaced by the strategic success factors. In this manner, the actual development of the success factors can be steered and monitored with the aid of the modified Success Factors-Based Balanced Scorecard. A stronger interlocking with the target system and an easier generation of sector-specific scorecards results105. With the help of the early indicators (strategic performance measurement) which indicate future developments such as the qualification status (training, job experience, foreign experience, additional qualifications, contacts in foreign countries), employee motivation or conduct towards business partners; developing tendencies can be anticipated. If the evaluation of early indicators in the future-current comparison shows an improvement in the qualification status, then the financial indexes corresponding to personnel quality also improve106. Through the supplementation of success factors, a more individual method of approach (especially for assessing competitive advantages) can be developed from the relative general concept of the original BSC. The success factors-based balanced scorecard fits well into the integrated internationalisation process and focuses on the following characteristics:

Measures of outcome for all stakeholders, short or long term Measures to assess the new global and cross-border capabilities being developed Clear goals for cross-border processes to which teams from all parts of an organisation can relate Tangible evidence of new behaviours or values that align with the global approach Measuring the ability to innovate and transfer knowledge and best practice107. Particularly in the areas of restructuring, transformation or revitalisation, it is of great importance to possess a suitable tool for the realisation and monitoring of 103 Frankfurt Allgemeine Zeitung, 20 August 2000, „Create productive insecurity and prevent fear“. 104 Wurl, Hans-Jürgen/Mayer, Jörg H., p. 8, 2000. 105 Cp. Wurl, Hans-Jürgen/Mayer, Jörg H., p. 11, 2000. 106 Cp. Wurl, Hans-Jürgen/ Mayer, Jörg H., p. 12, 2000. 107 Cp. Ruddle, Keith/Dopson, Sue/Stewart, Rosemary in: Financial Times - „Mastering Global Business“, p. 160, 1999.

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the implementation phase. The old focus on financial and operative factors is no longer sufficient. As a comparatively new approach for internationalisation, the BSC can steer transformation and through the constant feedback looping and cause-effect principle, also serve as a helpful partner in the difficult process of strategy implementation108. The integration of the success-based BSC also allows an up-to-date and reliable overview of the entire internationalisation situation. Not only the concrete requirements and measures are considered for a successful realisation, but also the relevant risks and opportunities are systematically assessed and evaluated. The success factors-based BSC fulfills the requirements of an integrated management information system for the securement of the internationalisation process.

23.2.7. Change management aspects in the strategic planning phase

In the phases of strategy preparation and generation, special demands are placed on those most involved. The actual process of strategic planning can take up to several weeks or months. In this phase, the open communication of the owner, the management and the middle management with the stakeholders of the enterprise is of particular importance. Once again, the mentality and attitude of the enterprise towards internationalisation, as well as the current degree of internationalisation, must be taken into consideration. In setting the future strategic force, all medium-sized enterprises must make a great effort towards an open mentality and honest communication. Only through this requirement can the visions of the individual employees be perceived and understood. As this is a creative process, the assistance of a consultant is necessary in this phase. Through high methodic competence and experience in similar projects, external consultants are wonderfully suited for accompanying the internationalisation process. The normally employed methods of brainwriting, brainstorming, morphological analysis and also the „open-space“ method can be recommended for the demands of this phase. These set the strategy finding process in motion.

108 Horvath, Peter/Kaufmann, Lutz in: Harvard Business Manager 5/98.

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2.3.3. Summary of the strategic planning phase

The strategic planning phase in the internationalisation process takes the two main characteristics of strategy preparation and generation into consideration. The preparation for the development of the strategic success position (SSP) after the business analysis phase is the main element and represents the basis of all further process components. The formulation of the core values and the development of the strategic objectives using the balanced scorecard concludes the strategic planning. In summary, the different screening stages (from the starting position to the setting of the target system) constantly place the medium­ sized enterprise in different perspectives in order to identify the bundle of important know-how for a successful internationalisation strategy. All following activities are based on this platform and strengthen and expand its effect. In addition to the fundamental method of approach, this phase also includes an extensive method which introduces the process of transformation. The phase of reconfiguration is now to be developed from this process. This phase determines in detail which countries should be more strongly tackled, with whom this project should carried out, which point in time should be chosen, how long the implementation of the project should take and what the detailed measures for the implementation of the selected strategy should be.

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2.4. Re-configuration

The term “re-configuration” is borrowed from its original meaning of the selection of hard- and soft­ ware. Analogue to the configuration of PCs, there is also the possibility in the phases of internationalisation, depending on the demand profile of the customer in the foreign markets, to combine strategy elements in order to form a strategic profile. The individual elements determine the success of the whole system. The following chapter deals with different strategy options for the re-configuration of the given strategies in the context of the expansion of international business.

2.4.1. Utilisation of strategy models

In selecting the right strategy, it is important to be aware of the variety available, to consider alternatives and to make clear choices. All of the strategies outlined are possibilities for medium-enterprises of any size. The main factors influencing the choice of strategy are size and resources, strengths, competitive weaknesses and market opportunities. A careful consideration of these factors enables a selection of the right strategy and avoids the lethargic „middle of the road“ favoured by less successful companies. In most markets, there is room for a brand leader, a differentiated No. 2, a lowprice product and niche brands. However, if the company or brand is a „me too“ No. 3 or No. 4, then it does not have a strategy and will not survive for long. The internationalisation strategy must be developed and formulated in detail based on the previous position of the medium-sized enterprise, the current degree of internationalisation and the current mental attitude of the enterprise towards internationalisation. As a basis for strategy formulation, the spectrum of internationalisation strategies will first be referred to (see Table 10: Spectrum of the international strategy, following Scholl).

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There are no simple, causal connections between the individual strategies but complex interactions which trigger co-ordination processes during the utilisation of the type of strategy.

Internationalisation strategies

Elements/Strategy components

Concepts of strategic orientation

Ethnocentric strategies; global integration strategies; strategies for national adaptation; multifocal strategies Growth-, consolidation-, disinvestment strategies Export; direct investments

Strategies for the development of the international position of the enterprise Market entry strategies Co-operation- and ownership strategies

Competitive strategies

Functional area strategies

Strategies for the management of the political environment Strategies for the co-ordination of international activities

Willingness to enter into partnerships vs. the striving to dominate foreign engagement Global/national market leadership strategy, global/national niche strategies International price-, product-, distribution-, and communication policies Hedging strategies to reduce risks resulting from government intervention Structure of the organisation, the information and communication networks as well as the control and monitoring of internationally active enterprises

Table 10: Spectrum of the international strategy, following Scholl109.

The development and implementation of the different strategy types for medium­ sized enterprises, presented in the following, should serve as a framework to achieve corporate goals on the basis of assessed external opportunities and with consideration to specific corporate resource potential (success factors). After the fundamental strategic force of the internationalisation has been set, the realisation of the chosen strategic force follows through the formulation of explicit internationalisation strategies. The presented strategic options are discussed from the perspective of the medium-sized enterprise. The frame of reference utilised for this purpose is to be understood, in this context, as an aid for orientation.

109 Scholl, R.F., p. 986, 1989.

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Internationalisation vision and specific competitive advantage Definition of strategic direction =^J= Development of target System

a

Developing a corporate strategy for integrated internationalisation Configuration

0

Realisation

~~~

Monitoring

Diagram 12: Frame of reference for internationalisation.

It is not an easy task for the strategy team to select the crucial strategic elements from a bundle of know-how which present a competitive advantage, in order to progress from the current position to the future concept. For this purpose, criteria are to be defined according to which the chosen strategy can be evaluated. The expect ed results of the strategic target setting should then be examined in a utility analysis for their degree of fulfillment regarding the international criteria. Through the planning and realisation in this phase, the strategies for the defined countries are invested with life. This is to be understood as the definition of the strategy elements and the following realisation of the initiatives. Important in this context is the consideration of several dimensions of the strategic decision problem. As it is an integrated strategic approach, all strategy options relevant for internationalisation should serve as the basis for a decision. The resulting partial sub-strategies for internationalisation are based on the approaches of Becker110 and Backhaus111. The design of the frame of reference can follow with regard to several problem areas.

110 Cp. Becker, Jochen, p. 313, 1997. 111 Cp. Backhaus, Klaus, p. 149, 1995.

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2.4.2. Planning of the re-configuration

2.4.2.I. Scope of the market expansion The scope of market expansion affects the decision of where the medium-sized enterprise should offer its products. Depending on the medium-sized enterprise’s fundamental understanding of internationalisation, factors such as market attractivity and market barriers determine whether individual country markets should be developed or expanded. As previously mentioned in chapter 2.3.1.3. Market pre-selection, a first selection of country portfolios results with the help of the portfolio concept and is a basis for further strategy determination. Here, it is not simply the number of tackled countries which is of the greatest importance but the attractivity of each foreign market. Medium-sized enterprises are required to co-ordinate the parallel distribution of resources to many different foreign markets with consideration to the possible intensity of business activities based on customer needs. A one-sided concentration on a few country markets should also be avoided in order to prevent a dependency on country-specific environmental developments. If these markets develop negatively due to certain economic changes, then the business in these regions loses attractivity. In a further geographical dimensioning of market expansion at country level, the three decision alternatives of concentric, selective and island-formed expansion can be differentiated, following Becker112.

Concentric market expansion The market expansion is concentric and determined by circles around the home market. The national marketing area is gradually expanded. Attractive product/market segments are tackled first and, based on the development in these segments, expanded to other country markets in the form of a circle. For a national producer from Germany who would like to export to Asia, a re­ presentation in Singapore would be a useful starting position. With this strategic bridgehead, other countries can be added on. The advantage lies in the step-bystep development of foreign markets for a gradual gathering of experience. Furthermore, this option also accommodates the limited resources of the medium-sized enterprise. There is, however, the risk of a potential early warning of competition, as they can anticipate the strategy. In particularly dynamic markets, this strategy may be secure and safe due to clear investments, but success usually only arrives to a partial extent. In sectors which are just developing, this strategic approach is well-suited for reducing the risk of a loss in profit due to market saturation in the domestic country. "2 Cp. Becker, Jochen, p. 329, 1997.

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Selective market expansion A selective market expansion is when individual, geographically non­ neighbouring foreign markets in certain core areas are differentiated, selected and marketed113. The selective market expansion is especially followed by medium-sized enterprises when they have potential customers in diverse country markets for their specialised product programme. All countries are therefore viewed as relevant sales areas. Medium-sized enterprises that choose this form of strategy are participants in global sectors and therefore expand in a global environment. The selective expansion consciously accepts certain gaps. Particularly with certain „sales fortresses“, which cannot be captured, the competition is not directly approached but surrounded and, at an opportune moment, attacked from several sides114. Essential is the overcoming of market obstacles or barriers and the delay of market entry to a more promising point in time. The advantage of the selective method of approach lies in the possibility of the sale of nearly standardised product concepts, which can be offered in all selected markets without extensive adjustments. The costs of adjustment or adaptation are lower because the behaviour of the consumer follows certain patterns which are not nationally specific. This behaviour is reflected in sectors such as the sports articles industry or the camera business. This strategy is limited by many fundamental differences in certain heterogeneous sectors of the world market. The specific adaptation of the range, which is necessary in these cases, normally overstrains the typical medium-sized enterprise in its activities. Due to limited resources, it will be difficult to tackle all country markets in the sense of a global-selective market coverage. The expansion therefore depends on the number of similar product-market combinations. In addition to a global mindset within the medium-sized enterprise, this kind of orientation involves an basic offensive position and the corresponding resource potential.

Island-formed market expansion This term is to be understood as the expansion to certain geographicallyseparated foreign markets. Typical for this is the selection of certain regions from country groups which have leading character. Countries with leading character can, for example, be countries with orientation- or leading value. Analogies to the concept of the different adaptor-categories, such as the innovators as opinion leaders or „early adaptors“ are to be employed115. From these selected islands (for example, Germany as the most important economic 113 Cp. Becker, Jochen, p. 304, 1997. 114 Cp. Becker, Jochen, p. 306, 1997. 115 Cp. Becker, Jochen, p. 727, 1997.

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region in Europe or the region of Cascadia with the centres of Seattle, Portland and Vancouver) follows the further geographical expansion. Finally, these countries or regions are expanded through sales and marketing activities, and, as an additional step of expansion, networked to other islands116. It is important for the medium-sized enterprise to build strategic bridgeheads in relevant future regions (with regard to the corporate and environmental situation), which represent the requirement for market entry to further countries. Early activity in important countries with leading character creates a competitive advantage and the basis for further internationalisation efforts in the selected regions117.

The advantage of the concentrated approach lies in the successive expansion of the international representation of bridgeheads or lead countries. Resources can be used in a focused manner and know-how can be slowly developed. Through the larger geographical distance, however, there is a higher risk as the development of a specific competitive advantage will be necessary for the selected centres. A strong global mindset in the enterprise and an excellent staff are the requirements for this type of strategy.

Timing plays an important role, particularly in sectors with high international dynamics and can give all pioneers or early followers a clear competitive advantage in the defined bridgehead regions or lead countries. Through early market entry, the development of customer relations is facilitated and the execution of the own price policy with corresponding margins is fostered. The effects of the timing of internationalisation will be discussed in the following chapter.

2.4.2.2. Timing of internationalisation Two dimensions are to be observed in the timing of internationalisation. First, the optimal time of market entry to a foreign market is of great importance. The reaction of the market and the competition is oriented on this. Secondly, the chronological order of market entry for the different countries is to be taken into account. The question of whether entry should be to one country market at a time or, in an extreme case, simultaneously to all country markets, must be answered.

116 Cp. Becker, Jochen, p. 307, 1997. 1,7 Cp. Weber, Petra, p. 203, 1997.

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2.4.2.2.I. Time of market entry In this chapter, focus is placed on the question of the optimal time of market entry for the medium-sized enterprise. It is the point in time when the fit between the demands of the market and the specific success position of the enterprise is most optimal118. The product-, technology- or market development must be adjusted and the right product introduced at the right time to the relevant market. In this context, the strategies of the pioneer, the early follower and the late mover are of special importance for the medium-sized enterprise.

Pioneer strategy (first-to-market strategy) In a pioneer strategy, the medium-sized enterprise has the target of being first, in comparison to the competition in a sector, to enter an attractive international market119. It must be differentiated between market entry as first foreign enterprise to a national market and market entry as exclusive supplier of a specific offer of service. In the first case, the medium-sized enterprise is a foreign market pioneer because it is the first foreign offeror with a specific service aside from the established national competitors (for example, market entry to promising markets). In the second case, the enterprise is the first and only supplier in a selected foreign market and therefore a „true pioneer“ with a nearly „competition-free“ environment (for example, market entry with a completely new product innovation). As foreign-market pioneer, the medium-sized enterprise must identify its essential differentiating characteristics in comparison to the national offerors and take on a clear positioning of the own enterprise and its product or offer of services. In accordance with the dependency on the selected country market, the environmental conditions in this market and the sector internationalisation, activity is to be gradually intensified and expanded following a more or less distinct learning curve.

Medium-sized enterprises which enter the market as true pioneers, possess a product or service offer with innovative character and are clearly the first in the market. The advantage lies in the possibility to create standards in the market which clearly limit the following competitors. Through the temporary monopolising position, the pioneer can utilise instruments for price policy and create high market barriers before market entry of other competitors. Depending on the selected price policy, the enterprise achieves cost advantages and delays the entry of further competitors. Also important for the pioneer is the undisturbed 118 Cp. Weber, Petra, p. 210, 1997. 1,9 Weber, Petra, p. 212, 1997.

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development of customer relations and the resulting customer loyalty. A following competitor will have a difficult time in breaking the already existing contacts. For the medium-sized enterprise, the risks and dangers of the pioneer primarily lie in the necessity of a high resource potential120. As experience in the selected market is usually lacking, extensive analysis is required. One cannot build on own experience or that of the competition. Therefore, a high level of commitment is required from the enterprise, from the beginning on, for the long­ term planning of market entry and the subsequent tackling of the selected market. The sustainability of the plan begins with opening up to market entry and the resulting costs. A product which has not yet been introduced is unknown to the market. This requires an increase in the level of familiarity and development customer relation ship. After the successful development of the own market position, the medium-sized enterprise then has the task of further expanding this position and, above all, defending it. The building of market entry barriers such as the development of a specific product standard, the continuous further development of the own range or the blocking of relevant distribution canals are adequate options for action121. The difference between true pioneers and foreign market pioneers lies in the tackling of the market and the market penetration. As described above, pioneers have a temporary monopolising position with the advantage of an exclusive position but also have to undertake the market development on their own and with a high amount of resources. Foreign market pioneers encounter a market with a developed segment and more or less distinct demand structure. The innovation potential of the offered product or service plays an important role. With the same market volumes, the true pioneer has an undisturbed market entry but a more strenuous market development, the foreign market pioneer has to come to terms with competitors from the beginning but finds existing demand structures which do not need to be first developed.

Viewed in sum, the pioneer strategy represents an active and bold option for internationalisation122. The goal is the achievement and utilisation of a time­ limited monopolising position and the realisation of competitive advantages. The medium-sized enterprise must carefully examine its resource potential and undertake an extensive examination of environmental and corporate conditions.

120 Cp. Clement, Michel/Litfin, Thorsten/Vanini, Sven, pp. 205 -226, 1998. 121 Cp. Becker, Jochen, p. 379, 1997. 122 Von derOelsnitz, Dietrich, pp. 199-213, 2000.

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Early-follower strategy Suppliers who enter a market shortly after a pioneer are called „early followers“. The market is not yet established in its structures and does not yet have any clear rules of the game123. The aim of this timing option is to reduce risk through participation in the experience of the pioneer. It is important for a medium-sized enterprise to orient itself on the errors and successes of the pioneer and aim at • • 124 improvement or expansion Depending on the mentality of the enterprise regarding internationalisation, the option of early follower is always preferred when a relatively unstable country market is involved in which retaining positions won is difficult. In unstable markets, early market entry and the accompanying advantage of creating a standard are equally unstable. To reduce risk, the pioneer is to be followed at a certain distance in order to await the reactions of the market. If it is a stable market, then the attractive niches will already be occupied. Even the timely following of the pioneer is often not sufficient enough to overcome the already existing barriers. A quick reaction combined with the necessary real competitive advantage, increase the chances125. A follower with a modified programme will become threatening to established national and international suppliers when it is successful in changing the success factors of a sector or of the specific foreign market.

The late-mover strategy The goal of the late mover is to take advantage of opportunities in previously developed foreign markets. The selected foreign market is, for the most part, stable in its structures. The demand is known and does not need to be extensively examined. Due to the already high delay, the actual time of market entry is of lesser importance. Essential for late movers is the selection of a competitive strategy with consideration to the innovation potential of the medium-sized enterprise and its service programme126. The „me-too“ strategy and the niche strategy belong to the most important strategies of this type.

The selected foreign market possesses distinct standards which promote a high share of standardised products. The market development is stable and 123 124 125 126

Backhaus, Klaus, p. 200, 1995. Cp. Becker, Jochen, p. 379, 1997. Cp. Backhaus, Klaus, p. 201, 1995. Cp. Backhaus, Klaus, p. 202, 1995.

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transparent. This basis fosters the so-called „me-too strategy“. The medium­ sized enterprise imitates successfully marketed products in the hopes of achieving economies of scale. For the medium-sized enterprise, this option involves the risk of low-price concepts. Existing customer-supplier relations must be broken and there is the danger of price battles. Less R&D-efforts may be necessary but the chances of success with regard to a targeted margin are, in comparison to other strategies, lower. To increase the chances of success, an extensive package for market stimulation must be developed which has the task of showing advantages over the competition through the use of networked communicative activities. At first glance, this is not a very successful strategy for a medium-sized enterprise because it usually involves a low-price strategy. Additional activities for the development of a competitive advantage despite imitation and utilising a communication concept are activities which increase the chances of success. The international late market entrant has the possibility to identify and tackle niches through a corresponding segmentation of the entire foreign market. Known as the niche strategy, this internationalisation option opens lucrative market segments for further market growth, despite a heavily competitive market. The condition, however, is the identification of segments which have been little or not at all tackled and which could be served by the specific service or product programme. The advantage of the niche strategy for a medium-sized enterprise is that there is a greater security concerning the further market development than in an competitive, international market. However, to fulfill the demand of the identified niche, the product range or service must be correspondingly adjusted and adapted.

Two characteristic types have been given for the strategy form of the late mover. Other mixed forms exist, which are not presented in this context127.

2.4.2.2.2. Order of market entry The question of whether market entry or intensification of marketing should occur in one country at a time or in all countries simultaneously is also of 127 Bartlett, Christopher/Ghoshal, Sumantra, p. 133, 2000: ...some started by benchmarking the established global players and then maneuvered around them, often by exploiting niches that the larger companies had overlooked. Other companies adopted an alternative, though riskier, strategy. They used their newcomer status to challenge the rules of the game, capitalizing on the inflexibilities in the existing players' business models.

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strategic importance. For observing the dimension of time for market expansion, the alternatives of successive market-concentration strategy and simultaneous market-diversification strategy are available.

Market-concentration strategy This type of strategy is characterised by a step-by-step approach to the market. Individual markets can be gradually entered, one after the other, according to the resource potential of the medium-sized enterprise. A dispersion of resources is avoided and the expansion is, depending on the degree of penetration of the target market, controllable. This an ideal strategy for a risk-conscious enterprise. Limited resources are taken into consideration and utilised in a concentrated manner 128

Market-diversification strategy The market diversification strategy is characterised by simultaneous entry in order to tackle all selected markets within a country region in a short period of time. This strategy is sensible whenever there is a high innovation potential in a sector or a technology which necessitates a quick occupation of the foreign markets. The increasingly shorter product life cycles would otherwise result in there not being enough time for pay back of the investment. In this case, speed directly increases the competitive advantage and improves the result. For a medium-sized enterprise, this strategy assures high penetration through a maximal input of capital. The „staking everything on one card“ carries a certain risk but leads to a true „innovative breakthrough“ and also to fast success in the defined foreign markets 129. Further strategic combinations which take timing and order of market entry into account are also of importance for the medium­ sized enterprise.

Time and order of entry combination In the nucleus strategy, geographical and time aspects are combined and the market expansion carried out in two steps. The first step is the setting up of footholds as a nucleus in economic regions to be entered, where the market entry is currently profitable for the enterprise. In the second step, the foreign markets surrounding the base are entered within a short period of time through operative activities.

128 Cp. Backhaus, Klaus, p. 127, 2000; Becker, Jochen, p. 335, 1997 129 Cp. Backhaus, Klaus, p. 136, 2000; Becker, Jochen, p. 335, 1997

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Similarly, the market-concentration strategy (selective waterfall strategy) comprises a successive, step-by-step approach and geographical, selective approach to the selection of individual foreign markets. The combined waterfall­ sprinkler strategy is always chosen when the resources are not sufficient for the realisation of the simultaneous market entry or the risk is too high for the medium-sized enterprise130.

2.4.2.3. Market-entry mode

A medium-sized enterprise has the choice of a variety of modes for market entry. The owner must however first decide to what extent an independent approach should be implemented with own resources or through co-operation with two or more legally and economically independent enterprises. Particularly due to the high number of takeovers and fusions, strategic alliances or joint ventures have recently been a common strategic alternative for large corporations and enterprises of the New Economy. For the traditional medium-sized enterprise, however, there are some mental obstacles yet to be overcome before this alternative can be accepted into the relevant set of options for market entry. The different possibilities of market entry in international business are illustrated in the following with regard to their specific characteristics. They represent the basis for the approach of a medium-sized enterprise to expanding the internationalisation stage and clarify the most important options in the realisation decision. Orientation will be first on Backhaus and the classic spectrum of market entry for tackling one or more specific regions will be considered131. Furthermore, newer modes of the organisation of market entry, such as networking and electronic commerce, will be discussed132.

130 Becker, Jochen, p. 336, 1997; Cp. Backhaus, Klaus, p. 133, 2000. 131 Cp. Backhaus, Klaus, p. 222, 1995. 132 Cp. Backhaus, Klaus, p. 140 and 143, 2000.

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• Export trading • Export cooperation

• Lizencen/Know-how •Directexport without foreign intermediär Contract •Directexport to foreign agent • Contract manufacturing •Representitiv •Branch

•Joint Venture/Alliances •Subsidiary company •Production/Distribution •Acquisition

Diagram 13: Classification of market entry strategies153.

There is a variety of organisational modes available as alternatives to the medium-sized enterprise in its endeavour to enter foreign country markets (see Diagram 13). To retain the systematics, value creation points of emphasis in the domestic and foreign country should be differentiated. The domestic value creation point of emphasis is divided into direct and indirect export while the foreign value creation points of emphasis can be divided into the strategies of with and without capital transfer. The individual organisation modes are described in the following.

133 Cp. Jaßmeier, Achim, p. 224, 1999; Backhaus, Klaus, p. 140, 2000; Perl itz. Manfred, p. 209, 2000.

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2.4.2.3.I. Market entry strategies according to the degree of capital investment Indirect export Initiating contact to the customer, the acquisition of orders and the delivery take place through an intermediary, legally and economically independent third party. This is normally a national trading house with takes on a mediating function between the producer and the foreign customers. The export trader usually also takes over the financing of the export business and carries the risks involved.

Direct export In direct export, the marketing of products to the customers in the different regions is direct, without a national or international intermediary. This means that the necessary international marketing tasks can be realised by the medium­ sized enterprise in its home country. The advantages of direct export lie particularly in the relatively low risk and low additional capital required. The phase of direct export represents a learning phase in the internationalisation and is a good alternative, above all when a medium-sized enterprise is not planning a long-term market activity with high binding of resources on location. In the case of capital goods with their high instructional, maintenance and repair requirements, it must be guaranteed that this service can be taken over by the domestic enterprise or agents and without having to establish a constant presence in the individual country.

Licensing The concept of licensing involves the renumerated and usually limited patenting of products, procedures and possibly also registered brand names for availability to foreign enterprises. The advantage lies in the attainment of proceeds from the available know-how and the entry to an international market with relatively low risk. The disadvantages include the little possibility of influencing market activity and the marketing concept. This phase always comes into consideration for a medium-sized company when, for example, the new market is determined by national brands or brand names and specific habits which are of such great importance in the market that new brand names would have insurmountable entry barriers. Licensing at least partially secures utilisation of the positive effects from the identified country attractivity. The long-term danger is that the licensor gain potential competitors. Companies who are able to imitate products or technologies gradually become potential competitors. For granting the license and contracting manufacturing, the medium-sized enterprise must develop an adequate strategy to protect its technology. In less transparent countries such as

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in Southeast Asia, where marketing and know-how are sorely needed, especially cautious measures are to be taken.

Franchising The concept of franchising is primarily based on the transfer of commercial know-how. The franchiser utilises a defined marketing and sales concept for an introductory fee and a set percent of the yearly turnover. This approach is an especially interesting alternative for medium-sized enterprises who would like to realise standardised concepts world-wide. To realise shop-in-shop systems, such as „House of Villeroy & Boch“, for implementation by the franchiser, adapted franchising concepts are also employed by traditionally-oriented medium-sized enterprises.

Contract manufacturing If products cannot be licensed or the establishment of an own factory in a foreign country is not possible or planned, the medium-sized enterprise can entrust certain parts of the production to a foreign enterprise. The production is carefully monitored and carried out according the expectations of the entrepreneur. After production, the foreign producer delivers the products back to the enterprise, which are exported from there. This procedure is suitable when salary or material costs are more favourable in the foreign country or when a certain part of the value creation must take place in a foreign country in order to increase the local content regulations.

Joint venture Joint ventures are always favoured whenever the enterprise’s own know-how for the creation of a subsidiary or production operation is lacking in the foreign country or if the risk of the own creation and/or the necessary capital seems too high. Two enterprises normally found a third together. Corresponding to the rights regarding ownership and controlling, one can differentiate between majority, equity and minority joint ventures. The shifting of risks onto the shoulder of the new enterprise has been proven to be advantageous. A disadvantage from the view of the original founding enterprises is often the non­ consensus on common sales and marketing policies. The joint venture is however only one form of strategic alliance between two independent enterprises.

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Strategic alliances The concrete formation of a strategic alliance can be classified according to different criteria such as: integration direction (horizontal, vertical and lateral alliances) the intensity of the involvement (exchange of experience only, contract agreement without financial commitment or founding of a joint enterprise) the origins of the partner (national, international) the size of the enterprise the duration of the co-operation. The success of a strategic alliance for initiating market activity in attractive foreign markets primarily depends on whether the right partner has been successfully found. The basic requirement for the development of a strategic alliance is therefore the establishment of a „total fitness“. This is to be understood as the conformity of problems and goals, complementary abilities and resources, and mutual profit. Partners who are particularly of interest are those who complement the own know-how and who possess the success potential the enterprise hopes to gain through the co-operation. Ideal partners are enterprises which make an important contribution to the strengthening of the own competitive position, but who see no possibility of positively influencing the competition by themselves. Viewed in sum, the success of a strategic alliance depends above all on the willingness to sacrifice a certain amount of autonomy for the realisation of internationalisation. The evaluation of the strategic position is also to be taken into account before entering into the alliance. The ability to co-operate also means to create the requirements for intercultural management and to continuously work on the issue of clashing corporate cultures. This requires the abandonment of reservations against co-operations and partnerships. The following pitfalls are typical for strategic alliances among medium-sized enterprises:

Fear of losing dynamics Inability to remain focused on the external environment Too much „policy“, Lacking „time“ Inability to change and innovate A lack of willingness to learn Lacking communication skills Inability to give up the „black box“ (create transparency) Lacking willingness to co-operate interculturally Lacking willingness to co-operate

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Foreign branches The establishment of a branch is always associated with direct investments in the foreign country. The scope and importance of the branch are determined by size and task and also depend upon whether a contact office, a service office or a subsidiary (with or without an own warehouse) should be established. The advantage is that the closer proximity to the market allows a more intensive observation of the market and the competitive position. The greater the intensity of competition in a region, the more essential it is to be close. Being close to potential and current customers is important for securing competitive advantages. The variety of tasks of the branch includes dealing with customers on location, service, acquisition, training activities and project management. Due to greater risk through the exclusive responsibility for personnel, organisational and financial requirements, a great deal of planning and competence is necessary. Lack of resources often force medium-sized enterprises to focus on certain core markets and limit the geographical expansion. If the priority of the medium-sized enterprise is to be present on location in order to improve know-how concerning market change or customer needs and to have a high control of foreign activity at the same time, then any other strategy besides that of the establishment of an own branch will hardly be thinkable134.

Production factories Transferring production to a foreign country is, for the medium-sized enterprise, normally a step taken from an economic perspective to have products produced cheaply, not only for supply to the foreign country but also to the domestic country. If a transfer of production presents an investment decision for cost reasons, most German enterprises prefer central and eastern European countries, as well as some countries in Asia as target regions135. For most medium-sized enterprises, this method of approach represents a transitional stage to a world­ market oriented strategy.

Subsidiaries The advantages of a fully-established subsidiary in the foreign country, in which nearly 100% of capital and management performance are achieved in the individual country, include a more systematic tackling of the market, the realisation of the economies of scale and the exhaustion of market potential136. However, through the high volumes of direct investment to the foreign country 134 Kutscher, Michael, p. 135 Cp. Eden, H. in: Krystek, U./Zur, E., p. 56, 1996. 136 Cp. Becker, Jochen, p. 326, 1998.

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and the corresponding higher complexity, the risk is also increased. Extensive analysis of the location are adequate tools for reducing and guarding against risks.

Acquisitions The takeover of previously-existing enterprises allows a direct market entry through utilisation of previously available resources. Particularly when high entry barriers prevail, this mode of market entry enables a fast and intense market penetration. Due to the high capital investment however, this form of market entry also involves a high risk.

In Table 11 Buckley and Casson present a total of twelve market-entry strategies. These vary from the classic direct investment to the strategy combination of a joint venture with direct investment in which the entrepreneur is owner of the foreign distribution and has a share in the foreign production. Through the variety of environments in export business there are, of course, also other possible contractual concepts. ,Management contracts with different degrees of commitment to the foreign partner play a large role. Customer relations in business to business or at the OEM business level are just a couple of examples. Other, more modern options for market entry are less focused on the question of the degree of commitment on location or the transfer of capital. They aim at a reduction in capital-related engagement and, at the same time, at an acceleration of the processes.

Networks The globalisation of corporate activities is characterised by a trend towards networks. Integrated networks have the best chances of becoming the organisation form for the future demands of international business137.

As a newer organisation form, different partners form a co-operation or network in order to tackle certain foreign markets. The mode of market entry normally serves to cover gaps in resources. The enterprises co-operate towards the goal of opening up a foreign market and to this purpose, combine their financial means, know-how and management capacity. Essential is direct access to the core competency of the network partner, in order to tackle foreign markets more efficiently and effectively138.

137 Cp. Perlitz, Manfred, p. 632, 2000. 138 Cp. Perlitz, Manfred, p. 636, 2000.

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In the market, the network appears as a single enterprise but is comprised of sub­ units which represent small or medium-sized enterprises. The goals of the individual networkers can only be realised through the success of the entire network139. Disadvantages can take the form of an undesired diffusion of know­ how, a one-sided exploitation of co-operation partners and the danger of little transparency of the network connection and flow of communication. Furthermore, it is difficult to develop a uniform value and corporate culture in a virtual enterprise. For medium-sized enterprises, this form of organisation will, especially from the viewpoint of the bundle of resources for strengthening competitive ability, be increasingly utilised in the future140.

139 Cp. Backhaus, Klaus, p. 144, 2000. 140 Cp. Wildemann, Horst, pp. 223 - 241, 2/2000.

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Type

Description

Variants - Both facilities are greenfield - Both facilities are acquired - Production is greenfield and distribution is acquired - Distribution is greenfield and production is acquired - Production is greenfield - Production is acquired

1.

Normal FDI

Entrant owns foreign production and distribution

2.

FDI in production

3.

Subcontracting

4.

FDI in distribution

Entrant owns foreign production, but uses independent distribution facilities Entrant owns foreign distribution, but uses independent production facilities Entrant exports to own distribution facilities

5.

Exporting/franchising Entrant exports to independent distribution facility

6.

Licensing

Entrant transfers technology to independent integrated firm

7.

Integrated joint venture

Entrant jointly owns an integrated set of production and distribution facilities

8.

JV in production

Entrant jointly owns foreign production, but uses an independent distribution facility

9.

JV in distribution

10.

JV exporting

11.

FDI/JV combination

Entrant jointly owns foreign distribution, but subcontracts production to an independent facility Entrant exports to a jointly owned distribution facility Entrant owns foreign production and jointly owns foreign distribution

12.

JV/FDI combination

Entrant owns foreign distribution and jointly owns foreign production

- Distribution is greenfield - Distribution is acquired - Distribution is greenfield - Distribution is acquired

- Production is greenfield - Production is acquired

- Distribution is greenfield - Distribution is acquired

Table 11: Twelve entry strategies and their variants141.

141 Buckley, Peter J./Casson, Mark C., p. 548, 1998.

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E-business With the rapid expansion of the Internet, the game rules of the inter­ nationalisation of medium-sized enterprises are also changing. For the first time, it is possible to have access to all foreign markets in the world at the same time. In the ideal case, the digitalisation of services will remove the necessity of the establishment of international sales and service networks. Barriers to market entry will sink dramatically and actual physical presence will be reduced to only certain necessities. The classic trade and intermediate trade are increasingly losing in importance. The usual division between domestic and foreign trade is almost non-existent and that in corporate trade (B2B) as well as in the consumer market (B2C and C2C).

There are, however, certain limitations to be made regarding the utilisation and accessibility of e-business. Only when target customers in the selected country markets have access and mobility in the net has increased are the chances of accessibility increased. Criteria for the evaluation of product and service­ suitability for e-business include the frequency with which transactions are carried out, the complexity of the transaction and the subjective importance of the product or the service. Transactions which regularly appear in the same or slightly different form, are of relatively lower subjective importance and have to be carried out time-effectively, are well-suited for e-business. These products or services can be termed „online commodity“. All specific transactions which are consulting-intensive, highly complex, seldomly repeating, and with high subjective importance are carried out to a great extent „offline“. These require consultation on location and should be supplemented and completed by a special online service. In its internationalisation, the medium-sized enterprise must create a balance between offline and online activities (click & mortar). For example, all repeating transactions which can be cost-favourably and comfortably carried out are to be done so „online“. One result of the Internet is the increase in the price transparency of comparable service offers. The traditional concept of brand management gains importance in this context. The previous brand policy must be further developed in all interfaces surrounding the internationalisation. The brand name and the technology are essential for every internationalisation strategy in the sense of mutual conditio sine qua non. The Internet is, in this context, more of a medium than an answer for all strategic questions. The requirements are comparatively high investments for equipping for online-automatisation and the development of an individual and expandable technology platform.

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In summary, the Internet does not result in expansion in the framework of internationalisation but simplifies (through the heightened „e-speed“ alone) the direct/indirect access to the customer and, through the possibility of attending to individual customer needs, the operative business. For the rapid realisation of strategic targets such as the market expansion of the medium-sized enterprise, the Internet is only suitable as an efficient and future-oriented medium. Medium­ sized enterprises, in particular, require a solid „offline“ strategy before they can be successful „online“142.

2.4.23.2. Discussion of the market-entry modes In addition to the stages of market entry described above and also with con­ sideration to the classic models of capital and management service in domestic and foreign countries143, certain phases of evolution can be differentiated in the realisation of internationalisation.

Diagram 14: Dynamics of the market-entry strategies144.

142 Cp. Dombret, Andreas/Ehrhardt, Markus in: Frankfurter Allgemeinen Zeitung, 5.6.2000, p. 33: Success factors for online business: 5 C's, 1. Content (content details), Community (target group, online community), Customisation (degree of customer focus), Commerce (commercial details), Customer Care (user and customer care) 143 Cp. Meissner, H.G., p. 223, 1987. 144 Cp. Marcharzina, Klaus, p. 711, 1993; Root, F.R., p. 39, 1994.

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These phases and the progress they mark in the internationalisation process, directly depend on experiences made and collected know-how, and influence the strategy of the medium-sized enterprise. In other words, only when sufficient experience has been made and enough know-how has been gathered can the medium-sized enterprise realise the next stage of internationalisation. Control, time and, above all, the risk aspect must be observed. With consideration to continuous learning and feedback loops, the strategic paths of „indirect export - export branch - subsidiary“ or „licensing joint venture - subsidiary“ are, for example, possible. The different steps to further transfer of capital and management service to selected foreign markets are therefore not always necessarily to be followed successively. As illustrated in the diagrams, individual methods of approach can be developed. What is important is to take the environmental conditions in the foreign countries into consideration.

Although the illustrated process models represent an expansion of perspective (the development of internationalisation is characterised in the form of different stages), they also follow a limited perspective because the internationalisation is only seen as a means for the realisation of corporate growth. The final stage of the internationalisation process is manifested in the establishment of a subsidiary. There are, however, certainly other motives that can dominate a decision for internationalisation, such as saturation tendencies in other markets, the securement of the raw material basis and reducing production costs, which do not necessarily require the founding of an own subsidiary. The intensive orientation on legal constructs or ideal-typical sequences of individual forms of market tackling is, considering differing corporate and environment conditions, to be viewed critically. Nevertheless, empirical studies show that a step-by-step planned approach to internationalisation results in the highest economical success145. Also through acquisitions and strategic alliances, market entry can be rapidly achieved. Specific market know-how can immediately utilised and does not need to be wearisomely developed first. The given sequential stage models can only provide an aid for understanding the internationalisation of medium-sized enterprises. Previously attained inter­ national experience and the pressure of world-wide competition lead to foreign activity which does not correspond to the sequential order. Large international acquisitions or fusions, increasingly of importance for medium-sized enterprises, can suddenly and drastically change the structure of the internationalising

145 Cp. Koller, Hans/ Raithel, Ulla/Wagner, Eckhard, p. 180, 1998.

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enterprise. In this sense, one can hardly speak of incremental, continuous changes.

2.4.23.3. Strategic value of disinvestments (market exit) Disinvestments, elimination of product groups and withdrawal from saturated or mature country markets are normally counterproductive to an expansion of the enterprise and the corresponding globalisation. In the context of the integrated consulting approach, however, the strategic value of disinvestments are consciously mentioned here146. Especially with consideration to the shortage of resources in the medium-sized enterprise, the focus on selected country markets is usually the necessary main lever for discontinuing uneconomical foreign activities because it is often only a gathering of strengths which makes for a successful market entry to another country. The important criteria for professional disinvestment is not a minimising of losses but an increase of value. A country portfolio management based on the selected internationalisation strategy is necessary for carrying out the market exit and the sale of corporate units with a clear profit which can be used for supporting other activities.

2.4.2.4. Marketing strategy After the form of market entry has been discussed and the extent of the expansion, timing and order established, the marketing strategy for the selected countries must be determined. For market tackling, decisions regarding the kind of market segmentation and the kind of market stimulation must be reached. In the market segmentation, identical target groups world-wide must be identified and made the goal of the internationally-standardised marketing strategy. The contents of the market stimulation strategy are based on the manner of market influence or the realisation of comparative competitive advantages in international country markets147.

2.4.2.4.I. The market segmentation strategy The basic concept of market segmentation is to divide international foreign markets into homogenous sub-groups of consumers or buyers, so that each group

146 Cp. Scheiter, Sieghart/Rockenhäuser, Jörg, p. 43, in: Frankfurt Allgemeine Zeitung, 21.2.2000. 147 Cp. Backhaus, Klaus, p. 159, 1995; Cp. Becker, Jochen, p. 179, 1997.

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may be viewed as a target market148. Through the determination of the market stimulation strategy, the individual segments in the selected foreign markets and the countries beyond are tackled with product, price, sale and marketing policies. These should correspond as optimally as possible to the needs and expectations of the identified country segments149. The country selection necessary for this is described in chap.: 2.3.1.3. Market pre-selection 15°. The selection of the segmentation strategy follows this and normally comprises the following alternatives:

1.

Employment of an internationally standardised marketing programme and standardised marketing activities with the goal of a high coverage of all foreign markets.

2.

Employment of a differentiated marketing programme (with the point of emphasis, product differentiation) and marketing activities with the goal of a high coverage of all foreign markets.

3.

Employment of a segment-specifically differentiated marketing pro­ gramme and marketing activities with the goal of a high coverage of all selected foreign markets.

4.

Employment of an individual customer-specific differentiated marketing programme (with the point of emphasis, product or customer differen­ tiation) and marketing activities with the goal of the fulfilling the special demands of individual foreign customers.

The first alternative refers to a global sector with primarily identical country demands. In this case, the medium-sized enterprise must ensure that its budget is sufficient for achieving the necessary power to penetrate the markets. This method involves a high share of leakage losses. Therefore, in order to achieve any effect at all, a long-term quality of the plan must be guaranteed. The minimal changes in the concept from country to country and the low co-ordinative efforts involved in the organisation pose an advantage. In the second case, the characteristics of the product are differentiated. This achieves a limit and places focus on competition in the countries. This method is well-suited to medium-sized enterprises with international competitive advantages. The differentiating characteristics should however be adequately communicated, depending on the competitive situation in the countries. 148 Cp. Backhaus, Klaus, p. 158, 1995; Cp. Becker, Jochen, p. 247, 1997. 149 Becker, Jochen, p. 247, 1997. 150 Cp. Backhaus, Klaus, p. 170, 1995.

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The employment of segment-specifically differentiated marketing requires comparable segment criteria beyond individual countries, and a specific programme for all segments. This method of approach spares the resources of the medium-sized enterprise. Furthermore, the concentration on certain segments not specifically related to one country allows a certain standardisation of the marketing programme.

The focus on customer segments comprises a „customised marketing pro­ gramme““ which is specially related to the demands of selected customers. In the supply industry, for example, it is essential that the medium-sized enterprise focus on the needs and demands of its key accounts and to develop individual solutions for nearly every customer. The advantage of the high level of customer relation is accompanied by the great disadvantage of dependency on a few customers.

In view of the constantly changing target markets, target segments and target groups, the selected countries are subjected to a continuous transformation. The shortage of available resources allows optimal segmentation of markets only over a long period of time. Several information carriers are to be integrated into the segmentation process in order to simplify the locating of possible segmentation criteria with the help of practical checklists. A look into the future, as described in chap. 2. 3.1.1. Dialogue about the future, is necessary for perceiving future segmentation characteristics. These include considerations as to in how many foreign markets the enterprise wants to be active on the long-term and how many market segments per foreign market should be covered. Evaluation for Segments

Short characteristic Best Case

Worst Case

Weight

Evaluation

Best Case 1 -5

Total Result

Worst Case 1-5

Best Case

Worst Case

1. 2.

Table 12: Segmentation evaluation for the identification of homogenous target groups.

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The influence of the market entry of the medium-sized enterprise on the selected countries is equally influenced by interactions between suppliers and customers. As criteria for a segment evaluation; the segment potential, segment volumes, segment growth, segment profitability, segment structure (intensity of competition, entry barriers, demand structure, supply structure), harmony with the strategic force, fulfillment of general competence demands and further exogenous factors (industrial norms, laws, etc) are normally utilised. The evaluation of the market segment can then follow with the factors illustrated in Table 12. After the segment attractivity has been estimated with the aid of a scoring model, the selection of the segments is far from being completed. The medium-sized enterprise must now decide how many segments it would like to define as international target markets. An efficient and effective segmentation process later increases the effect of the marketing instruments in the operational business.

2.4.2.4.2. Market stimulation strategy The market stimulation strategy deals with the question of the manner in which the medium-sized enterprise can influence and control the selected foreign markets in its internationalisation activities151. As a rule, the medium-sized enterprise encounters two main mechanisms with which the market can be influenced: the classic price competition and the modem non-price competition. The first strategic pattern is termed by Becker152 as the price-quantity strategy (low price- or discount concept). The emphasis of the medium-sized enterprise’s activity is on the employment of price and condition means. The second approach follows the preference strategy (high price- or brand article concept) and builds on the development of performance advantages. In this case, activity is focused on the non-price action parameter which leads to the formation of preference. Examples of this include product innovations, quality innovations, service, etc.

151 Cp. Becker, Jochen, p. 179, 1997. 152 Becker, Jochen, p. 180, 1997.

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Competitive Advantage „Better“ Better

Quality/ImageStrategy

Problem-Strategy: Principle Hope

Stalemate-Strategy

Equal

Looser - Strategy

Problem-Strategy: Discount - Strategy Principle Hope

Worse

More expensive

World -Champion Price/ValueStrategy Strategy on Performance Basis

Same price

Price/ValueStrategy on Price Basis

Cheaper

Competitive Advantage „Cheaper“

Diagram 15: Matrix ofpossible competitive advantages153.

These considerations correspond to the approach from Porter154, who sets the enterprise in relation to its environment and, in this context, speaks of the achievement of a competitive advantage in the frame of a competitive strategy The positioning as a qualitative high product for a high price with regard to a brand strategy requires other instruments besides a price-quantity strategy, in which focus is exclusively placed on the so-called price-buyers as a target group. The medium-sized enterprise must decide at this point whether it is prepared to accept the challenge of internationalisation and with which cost advantages it can manoeuvre in the market or whether it wants to concentrate, as a specialist, on certain market niches in selected countries with high flexibility but limited global importance Diagram 15: Matrix of possible competitive advantages - can serve as an aid for the selection of possible competitive advantages. Through the combination of the two fundamental competitive advantages „better“ (diffe­ rentiation) and „cheaper“ (cost leader), and with the help of the nine-field matrix, an overview can be derived from the nine different strategies. There is no superior or inferior strategy for the medium-sized enterprise. The same profitability can be achieved by following the quality strategy or the cost leader strategy. The chosen strategy must however follow a clear strategic basic concept. Dangerous for the medium-sized enterprise is a „middle of the road“ 153 Cp. Perlitz, Manfred, p. 57, 2000. 154 Cp. Porter, Michael, pp. 42 - 58, 1997.

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strategy155. The same strategic attitude for competition advantage should always be used for tackling markets in foreign business. Products which are offered at high prices in the USA cannot be sold dirt cheap in Canada. Business in emerging countries is more differentiated. For the tackling of lucrative customer demand in middle segment in these regions, depending on the selected countries and segments, one must proceed with adequate regional strategies156.

Sooner or later, major changes in foreign markets have the result that certain differentiating characteristics are no longer perceived. Usually a certain standard has been established. The medium-sized enterprise must keep a good eye on its foreign markets in order to recognise at an early stage when a market can no longer only be tackled with a preference strategy because all suppliers have achieved the same level of service. At this point, the preference strategy is replaced by the price-quantity strategy. The switch to the individually adapted strategy is termed the „outpacing strategy46 and comprises the offer of products or services with high value and low costs157. The principles of strategy planning, as described in 2.4.4. Change-management aspects in the re-configuration phase, are to be especially taken consideration at this point.

155 Cp. Perlitz, Manfred, p. 58, 2000. 156 Arnold, David J./Quelch, John A., p. 22, 1998; Prahalad, C.K./Lieberthal, Kenneth, p. 37, 1999. 157 Cp. Backhaus, Klaus, p. 192, 1995.

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HO

2.4. Z.5. Strategy combinations I Strategy profiles The strategies described thus far were related to an isolated perspective of one strategy dimension. This method was necessary to demonstrate the spectrum of individual strategies. Successful strategic concepts are however seldomly the result of a strategy selection from one dimension, but is normally comprised of a bundle of components and formed to a strategy profile.

Strategy

Market Growth

Market Entry Mode (Market Exit)

Market Entry Timing

Order of Market Entry

Strategy Options Concentrical growth

Selective growth

Market entry with domestic value adding Direct export

Indirect export

Pionier

Unified Market

Market Stimulation

Better and more expensive

Market eritry with foreign vallue adding Without capital transfer

Early follower

Step by Step Entry

Market segmentation

Island form growth

Simuitanous Entry

Product Differentiation

Better and same price

Segmented Market

Better and cheaper

With capital transfer

Late Mover

Combination of entry

Individualised Market

Same performance but cheaper

Diagram 16: Box of strategy options for international medium-sized enterprises, following Becker158.

In the form of a strategy box, the diagram illustrates the different options of strategic elements in the internationalisation of the medium-sized enterprise. Only by combining the different dimensions can multidimensional strategy 158 Cp. Becker, Jochen, p. 352, 1997.

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profiles be achieved. The diagram 16 is to be considered as a model example which cannot be generalised. The model contains only the strategic elements which represent sensible strategic alternatives for the medium-sized enterprise (situative approach) and which have been described in the individual internationalisation phases.

2.4.3. Implementation of the re-configuration

The individual country priorities are to be taken from the previous phases of the strategy planning. Depending on the ranking of the countries and the set strategy profile, suitable measures are to be chosen and realigned with consideration to the two requirements of „going international“ or „being international“. \ Market

New

Old

ProductX Domestic

Export

Domestic

Export

Being K International Old

MP 1

MP 2

ME 1

ME2

New

PD 1

PD2

DI 1

DI 2

Going ---- International

Diagram 17: Modified Ansoff-Matrix159.

In a simple context, the modified Ansoff-Matrix illustrates where the relevant potential is normally to be found for a marketing-oriented growth strategy for the medium-sized enterprise. In this case, only the strategy alternatives relating to international business are illustrated. International purchasing has an indirect influence on cost advantages but is deliberately neglected here. Instead, various options are given based on the actual starting position of whether the enterprise 159 Cp. Perlitz, Manfred, p. 39, 2000.

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is already active in foreign markets (Being International), or whether it new in the country for market entry (Going International).

In the strategy of market penetration (MP2), the medium-sized enterprise expands its already existing foreign activities and strives for a higher market penetration. The basis is an existing range of products which is then massively supported by improved communication or stronger activities at the point of sales. The strategy option (PD2) involves the product differentiation strategy. In this case, a new product is developed for and introduced to an existing foreign market. Useful here, are the existing instruments of the international enterprise such as sales agent, communicative activities, existing customer structure etc. The acquisition of an enterprise or the internationalisation of R&D activities can also positively influence this strategy form. With the employment of the strategy of market expansion (ME2), an existing product is introduced to a new foreign market. The market entry can, as described in chap. 2.4.2.3. Market-entry mode, be carried out in the form of different organisation structures. Important is the development of a competitive advantage and the overcoming of market entry barriers in the selected market. The so-called market expansion strategy (ME2) is the typical form of internationalisation for medium-sized enterprises. If an enterprise utilises the diversification strategy (DI2), an increase in profits or a reduction in costs through new products and their introduction in foreign markets is expected. New products or material demands in new promising markets in foreign countries can also be attractive strategic options for a medium-sized enterprise160.

Depending on whether the medium-sized enterprise has the status of „Being International“ or „Going International“, it is essential to set an individual country strategy program for all important countries. The information from the environmental scanning and the country selection forms the basis of the country strategies. Through the examination of the internationalisation potential of specific foreign markets, an analysis of country-specific requirements has already been made in the business analysis and strategy planning phases and provides the basis for the country strategy.

In the processual perspective of the approach to defining the single elements, the following main points are important for the internationalisation of medium-sized enterprises and the content of the specific country planning: International product policy International service policy 160 Cp. Perlitz, Manfred, p. 40, 2000.

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International price policy International distribution International communication International brand management In the following chapters, the most important core elements of these areas will be presented in the context of internationalisation and supplemented from the perspective of a realignment of the medium-sized enterprise in foreign business.

2.4.3.I. International product policy As a starting basis, either a medium-sized enterprise already possesses an existing product range or the expansion of the range is being strived for. To increase the probability of success, the product range must be specifically adapted to the foreign markets. In this context, it must first be decided whether a standardised or a differentiated product policy is necessary. The following clarifying questions must be answered for the planned internationalisation on the basis of the existing range and the selected country markets161:

Who in the foreign countries should purchase the products? Who in the foreign countries should use the products? How should the product be used in foreign countries? Where should the product be sold in foreign countries ? How should the product be sold in foreign countries? Why should the product be sold in foreign countries ? When should the product be sold in foreign countries In order to answer these questions, the export department (with the assistance of marketing) must gather the appropriate information or obtain it from an external market researcher. An examination of the information will clarify whether a standardised or differentiated product policy is required. In standardised policy, the product is introduced to the foreign market without adjustments. This form of unmodified marketing can be observed for example with clocks, cameras or similar items. In these cases, global branding and a strong brand image result in a world-wide uniform marketing. A differentiated product policy however is to be adjusted to the specific demands of the country. The resulting requirements can be fulfilled through various product adjustments. The following Table 13 describes some of the important requirements.

161 Cp. Cap. 2.3.1.3. Market pre-selection.

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Criteria and characteristics for international market acceptance

Components of a product strategy Product features

Service characteristics, features, benefits, added value

Product characteristics

Size, capacity, additional features

Product safety

Product design

Target market, user training, safety device, product design Durability, recyclability, materials (design, production process) Colours, materials, size, form, weight, practicality

Packaging design

Colour, size, material, form

Special markings on packaging

Language, user instructions, contents, caution marks

Guarantees

Legal liability, time periods, percentage of total life cycle Target market, service- or non-service related characteristics, marketing-mix Name, marking, language, license, trademark protection

Product quality

Service Brand policy

Table 13: Product adjustment to foreign countries162.

The low resource capacity of the medium-sized enterprise makes it necessary to achieve a positioning of the products in the relevant foreign market through certain combinations of standardisation and differentiation. In these cases, strategies are normally realised which allow a specific adjustment to the country but with few technical changes. This characteristic is either already integrated in the product and the customer can use it according to his or her wishes, or the entire product conception has a module structure. The modular design or platform strategy allows a high share of same parts with country-specific possibilities of variation163.

It is to be mentioned here with emphasis that new-product development and innovation management increasingly gain in importance. The majority of newly introduced products are not self-running items but products and services which must be integrated into complicated and sensitive processes. For this reason, the 162 Cp. Perlitz, Manfred, p. 306, 2000. 163 Cp. Backhaus, Klaus, p. 160, 2000.

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management of innovations will have to be more considered in the future and particularly for internationalisation.

2.4.3.2. International service policy In most cases, the product represents the vehicle for market entry or increased market penetration. The actual transaction is supported by the product. The producer is in a position to offer a service which meets a demand on the foreign market. Or, viewed from the „outside-in“ perspective, there is a foreign market with a demand for a specific service which can be provided by certain suppliers. As the international markets are becoming increasingly competitive, additional services are moving to the forefront of marketing activities. Even in a comparatively young market, such as a promising market, it is nearly impossible to realise a competitive advantage through the basic fulfillment of functions alone. Medium-sized enterprises must offer additional services in their internationalisation efforts in order to create and develop customer relations. Far from the product

Close to the product

Time of servi ce Consumer goods

Capital goods

Consumer goods

Capital goods

Pre-sales activities

> Consulting > Catalogue > Advertising

> Free Parking space > After school care centre

> Lecture > Problem solving > Consulting

During sales

> Delivery for testing > Manual of use > Installation for testing > After sales service > Spare part service > guarantee

> Formulate quotation > Feasibility study > Demonstration > References > Mounting > Opening > Training

> Give aways > Packaging service > Delivery service

> Finance > Compensatio n Business

> > > > >

> Loyal ity cards / clubs > Customer news paper

> Training for employees

After-sales activities

Repair service Spare part service Guarantee Documentation Inspection

Table 14: Types of different services164.

164 Cp. Berndt, Ralph, p. 156, 1995.

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In Table 14, some services for the encouragement of customer preference are named. It is crucial in this context to integrate the selected activities into an integrated concept for an increase in demand. 2.4.33. International price policy

The international price policy is determined by different factors165. The areas of price strategy and price definition will be described here as being especially relevant for the medium-sized enterprise. A unified price strategy, even in Europe, is very difficult for the medium-sized enterprise to implement. The different country structures and frame conditions require adjusted, country­ specific prices. Even with a single currency, a unified price policy within a price range with few price discrepancies will take time to realise. Internationally differing price policies, which are especially adjustable to the developments in the target markets, seem in this context to be adequate for the medium-sized enterprise. Through the higher market transparency world-wide (for example, price agencies in the Internet), and the increasing danger of reimports, an exact pricing is important. Through the establishment of a sales information system or CRM-tools which provide extensive marketing and sales information on price developments in the domestic and foreign countries, the danger of margin losses can be reduced. The medium-sized enterprise must therefore carry out professional price management, particularly in the core markets, and limit price differences for identical products to a maximal margin of +/- 15 %.

The price fixation in foreign countries presents an extremely difficult challenge for the medium-sized enterprise. For orientation, three approaches to price optimisation in international markets will be now given166. In the cost-oriented approach, the medium-sized enterprise attempts to set international prices through a previously set calculation in such a fashion that a certain percentage of profit is achieved which surpasses the country specific costs. Price differences primarily result through diverging production and distribution costs.

The competition-oriented approach takes the competition in the selected foreign market into account. The determination of the price does not consider cost aspects or demand but is solely influenced by competition. As illustrated in chapter Market Stimulation, two main strategy types can be recommended: the skimming strategy or preference strategy, which attempts to achieve high margins through a high price, and the penetration strategy or discount strategy 165 Cp. Perlitz, Manfred, p. 307, 2000. 166 Cp. Backhaus, Klaus, p. 201, 2000; Cp. Perlitz, Manfred, p. 309, 2000.

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which, through a low price, has the goal of the rapid penetration of the market in a certain country. The approach to price definition based on demand focuses on the different price expectations of the customer for a product. Depending on the positioning of the product, the medium-sized enterprise can take on target-group specific setting of price through segmentation167. For practical reasons, only a few price-strategy characteristics relevant for the medium-sized enterprise have been given here. It becomes clear how manifold the process of price definition is and how intensely it effects other phases of the internationalisation process.

2.4.3.4. International distribution policy

The international distribution has the task of deciding which distribution channel should be taken, which and how many sales agents should be employed at each level and how the logistics of the distribution should be structured. Decisions regarding distribution policy in internationalisation are primarily related to the choice of distribution channel in the demanded countries. In principle, the medium-sized enterprise can adapt to existing distribution channels in the selected foreign market, change existing distribution channels or develop new ones which means changing the rules of the game. The methods of approach to adaptation, modification or innovation of distribution channels is dependant upon the individual country strategy but also on the attitude of the owner of the medium-sized enterprise. The mode of market entry also determines the selection of distribution channels to a great extent. In the case of the founding of a trade company for example, distribution through a representative is no longer necessary. In addition to the traditional modes of market entry and the orientation on the distribution-political conditions in the national market, further options are to be examined. Possibilities through the use of the Internet should also be taken into consideration. Through the elimination of foreign distributors, products or services can be directly offered. A combination of virtual and traditional distribution is also possible. The actual contact and ordering and delivery can, on completition of the contract, be exclusively carried out in the Internet while the phase of acquisition can be carried out through the traditional channels of the sales representative from the wholesaler. 167 Cp. Cap 2.4.2.4.1. The market segmentation strategy.

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In view of this, the medium-sized enterprise must examine in each case which opportunities (effectivity of market entry, rapid penetration with comparatively low transaction costs) and risks (negative effects on traditional distributors, low marketing power of the intermediäre) are involved in the development of an international distribution with regard to the national system of distribution168.

2.4.3.5. International communication policy

The communication policy of the medium-sized enterprise has the task of influencing the opinions, attitudes and behaviour of customers in the foreign markets in the sense of an expansion of business activity. This involves the question of necessary differentiation and standardisation of the communication­ policy instruments for the foreign markets and the question of in which way and manner the available communicative know-how should be employed. For the medium-sized enterprise, a bundle of financial resources is necessary in order to achieve the required impact. After the potential of the foreign markets has been assessed, focus can be placed on individual core markets. Through supplementary elements for differentiation and country-specific adaptation, the national communication becomes an adapted international communication. Similar to with the international product policy, a high degree of standardisation should be maintained already at the beginning of the development of communicative elements. Through a few relevant country-specific modules, the regional „fit“ for considering country- or segment-specific conditions, such as national traditions, different cultural customs and way of life, established habits or language, follows169. In Table 15 a few examples for the design of the instruments are listed.

168 Cp. Backhaus, Klaus, p. 219, 2000; Cp. Perlitz, Manfred, p. 351, 2000. 169 Cp. Backhaus, Klaus, p. 208, 2000; Cp. Perlitz, Manfred, p. 336, 2000.

RE-CONFIGURATION

Factors of communication policy

Decisive questions regarding the design of the instruments

Measures of the personal sale directly related to the buying process

> > >

>

Measures indirectly related to the completion of buying process of the personal sale Factory visit

> >

Consumer training

> >

Sales promoting measures relating to foreign sale References

Advertisements in specialised magazines Sales promoting measures for trade International fairs

>

> > >

> > >

>

> Film/TV

>

Direct communication

>

Public relations

> >

Which co-operation partner is suitable Topics concerning the future

>

>

119

How can an improvement of personal selling be achieved? How should the personal talk be structured? Which aids should employed in the future for the point of sale? How can a long-term relationship be established between customer and supplier? How extensive are the accompanying service measures before and after completion of the sale? Selling aids for the intermediary What effects should be achieved through a factory visit and which accompanying measures are necessary? How can visits be effectively and efficiently organised? In what period of time and by whom should the instructional course measures be carried out? What are the necessary aids? What message is to be conveyed? Which aids promote communication and the sale of the products? How can the attained references be employed as a marketing measure? Should the advertisements contain a message about the product or company or a combination of both? Which presentations are suitable for the point of sales? How can international fairs improve the status quo (going international / being international)? At which fairs should one participate as visitor and as a exhibitor? How can the employment of film or television help to achieve an increase in the degree of familiarity? How can the employment of mailing, telephone, and Internet improve communication and how can the advertising be employed so as to improve sales? How can relations be created to the relevant groups (stakeholders) in the international business? How can trust in and popularity of the enterprise and its products be developed? Who can assist us with the realisation of our goals with regard to profit and the necessary service? What are the topics of the future and how can they be profitably utilised?

Table 15: The employment of communication policy instruments and introductory questions for the creation of a conception.

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The medium-sized enterprise should first clarify its country-specific target, depending on the position of the product in the product life cycle (PLC). The communication in the introduction phase of a product or enterprise in a market is related to the development of a level of familiarity, while in the growth phase a more distinguishing function must be undertaken. Appealing to the defined target group is a further important element of the strategy. This requires the positioning of the product and the identification of homogenous segments. Finally, the medium-sized enterprise should take the cultural environments of the product into consideration. National traditions, established habits and certain attitudes are just a few factors which influence the success of a good international communication policy.

For the medium-sized enterprise, the optimal combination of all measures of communication policy is absolutely essential. With the impact of activities , the chances for success increase and only through the gathering of strengths can the effects be improved. The medium-sized enterprise normally has, in a defined period of time, only one try for a successful campaign. Due to high costs, a trial and error is not possible and not sensible. For this reason, the enterprise and the responsible manager must strive for a high level of networking of the partial measures in order to increase effectivity. All single actions should build a whole, similar to the components of a clockwork. If one component is defect, then the entire mechanics no longer function. In the context of communication, the packaging design, the layout of the advertisement, the brochure, the presentation in Internet, the message of the mailings and the presentation at international fairs are to be combined. The vehicles of the combination are typography, language, diagrams, illustrations, sequence and design. A strong ability in networked thinking and acting in interactions is especially important in this area. If the medium-sized enterprise is successful in fulfilling these complex tasks, the chances of a market introduction and the expansion of previous position in the foreign market will be possible170.

2.43.6. International brand policy

Particularly in a fast changing environment, it more important than ever that the interests of all stakeholders, regardless of whether the medium-sized enterprise is listed at the stock exchange or privately owned be reflected to a certain degree in all important corporate decisions. The international communication can make a great contribution in this regard. The product names are normally the vehicle for communication. They determine whether the communication is good or poor. 170 Cp. Unger, K.R. in Krystek, Ulrich/Zur, Eberhard: Internationale Kommunikationspolitik, pp. 299 -316, 1997.

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But what about the name of the enterprise, the corporate brand? This is becoming increasingly important and as a corporate brand not only for multinationals but also for the many national medium-sized enterprises leading in the world markets, can create further competitive advantages in globalised markets171. Here, the awareness that in our service industry society companies make products but the consumer buys brands plays an important role. The brand picture, which the medium-sized enterprises in their segments have intuitively created up to now, must also be strategically further developed for internationalisation and systematically cultivated. The previous work concerning target groups and segment determination should naturally also be taken into consideration. The importance of the corporate brand is enormous for medium­ sized enterprises which do not produce or market classic brand-name items and should be utilised for internationalisation. The more clear and unified the corporate brand appears to be, the greater and simpler the options for expansion are concerning foreign markets and products- or service-portfolios. The introduction of new products to existing markets or market entry to new markets can be much more simply realised with a strong corporate brand172. For internationalisation and the marketing policy direction, the medium-sized enterprise should integrate the product name and the corporate brand into the internationalisation strategy and view the brand management as one of the major tasks of the top-management ,173.

The international marketing management is to be completed with the selection and occupation of the strategy elements in the form of a country plan. A form for the planning of the marketing-budget per country can be found in the appendix. In addition to the marketing-policy instruments, the areas of organisation and budgeting are to be considered at the conclusion of the re-configuration of these phases.

2.4.3.7 . Organisation and budgeting The internationalisation of medium-sized enterprises leads to heightened de­ mands on the organisation of the enterprise regarding performance, adminis­

171 Cp. Demuth, Alexander in: Frankfurter Allgemeine Zeitung, 12.4.1999, p. 33. 172 The volatility of the brand makes it however necessary, also with consideration to the high exchangability of products, to continuously invest in and cultivate the brand. In the future, it will increasingly be the case that investments are (in comparison to the usual product development) far higher than at the beginning of this century. ,7rCp. Davidson, Hugh, p. 372, 1997.

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tration and, above all, flexibility174. Aside from the environmental conditions and strategic demands, the internal structure of the organisation must be continuously transformed and adjusted to the requirements of the defined foreign markets. There should always be an organisational fit between the factors of structure, strategy, culture and personnel. Diagram 18: Structuring variable of the organisation management - graphically demonstrates this connection.

Diagram 18: Structuring variable of the organisation management.

Depending on the degree of the integration of the foreign business in the national organisation structure, the domestic and foreign activities can be either separated or integrated175. The introduction of international network structures is also possible176. Which organisation structure is selected depends on the specific 174 Cp. Krystek, Ulrich in: Krystek, Ulrich/Zur, Eberhard: Vertrauensorganisation vs Mißtrauensorganisation, p. 551, 1997. „With the success factor of mistrust, it is difficult to suddenly let go and win a positive meaning from foreign impressions, predjudices and suspicions.“ 175 Cp. Perlitz, Manfred, p. 618, 2000. 176 Cp. Perlitz, Manfred, p. 633, 2000.

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internal possibilities and the external requirements. The following goals should however be fulfilled in any case:

Uncomplicated transfer of technology and know-how between the parent company and the country organisation Development of the necessary international and intercultural management ability for the selected country markets Securement of the corporate interest „on location“ Development of the internal and external chain of values for fulfillment of the customer and country demand Development of a global mindset by the Top Managers involved. The planning of the activities is to take place in co-ordination with the budget for the entire internationalisation project and assessed according to the country level. The Marketing Country Map (MCM) can serve this purpose (see appendix). In orientation on the vision, the strategic force and the corporate goals, the budget assessment for the international country markets follows on the basis of the illustrated instruments177.

The realisation of the project depends to a great extent on the competency of the employees and their specialised and intercultural know-how. The aspects of change-management illustrates the characteristics for this phase.

2.4.4. Change-management aspects in the re-configuration phase In the first part of re-configuration planning, continuous decisions on different alternatives must necessarily be made. The methodic approach in the evaluation and selection of solution alternatives is, however, best carried out through an external consultant. As a rule, different methods such as the systematic evaluation methods, decision and value analysis, and risk analysis are combined to form the optimal requirement for a suitable selection of alternatives178. If the enterprise were to make the selection on its own, there would be the danger of false application and, as a result, the possibility of misinterpretations. Further­ more, personal preferences and interests but also conflicts should be reduced. It becomes clear at this point, at the latest, that a focus on internationalisation also includes changes in the personnel. Here, there are opportunities for professional advancement and also the risks of personnel losses through change with the current organisation structure.

177 Cp. Makens, James C., p. 231, 1989. 178 Niedereichholz, Christel, p. 275, 1997.

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The phase of re-configuration and the following realisation belong to the critical areas in internationalisation. The influence of the corporate culture is more direct at this point than in the phase of strategic planning. Unwillingness to accept the selected internationalisation strategy can arise just as reactions to strategies whose implementation is carried by a wave of motivation and enthusiasm. Both forms of reaction can have their origins in the relation between strategic willingness and cultural binds.

The re-configuration of business processes and the chain of creation of values externally in the different regions and internally in the actual national organisations requires a number of measures which are listed in the following:

International motivation and reward system International target system Continuous further development of human resources International further education/training Individual training Management coaching Career planning (Training on the job, employment abroad, management seminars, job rotation)

2.4.5. Summary of the re-configuration phase

For the re-configuration of the strategy, various strategy options are presented which can be of importance for an internationalisation. With the help of the given methods and tools, the medium-sized enterprise has the task of assembling the strategy profile which is adequate for the achievement of the goal. The challenge lies in being the „local hero“ and „global player“ at the same time ,79. The employment of the individual strategy elements and their subsequent combination to an individual strategy profile should belong to the classic tools of every medium-sized enterprise. These strategies may normally be intuitively selected and employed, but in daily export practice one often finds diverse strategy mutations which are more or less stringently applied. From the view of a consultant it is vital, that the structure of a strategy development is a process. Only by understanding the strategy planning and the later realisation with operative activities, described here in relation to the structuring of marketing instruments, as an iterative process with constant feedback and learning loops is a successful internationalisation possible. 179 Pribilla, Peter, p. 3, 2000.

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As a summary, a few practical principles for the process of internationalisation are listed in the following. They should contribute to a successful execution of this phase:

Basic principles for the formulation of internationalisation strategies >

All strengths of the enterprise are to be focused and developed in a way that a long­ term, profitable international survival is secured with consideration to the principle „protect the past, build the future“.

>

Leadership is necessary. The vision of what one would like to achieve and to do should be clear to each individual employee. The owner should support the internationalisation project with his or her entire personality and will. The greatest challenge for the management is to shock or challenge the company to push it from its nest.

>

The future-concept must be clearly defined, beyond any doubt. Only clear positions concerning the question of internationalisation strategy prevents disruption and constant reorientation. Only he who knows what does not want can fully concentrate on what he does want! („The essence of strategy is choosing what not to do“).

>

Don’t imitate, innovate. The main point of the formulation and realisation of internationalisation in the re-configuration phase is to create something new. This means carrying out the necessary differentiation to the competition for the different country and segment strategies, always in the sense of „find out what everybody else is doing, then do it differently.“ Be open to new ideas that will facilitate internationalism even when those ideas challenge established practice and core capabilities.

>

Opportunities and strengths are to be clearly evaluated in the status quo analysis and the relevant success potential exposed. Both factors of strengths and opportunities build the platform for the future strategic force of the medium-sized enterprise in the realisation of a strategic success position (SSP).

>

Stick to it. Once the internationalisation strategy has been set, it should be continuously reviewed and adjusted in its details, but the major force is to be patiently maintained.

>

All activities, in daily business and important decisions, should be oriented on the core value and marked by the corporate strategy, even in the smallest detail. It must be an integrated approach from the idea to the actual application and realisation180.

180 Following Herman, Simon; in: Manager Magazin, 6/2000, p. 155 and the conclusions made in many conversations between the author and Rainer Schulze, Marketing Director for SCHELL GmbH & Co. KG.

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The consultant, the internationalisation team and the selected change agent are at this point to create the architecture of the implementation. Only when this has been successful is an institutionalisation of the internationalisation process possible. Through the realisation of the measures, the restructuring of the internationalisation activities of the medium-sized enterprise begins. The cross­ functional monitoring is an important aid for this and will be described in the following chapter.

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2.5. Monitoring

2.5.1. Elements and contents of monitoring

The monitoring of the process follows the individual phases and takes dis­ crepancies, corrections, risk-reducing activities and other changes in the specific environment of the process into consideration. Monitoring is the implementation tool for the manage­ ment of the internationalisation pro­ cess, the internationalisation strategy and the development of corporate culture. Above all, the premises of the strategy are controlled, monitored, evaluated and directed. Changes and adjustments are especially to be made when the following discontinuities occur during the monitoring process:

Change in customer requirements Changes in distribution systems Innovations by competitors Poor control of company costs Lack of consistent investment Ill-advised change to a successful strategy181 The progress control meetings that are to be held, have the task of discussing these discrepancies and weak spots. Adjustments and corrections are to be made on the basis of the continuous monitoring of all relevant core countries. This control system ensures that the critical components of costs, time and resources are applied according to the necessary demands. In addition, the evaluation of the effectivity and impact of the activities using qualitative criteria is also to be integrated and considered in the monitoring of the internationalisation process. This involves a continuous co-ordination of the country activities if the medium-sized enterprise is active in several countries at once. Aside from an examination of usual tasks and the corresponding indexes, the monitoring should also include a risk analysis (see Table 16) and risk securement (see Table 17: Risk securement). 181 Davidson, Hugh, p. 286.

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Especially in the case of planned direct investment, such as the construction of a production factory in Brazil as a supplier in order to be closer to the customers, potential risks must be assessed and preventive activities introduced which reduce or eliminate the root causes of the problems. Descripti on of Risk

Probability of occurrence

Risk index

Extent of damage

1. 2.

Table 16: Risk analysis.

Source of risk

11 Preventive action

11 Possible alternative activities

1. 2.

Table 17: Risk securement.

The individual measures are also to be monitored for their impact and intensity (see Table 18). The most important activities are to be differentiated according to their external and internal effect. Measure

|| Impact/Intensity || Internal

|| External

|| When

II

1. 2.

Table 18: Impact of activities.

The objective of the monitoring is to review and control activities for the good of the entire enterprise. In addition to the formal organisation structure and set project plan, further activities for directing behaviour are to be taken and controlled. These include, in a narrower sense, the corporate culture, the selection and further education of employees highly involved in the internationalisation, the utilisation of an incentive system and the introduction of target systems 182 . 182 Backhaus, Klaus, p. 379, 2000.

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The success-based Balanced Scorecard also offers a promising approach in this context because it allows a self-monitoring through the BSC control system and enough flexibility and individualisation. The greatest barrier to the introduction of a BSC for internationalisation, the fears of the glass employee who quickly feels „controlled“ (particularly in the medium-sized enterprise) must however not be neglected183.

Finally, the document management or knowledge management is of great importance in the milestones. The establishment of the necessary documents, the systematic assessment of the documents and their distribution are important tools for structuring a process which is transparent in every respect.

2.5.2. Change management aspects in the monitoring phase As in all processes of the controlling, extensive aspects of change management are to be considered in the evaluation of the milestones in the internationalisation process through the accompanying monitoring.

Interventions are primarily required in the case of discrepancies to the goal with regard to the degree of fulfillment of the demanded performance. These interventions are to be formulated in the team and assigned further activities and sanctions. One should not, however, overdo it. The participants in the process must be allowed sufficient space for individual development during internationalisation in order to achieve the necessary assimilation of mentality. The project director and managers involved must, particularly in the medium­ sized enterprise, demonstrate a great deal of sympathy, tolerance and patience. This is where the management of an internationalisation differs from that of a classic project management for the development of a project. Additional activities for the strategic organisation development to increase efficiency in the internationalisation process of the medium-sized enterprise can take the form of workshops and cross-sector and country workgroups can be carried out. The main characteristic is the achievement of mental transformation. Intercultural communication, international teambuilding and mental-change workshops are suitable for this.

The intercultural communication workshop has the objective of attaining awareness of the corporate and personal advantages of a common and global 183 Note of the author: During the empirical study, one of the interviewed experts remarked that he finds the BSC good, but would never introduce it under its name because, otherwise, everyone would get the idea that yet another system was being employed for controlling.

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corporate culture. Synergies and further mobilisation towards the goal of a network of all previous foreign business units in marketing and sales, are to be achieved. The international team-building workshop should strengthen the organisation as a whole through familiarisation with the corporate targets and sub-targets for the foreign organisations. Furthermore, the contents of the team-building process must be developed and factors, which are either impeding or supportive for the internationalisation process, exposed and reduced (or developed). A further feature of the team-building process is the task of reducing intercultural reservations among colleagues and co-workers in the different areas.

The mental-change workshop has the aim that each individual be able to identify at national and international level with the internationalisation „virus“. Acceptance of the new incentive/reward system, despite the personal threat of salary losses in the case that the corporate or personal targets are not achieved, belongs to the most important aspects. An improvement of the motivation structure of co-workers and managers is necessary for this. Examples are performance motivation, learning motivation, willingness to change, motivation for dealing with constant change and willingness towards more flexibility in the work and human resources. This can naturally only work with concrete options for salary improvements through variable payment and the corresponding personnel performance motivation.

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2.6. Change management in the internationalisation process Change management is to be understood as an accompanying and flexible concept for the entire process. The components of change management are employed as integrated elements in the entire process. Special value is placed on the accompaniment of the process for development of the cultural transition, using preventive measures for corporate and personal development. As nearly 50% of our behaviour and attitudes can be explained by our individual cultural backgrounds184, different reactions can be expected depending on the attitude of the individual and situation of the enterprise with regard to the specific environment. On the one hand, the knowledge gained from the success or failure of earlier strategies protects against future failures. On the other hand however, the corporate culture can also distort views on innovative strategies which have no predecessors from previous successes or failures. A corporate culture which is too strong and only builds on a successful past is to be viewed in its effect as destructive, or at least impeding.

Through the integrated approach and the accompanying change management, the existence of dissonance and disruptions in the process are recognised and counteracted at an early stage. These activities are mainly divided into culture management and conflict management and are to be regarded as a potential success factor of the internationalisation of the medium-sized enterprise185. Reducing fear of change by employing accompanying, indirect measures and preparing the individuals for overcoming mental and behavioural inhibitions are of considerable importance.

The importance of the different factors within the integrated consulting approach to internationalisation is illustrated in Table 20. The individual critical aspects with the corresponding activities are oriented on the mentioned stages of the internationalisation process and describe the course of the development of a vision from the target setting to the strategy and to the 184 Cp. Knapp, Karlfried, p. 320, 1999. 185 Möller, Theo, p. 187, 1999.

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implementation. The barriers, the necessary tools for overcoming these obstacles and the role of the export department in the enterprise are also illustrated in summary. For evaluating the corporate status, a „mentality fitness check“ is carried out as an aid for determining the „global mindset“186.

With this order of sequence (see Table 20) the essence of the previous chapters is summarised in the form of a checklist with regard to the accompanying change management.

186 Cp. Buller, Paul F./Kohls, John J./Anderson, Kenneth S., pp. 52 - 66, 2000.

CHANGE - MANAGEMENT

Critical Path

Actions to take

The integrated approach

>

Develop a deep understanding of your environment Integrating company vision and attitudes

> > >

> > >

Setting internationalisation target

>

Developing a corporate strategy for an integrated internationalisation approach

>

Implementing an integrated internationalisation approach via corporate strategy

> >

>

> >

Barriers to integrated internationalisation

> > > > > > >

133

Everyone is an export manager/intemational manager with internal and external customers Create future market vision Start dialogue about the future / Build future priorities Specified and led by Board (Active commitment of organisational management and leadership is a necessary condition) Integrated by Export- and Marketing Department and external consultant Develop company’s vision The total internationalisation fimament: mental fitness for internationalisation, internationalisation vision and behaviour, structure adjustment, global mindset, corporate culture Clear, focused on main targets of internationalisation performance improvement programme on missions statement (target market position)

Strategy must be corporate, covering all departments, branches and subsidiaries Should be driven by customers, markets, regions and competencies

Identify internal and external customers and their needs Implement in an integrated, competitive and customerdriven way Use job objectives, performance appraisal and rewards as key tools Integrate change management through change agents and sponsors Not close to the customers Action conflicts with words Lack of board consensus Internal politics Fear of changes Intercultural problems Mentality of all involved

Table 19: Integrated approach to the development of a comprehensive integration of the enterprise for the expansion of international business, part I187.

187 Cp. Davidson, Hugh, p. 174, 1997.

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Critical Path

Actions to take

Export department’s role in integration

> >

> > > > Practical tools for achieving internationalisation

> > > > > > > > > >

> >

Test of company for total integration of global mindset

>

>

Involvement in corporate strategy Upgrading people skills (language, intercultural behaviour) Broadening knowledge base Increase communication (inside-out and outside-in) Innovation Job rotation across countries

Move people across departments and regions Meet customers in person Open, honest communication Motivation Trust, credibility, transparent decisions Adjusted bonus system Improve tolerance and be patient in intercultural daily business Build global mindset Improve mental fitness for international activities Introduce company education programme (language, project management, team work) Monitor progress Build a community of practice (CoP) as the lever of internationalisation

Small test programme of all people involved to get feedback of final internationalisation fitness (repeat every year) and evaluate results for space for improvement Lighthouse project

Table 20: Integrated approach to the development of a comprehensive integration of the enterprise for the expansion of international business, part 2 188.

The role of the development of a culture of continuous cross-border learning will be described in the next chapter.

188 Cp. Davidson, Hugh, p. 174, 1997.

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2.6.1. Intercultural management

According to a definition by Adler189, cross-cultural management can be understood as follows: “Cross-cultural management is the study of the behaviour of people in organisations located in cultures and nations around the world. It focuses on the description of organisational behaviour within countries and cultures, on the comparison of organisational behaviour across countries and cultures, and, perhaps most importantly, on the interaction of people from different countries working within the same work environment”.

In an ideal environment of trust, tolerance and intercultural competence, the process of getting familiar under the aspect of intercultural communication takes place in the following order:

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11.

Getting to know the foreign culture Exchange of information on the general conditions of the co-operation Sensitivity towards unique cultural characteristics is developed Problems occur Problems are discussed A solution is given which is acceptable to everyone Trust strengthens the motivation Fewer problems occur Mutual trust is strengthened The project is successful Expansion is continued

In this case, the mutual understanding of the cultures and the consideration of them within the goal-oriented culture management takes the form of an intercultural learning process. As a result, unavoidable misunderstandings are reduced and, if they still do occur , then they are discussed by the partners and team members and (in an ideal environment) solved. Serious problems are therefore reduced from the beginning through preventive behaviour and constructive solutions. The basis for trust is also strengthened through this and contributes to a successful internationalisation process. The requirement for mutual trust includes certain factor such as tolerance, patience and intercultural experience. Only then can this idealised process be positively carried out. Commitment, the subjectively experienced bond to a certain organisation, situation or partner, which is reflected in the corresponding actions, also plays a considerable role in reducing problems in the internationalisation project. Through the action components, commitment differs from trust, which is only an 189 Möller, Theop. 286, 1999.

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expectation. Especially in the beginning phase of project initiation, value must be placed on socio-cultural aspects in connection with the success or failure of the internationalisation190. In summary, it can be said that change management and the necessary change of the organisation and the individuals in the medium-sized enterprise only works when all of the measures and further individual additions are carried out directly and within a short period of time.

2.6.2. Conflict management

Conflict management is strongly influenced by the culture management and can have a positive or negative effect on the internationalisation project. The following factors are to be considered in this: Recognise conflicts (sensitisation) Solve conflicts (no waiting out of conflicts, which usually leads to unsatisfactory solutions) Constructive encountering of conflict and the solution of the conflict Creation of an open conflict culture Introduce preventive measures (culture management, solid preparation and development of the employees involved) Following a study made by Zeutschel191, the demands on the professional team in the intercultural environment for reaching the optimal synergy can be described as follows: 1.

2. 3.

Effective intercultural team co-operation needs to be facilitated - within the team itself and/or through external coaching. Synergy is not only an outcome, but an ongoing process as well, requiring self-referential capacities in the team. Team potency needs to be aligned to culturally determined strengths and styles.

In these three areas, there appears to be a great need for hands-on methods and resources for intercultural team building and intervention.

190 Möller, Theo p. 294, 1999. 191 In: Knapp, Karlfried, Zeutschel, Ulrich, p. 198, 1999.

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2.6.3. Summary of the change management phase

The change management that accompanies the internationalisation process has the main task of harmonising the corporate culture of the medium-sized enterprise with the internationalisation strategy. The utilisation of the described tools should lead to the consideration and further development of the basic culture, values and norms of the medium-sized enterprise in the strategy planning and generation. Whether the strategy has to be adjusted to the culture or vice versa depends on the current attitude of the enterprise. Either way, the cultural transformation serves the process and supports realisation. It should be clear that every new strategy also requires the creation of a new culture so that the culture does not become a bottleneck factor of the actual strategy. This goes for the strategic planning and particularly for the international management of the realignment which departs from the accustomed national environment. Goaloriented culture policy towards the institutionalised development of a learning culture accelerates the process of change and increases the quality of the previous achievements. In the following, the most important pitfalls of internationalisation projects will be named in the form of a checklist:

No consensus in top management regarding the choice of strategy No transparency of strategy or status quo of the project which reduces the motivation of those involved Ad-hoc decisions from daily business should not constantly put the major strategic direction into question The planned individual measures are not connected to each other and do not make a whole concept No institutionalised method of approach, only „here and there“ No strategic fit between strengths and opportunities No real leadership is provided No involvement of the enterprise or selected experts from all functional and hierarchic levels in the strategy planning and generation process Only individuals are involved, no integrated approach which concerns and includes the entire enterprise Experts from foreign markets are not sufficiently involved No communication concerning the planned project from the beginning on (motivation & commitment) Conflicts and fears are recognised but not taken seriously No integrated incentive systems exist which contribute to the motivation of the employees Language difficulties

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No tolerance, respect and patience for the other culture Differing perceptions of timing, risk, quality and marketing (intercultural personality differences) The analysis is carried out in general areas and not specifically The results of the status quo are nether carried out nor are the effects on the selected strategy The SWOT-statements are not placed in the context of the identified key factors of internationalisation The corporate goals are not broken down to the level of departments or personal goals E-commerce is carried out only slowly and with great caution

In the further course of this work, the individual components of the stages will be supplemented, changed or reduced through an empirical study and supplemented by a project plan which is to serve as a framework for action. The most important measures will be listed and discussed. The goal is the formulation of a complete frame for action and the illustration of the method of approach in the form of project plans and corresponding checklists (see Appendix “Handbook of Internationalisation”).

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D. Empirical survey of the internationalisation of the medium-sized enterprise 1. Design of the survey 1.1. Objective of the survey

The objective of the empirical survey was to examine the relevance and plausibility of the conceptual and structural design of the phase model derived from literature and own professional experience for the internationalisation process, as well as its applicability in the enterprise. At the centre of observation stood the question of whether the presented problem solution approach was an adequate decision aid and systematic framework for action for the internationalisation of medium-sized enterprises with which the process of internationalisation could be effectively accompanied. The corporate practice serves here as a discussion partner for evaluating the correctness (plausibility examination) of the consulting approach. The study therefore is of an explorative character and deliberately excludes a detailed statistical view of hypotheses. The objective is far more to take on a critical reflection of the attained level of knowledge.

1.2. Organisation of the survey methodology For the above-mentioned objective of the survey, the option of the interview can be recommended as an adequate method for assessment. A written interview was ruled from the beginning as the low willingness to participate, the high amount of time for the creation of an extensive test, the complex issue and the necessary relationship of trust between interviewer and interviewee would have only lead to a satisfactory reflection of the topic to a very limited extent. The advantage of the oral interview was, above all, the possibility of obtaining a great deal of qualitative information from those interviewed. The perceptions and interpretations of the issue could be questioned individually and relatively detailed and therefore serve the further exploration of the issue. As a warm up, the selected enterprises were first sent a questionnaire in June 2000 with questions regarding the structure of the enterprise and the status of

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internationalisation. A short description of the project and an introduction to the background of the issue rounded up the first interview module (see Appendix). To guarantee the comparability of the interviews and a low influence of the interviewer, a structuring was undertaken through a guideline for the interview. This served the outline of the method of approach so that all participants were confronted with the same question content, the same wording and in the same order.

The interview guideline begins with questions on the international strategy and the success factors in the realisation of the expansion of international business. The subsequent presentation of the phase model for internationalisation and the interviewer’s explanations of the components of the individual stages were the elements of the third module. The interview with the experts ended with remaining questions regarding the approach presented.

To allow a thorough and exact evaluation of the interviews, recording devices were employed with the permission of the participants. These recorded discussions were then transferred to electronic data in the form of protocols and subjected to a qualitative evaluation

1.3. Sample and execution of the survey First, 31 medium-sized enterprises known to the author were identified with the help of the chambers of commerce in Wetzlar, Giessen and Friedberg and, as „convenient samples“, contacted. Based on their previously established internationalisation activities, these enterprises represented an adequate target group. The sector did not play a role in the selection.

The selection was supplemented by one enterprise from the international environment.

From the total of 31 enterprises contacted, 17 (55%) declared their willingness to participate during the time period of the survey (see Appendix). 5 further medium-sized enterprises were interested in the survey but were, for various reasons, unable to arrange an appointment in the given time period. The interviews took place between 19 June and 30 July 2000 at the participants' companies. The average duration of the conversation was 2 hrs. and 10 min.

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2. Result of the survey The information on the structure of the enterprises in international business are illustrated with the aid of tables and graphics. The results of the topic of internationalisation in medium-sized enterprises with special consideration to the given framework for action, are adjoined to the questions. The number of single entries are given in „n-Tupel“. The number of multiple entries are given in „N-Tupel“.

2.1. General characteristics of the sample 2.1.1. Participants in the sample

The survey was exclusively carried out in enterprises in Germany. The sample comprises, with one exception, firms for capital goods and commodities. Sixteen experts were from enterprises with a domestic base and one expert was from an enterprise with a foreign base (outside of Germany). From the interviewed enterprises, 76,5 % (n=l 3) belonged to the capital goods sector. Consumer goods were produced and marketed by 23,5% (n=4) of the enterprises.

This emphasis on the manufacturing industry corresponds to its importance in the German medium-sized enterprise192. In this study, the manufacturing industry is the second most important economic sector after the building trade.

2.1.2. Function of the interview partner

A glance at the function of the interviewed experts shows that 35 % of the participants are members of the management. 29 % of the experts can be functionally classified in the international sales. From the area of international marketing, 3 experts (18%) volunteered. Furthermore, two owners and one joint director of marketing and sales were interviewed.

192 Cp. Gruner & Jahr; Impulse (Publ.): Mittelstand in Deutschland (MIND), 1999.

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Internal Function □ President & Owner

□ Member of the board ■ Director Sales & Marketing □ Director Export □ Director Marketing

Diagram 19: Internal function of the interviewees.

It was therefore only experts from the areas of marketing and sales who were interested in the topic. The participants in the study belong to the most important decision makers in the enterprise for all questions regarding international business.

The sample is structured so as to consider the perspectives of sales-specific and corporate-relevant topics.

2.1.3. General characteristics of the enterprises

The general characteristics of number of employees, yearly turnover, market share and export ratio are illustrated in the Diagrams 20-23. This data shows the structure of the medium-sized enterprises interviewed.

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Diagram 20: Number of employees.

Diagram 21: Turnovers of the enterprises interviewed.

Export ratio

□ 50%

Diagram 22: Market shares.

Diagram 23: Export ratio of total turnover.

This information should be considered as basis data which does not require further interpretation.

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2.1.4. Current degree of internationalisation

Regarding the degree of internationalisation, four experts claimed that a very high degree of internationalisation has already been achieved. Six interviewed enterprises believed that a high degree of internationalisation had been achieved in their enterprise. 34 % of the experts believed that they had an acceptable degree and two experts judged the degree of internationalisation as lower.

Degree of internationalisation

■0%

□ very low □ low ■acceptable

■ high ■ very high

Diagram 24: Degree of internationalisation.

The fact that 47 % of the interviewed enterprises already have a high export share of over 50 %, demonstrates to what extent the process of internationalisation has progressed. The enterprises questioned take the current export ratio into consideration for their judgement of the degree of internationalisation. If the share of export is high in comparison to the turnover achieved domestically, then the degree of internationalisation of the enterprise is correspondingly high. This method is also often suggested for quantitative evaluations193. A qualitative evaluation was not discussed in this context but would provide interesting insights in the mental disposition of the medium-sized enterprises regarding their internationalisation activities aside from the export share.

193 Cp. Schmitt, Eckart, p. 186, 1997.

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2.1.5. Intensity of competition

The high intensity of competition of the enterprises interviewed shows the predatory potential of the corporate environment. 82 % (n=14) of the experts held the opinion that their core business had high to very high competition. The intensity is normally reflected in the enormous pressure on the product margins. It becomes clear at this point, at the latest, how important the development of new country markets is. In the interviews, there were extensive complaints about the enormous price concessions in the domestic market. At the questioning of the interviewer, all different kinds of scenarios were given which would become reality if this development is not quickly brought to a halt. Product innovations or other intelligent additions to the own range for increasing customer value were not discussed in this context.

□ very low ■ low ■ acceptable □ high

■ very high

□ 58%

Diagram 25: Intensity of competition.

2.1.6. Target markets

The country markets which had been previously tackled show an emphasis of foreign activity in Europe (34 %; N=17) and the USA (26 %; N=13). The other important economic regions are South America (10%; N=5), the ASEAN-nations (8%;N=4) and NICs (8%; N=4)194.

194 The number of single entries are given in „n-Tupel“. The number of multiple entries are given in „N-Tupel“.

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Diagram 26: Target markets.

At first glance, the high focus on Europe is not an expression of intemationality. However, Europe may hardly be considered a foreign market with regard to physical distance but the intensive fragmentation requires special demands that must be fulfilled. The attractive market in the USA also received much attention from the medium-sized enterprises interviewed. All experts agreed however that to conquer the USA, high volumes of capital investment are necessary for overcoming the market entry barriers195. The judgement of promising countries concerned the necessary presence on location and the comparatively high growth leaps after overcoming the financial crises two years ago

2.1.7. Mode of strategy With the help of the given characteristics, the experts interviewed were to characterise their mode of strategy on the basis of the scope of performance.

The mode of strategy type 1 illustrates the method of approach of situative export through the recognition of lucrative foreign transactions. 17 % (n=3) of the enterprises believed that this approach corresponds to their strategy. l950ne expert reinforced this opinion in the further course of the interview with the remark: „Due to the globalisation of the automobile industry we are forced to further expand. The question is though, how are we going to finance it? I'11 be damned if I acquire a supplier in the USA for a better exhaustion of potential in these times of economic boom and pay a lot for it“.

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The mode of strategy 2 relates to the strategic direction towards many countries with consideration to national needs only. None of the enterprises interviewed could identify with this strategy. The mode of strategy 3 describes the international activity of an enterprise with a unified concept with however, consideration to the specific characteristics of the country. Altogether 70 % (n=12) of the interviewed experts could directly identify with this mode of strategy. The mode of strategy 4 considers the carrying out of a unified world-market strategy without regional or national adjustments. Of the seventeen participants, 2 (12%) enterprises claimed that they marketed different regions in the world with a global approach.

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2.1.8. Foreign activities

Of 57 entries, 12 entries for the utilisation of direct and indirect export for transacting international business were given. Following this is the distribution through sales companies with a share of 19,3 % (N=l 1). 12,3 % (N=7) of the enterprises had not only established production in the selected foreign markets but had also integrated a distribution company. An investment for the establishment of a production facility is being planned by 10,5% (N=6) of the enterprises interviewed. The path to foreign markets through licensing had been undertaken by 10,5 % (N=6) of the enterprises. Strategic alliances had been successfully established by 10,5 % (N=6) of the enterprises. Due to the high export ratio and the directly related degree of inter­ nationalisation, the mode of country marketing and the organisation form of the interviewed experts also illustrates the high experience potential with foreign activities.

2.1.9. Evaluation of the sample

In summary, it can be observed from the sample that the enterprises had had international experience. The classification of the functions of the interviewed participants and the already existing degree of internationalisation make it possible to derive qualitative trend statements regarding the consulting approach to the internationalisation of medium-sized enterprises.

2.2. Single aspects of internationalisation 2.2.1. Introduction to the illustration of the results

The evaluation concerns the illustration of the results of the relevant single aspects of the internationalisation of the medium-sized enterprise and the illustration of the results of the review of the framework for action for the internationalisation process.

First, conclusions will be drawn from the interviews regarding the rating of internationalisation, the strategic internationalisation planning, the requirements for a re-configuration and realignment, the success factors and the integration of corporate consultants in the internationalisation process.

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Following this is the evaluation of the phase model for the internationalisation process and its general and specific applicability, the necessity of additions, the advantages and disadvantages of the model and the effect of the model when applied to the interviewed enterprise.

The illustration of the single aspects from the results of the expert interviews are carried out through the derivation of qualitative statements. Opinions, quotations and trend statements are integrated in the text and reinforced by footnotes. Only through this method is it possible to attain access to the sometimes very interesting comments of the managers from the enterprises. This method of approach is not statistically of practical value but fulfills the objective of this work and guarantees practical relevance.

2.2.2. The importance of internationalisation

The interview partners were asked about the importance of internationalisation in their enterprises. They were also to name the characteristic features.

Diagram 28: Importance of internationalisation (n=17).

The majority of the enterprises (52 ,9 %) attached high importance to internationalisation. Nearly all of them believed that the expansion of international business already has and will in the future gain in importance and that the internal and external organisation of the enterprise must prepare for this challenge with persistent restructuring.

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The question of how the attitude towards internationalisation could be characterised brought a variety of characteristic features and assessments. One must differentiate between the characteristics of communication196, product development197 and the form of organisation198. The increasing importance of internationalisation activities was reflected, above all, in internal and external measures for communication, such as the improvement of the language level, the change from being a one-sided national team to an international team or the increased participation in international fairs. Internationalisation apparently has an increasing effect on product development. One third of the experts claimed that they no longer develop their products exclusively for the national market but through the development team with different nationalities, consider other important country markets and their specific requirements. The physical representation on location also seems to be an important feature for characterising the internationalisation of the enterprises. Key technologies in certain countries and internationally-active customers require the interviewed enterprise to also internationally structure its own activities. This was named as a characteristic of internationalisation activities especially by the automobile ancillary industries. It can be concluded that internationalisation counts as one of the main goals of all of the enterprises questioned and that the development of a corresponding strategic force is necessary. The high pressure of competition, which most of the enterprises are subjected to, simply necessitates an expansion of the radius of activity to further international markets. This general statement is valid regardless of the sector and was confirmed by the interviewees. The possible paths of the selected strategy vary however and can be specifically formulated and developed for the enterprise. The results of the question regarding the strategy for the most important core countries, illustrates this statement. 196 Some of the interview partners emphasised that, for quite some time, only applicants with very good English have been accepted for positions. A few other illustrative voices: „All strategy meetings are held in English.“, „All teams are internationally occupied.“, “The participation in international fairs is rapidly increasing.“, „We have been employing video conferences.“ 197 One participant made the following remark: „There is no longer any purely nationally oriented product development. All products are immediately developed for the international market. We had to first introduce a reorientation because we had of course previously only developed for the German market.“ 198Some of the automobile suppliers from the survey can provide examples of this. If the autombile manufacturer internationalises the production also (for example, to Brazil) and the suppliers do not also go to the foreign country, then the producers must look for new suppliers on location because the import from Germany is too expensive. If the producer is satisfied with its new supplier and he is prepared to go to Europe than the internationalising supplier from Germany runs the risk of losing the automobile manufacturer in his homeland as customer because the manufacturer naturally prefers working world wide with certain suppliers in the sense of „single sourcing“. One expert formulated the extreme position as follows: „Our customers move globally, so we have to be global too or we will lose them. In the future, there will automatically be an increase in the business share resulting from international business.“

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2.2.3. Strategic planning of internationalisation projects In the interview, the experts were questioned about the strategy for the individual country markets in the individual core segment and how they normally proceed in optimising their activities in the countries. Here, certain strategic patterns were not to be recognised and isolated, rather the emphasis was primarily on the identification of a spectrum of typical behavioural patterns for the development and execution of the internationalisation project.

It became clear during the discussions with the experts how great the variety of different approaches is. In the following, the different opinions and their common aspects will be discussed.

Eleven of the experts held the opinion that being geographically close to customers is of great importance for successful business in the country markets. The actual being on location as a strategy element for increasing customer loyalty and improving customer relations was especially emphasised. Only then is it possible to assess individual customer needs and to fulfill them with the corresponding offer of products or services199.

The high number of agencies shows how the actual demand of being on location is commonly realised. Gradual market entry or step by step penetration was preferred by 9 of the enterprises. The establishment of an agency or importer is, according to the interview partners, often the first step for transferring management capacity from the home country to other country markets200. For more than half of the interview partners, the motivation for inter­ nationalisation lay in the reactions to strategies and behavioural patterns of 199 Some experts remarked: „All business is local!.“, „The drivers of technology are in Japan and the USA. We do not have a choice if we want to play a role as a technological leader, we have to go where it's at. There is no alternative for this strategy in our business.“, „Our strategy is characterised by a close relation to the customer and less by specific country strategies.” 200 Several of the enterprises interviewed also believed that only a gradual approach corresponds to the mentality of the medium-sized enterprise. One expert formulated it as follows: „Based on past experience, there is only a step by step approach with market entry and penetration, from the first contact through the agent to the sales company and Direct Foreign Investment (DFI), which is carried out in our enterprise. The advantage lies in the reduction of risk and the reasonable amount of expenditures“. Contrary to this common opinion on gradual market entry, one expert viewed this approach very sceptically: „Whenever new innovative products should be introduced to a relatively conservative market, this is difficult to achieve through a commissioned agent. Agents receive commission based on turnover and will therefore naturally push the products that sell. That is why a market entry with conventional products should be carried out through an agent and, in time, the established programme innovated. But introducing innovations to a new market must be carried out by your own people. Otherwise you will have no chance of success in the market.“ This expert also believed that market entry through an agent is no longer sufficient for exhausting potential. Agents will always prefer the fast mover items and carry out the introduction of new products with great hesitation, otherwise they may lose their commission.“

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customers and competitors. One internationalises according to the strategy of „follow the customer“ to avoid the risk of also losing internationalising customers in the domestic country through new supplier relations in the foreign country. This does not rule out that new customers will be searched for and acquired on location after taking up activity in the foreign country. Of particular negative influence is the continuous concentration process and the corresponding enlargement of the power of the customer or purchaser. Through the advantages of economies of scale , it becomes easier for the purchaser to obtain favourable prices but the supplier is barely able to achieve „reasonable“ margins. As possible paths out of this misery, two experts saw above all participation in strategic alliances or co-operations201.

The strategy according to which certain foreign markets are clustered according to their potential and the subsequent tackling of the countries along the lines of the previously set order, represents an identified basic pattem202. Special emphasis is placed on the orientation on market segments. There is always a division according to regions with a corresponding classification of the attractivity of the foreign markets but the classification of activities also takes place on the basis of market segments in which the interviewed enterprise is currently competent or will be in the future203.

Enterprises which are more product oriented consider product development to be the most important strategy feature. Two experts believed that an important requirement for long-term corporate success is a standardised product range. For the interview partners, the realisation of a high share of same parts in the actual hardware with simultaneous flexibility in the area of software is the most important feature of the strategy204.

201 In this context, two of the experts made the following remarks: „The concentration process in our sector forces us to also supply the big corporations. The small ones are bought out and disappear from the market while the big ones and their purchasing power steadily increase. So we do not have a choice but to co-operate with these corporations in the hopes that they „nominate“ us.“ 202 One expert answered the questioned of the application of the internationalisation strategy: „We try to increase penetration in the existing markets. In the promising markets, make first important contacts. In the smaller markets, to tahe what is psooible “ Wegelagerer-Geschäft”, and search for new long-term business fields for our core compentency which could secure our business in the future.“ 203 The strategy of the three horizons: 1. core market, 2.occasional market, 3. promising market. 204 The two experts individually made the following comments: „The most important strategy feature is the relevance of the product policy. As a medium-sized enterprise, we cannot supply specific products for each country, that leads to high complexity costs in the product development and is certainly not economic. For this reason we try to develop modular standard products with the possibility of detail adjustment to country specific norms (Note of the author: also named customising/tailoring/retailing). The hardware remains identical. The country-specific demands are considered through the software.“

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Two experts expressed an intercorporate strategy. They believed that, based on the vision, which should relate to internationalisation (for example, „Fit for Europe“), a following target formulation, the corresponding realisation and accompanying controlling of the measures represents an adequate method of approach in their enterprises. This approach is not directed towards short-term corporate success but comprises a long-term approach on the basis of the corporate vision. The vision first represents a shell. It is invested with life through the target setting and subsequent measure formulation. The accom­ panying controlling ensures205, that the shell does not crack.

What normally occurs with the described visions and strategies was described by an expert206. Enterprises with the corresponding size primarily optimise their foreign activities through the use of an extensive reporting on the basis of pure capital and budget management, as was stated by one expert. The result is a very cost-conscious marketing organisation with lean administrative effort, lower motivation of the employees and acceptable margins207.

Other enterprises strive for further market penetration through decentralisation and licensing , go with the flow of the growth market , or improve the planning process210 205 Every 3 to 5 years we review our enterprise according to the aspects of: „Vision - Targets Realisation - Controlling“ 206 One expert excitedly remarked on the topic of strategy: „We used to have a dusty corporate strategy somewhere in the cupboard, an anthology with a vision. The problem was: noone knew the strategy, noone lived the strategy and noone put it into practice. We now have a corporate strategy, which is currently being broken down into corporate areas and reinforced with goals. Only now are we realising what it means to live a vision. Only after we had formulated the main targets and sub­ targets from the vision did awareness increase and the consequences for the organisation become visible“. 207 This manager commented „In an enterprise of our size, the management of the individual areas strictly follows the usage of means and the monthly reporting. The managers of the subsidiaries are to carry out their yearly planning „bottom up“ with the classic contents. The 5-year planning takes place at board level while the 3-year planning is undertaken by the managers of the different departments. We basically orient ourselves on NDF - numbers, data, facts. 208 This expert said that they have been exporting for so many years and that only two strategies for exhausting potential occur to him: the decentralisation of export activities and the founding of an own subsidiary or licensing of production means. 209 One of the experts still finds himself in a true growth market because he describes his strategy as follows: „The decisive strategy for us is the selection of the partner for future co-operation. In addition to licensed production, commisioned agents are the right strategy for us to market countries. As there is an even greater demand in our market than are products available, one can speak of a true „gold rush“. The most important thing is speed and to stake claims quickly. Then you find the gold without any problems“ and „The high growth of the enterprise hardly leaves any time for a strategy or concept. The demand will hopefully lead us in the right direction.“ 210 „We do not have real, fixed country strategies. Surely the export director knows how to market his countries. Aside from the turnover/sales plannings and the marketing budget, neither country marketing nor communication are planned in detail. But in the next planning meeting we want to start. Maybe your phase model can help“, said one of the interview partners.

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In summary, a high spectrum of various internationalisation strategies could be diagnosed. The enterprises interviewed have been dealing with the demands of international business for years and have established different forms of activities. The market segment has been identified and vulnerable to a high speed of change. It became clear that the enterprises were increasingly restructuring their foreign activities and directing them towards the future. Of particular interest is the high willingness to take risks in the expansion of the marketing organisation when the pressure from the customer increases through its expansion strategy. The majority of the enterprises interviewed were businesses who strive for natural growth. Expansion through acquisitions, co-operation, alliances or fusions are highly interesting strategy fields but were only explicitly mentioned as the only successful possibility by two experts211.

2.2.4. Internationalisation in times of change

It became clear during the study that many of the enterprises were currently restructuring their international activities. In 12 of the enterprises, the internal export organisation was being reorganised and in six of them, the foreign activity was being restructured through the founding of distribution companies. Three experts are currently planning productions in foreign countries. This summary illustrates that the different markets and market segments are changing and the enterprises are no longer carrying out purely local or national strategies but are attempting to replace the traditional patterns of thinking with international patterns. The integration of international teams is only one example of this. International benchmarking is also being increasingly employed. All purely national strategies will have to consider international needs in the future. The high speed of change in the markets clearly influences the internationalisation strategy212. When asked about the initiation and execution of internationalisation projects, one expert claimed that most of the changes in the enterprise are fostered by desperation. In the past, whenever there was a domestic decrease in turnover and nearly all measures had been exhausted, the export department was

211 One of the two experts formulated his comments on strategic alliance as follows: „Our customers are internationalising more and more. That is why we, as a link in the chain of value creation, are forced to enter strategic alliances in order to supply complete systems, similar to the work associations for building construction. Within the production process, complementary suppliers can form an allliance and offer complete systems. Strategic agreements are also possible. Enterprise A offers this to enterprise B“. 212 The opinion of one expert was especially drastic. He said that, on long-term, only speed, speed, speed will be important. „That is why the enterprise has been training for fast realisation processes. Especially ambitious goals are formulated in order to fulfill the demand of „world class“. Otherwise, sooner or later, it is like in a 100 meter race, you have fulfilled the Olympic norm but you have not become a true champion.”

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finally forced to turn a new leaf. The methods were characterised by a situative approach and a consideration of the operative possibilities.

2.2.5. Requirements for realignment in internationalisation projects

One of the main questions regarding the execution of the internationalisation project was that of the requirements. What really counts in carrying out of internationalisation processes will be answered by the 17 medium-sized enterprises in this chapter. In answering this question, there were many different opinions and discrepancies with a corresponding unclarity in the statements. Nevertheless, it will be attempted here to summarise the information provided by the interview partners according to the main points of their content. After an exact analysis, the statements can be divided into the three main points of emphasis, leadership, organisation and corporate culture. In the following , the results of the interviews will be given for these three points: As a requirement for the realignment for internationalisation, some of the experts concluded that success or failure primarily depends on the top-management213. This is usually one person who sets the tone. Every enterprise is as good as its leader. An important task of the leader is the function of being a role model. This means not only being a role model but also acting as a role model214. Successful enterprises have a good leader and the leader has a good team. The manager is able to mold and support the team215. All of the efforts made in the enterprise 213 In this context, it was especially important for an expert to understand leadership as a whole and to create the requirements: „The cybernetics, the helmsman art is of course very important, so the own small world must be first dissolved and brought to a new level. And if the fish stinks at the head, then such a project only works when external advice is sought“. 214 As especially successful intemationaliser brought it to the point: „The management team has to set an example! You have to be available around the clock. One group will be going to fireworker meeting in their free time, no problem, but my management team has to be available 24 hours a day. It is not enough to just have the title! You must behave like you behave at home. Heart's blood is called for. To proceed with a good example and be enthusiastic about what you do! To improve every day and not expect admiration for it“ and „Be careful that you are not just talking to the gallery. The expectations must be managed. Formulate clear messages and not „Next year in Jerusalem it will all get better“, otherwise the backswing follows. Do not tell nonsense and keep what you promise! And don't start lying. We don't do that at home either. My grandma always said „If you want to start lying you have to have a good memory“. And I just don't have one. Another expert sees the problem solved with the establishment of a controlling system and said: „Develop an instrument for leadership which achieves commitment. But beware, you can't demand enthusiasm!“ 215 Different statements were given on this: „People have to stand behind it. That only works when the team has developed a strategy, team spirit, given impulses, unfolded dynamics, included co­ workers in the success and expanded motivation as a relative strength for the realisation of the internationalisation project.“, „Create identity in the „outbounds“ (the branches/subsidiaries in the country markets). Make it clear to people where the joys and sorrows lie. A strong PR is helpful but inward, intensive communication works wonders.“, „The directing ends however at the realisation.

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have the goal of increasing the corporate value. The customer is placed in the middle of this value increase216. The organisational requirements represent a further important element for the realignment of medium-sized enterprises for internationalisation. The creation of a flexible organisation to fulfill the demands of the rapidly changing markets, is one of the central tasks of the enterprises interviewed217. Altogether, the importance of such flexible organisations is to be highly estimated.

The influence of the corporate culture on the success of the internationalisation of medium-sized enterprises was also demonstrated by the experts in different ways. Particularly through the change related to the internationalisation, all different kinds of issues arose218. The loss of status symbols and the fears involved219, the necessity of intercultural competence220, acting on one’s own authority and the maintaining of a high level of quality are the frame conditions for the enterprises interviewed.

From the view of the experts, there are different approaches to creating the requirement for an internationalisation project. The areas mentioned describe in a clear fashion, which demands are to be fulfilled and according to which criteria the experts evaluate the method of approach in international projects. Through Space for individual thinking and acting must be provided here.“, „Initiate the typical team building process and actively accompany it. That means: Norming, Storming, Forming and Performing plus re-structuring.“, „Global leadership - Training, Information, Konfrontation, get to know each other“ 216 One of the experts said: „Despite the high importance of leadership, even the top-management should never forget the customer.“, „Basically there is no one path but one thing should be clear to everyone! We have to adjust to the customer.“ 2,7 Only flexible organisations are able to keep the necessary pace. One expert vehemently supported this and said: „I don't find step by step procedures for realignment en vogue. The main factor of time is what counts. Speed, Speed, Speed, is the name of the game. Time to market!“. As a further condition the following were named: „Being able to fill in for each other “, „Communicate outwardly (PR) and inwardly (IR).“ 218 „My style of leadership is friendly. I may officially be the boss but there is no hierarchy. My employees are my friends and if my friends want to work until 23.oo Uhr, then they work for themselves and their friend and not for the boss. This usually brings 140% and not 70% performance. Nobody has ever asked to be paid for overtime,“ said one expert. 219 One interviewee said that one should include the co-workers and accompany them in private and group discussions. Changes create fear because they directly lead to losses. 0 Some opinions on this topic: „Creation of a Win-Win-Situation, because actually both sides want the same. One side wants to sell, the other wants to buy. A minimum of tolerance, patience and understanding is the requirement for international projects and place high demands on the managers“, „Respect for the other culture. Tolerance in daily contact with each other and knowledge of the work culture in other countries are the most important requirements“, „Creation of an internationalisation culture - a project like that has to be desired“, „Think in different levels, develop a different self­ concept, create a unified value system.“ 221 Already Sprenger knew something about this: „Self-responsibility - Do not wait until someone solves your problems but fight yourself so that everything will improve.“ 222 One expert commented: „The qualification of the employees is very important, otherwise they just cannot keep up. Autodidactic things are not enough, sort of like „Here is a video tape on conflict management, have a look at it.“

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the explorative character of the survey, it becomes clear at this point how important leadership, the management of the organisation of medium-sized enterprises with its structural and processual design elements and the culture as a determinant actually are in the international context.

One often has the feeling that leadership, as a classical management approach, has become somewhat out of style and finds little appreciation. But for complex projects with differing degrees of freedoms, this aspect is of immense importance. The instruments with which leadership can be understood by the managers and co-workers are the vision and the core values for the enterprise223. The creation of a corresponding corporate culture was named by nearly all of the experts as one of the most important features. The experts made strong statements on this topic. The interview usually developed from a purely objective level with the discussion of the strategy and success factors to a more emotional level with the intangible factors of international business.

2.2.6. Success factors of the internationalisation project

The essential success factors in international business have already been qualitatively examined and analysed in several publications224. In this work, the experts were to name the characteristic factors which, in their view, determined the success of an internationalisation project. This is based on the assumption that there are only a few relevant and long-term valid strategic success factors which considerably influence the success of an enterprise or a strategic business area225. These are factors which interprocessually effect the internationalisation episodes of the medium-sized enterprise.

The evaluation of the answers of the interview partners brought all kinds of elements which several enterprises named and therefore can be regarded as central factors. They can be divided into the two categories of internal and external corporate factors:

223 Hinterhuber, Hans H., in: Berndt, Ralph (Publ.), p. 61. 224 Cp. Weber, Petra, p. 86, 1997/Link, Wolfgang, p. 69, 1997/ Schmitt, Eckart, p. 65, 1997. 225 Weber, Petra, p. 88, 1997.

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Internal corporate factors

Personality of the leader (13) Corporate culture (11) Personal attitude towards internationalisation (8) Product quality (6) Innovative strength (4) Management ability (4) Market entry (4) Brand policy (4) Technological know-how (3) Flexible organisation structure (3)

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External corporate factors Internationalising customers (4)

Sector-related motivations (3) Growing markets, in Asia (7), South America (4), USA (4), and Japan (2)

Marketing strategy (3)

Delivery reliability (1) Table 21: Entries for internal and external success factors from the perspective of the interviewed medium-sized enterprises. Multiple entries were possible (N=60, n=17).

Characteristic of the reply to the question of the success factors is the special influence of the leader . Nearly all of the experts believed that the personality of the corporate leader represents the greatest influence on the success or non­ success of an internationalisation226. The vision must however also be put into practice. The quality of the realisation is determined by the employees227.

As stated in the previous paragraph, the influence of the corporate culture on the internationalisation process was viewed as a critical element. Above all, the willingness of the management to proactively structure the necessary change in the enterprise, play a great role. The fewest enterprises have realised how

226 Several of the experts believed: „The right man in the right place makes the success“, and often referred to the high importance of the actual implementation of the strategy. „The quality of the realisation separates a good from a bad result. It is unimportant whether it is the director or the manager, the export director or the manager of the subsidiary. The culture in the daily co-operation and the relation to the customer is considerably influenced by the leader. Viewed in sum, the responsible top-managers therefore play a very important role in the internationalisation. Successful internationalisation requires stronger and abler promoters in medium-sized enterprises. 227 Particularly interesting is the opinion of an expert regarding the question of success factors: „After the setting of the targets follows the determination of the strategy. Then follows the search for resources which realise the strategy. If, at this point, people are unwilling than they are in the wrong place and we need to look for new managers. For example, with the founding of a subsidiary in Spain, we exclusively employ local personnel. But staff alone is no success factor rather it is the combination of many relevant factors which is the secret of success. The aggregated data from the analysis and the planning process for the strategy must be moulded to a picture of the market. If this is successful, then an intuitive method of approach from the experience of the selected manager follows.“

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important the removal of mental barriers is for co-operation with international cultures and how impeding these barriers can be for internationalisation228. Success in foreign business is closely related to the utilisation of an international network of the stakeholders of the enterprise229. Only when the intercultural co­ operation between these interest groups works and possesses a high degree of internationalisation is a successful internationalisation with positive effects on the corporate result possible230 As further important internal success factors, the quality of the products and the technological know-how were named. High differentiation through technological know-how and the fulfillment of country-specific demands without the classical negative example of „over-engineering“, determine the success. The know-how is to be made available to the user through technology transfer with extensive training measures and professional opening on location. The acceptance of the customer increases and the chances of being in the „relevant set“ of a customer for a repeat order increase drastically.

In the internationalisation strategy, the timing of market entry is estimated to be an especially important criteria. The Early Mover advantage plays a large role, particularly in new segments, for the long-term success of internationalisation. Especially for producers of consumer goods, the success of internationalisation lies in the ability of the enterprise to carry out a coherent brand policy. Due to the comparatively low budget, concentration was on the selected markets and an international positioning of the brand was taken there. The subsequent, continuous maintenance and care of the brand image lead to a clear stimulation of sales volume. One enterprise is currently preparing its entry to the stock exchange and is quite unique in comparison to the usual medium-sized enterprises. All enterprises are producers of more or less products which are in need of explanation and positioned in traditional markets with low or slow growth. This enterprise, 228 According to one expert, there is still a competitive advantage for German companies in international business. Through the own culture of the German „hammering method“, attributes such as reliability, quality, punctuality, joined by adaptability and tolerance are very important in the competitive environment. A high customer orientation creates advantages over countries, such as Taiwan, which today are already technologically at the same niveau. For this you need strong ambition and extrem diligence. Flexibility for special solutions for only middle large quantities exists seldomly however. We have improved in this in the meantime and have become quite more customer-oriented in our solutions. The path was hard and is surely not yet at an end. 229 A heterogeneous networking of consciousness was demanded. The enterprise and the owner absolutely had to be personally involved in all the important environments. 230 One expert gave the representative opinion: „My magical triangle is: 1. customer satisfaction, 2. Stock Holders 3. employees. I do not worry about the rest“.

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however, is on a different level of speed due to its especially innovative product. While most of the firms questioned prefer the successive method of approach to structuring and expanding foreign activities, there is a high dynamic in this enterprise which already exists as a natural change process. Institutionalised planning methods are not favoured and are only carried out through the necessary investors relations. Fast decisions are the priority and not wellstructured phase models. It can be concluded in summary that there is not only one success factor in the internationalisation project. Different factors have different effects on the individual enterprises. Important is to assess the balanced mix of different factors and activities. Regarding the single factors, however, it becomes quite clear what kind of an expanded perspective a resource-oriented management allows. As the study suggests, not only the tangible but also the intangible factors must be also subjected to a sufficient evaluation.

2.2.7. Employment of and working with consultants

In the study, it was established that internal and external barriers to change are built up during internationalisation. It is often only possible to remove the barriers with external help and to undertake an accompanying process consulting. It was interesting to discover whether the interviewed enterprises work with management consultants and what the consulting should achieve.

Diagram 29: Working with external consultants (N= 78, n=17).

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As Diagram 30 shows, the enterprises questioned work together with accountants, tax advisors, consultants for soft and hardware and advertising agencies. But also personnel consultants, who assist in the search for the right staff for executive positions, are also often employed. Trainers in the areas of conflict management and further education were consulted by more than half of the enterprises. For improved team development, one enterprise even employed an own outdoor-camp with a psychologist. For management or the restructuring of processes, seven enterprises had external consultants. The sometimes rejecting attitude towards consultants was formulated in the opinion of one expert: „By the time I have consulted the consultant so that he or she can successfully consult our enterprise, a lot of time has been lost. We do not have this time“.

All of the experts agreed on what a consultant should achieve. Consultants should bring the following things with them:

Give impulses Experience and references Methodical competence Knowledge of the sector Strength to put things into practice Only when these requirements have been fulfilled can one count on high acceptance and a continuous engagement in the medium-sized enterprise.

Although most of the enterprises believed that they did not have a consulting problem in their internationalisation and that an external consultant could hardly help solve their problems, weak spots became apparent in all of the interviews231. There is obviously a wide-spread belief that strategy or management consulting is not necessary for medium-sized enterprises because Just have to pull all your senses together and then you can do a lot yourself4.

2.3. Evaluation of the phase model for the internationalisation process After presenting the model and explaining the content and order, the following discussions were to serve the evaluation of the phase model by the experts. In the forefront stood the background experience of the experts with regard to the 231 .According to the experiences in the 17 interviews, there is always a reason for consulting projects when it is related to a concrete realisation. The consulting takes place not only in the analysis phase and the determination of a certain method but also as a process from the first impulse to the analysis phase to the strategy and then to the actual realisation of the set measures. In addition to the process consulting, the offer of concrete consulting products with a certain consulting result or an already formulated target setting is for some enterprises an important element for obtaining impulses from the outside, however limited to a certain period of time.

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content of the individual steps of analysis and the sequence. The objective was to determine whether the experts saw a relevant and plausible instrument for supporting internationalisation in medium-sized enterprises in this integrated consulting approach.

2.3.1. Applicability of the phase model

The general applicability for medium-sized enterprises was fulfilled by the approach to internationalisation. 88,2 % (n=15) of the experts confirmed that the given stages of Business Analysis, Strategic Planning, Re-Configuration, Monitoring and Change-Management correspond to the demands of the medium­ sized enterprise. Only two smaller enterprises had the opinion that, due to low resources, they could imagine the model being employed at other enterprises but that it would have little or no applicability to their enterprises232. In this case, a skimmed-down version for smaller medium-sized enterprises should not necessarily be utilised, rather the time and intensity of the consulting period should be increased. Only this method guarantees the integrated main concepts of the approach to internationalisation.

2.3.2. Specific applicability to the enterprises interviewed

The experts were confronted with the question of the use of the model in comparison to the currently employed planning model in the enterprise. The results are presented with regard to the individual phases. It could first be observed that the presentation of the model resulted in an awareness of the participants of a systematic method of approach. It became clear to the experts how important the methodical structure is and also where great deficits lie in medium-sized enterprises. The Business Analysis phase, with its different analysis fields was critically questioned. Regarding the content and structural sequences, the comments concerned the limited resources required for carrying out the analysis233, the high

232 It was apparent that on presentation of the phase model, half of the experts tried to apply the model to their own enterprise, usually with the remarks „then we're not doing everything wrong after all“ and „that is almost exactly how we do it“. 233 One of the experts said: „The current analysis part seems too extensive to me. If my people can't bring all that down to two pages is in the wrong place. It is also not sensible to open up too many secondary theatres“, „The entire process seems to me to take up too much time, it should held shorter.“

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time consumption and the non-existent possibility to constantly question everything and start anew234. The usage of diverse English special terminology caused confusion and had the result that some terms needed to be explicitly explained235.

In the strategic planning phase, some of the experts had reservations about the fundamental reorientation236. This possibility was emphasised by the consulting approach during the discussion in order to illustrate the integrated approach. The specific demands of the markets make it necessary to accommodate customer wishes through individual country strategies. The strategic planning should consider this fact with high flexibility237. Structuring the content of the method based on the corporate vision, developing the strategic success factors and building a target system corresponded to the necessary method238. The future importance of e-business was also discussed in this context239. The Re-Configuration phase comprises the realisation planning and the actual implementation. The different comments on the issue of the implementation show the importance for the medium-sized enterprise and the consideration of the accompanying change-management240. The components of re-configuration 234 „The execution of the status quo analysis also means questioning all procedures and previous positionings. The positionings are however often manifested through previously developed products and do not have to be newly structured in the individual country markets. This is why the entire internationalisation process is a „going concern“. You just can't take time out to newly initiate the analysis of the basic demands of the consumers in the market for the positioning of the business field“, said one expert. 235 The „Mittelständler“ is usually afraid of these terms and rarely prepared to admit that he does not know their meanings. „That is why the so-called consultant jargon should be avoided. Anglicisms should also be avoided, bullet statements shoud be used“, said one expert. Concerning the term of the Balanced Score Card, one expert asked whether one of those damn things that a consultant would pull out every now and then and try to sell it as something new. 236 A few opinions on this: „A realignment is to be agreed on only after having examined the exhaustion of potential several times because each redirection takes the pressure off the employees. Sometimes it seems better to carry out the tradition with own strength and not switch too fast to a new segment.“ and „It must be clearly differentiated between a radical restructuring and an adjustment of the previous possibilities. The complete change of direction should be covered by a five- or three-year planning. Corrections of the previous strategic force, including the finetuning, can be set within the yearly planning. One exception to the usual planning horizon is the acquisition strategy. The necessary capital can be planned long-term but has to be available as cash on short notice, often within three to six months.“ 237 Every market has its unique features, that is why the approach should not be too systematic. The internal organisation should be given sufficient space for structuring . 238 One expert got down to the point: „This method is exactly right, but can you honestly name me a traditional industrial operation that does that?“ 239 Here, the two opinions are given: „Integration aside from an off-line strategy is the on-line strategy. The utilisation of modern aids for sales work in foreign business plays an increasing role“, „The Internet will help us to finally overcome the sometimes very rigid entry barriers“. “40 For a better understanding, the following comments are given: „It is apparent that the realisation, like all corporate projects, requires a high specialised and above all social competence.“„The realisation is naturally the most important phase and can be supported through the integration of a qualitative and quantitative incentive system. That means, lead but not manage, give targets, think

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were explained during the presentation. The suggestion of using the Balanced Scorecard as an aid in the realisation process was of great interest to some enterprises. It became clear that this phase of realisation is a particularly critical area for the enterprise. The subsequent phase of Monitoring comprises the controlling, risk­ management, discrepancy analysis and is an integrated element for the enterprise for steering realisation. Individual adaptations to changes in the environment should be possible241. Change-Management is an integrated element of all of the different phases and involves the interaction of different opinions and interests which result from internationalisation242. The optimal integration can also effect the quality and the speed of the realisation. 2.3.3. Advantages- and disadvantages of the introduced consulting approach As a further step to validating the model, the participants were confronted with the question of the advantages and disadvantages of the consulting approach to internationalisation.

The presentation of the advantages and disadvantages of the phase model were already integrated in the footnotes according to content and order. The information will be given again, independent of the order and frequency.

ahead, direct and structure“, „The control ends with the realisation. Especially when the communication in marketing is concerned“, „Helpful for the realisation is the employment of different teams. The vision should be communicated top-down and the steering committee formed. The members are comprised of the leaders of the individual teams. The corporate leader must invest a lot of time in order to sell the project to the employees.“ 241 Two experts commented on Monitoring as follows: „The introduction of feedback rounds would make a dynamic approach out of this comparatively stiff model“., „The goals are to be adapted now and then and the influence of changes in the environment considered („orientation on spirit of the times“)“. 242 The response of some of the experts in summary: „Intercultural management is especially important in the German medium-sized enterprise. Of course we know this, we deal with foreign cultures every day. But the effect on business and the awareness of the design of processes for cultural assimilation just became clear to me through your model“, „I find the inclusion of the management approach excellent. After 20 years in international business, I can tell you though that the medium-sized enterprise is totally overchallenged with this.“, „Within the change management, psychological factors such as the recognition of patterns of action and relations are becoming more and more important. Enterprises who emphasise their moral/ethical principals in international business will, in light of increasing intercultural relations, have an advantage in the future.“

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PRO: „Seems at first glance to be a very process-oriented approach“, „I find the integration of the change management approach good and necessary“, „A strong current analysis is absolutely necessary. Takes one week longer in the planning phase. But brings at least three years more fun in the market“, „Culture management is considered for the first time243“, „Mentality of the enterprise is integrated“, „All-inclusive approach because the entire enterprise is included and not only the export department“, „Can be supplemented by targets which makes the process controllable and gives high motivation“

CON: „Time consuming“, „Binds resources“, „Where are the necessary resources for realising the model?“, „Too theoretical, only suitable for academics“, „Nothing for creative people, is somehow disturbing.“, „Too much control“, „Method creates fears - When should I do my job?“, „Seems too heavy“, „Everything is put into question, even the little success so far“, „Don’t proceed too statically, you cannot control everything244“, „too systematic, my employees need space“.

In summary, the methodical approach was praised with consideration to the aspects of change- and culture management. The reservations concern the low resource capacity of the medium-sized enterprise and the discrepancy between theoretical terminology which creates distance and has little to do with the reality of implementation, the phase model also gives the impression of giving little free space for creativity.

2.3.4. Effect of the application in the enterprise

Only a few interview partners gave a statement on this question. Nevertheless, some of the comments were very typical for the attitude of most medium-sized enterprises245. The further statements concerned the issue of the terms used and the extensive structuring of the actions and have already been given.

243 In this context, one expert told a story about his Japanese partners which absolutely wanted to see the production of the new A2 at Audi and officially enquired. Of course Audi was not interested in showing its latest production to competitors. As a compromise, Audi offered to show the A8 production to our Japanese friends. That was kind but did not interest the Japanese one bit. As an answer they sent a fax to Ingolstadt saying that they had heard that there were problems with the production quality of the A8 and that they did not want to disturb during the removal of the difficulties. Only the Japanese could come up with something like that, said the expert. 244 „The process should provide free space because an individual dynamic occurs whenever people are involved. You cannot tell the French in France how they should move either.“ With this example, the expert spoke of target-oriented leadership which leaves room for creation. 245 One expert said that early successes with the application of the consulting approach should be visible. Then the acceptance in the organisation would be positive and support the entire project. The decision process should also be transparent. An increase in credibility creates the necessary trust which is important in such a project. The application of the approach would save time because one would not constantly wander around aimlessly. The frame for action would make the strategic decisions more transparent and therefore result in higher motivation in the enterprise.

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As a summary of the effect on the enterprise, it can be said that the enterprises would introduce the approach in different steps and, in the case of increasing acceptance, allow the advantages of the high degree of structuring to take effect top-down to the lowest level of management.

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3. Summarising view and evaluation of the empirical study The enterprises which were studied were selected as „convenient samples“ in the region of Middle Hessen and independently of sector. The response rate of 54,8 % is very good and illustrates the high interest of medium-sized enterprises in this topic.

The structural data shows the varying composition of the enterprises interviewed and emphasises the intemationality of the enterprises in the survey. Through the small scope of the survey, correlations concerning sector or structural data were not possible and not intended. In general, the enterprises were characterised by a comparatively high degree of internationalisation and a high export ratio. These enterprises are therefore experienced in all questions of internationalisation and can support their opinions and findings with concrete experiences from their practical work. They therefore represent adequate discussion partners with regard to the derivation of qualitative trend statements on medium-sized enterprises.

Regarding the importance of internationalisation it can be said that the different characteristics of internationalisation have the effect of a soft process in the organisation of the enterprise. Placing value on very good English language skills when filling new positions and the expansion of existing language skills or fundamental adaptation in the verbal communication were the most important characteristics for most of the enterprises. Also the continuous „being on location“ and presenting new products at international fairs showed the importance of internationalisation efforts. The experts agreed that an increase in the foreign share of the total turnover is assumed. Internationalisation has been viewed as one of the most important strategy options in medium-sized enterprises for a long time but it was first through the high competitive pressure in the national core business that the enterprises took action and conceptionally expanded the international business.

The strategic method of approach of the enterprises to internationalisation is mainly characterised by a defensive stance. Either the customer is followed in its expansion or the expansion of the competition is the decisive motivation for further measures. Offensive methods are mostly only carried out step by step.

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Accompanying controlling and extensive costs controls are, as a rule, the characteristic frame conditions for limiting risks and costs246. The changes in the market require constant adjustments in the strategy. This became clear in the interviews. The factor of time from idea to realisation played a decisive role. The enterprises are challenged to create the requirements in the areas of leadership, organisation and culture and to develop a positive platform for the coming changes. The accompanying change-management is to be integrated by the enterprise and all top-managers with priority and the necessary persistence. All measures for intercultural management such as training and further education, preparation for foreign positions, reintegration of repre­ sentatives, conflict management and training in multicultural project management are only a few measures that can be carried out. In a study by Gemini consulting247, 72 % of the interviewees were of the opinion that the cultural aspects of international projects had not been sufficiently taken into consideration. Failures are programmed with this approach. The success factors of the internationalisation project in the medium-sized enterprise are characterised by the sum of different points of emphasis and a mixture of different elements. Each enterprise has to consider several details in its competitive environment. From the view of the author and the experience from the interviews, vision, leadership, an excellent performance and service package and a high level of implementation quality, which can be achieved through good managers and an excellent process, form the crucial system of success factors for internationalisation. The employment of a consultant is quite a common method of receiving external help (41 % of the enterprises receive consulting) but medium-sized enterprises are normally a bit sceptical about pure strategy consultants. The evaluation of the consulting approach to internationalisation in medium-sized enterprises gave the following summarised result:

The final part of the survey concerned the evaluation of the integrated phase model for internationalisation of medium-sized enterprises. Here, a remarkably high consensus was noted. 88,2 % of the participants (n=l 5) felt that the stages of Business Analysis, Strategic Planning, Re-Configuration, Monitoring and the accompanying Change Management correspond to the conceptions of the 246 Cp. Koller, Hans/ Raithel, Ulla/Wagner, Eckhard, pp. 175 - 203, 1998. The survey of 87 medium­ sized enterprises concerning internationalisation showed a clear preference of internationalisation forms with high integration. 247 Frankfurter Allgemeine Zeitung, of 17.7.2000, „Cultural differences are ignored“, p. 29

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experts. Only a few adjustments are necessary for consulting also smaller enterprises with low resource capacity. In this case, the external consulting would need to be intensified. It is to be pointed out in conclusion that the methodic approach is supported by the phase model and brings transparency to the internationalisation process. The presumably high employment of resources is related to the importance of the issue and creates the necessary clarity for the strategy planning and generation. The complete restructuring of the medium-sized enterprise through the integrated method is an option which was not well-received by all of the experts. Inward flexibility in the enterprise is an important requirement for carrying out the consulting. The integration of change management is also of great importance. It became clear that most of the enterprises recognised the issue but not with which method the negative effects can be reduced. The realisation of the strategy elements is a main factor for evaluating how good the actual strategy is. Although most of the enterprises were not familiar with the Balanced Scorecard, it is a useful tool for realisation in its success-based version. Monitoring as a controlling instrument seemed to find acceptance by the experts. It is however hardly ever employed as a risk- or discrepancy analysis. The mental attitude towards internationalisation increases in the course of the process and allows the managers involved to create enough space for themselves in the integrated process of internationalisation.

4. Critical assessment of the empirical study To assess the empirical survey on the basis of its research character, the criteria are the suitability of the survey, transparency and comprehensibility of the structure and sequence of the survey, degree of thoroughness, suitability of the method, multipersonal discourse and communicative validation of the results. The suitability of the survey for the theoretical issue of the consulting approach seems to have been correct as exclusively competent managers in decisive positions were questioned. The medium-sized enterprises also found themselves in varying stages of internationalisation, turnover relations and sectors. The transparency and comprehensibility of the structure and sequence of the evaluation was presented in chapter D. It was attempted to fulfill the degree of thoroughness through the extensive theoretical conception in the drafting of the interview guidelines, the sufficiently

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high number of discussions, the duration of the discussions (an average of 2 hrs and 10 min) and the actual execution of the interviews.

The suitability of the topic of research is guaranteed by the high expertise of the interviewer and interviewees with the topic of internationalisation. The suitability of the method seems to have been fulfilled through the utilisation of qualitative and quantitative questions and evaluation methods. Furthermore, the framework for action, as described in chap. 2. The integrated phase model for the internationalisation of medium sized enterprises, was presented as a dis­ cussion paper. The multipersonal discourse took place with the aid of the previously presented demonstrations and graphics which served the interviews as a basis. In addition, discussions regarding the recorded interviews with colleagues, Prof. Dr. Reineke and experts from the author’s own enterprise contributed to the further analysis and interpretation. The communicative validation of the results with the interviewees is not possible for research-economical reasons. The participants are however sent a summary of the report for their information and opinion. Through the discussion of the results with experts from the own enterprise, it is possible to partially fulfill this criterium as a large part of the results was included in the presented framework for action.

The focus of this survey was the question of whether the problem solving approach of the phase model for the internationalisation of medium-sized enterprises and its instruments for analysis and realisation represents an adequate decision support and a systematised framework for action with the help of which the process to internationalisation can be effectively accompanied. The complexity of the topic of study, the variety of enterprises and the different degrees of internationalisation requires an explorative approach in the form of personal interviews. The conversations were supported by the inclusion of the phase model and further theoretical/practical knowledge (see Appendix). The evaluation of the results was carried out quantitatively and qualitatively in order to portray the entire spectrum of opinions. This approach is not free from methodological criticism. Generalised reports are subject to subjective influences and cannot describe aspects of internationalisation in their entire scope. It was attempted however to work out the most important characteristics and to describe them in order to give a full picture of all relevant impressions. The extensive

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multipersonal discourse which took place for this is to a certain extent an attempt to compensise ex ante for this deficiency.. Viewed in sum, the high rate of participation and the feedback-rate showed that the topic is of high importance to medium-sized enterprises.

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E. Recommendation for action for the consulting of medium-sized enterprises 1. Frame conditions After the structure of a fundamental method of approach for integrated consulting had been given and the individual stages described in detail, the empirical study served the analysis of the phase model for the internatio­ nalisation of medium-sized enterprises from the perspective of practice.

Although the latter confirmed that the phase model is a plausible and relevant approach to the internationalisation of the medium-sized enterprise, a deficit in the general and methodic approaches of the participants during and between the phases could be noted. Here, qualitative, intuitive and subjective methods were to be found more than a systematic and methodically supported method. For this reason it is necessary to combine the theoretically-derived and empirical views and to transfer the frame conditions presented thus far to a recommendation for action. Considering the given methodical deficits in the medium-sized enterprise, the framework for action is to be expanded to a systematic internationalisation process. With the help of condensed single steps, an application in the daily corporate practice can be facilitated. As the statements will show, the following recommendation for action also takes the needs of enterprises with differing degrees of internationalisation into account. With enterprises with a low export share, the internationalisation process can begin based on the strong national home market and in the following internationalisation stages, further country markets are integrated in the strategic direction of the enterprise. The same goes for enterprises with a high degree of internationalisation and who possess extensive methodical knowledge and experience. In this case, the medium-sized enterprise can review its international business units and country markets according to profitability aspects and, if necessary, direct the entire enterprise towards the demands of globalisation.

It also became clear in the empirical survey that the execution of some stage elements in each of the foreign markets of a medium-sized enterprise can only be achieved to a limited extent. This would, as a rule, bind the management capacities. It is therefore recommended to limit the process to certain core or lead countries. Increasing the performance of the external consultant is a further possibility to compensate for limited resources. The assimilation of the different

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cultural conditions cannot however be changed by a transference of activities. In this case, a full focus on the adaptation of the corporate culture in the sense of realignment is to be undertaken. A reduction in motivation and commitment at this stage has a direct effect on the actual rates of implementation success in the medium-sized enterprise. This time-intensive step must be carried out with consideration to the large opportunities which are connected to an inter­ nationalisation project. Finally, it is to be pointed out that the following recommendations for action have a general character. An individual recommendation for action with regard to certain sectors is possible but only through sector-specific adjustments of the content. It is always necessary to critically consider and correspondingly modify the recommendation with regard to sector-specific and corporate-specific conditions.

2. Internationalisation framework The main point of emphasis of the integrated concept is not to create new internationalisation strategies as potential basis strategies. It should rather demonstrate that the development of an internationalisation strategy for medium­ sized enterprises is a creative process which extends to the roots of the enterprise and through the development of a strategic success position, have a cultural change as a result. The illustrated „integrated internationalisation process“ is intended as a development process. The objective is not to search for a generally valid internationalisation strategy but the process of developing a corporate­ specific and consistent strategy. The development of an internationalisation strategy is an innovative process which can only be successful with a „high desire for differentiation“ against the competition. The integrated consulting approach is a basic foundation, as it was also presented to the medium-sized enterprises. Based on the empirical study and the further optimisation of the approach through the expansion of the level of knowledge, the following adjustments were undertaken and supplemented in the „integrated internationalisation process“(see Diagram 30: The integrated internationalisation process (IIP)).

For the individual stages of Business Analysis, Strategic Planning, Re­ configuration, Monitoring and Change Management, only a few but important adjustments were required and will be described in the following.

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Diagram 30: The integrated internationalisation process (IIP).

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2.1. Business Analysis

The analysis of the status quo in this stage remains unchanged, also in its scope. Although some of the experts held the opinion that resources and time were bound in this stage, the importance of this analysis of the starting position is too high. The tools given are interactive and directly dependant on each other. The identification of the competitive position is crucial in this stage, a change is therefore not judged to be necessary. However, none of the usual methods for reengineering concepts such as classical recording and documentation of the proceedings using flow charts are employed.

Depending on the individual case, different main aspects arise according to the stand of information. Through this, adjustments can and should be undertaken for a faster Business Analysis.

2.2. Strategic Planning In the recommendation for action, this stage of the internationalisation process for medium-sized enterprises is divided into the two sub-stages of strategy planning and strategy generation. With this definition, the medium-sized enterprise receives the specific tools and resources for a sufficient preparation for the actual strategy. The creative framework is widened and the high importance of the specific environment for the development of the strategic success position are done justice. The process for the definition and planning of the strategic success position is comprised of the elements presented in chap. 2.3. Strategic Planning. The execution of the different modules with the individual analysis components allows the medium-sized enterprise to identify and position its strategic success position. Carrying out the project illustrated in the diagram is similar to observing the filtering of an amount of endless elements from the ground. Only through the different filtering levels, in which different filters are used, are the sought-for elements separated from the lesser important elements. At the end, only those elements are left over which are also actually desired and which are useful for the development of a strong positioning.

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Diagram 31: Screening process ofgenerating SSP for internationalisation.

In the case of internationalisation, the strategic success position is developed out of the different environment conditions and the corporate conditions through constant screening. In this process, the different methods for filtering are utilised. How the individual screening levels are carried out is described in the „handbook of internationalisation“ as practical advice in the form of strategic templates. For the creation a strategy map and the adjoining implementation in the medium­ sized enterprise, the Balanced Scorecard described in chapter 2.3.2.6. Balanced score card in the internationalisation process is again to be referred to here. With regard to the great challenge of implementing activities in the internationalisation process, the following target system can be set based on the illustrated formulations for vision, core values and strategic objectives (see Table 23: Balanced-Scorecard Intemationalisatio). Table 23 illustrates an example of the development of a shortened „TopScorecard“ with the point of emphasis „internationalisation “. The selection of perspectives and the number of indicators allows an illustration of the success of an enterprise on the basis of 20 to 25 indexes. The necessary period of time for an implementation depends on the total number of scorecards to be developed and also on the number of hierarchic levels which must be

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covered. A realistic period of time for the project including intensive discussions and workshops with the later holders of the scorecard across three hierarchic levels is 4 to 5 months. The integration of the Balanced Scorecard positively influences the entire strategic process of the medium-sized enterprise and improves the quality of the implementation of the different phases in the internationalisation process.

2.3. Re-Configuration For the re-configuration of the elements of market selection, market expansion strategy, internationalisation timing, market entry mode and the actual marketing strategy per country in terms of market segmentation and market stimulation, options are given which should assist the medium-sized enterprise in its choice of strategy for marketing in the selected countries. A major aspect of this phase is the intensification of the marketing-oriented approach. Medium-sized enterprises, in particular, have a difficult time in redistributing certain resources when the domestic sales volume has decreased and a transference of activities to foreign countries is necessary. This can involve for example a reevaluation of the operative and strategic budget within the realignment. With the transference of a set target, a corresponding resource allocation under the aspects of the Balanced Scorecard is to be undertaken in a planning process for the individual countries. Only with this initiative do the different strategy modules have the sufficient strength to make their impact. A further important element of this stage is the co-ordination of the individual measures in their wide-spread effect. Each individual element of the internationalisation strategy must be connected to each other and, due to the increasing complexity when observing several country markets, requires overlapping instruments. Different methodical approaches are possible which are described and discussed in chap. 2.4. Re-configuration. The measures are to be set based on the targets and the selected strategy profile. The degree of fulfillment and the quality of the realisation are monitored and adjusted with consideration to the Balanced Scorecard.

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Vision:

We are a successful European producer of household appliances and supply our products to specialised wholesalers with the help of excellently-qualified staff state of the art appliances and aggressive trade marketing.

Core Values:

Fit for Europe

Main strategic objective:

We want to expand our European business

Perspectives Financial perspective What do we want to offer our stakeholders?

Customer perspective

How should we perceive our customers?

volume growth

Acquisitions programme

Net Margin

+ 15%

Cost-cutting programme

Increase profitability of foreign markets Optimise cash flow Win new customers

Country profitability

+ 20 %

Financial audit per country

Gross cash flow

+ 15%

Cost-cutting programme

A/B-customer focus

Turnover share of A/Bcustomers Transaction ratio

Internet as innovative path to distribution Good price­ service relation

Cross selling through optimised marketing and distribution processes For which projects Short product development do we have to perform our best? time Process perspective

Initiatives

Operative target value + 20 % 1 a

Strategic objectives Grow faster than the market Profitability

Measures

+ 20 % Turnover share of new customers

Price comparison market leader, customer evaluation Cross-selling ratio

First to market products

New customer programme

80%

Focus programme

10 % of all transaction rates - 10%

Front-office programme

Introduce price monitor, No. 1 for 60 % of all customers

25%

Process optimisation Marketing- and production processes

5

Process optimisation F & E programme

Table 22: Balanced-Scorecard Internationalisation, Part 1

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Internet as multioptional platform For which projects Continuous improvement do we have to perform our best? process (CIP)

Process perspective

Competitive production and logistic processes Improvement of the level of training

Employee 1 learning perspective

How must the organisation learn and improve?

Potential perspective

How can we improve our international position?

Reducing process 20% costs

Reduce prices, improve passing though time, rate of change within organisation structure Costs reduction

10 %, 20%, 50%

Expand CIP, process optimisation, organisation improvement program, restructuring-organisation

-20 mio. DM

Reduction of complexity

Further education 8 days per in marketing and year distribution

Employee satisfaction Successful projects with international staff Empowerment of Employee satisfaction the employees Percentage of internal networking Develop Turnover share innovative of new products products Geographical Turnover per expansion target region Improve intercultural co­ operation

Disinvestment

Costs

Skimming off

Turnover profitability for selected core markets

Back-office programme

Further education/training programmes

Satisfaction index >80%

Intercultural communication training Conflict management

Satisfaction index >70%

Training programme, Job rotation programme

20%

Percentage products / service, younger than 2 years = 60% FDI in Benelux, Buy three distributors in Southeast Asia

Turnover rate + 50 for India, Vietnam, Taiwan - 30 % for central and northern Europe + 30 %

Closing of branches in Austria and Helsinki

France, USA

Table 23: Balanced-Scorecard Internationalisation, Part 2

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2.4. Monitoring As previously described, a continuous comparison of status-quo and future concept of the internationalisation process is carried out in this stage. Discrepancies should be recognised, risks reduced and a professional resource management should take place. A sufficient combination of the success-based Balanced Scorecard and the existing controlling instruments guarantee the chances of success248.

The visualisation and upkeeping of the scorecard can be done world-wide through the Internet. The HTML technology allows a unified user surface for scorecards and also for the addition of information. In the phase of further development, the balanced scorecard system can be integrated into the data warehouse process. A direct entrance through BSC indexes to the corresponding management information systems of standard reports is also possible. The defined success factors can be graphically integrated and serve for the following of measures. The main focus of the monitoring lies in the steering of the internationalisation process. The process is to be understood as a cycle which is comprised of identification, integration, utilisation and transfer. Internationalisation in the medium-sized enterprise is therefore a never-ending process, the enterprise as a learning organisation continuously improves its level of internationalisation. Monitoring, as a „going concern“, ensures long-term drive in the transformation process.

2.5. Change management

The accompanying activities of the change management already begin after the project has been initiated and requires high behavioural competence of the management and all individuals who are involved in the internationalisation project. In the concluding „handbook of integrated internationalisation“, the individual measures are listed with consideration to the different internationalisation checkpoints (ICP) which are described in Appendix. From the view of the author and own experiences in corporate practice as well as the results of the empirical study, the activities mentioned are of high practical relevance in the implementation phase of the internationalisation project. They form a summary of the results of the discussion on change management within the derivation of the phase model. Demands from corporate practice have been 248 Cp. Kaplan, p. Robert/Norten, David P., 2000.

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integrated and a guideline for the accompanying change management of the internationalisation projects developed. The suggestions given should be motivating during implementation and, depending on the development of the project, be carried forth by the teams. Additions, corrections or changes of individual sub-phases serves the process and underlines the flexibility of the concept. In summary, of essential importance is a short, thorough and professional analysis, a quick implementation and the wide and motivating inclusion of the employees in the internationalisation process. The psychology of the internationalisation process must be considered and proactively included. The main tasks of the change management in the internationalisation process are motivation, management of obstacles and the development of a global mindset.

- Planof work - Data gathering

- ProjectLeaderselection - Team Definition - Define project organisation

Diagram 32: The internationalisation road map.

Opportunity is k - Profil

•

Listof prioritised activities • Position per • Initiationofcultural Country SegmentProduct transition • Monitoring reports •Communicated leadership vision

• K Fl -

Profil • SWOT - Statements

• StrcnghfWeakness- Profil

•

«SWOT «Positioning

Uncertainty evaluation «Feasibility

and top management • Financial investment

Market opportunities identified • Uncertainty identified • Integration ofniddle *

•

TargetSystem

Scopeof market expansiot

Market segmentation

•

Risk analysis

• Market stimulation strategy • Strategy profile

strategy

•

«Timing • Orderof entry • Mode ofMarket Entry

•

• Target MarkeStatus Chee

ICP 4

Planning

Financial Analysis Marketing Budget

•

Dokumentation

•

• Key cooperation partners preselected

*

fixed «Documentation

Key Market selection • Investmenidentificd

•

• Sales targets

5

financial

♦

•

Training & Informatior Documentation

results • Updated market launch* busincssplan • Project plan

• Updated

• Investmenrelease

«Budgeting • Financial Analysis

• Brand Management «Organisation «Place • Search for partners

«Pricing «Distribution «Communication

«Service

«Product policy

• Status Check

ICP

Implementation

Re - C onfiguratio n

• Business plarwritten • Businessplarpercountry Internationalisation Strate jy« Strategyperrandom ♦ BSC Integrated segment product customer

•

• Balanced Score Card

♦

• Strategieforce

Potential) • Competitor analysis • Key factorsof lnternationalisatio(iKFI)

identificatiorfWOO!) • Country preselection • Screenin^SP

KickoffMeeting

audit(People Customer

•

Process Finance

Definition SSP

«Core Values

«Vision

3

- Mainissues

Futureprioritics

ICP

•

•

• Futuremarket vision

ICP 2

StrategyGeneration

• Window ofcpportunity

(ingeneral and specific

• Environmental scanning

1

Strategy Preparation

• Internal examination

of intent

Startof process

1CP

Analysis& Evaluation

StrategicPlanung

-Background -Targets

• Declaration

•

Projectinitiation

Status Of « Positioningpf main issues benefit • Idea ofstrategicdirection • MainTarget defined

Content

Point

Check

Fact& Findings

B usiness A nalys is

Development^ globalm ind-set •

• Stakeholder Response • Implementation & progress control I

Employees • Planretrospective « Deviation Analyse • WeakSpot Analyse • Corrective actions • Impact analysis • Benchmarking cultural transition

• Feedbackfrom Market CustomersSupplier

Feedback

M o n ito rin g ^

RECOMMENDATION FOR ACTION

183

184

RECOMMENDATION FOR ACTION

3. The internationalisation road map The internationalisation process with its stages and components will now be integrated into a project plan. Starting with the actual beginning of the project, five internationalisation check-points (ICP) are planned. At each of the planned ICPs, the project team (analogue to the classic project management) is to carry out different activities and present reports or documentation on specific topics. The ICPs are organised in the form of milestones, at each ICP the internationalisation is to be fundamentally questioned, adapted, halted or stopped. Due to the fact that the strategy consists of hypotheses, which are simply assumptions about how the international world works; the defined international strategy needs to be continuously tested for its validity and rejected when evidence accumulates that expected linkages are not occurring. That is why constant feedback and learning loops are integrated through the application of each ICP.

Diagram 32 illustrates the „Internationalisation Road Map“ with the different elements. In addition to the core phases of Business Analysis, Strategic Planning, Re-Configuration, Monitoring and Change Management, the process phases of Fact & Findings, Analysis & Evaluation, Strategy Preparation, Strategy Generation, Re-Configuration Planning, Implementation and Monitoring are given. The contents of the phases correspond to the previous descriptions. For the ICPs, a description of the current project status is to be made at each check­ point. Through this, it becomes clear to the project team how far one has proceeded in one’s efforts. The elements of change management are not explicitly listed in the internationalisation road map. They are to be understood as accompanying elements of the entire process but, for clarity, are illustrated with reference to the different internationalisation check points (ICP) in the “Handbook of Inter­ nationalisation” as a summary out of the description for each internationalisation phase.

With this approach of the different internationalisation check-points (ICP), a framework with activities is given which illustrates, even for unexperienced intemationalisers, a strategic perspective of the different requirements of the country markets in the regions and internal adjustments. The interaction between the aspects and resulting dynamics of the process can be steered for the good of the successful redirecting of the enterprise. Several elements are selected from the background of the marketing-oriented approach and have been integrated. The accompanying change management fulfills the requirements for achieving

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185

long-term cultural change. As a further aid for the work of the project and change teams, the most important elements of the internationalisation checkpoints are integrated in the contents of the handbook for inter­ nationalisation. The internationalisation handbook is structured according the named main phase in the internationalisation road map and systematically categorises the most important corresponding activities. In the Diagram 33 the structure of the handbook as the internationalisation log-book is illustrated. The actual handbook for internationalisation can be found in the appendix. With the help of phases of the Initiation of Internationalisation, Business Analysis, Strategic Planning - Preparation/Generation, Re-configuration - Planning/Implementation and Monitoring, the internationalisation process is comprised in a systematic structure for the development of a suitable internationalisation strategy. The adjoining description of the contents gives a framework for orientation for the medium-sized enterprise. With which tools the ICP can be achieved is also clearly illustrated in this diagram. The given tools mostly give reference to the derivation of the phase model in the chapter 2. The integrated phase model for the internationalisation of medium sized enterprises.

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Key tools to use

Initiation

Business Analysis

Strategy Planning - Generation

Internationalisation as main issue Background and target Cultural transition Global mindset

> > > > > > > >

Business environment Markets Channels Own Business Competition Technology Competence Position

>

Future market vision regarding customer need, channels, technology, regulation, cost, price, profit, competition

>

> >

Future priorities regarding markets, customer, consumer, technology, area of entry, exit, acquisition, disposals Market pre-selection Opportunity identification

> > >

Vision Objectives Strategic Direction

>

> > >» > >

>

A A A

Strategic Planning -Preparation

> >• > >

> > > >

> > > >

Leadership vision Plan of work Starting to gather data and evaluate

Environmental scanning Internal examination Competitive analysis Key factors of success in internationalisation SWOT-Analysis Portfolio-Analysis Positioning Early warning system Start building a corporate vision Understanding of the six drivers of future change

Anticipating the future Develop future thinking Select priorities to be achieved in 5 years' time Country-Screening-Model SEP-Screening-Model

Portfolio-Mapping Strategy rules for internationalisation Target System Balanced Scorecard

Re-Configuration - Planning

> > > > > > >

How to enter ? Timing of entry ? Order of entry ? Mode of entry ? Market segmentation Market stimulation Strategy combination

>

International business plan per lead country / core countries

Re-Configuration - Implementation

>

International product policy, service policy, price policy distribution policy, communication policy, brand policy Management of organisation (structure, environment, culture, personnel, strategy)

>

Business plan per lead country / core countries Market launch per country, per product group, per customer

Time Personnel Cost Growth rate Turnover Quality of implementation Development of cultural transition

>

>

Monitoring

> > > > > > >

>

> >

Plan retrospective Evaluation implementation architecture Benchmarking cultural transition Impact control

Diagram 33: Internationalisation log-book - main steps.

- MANAGEMENT

Steps / Activities Topics covered

CHANGE

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CONCLUSION & OUTLOOK

187

F. Conclusion and outlook The central objective of this Master’s Thesis was to develop a systematic method with the help of an integrated consulting approach for the internationalisation of medium-sized enterprises in order to assist the entrepreneur and his/her top­ management in the international alignment process. At the beginning, a short characterisation of the medium-sized enterprise, of internationalisation, internationalisation theories and the different approaches to internationalisation were undertaken.

On the basis of these explanations, further deliberations on the general consulting approach of strategy consulting and own practical experience, a concrete methodical consulting approach to the internationalisation of medium-sized enterprises was introduced. The aim of this work was not only to develop theoretical solutions to how medium-sized enterprises should expand their international business, but to present options for practical realisation.

The basis was formed by the introduction of an integrated consulting approach to internationalisation. In the framework of this approach, the four phases of Business Analysis, Strategic Planning, Re-Configuration and Monitoring were first described. In addition, an accompanying change management was introduced for each phase for effectively reducing difficulties in the realisation of internationalisation. In the Business Analysis phase, the assessment of the status quo and the identification of future opportunities in the specific environment takes place. In this phase, the strategic success position begins to be identified and developed.

In the Strategic Planning phase, restructuring and intensification with regard to international business is discussed and formulated. The strategic success position is defined. The extensive development of a target system and the simultaneous integration into the success-based balanced scorecard, conclude this phase. The medium-sized enterprise can only determine its specific strategy profile when it is aware of all of the variants. For this reason, the individual strategy options are described and discussed in the stage Re-Configuration. Differentiation’s were primarily made between the scope of geographical expansion, the timing of internationalisation, the market entry mode and actual

188

CONCLUSION & OUTLOOK

marketing strategy for each selected country. The realisation planning follows at the end with the corresponding international instruments of the marketing-mix. The fourth phase of Monitoring comprises the documentation, feedback­ evaluations, reviews and risk- and discrepancy-analysis. In this phase, primarily methods for reducing negative influences on the internationalisation project are described and discussed.. The accompanying change management concludes the phases as a com­ prehensive and integrated tool for confronting problems arising from the change of processes. As a special feature, in addition to the general advice for change management, the development of a global mindset is devoted much room through discussion, introduction of the method and timing of the employment of different tools, with regard to the internationalisation check-points (ICP). In accordance with the desired applicability of the work, the structure of the phase model for the internationalisation of the medium-sized enterprise was empirically examined for relevance and plausibility as well as an evaluation of the applicability of the model in corporate practice. As subjects for observation, 17 medium-sized enterprises were selected for which high competence in the strategic development of international business could be determined. The oral interview of 17 experts using a standardised interview guideline, showed a high importance of internationalisation. The general applicability of the phase model was confirmed. 88,2 % (from 15 enterprises) of the experts confirmed that the phases of Business Analysis, Strategic Planning, Re-Configuration, Monitoring and Change-Management would correspond to the demands of the medium-sized enterprises.

Due to the existing lack of a systematic method of approach for internationali­ sation or the partially inadequate marketing methods among the participants, recommendations for action for a step by step introduction of the „integrated internationalisation process“ were provided.

Subsequently, the originally derived consulting approach was revised and supplemented on the basis of the impression gained through the results of the empirical study. As a result of this discussion, the internationalisation road map and the handbook for internationalisation could be developed. This enables the medium-sized enterprise to develop a continuous internationalisation process from one version, the strategic objectives, measures, targets and the initiatives.

In summary, it can concluded that, through the integrated approach, a comprehensive integration of all resources involved in internationalisation was

CONCLUSION & OUTLOOK

189

presented and the analysis, evaluation, selection of alternatives, implementation and the review of the measures with regard to internationalisation was expanded. The additional consideration of change management accelerates the development of the corporate culture of the medium-sized enterprise and supports the relation between internationalisation strategy and cross-cultural management. Further­ more, the empirical survey of the integrated consulting approach to inter­ nationalisation of medium-sized enterprises demonstrated its relevance, plausi­ bility and applicability. Crucial for the future successful internationalisation of the medium-sized enterprise is the development of a balance of the elements of the framework for action with consideration to internal and external influences. The evaluation of the phase results at the internationalisation check-points (ICPs) is a part of the securement of quality and also secures the development of a learning organisation. One of the future challenges which internationalising enterprises are going to have to increasingly face is the consideration of intercultural differences. Globalisation will change our horizons even stronger than before and, more intensively than before, the cultures in the world will grow together. The massive speed of development in the New Economy, where the “Internet tears down the borders between the enterprises”, leads to a new corporate type “without borders”. The transaction costs are nearly nothing. Every medium-sized enterprise can offer any product anywhere in the world. This opportunity requires a global mindset from each individual employee and from the entrepreneur. Only then can the opportunity be viewed as an opportunity and the possibilities behind it recognised and understood. We are all challenged to develop suitable instruments in dialogue with corporate practice and to develop efficient and effective intercultural management. This work should present practical perspectives for this.

BIBLIOGRAPHY

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APPENDIX

199

H. Appendix 1. Handbook for internationalisation - Checklist Steps / Activities Topics covered

Business Analysis

> > > >

Internationalisation as main issue Background and target Cultural transition Global mindset

>

>

Business environment Markets Channels Own Business Competition Technology Competence Position

>

Future market vision regarding customer need, channels, technology, regulation, cost, price, profit, competition

>

Future priorities regarding markets, customer, consumer, technology, area of entry, exit, acquisition, disposals Market pre-selection Opportunity identification

> > >

Vision Objectives Strategic Direction

>

> > X X >

Strategic Planning -Preparation

>

>

x >

Strategy Planning - Generation

> >

>

>

x X X X X

>

> >

>

Re-Configuration - Planning

> > > > >

International product policy, service policy, price policy distribution policy, communication policy, brand policy Management of organisation (structure, environment, culture, personnel, strategy)

Re-Configuration - Implementation

Monitoring

How to enter ? Timing of entry ? Order of entry ? Mode of entry ? Market segmentation Market stimulation Strategy combination

> > >

Time Personnel Cost Growth rate Turnover Quality of implementation Development of cultural transition

Leadership vision Plan of work Starting to gather data and evaluate

Environmental scanning Internal examination Competitive analysis Key factors of success in internationalisation SWOT-Analysis Portfolio-Analysis Positioning

Early warning system Start building a corporate vision Understanding of the six drivers of future change

Anticipating the future Develop future thinking Select priorities to be achieved in 5 years' time Country-Screening-Model SEP-Screening-Model

Portfolio-Mapping Strategy rules for internationalisation Target System Balanced Scorecard

>

International business plan per lead country / core countries

>

Business plan per lead country / core countries Market launch per country, per product group, per customer

>

> > >

Plan retrospective Evaluation implementation architecture Benchmarking cultural transition Impact control

CHANGE - MANAGEMENT

Initiation

Key tools to use

APPENDIX

200

1.1. Project Initiation Activities Announcement

Kick-off meeting

Data / Information

Details & Document >

Formulation of intention regarding internationalisation define target define main issues internal positioning of internationalisation

> > > > > > > > >

Define project leader Define cross functional team Define common framework Define scope of project Reduce number of relevant countries and regions Propose plan of work (cost, time, capacity) Define method Build project organisation Inform organisation about theinternationalisation project

> >

Market size and trend Key segments (size, trends, growth rate, profitability, structure) Segment attractivity Key channels, size and trend Key account analyses Brand shares /product group by market, channel, customer Customer demographics and loyalty Customer usage, attitudes, retention Competitors shares Brand / Product group shares by region Marketing spend by brand / Product group Channel and account margins Size of product ranges New product success/failure Entries / Exits Overall sales, cost, profits by region/country Sales profit breakdowns by market segment, region/country, channel, brand, product group, account and customer type Overall spending for Marketing and R&D by activity Production capacity utilisation Brand, Product group histories Price movements and elasticity Customer relationship monitors

> > > > > > > > > > > > > > >

> > > > >

Responsibilities

.......

APPENDIX

201

1.1. Project Initiation Details & Documents

Activities

Responsibilities

CHANGE MANAGEMENT

>

Personal vision, expectation, hope for the organisation Pre-analysis of business Draft statement, why change is necessary Cultural change through spirit and determination Reason and target for change project Scope of project, results of change process Commitment from top-management

2.

Building a cultural foundation

>

Development of project identity through Leadership Vision (Button-down approach) Awareness of internationalisation Positioning of the main issues Develop common language and culture Create a platform for communication (effective, efficient, easy to use communication and knowledge system) Build formal and informal network Team status inside the organisation, team-member status inside the organisation Initiation of value-added cultural change Awareness for challenges / requirements of value-added intercultural communication change Define formal and informal project design in respect to core countries / lead countries Parallel development of human resources (fact finders and process specials inside the first phase)

> >

> > > > > > > > >

>

3.

Motivation of steering committee

> > > > >

Confirmation of reason of change and target Confirmation of methodology Confirmation of team members Planning of pre - plan of work Agreement on management role Agreement on areas with fast improvements (quick wins)

Try right from the beginning to close cultural gaps before they become obvious!

Development of a different mindset. Key features are: Realistic expectations, a cosmopolitan and collaborative outlook, high levels of trust and a willingness to learn from one another. All these need to be backed up by the ability to set goals and negotiate when conflicts arise.

Use top management and leaders as “cultivators” and “catalytic converters!

202

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1.2. ICP 1 - Analysis & Evaluation Activities

Macro-scanning in general specific

Details & Documents

Responsibilities

Environmental scanning in general 1. Define different general environments for scanning 2. Identify critical developments and make a ranking 3. Describe opportunities / threads 4. Formulate summary per general environment Environmental-Scanning (weak signal) Environmental-Monitoring (system interactions) Environmental-Forecast (trends and projection) Specific environmental scanning 1. Define critical specific environments for scanning 2. Identify critical developments and make a ranking 3. Early description of threats and the influence of results 4. Estimate admission probability 5. Evaluation of opportunities / thread potential 6. What does that means for the company ?

Strength and Weakness profile for functions / parts of value chain under consideration of internal / external information after analysing and evaluation Classic evaluation of turnover, market shares, capacity, strategy, product range, prices, positioning, distribution, strength and weakness per product / product group / customer / segment / country.

Internal examination audit

Competition (360 °Perspective) - Part 1

For evaluation please always have the following in mind: 1. Knowledge - Right data, right format, convert to knowledge by analysis 2. Performance - Where are we winning? Where are we losing? Why? 3. Attitudes audit - Where are we leading? Where are we following? 4. Strategy audit - Right markets/sectors? Clear strategies? Consistent strategies? Are they winners? Wear rate? Use of resources? 5. Execution audit - Responsiveness, Speed, Efficiency, Cost?

With consideration to the following questions: > Who is the competitor? Now? Five years from now? > What are the investment priorities, objectives and goals of our major competitors? > How important is our specific market to each competitor and what is the level of its commitment? > What are the competitors' relative strengths and limitations? > What weaknesses make the competitors vulnerable? > What charges are competitors likely to make in their future strategies? > What effects will all of your competitors' strategies have on the industry, on the market and on your strategy? > What are the specific country product and price policies? > What is the current status of internationalisation stage ?

.......

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1.2. ICP 1 - Analysis & Evaluation Activities Competition (360 °Perspective) - Part 2

Details & Documents

Responsibilities

Advanced evaluation 1. Define competition in domestic and foreign markets (core or lead countries) 2. Define criteria for comparison of importance for internationalisation 3. Determine degree of fulfillment 4. Visualise for now and in 5 years 5. Describe opportunities / thread potential for the company on their way to improving international business

....... Key factor of internationalisation (KFI)

One method could be: 1. Define relevant factors (What are the main factors of success in internationalisation today and in 5 years?) 2. Weigh the important factors 3. Benchmark the factors 4. Visualise own status in profile diagram in relation to the main competitor

Don't forget skill mapping! With the help of only two questions the screening process will be more focused: 1. Potential in respect to competition? (Determine potential through outside-in perspective) 2. Potential in respect to strength and weakness in internationalisation? (Determine potential through insideout perspective)

Use the following questions for defining the KFI: > Who is the competitor? Now? Five years from now? > What has been the largest area of cost in this business? > Looking at other companies in this business, what have been the main reasons for their success or failure? > In which areas of your business is it possible to create a competitive advantage?

SWOT

A few simple rules: 1. Only two to three pages 2. Should cover the whole company 3. Use BSC to integrate financial, customer, business unit, personnel, cultural perspective, leadership, internal core departments 4. Relate statements of strength and weakness primarily to KFI and the value chain 5. Strength and weakness should be stated in competitive terms 6. Specific statements, without limiting opportunities 7. SWOT should cover the company. Relate it to functions and/or perspectives 8. Be objective about your own company and competition 9. Relevant topics: technical opportunities and risk, the company 's relative cost vs competitors, comparative service levels, attitudes towards investment and risk, degree of marketing orientation, core competencies

204

APPENDIX

1.2. ICP 1 - Analysis & Evaluation Activities Positioning

Controlling

Details & Documents How to build DMP: 1. Define criteria of market attractivity and business strength 2. Weigh the different criteria 3. Evaluate them 4. Visualise them in a portfolio map 5. Define the current company position per county / per product group 6. Start discussion on how to expand internationalisation

Progress control report, monitoring report

Responsibilities

APPENDIX

205

1.2. ICP 1 - Analysis & Evaluation Activities

Details & Documents

Responsibilities

CHANGE MANAGEMENT Information Exchange

Interviews in small groups, face to face interviews, stakeholder meeting, evaluation of internal reports etc.,

Evaluation of necessary change

Benchmarking and Best-Practice-Comparison

Global-mindset

Some questions to check international fitness: Do we have a global mindset? > Interaction with others regardless of national origin? > Background of value systems from different cultural sources? > Excitement or fear and anxiety in a new cultural setting? > Sensitivity to cultural differences when visiting in other countries? Does our organisation have a global mindset? > Leader or a laggard in discovering opportunities in international business? > Importance of international vs domestic customer? > International personal recruitment? > Change of career independent of national origin? > Evaluating competitors from all around the world? > Are the activities national or global? > Are international markets, a source of ideas or technology to be exploited? > National identity or universal identity with many homes?

Check and evaluation of involved resources

Build intervention strategy

.......

> > > > > > >

Team Performance Report Team-Member Profile Education / Training Conflict- / Coaching Plan Project rules Expectations and fears of team members Team-building meetings (norming, storming, forming, performing)

Targets to intervene: > Analyse possible acceptance problems > Describe personal advantages > Transparency of balance of power > Maintain fitness for work > Know-how building (education controlling beyond cultural milestone / interface work shop Start to develop entrepreneurial culture in internationalisation

Confirmation of results and conclusion on ICP 1

.......

APPENDIX

206

1.3. ICP 2 - Strategy Preparation Details & Documents

Activities

Future Market Vision

Responsibilities

Consumer needs in 5 years time Balance of stakeholders' priorities Key technology changes Competitor development Distributors' needs Alternative and preferred scenarios

Employee and shareholder needs

....... Future Priorities - Think back, but look ahead!

Market, customers, consumers and technologies to be achieved in 5 years time Areas of entry and exit, acquisition , disposals, relative priorities Just one question is important: Where are my windows of opportunities (WOO!)???

Market opportunity analysis (market volume, sales volume, competitors, regulations, entry barrier, price level, etc.) BERl-Index, MM-Country evaluation, country report, BfAI, Euromoney-Index, Political Risk Letter, Institutional Investor Country Rating Own criteria: Market volume, market growth rate, competitive intensity

Opportunity / risk - analysis of markets Method: Country Screening model, scoring model

Develop strategic success position

Out of SWOT and pre-selected KFI fixing central positioning: Compatibility with the company / Cl Compatibility with customer requirements Focus on relevant customer clusters Economic success perspective Durability of alternatives Independence Ability of management for implementation Transformation in marketing strategy and marketing instruments Method: Scenario - Management, Conjoint Analysis, ScoringModel

Decision making method

Estimate time, resources, cost, potential, analyse and evaluate uncertainties (decision-oriented)

Feasibility study

Cost/Benefit/Realisation

Financial analysis

Investment

APPENDIX

207

1.3. ICP 2 - Strategy Preparation Activities

CHANGE MANAGEMENT

Details & Documents

Responsibilities

Develop “open book culture” Re-evaluating opportunity/risk - profile and strength/weakness profile with consideration to strategic success factor using iterative routine

Discussion about process improvements, necessary changes on structure and organisation

First discussion how to develop corporate culture on the basis of results from ICP 1 First team changes and adjustments through additional functions and management levels Conflict management continues Coaching continues

.......

APPENDIX

208

1.4. ICP 3 - Strategy Generation Activities

Details & Documents

Responsibilities

Company vision

Fit for market vision and future priorities

Mission

Summary statement

Define strategic success factors

Formulate competitive advantage - main statement Build up and enlarge existing or new core competence of the company After review, check the following: Impact potential on customer/segment/market Risk of having too many irons in the fire Reinforce own strength Occupied with competitor? Sustainable, durable

Fixing strategic force

Portfolio-Mapping (Market attractivity / Business strength/ product strength and market entry barrier)

Market Attractivity > Market size, Market growth, market profitability > Real pricing trends > Competitive intensity > Market barrier to entry and exit, Threat of new entrants > Technology role > Segmentation > Political risk Business Strength > Company expansion rate > Market share > Reputation, Image > Profitability > Technology > Quality > Promotion > Price

Product Strength > Degree of innovation > Full range of products > Quality > Brand > Easy to use 1 easy to install / easy to maintain > Well designed > Good in price

Market entry barrier > Intensive competition > Regulation/Standards > Complete range necessary > Price sensitive > Service support > Brand loyalty

.......

APPENDIX

209

1.4. ICP 3 - Strategy Generation Details & Documents

Activities

Target market position with Balanced Score Card (BSC)!

Define main target, sub target, measurement, measurand, degree of fulfillment (now and in five years) on international perspectives: > Finance > Customer > Organisation / Process > Employees > Potential > Strategic success factor Increase value: > Overall revenue and share by market > By category > By trade channel > By brand > By major account

Rules for the right strategy

1. 2. 3. 4.

5. 6. 7.

Bundle activities to one major strength Do what you really want - Leadership Clear strategy Don't imitate, innovate; analyse what the others are doing, than do it differently Strategic fit between strength / opportunities Stick to the decision. Keep on going The vision should lead the direction

Method: Metaplan, Brainstorming, Method 635, Open-SpaceMethod, Mind Mapping, Morphological Web and Morphological Matrix.

Target financial results

Future investment

Integration in business plan

> > > > >

Return on sales overall By category By trade channel ROCE Cash flow

> > > > > >

Advertising Market research R&D Technology Capital expenditure Competence development

Vision, Objectives, Strategic Direction, Target system on Finance, Customer, Organisation / Process, Employees, Potential Strategic success factor financial, Sales Plan, Marketing Budget, Investment etc.

Responsibilities

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210

1.4. ICP 3 - Strategy Generation Activities CHANGE MANAGEMENT

Details & Documents

Responsibilities

Reach a record on reviewing the new formulation of corporate vision and mission statement of the organisation in respect to the results of ICP 1 and ICP 2.

Confirmation of process improvements, necessary changes on structure and organisation Confirmation of how to develop corporate culture on the basis of results from ICP 2 Further team changes and adjustments through additional functions and management levels only if necessary Conflict management continues

Coaching continues

Learning & Planning

Confirmation and agreement on results and recommendations inside the team and the board

Agreement on necessary resources

.......

APPENDIX

211

1.5. ICP 4 - Realisation Planning Details & Documents

Activities

Target Market Selection / Main Strategy

Core Countries/Lead Countries including main strategy (target, strategy, activities, budget)

Status Check

Distinguish “Going International” and “Being International”

How to enter (scope of expansion)

Responsibilities

.......

..... > > >

Concentric strategy Selective strategy Island strategy

Timing of entry

> > >

First to market Early follower Late mover Niche Me too

Order of entry

Strategy of market concentration (“waterfall-strategy ”) Strategy of market diversification (“sprinkler-strategy”)

Market-entry Mode

Indirect / Direct Export With/Without capital transfer > Foreign direct investment (production/distribution/both) > Subcontracting > Franchising > Licensing > Joint venture (production/distribution) > Strategic alliances > Network > E-business

......

......

Key co-operation partners - search for partners, select partners, strategy of co-operation, scope, time, period, cost, ressources, etc.

Market segmentation

First of all, segment the market with the following evaluation: > Potential of segment > Volume of segment > Growth of segment > Profitability of segment > Segment structure (intensity of competition, entry barrier, demand) > Inline with strategic force > Fulfillment of general competence requirements

......

212

APPENDIX

2.5. ICP 4 - Realisation Planning Details & Documents

Activities

Market segmentation

Select number of segments and choose strategy depending on identified segments: 1. If unified market - standardised Marketing program 2. If focus on competition - sophisticated Marketing program with Product Differentiation 3. If comparable market segments - segment orientated Marketing program 4. If Individualised customers - customer orientated Marketing program

Market stimulation

Skimming Strategy or Differentiation Strategy, that means select: > Better and more expensive > Better and the same price > Better and cheaper > Same performance but cheaper

Responsibilities

.......

Strategy combination

Selecting different strategy option to one country strategy profile out of the described strategy tool box

Market-launch plan, primary

Products / Distribution / Price / Product Range / Marketing Strategy in selected countries

Marketing budget, primary

Plan investments and budget per country

Description on added value

Sales planning

Feasibility study

Time, Cost, Resources, Planning, Target Total project cost / target Total investment analysis / target Risk analysis Sales forecast per country, product group, brand, segment Prioritising between sales channel

Associate with strategic issues

Unforeseen opportunity and difficulties: Time Resources Worst-case scenario

Documentation

Business plan per country

Pilot test of the strategy

Check and re-evaluate strategy for continuous adjustment and correction

APPENDIX

213

1.5. ICP 4 - Realisation Planning Activities

Details & Documents

Responsibilities

CHANGE MANAGEMENT Benchmarking “behaviour”

> > >

What must we stop doing if we're to achieve the desired result? What must we start doing? What should we continue doing?

Reach an agreement on general business plan per country

Practical recommendations Start discussion on detailed implementation plan Install early-warning system

Start working on process improvements, business functions, business units, necessary changes of structure and organisation, change procedures Create network and process value community which sponsor and support internationalisation

Start working on corporate culture on the basis of results from ICP 2 and ICP 3

Introduce incentive system as back-up of sales planning Personnel search and personnel career development for new employees

Develop educational program to increase knowledge - base and mental fitness Job rotation (cross countries / cross culture) Install additional sub-teams on defined projects and anchor sub­ target system Conflict management continues, Coaching continues

Confirmation and agreement on results and recommendations inside the team and the board

Learning & planning

Agreement on necessary resources Agreement on transition period, only if necessary Definition of all necessary systems for the transition periods, structures and processes

.......

APPENDIX

214

1.6. ICP 5 - Implementation Details & Documents

Activities

Responsibilities

Status Check

Distinguish “Going International” and “Being International”

Market Launch Plan per country / per product group / key accounts

Create detailed plan on marketing target, strategy and activities per country

Product policy

Define scope of product range for the first, second and third year Start international product development programme in respect to selected countries

Integrated main components of product strategy such as: product features, products marking, product safety, product quality, product design, packaging design, guarantee/warranty, service, brand policy

Service policy

Include service in pre-sales, during sales and after sales activities Check call-center installation Check stocking spare parts After sales activities only via maintainance experts

Price policy

Redefine international price policy on prices, discounts, payment insurance, bank guarantee, letter of credit, INCOTERMS, cash/advance etc.

Distribution policy

Chose international distribution strategy with domestic distribution strategy in mind, but consider new channels of sales even if indiscovered areas will be involved, such as e-commerce

Communication policy

>

> > > > > > > > > > > > > >

Activities with direct impact on purchasing process (personal selling) Activities with indirect impact on purchasing process (service, task of intermediäre) Factory visit Customer education Promotion activities for sales representative References Advertising Promotion activities for the trade and retailers International exhibition TV Direct communication Internal / External PR Who will be our co-operation partner ? Issues of the future?

Distinguish between Offline and Online-Communication

Brand management

Build a corporate brand and remember: “producers make products, but consumers buy brands”

.......

APPENDIX

215

1.6. ICP 5 - Implementation Activities Select the right place

Organisation review

Details & Documents Location Greenfield investment / acquisition Time Investment People/Partner

Re-evaluate the current organisation status per country and change it if necessary

Consider organisational fit between structure, personnel, strategy, culture, environment

Total country budget

Responsibilities

Use Marketing Country Map (MCP) Total cost and benefit per country

.......

APPENDIX

216

1.6. ICP 5 - Implementation Activities

Responsibilities

Details & Documents

CHANGE MANAGEMENT Build a strategic architecture

Integrated / proactive design of internationalisation process Process-oriented organisation

Support and encourage employees with the willingness to change

Fulfilling customer requirements has first priority even in the implementation phase

Practical tools

Adjust incentive systems to sales budgets per region and country Introduce success-oriented salary depending on country ranking Introduce personnel career development per country (key - people management)

Improve communication by using internal and communication platforms in respect to Intranent/Extranet

external

Create a platform for transfer of competencies and resources, learning and experience

Conflict management

Consider unique aspects of in different countries.

When evaluating situations consider your own cultural roots

For acquisition

Implement Integration Management with an Integration Team

Learning & Planing

Confirmation and agreement on results and recommendations inside the team and the board Agreement on necessary resources

.......

APPENDIX

217

1.7. Monitoring Activities

Progress Control Meetings implementation & evaluation/leaming

Details & Documents > > > > >

Implementation plan, detailed activity list Quality of realisation Evaluation of resources & time consumed Actual cost Actual investment level Economical results > sales volume > growth rate > follow - up

Plan retrospective

A review of the past strategic activities

Deviation Analysis

Corrective actions > Don't rewrite the plan > But recheck assumptions consistently > Modify the plan with new evidence of change > Debate the frequent discontinuities that occur in every country/market

Weak-spot analysis

> > > >

Where are the bottle necks ? Describe ? Prioritise Reduce the negative effect step by step

Impact Control

> > > >

Describe main activities Assess impact Improvement of impact Expected result

Market feedback

Consider environmental change (Competitor, regulation, Consumer, technology, distribution, shareholder needs)

Personnel feedback

Consider internal change

Global mindset

Benchmarking cultural transition

Customer relation management

Develop customer relation management to create specialised knowledge and expertise on the customers per region / countries

Responsibilities

218

APPENDIX

1.7. Monitoring Activities

Details & Documents

Responsibilities

CHANGE MANAGEMENT

Test of company for total integration of global mindset

Small test programme of all people involved to get feedback of final internationalisation fitness (repeat every year) and evaluate results for space for improvement

Social capital / quality of relationship

Key features Genuine commitment to the relationship as a means of achieving mutual benefits A high level of trust Strong personal bonds

Systems and processes

Alignment of systems of resource allocation, performance measurement and reward within remit of the client Lighthouse project

Build communities of practice

.......

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2. Project Information for the Participants Kurzbeschreibung des Forschungsprojektes

Internationalisierung von mittelständischen Unternehmen - ein ganzheitlicher Beratungsansatz Problemstellung Für die meisten Branchen stellt ein Engagement auf ausländische Märkten mittlerweile keine strategische Alternative mehr dar, sondern vielmehr eine lebenswichtige Notwendigkeit, um durch die Bearbeitung internationaler Ländermärkte die Wettbewerbsfähigkeit des Unternehmens sicherzustellen.

Dennoch sind die wesentlichen Internationalisierungspotentiale in der Regel noch nicht ausgeschöpft. Der hohe Dollarkurs und der unterbewertete Euro begünstigen zwar zur Zeit alle internationalen Geschäfte, aber für einen kontinuierlichen Ausbau ist ein systematisch, strukturierter Ansatz als Basis für die Verteidigung oder den Ausbau der internationalen Position erforderlich. Adhoc Entscheidungen aus dem Tagesgeschäft heraus sind nicht unbedingt immer das richtige Mittel, um den internationalen Anforderungen von Kunden gerecht zu werden.

Die Frage, welche Strategie auf der Basis der individuellen Stärken des Unternehmens für welche Länderregionen vorteilhaft ist und wie das gesamte Unternehmen zur Durchführung einer erfolgreiche Internationalisierung seine jeweiligen Erfolgsfaktoren aus Marketing, Vertrieb, Produktion oder Unter­ nehmensführung ausrichten kann, ist bisher in Theorie und Praxis nur unzureichend beantwortet worden und soll im Rahmen dieser Arbeit untersucht werden. Die Kernfragen der Arbeit sind deshalb:

Wie kann eine geeignete Intemationalisierungsstrategie aus den individuellen Stärken des Unternehmens entwickelt werden? Welches sind die Faktoren für eine erfolgreiche Internationalisierung?

Welche flankierenden Maßnahmen sind zur Implementierung der gewählten Strategie notwendig?

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APPENDIX

Untersuchungsziel Als wesentliches Untersuchungsziel gelten folgende Hauptbereiche:

Empirische Überprüfung eines Ansatzes zur Internationalisierung für mittel­ ständische Unternehmen.

Aufdeckung und Systematisierung von Erfolgsfaktoren zur Internationalisierung. Entwicklung eines Orientierungsrahmens zur erfolgreichen und systematischen Durchführung der gewählten Internationalisierungsstrategie.

Untersuchungsgegenstand Industrieunternehmen unterschiedlicher Branche, die entweder in der Planungs­ phase zum Ausbau der internationalen Geschäfts sind oder bereits erfolgreich einen Teil der unterschiedlichen Intemationalisierungsstufen abgeschlossen haben.

Theoretischer Rahmen Den theoretischen Rahmen bilden die unterschiedlichen Ansätze zur Internatio­ nalisierung und dem internationalen Management.

Methode der Datenerhebung Zur Erhebung der Daten werden sekundärstatistische Analysen und eigene empirische Erhebungen berücksichtigt. :

Expertengespräche mit Vertretern betroffener Institutionen und Organisationen Persönliche Interviews mit einem weitgehend standardisiertem Fragebogen zur umfassenden und praxisnahen Datenerfassung.

Praktische Erfahrungen aus 8 Jahren Berufstätigkeit im internationalen Manage­ ment.

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Geheimhaltung I Anonymität Alle Informationen werden streng vertraulich behandelt.

Zeitraum der empirischen Arbeit: Juni/Juli 2000. Im Falle einer Veröffentlichung der Forschungsergebnisse oder Teilen daraus werden alle Daten völlig anonymisiert und so aggregiert, daß Rückschlüsse auf die Untemehmensherkunft ausgeschlossen sind.

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3. Interview - Guideline Interviewleitfaden

Internationalisierung von mittelständischen Unternehmen - ein ganzheitlicher Beratungsansatz -

Welche Stellenwert hat Internationalisierung in Ihrem Unternehmen und wie würden Sie die Bedeutung charakterisieren? Mit welcher Strategie bearbeiten Sie die wichtigsten Ländermärkte in Ihrem Kemsegment?

Besteht aus Sicht der zunehmenden Veränderungen der Rahmenbedingungen in den unterschiedlichen Ländermärkten die Notwendigkeit der Neuausrichtung Ihres Unternehmens?

Worauf müßte es Ihrer Meinung nach bei dieser Neugestaltung/strategischen Neuausrichtung ankommen? Was sind für Sie die wesentlichen Erfolgsfaktoren für die erfolgreiche Durch­ führung dieses Internationalisierungsvorhabens?

Würden Sie bei derartigen Projekten mit externen Berater zusammenarbeiten und welche Vorausetzungen müßten Berater mitbringen ?

Entspricht das vorgelegte Phasenmodell den Anforderungen von mittel­ ständischen Unternehmen ? Halten Sie diese Vorgehensweise im Vergleich zu Ihrem Planungsmodell für sinnvoll und durchführbar? Welche Vor- und Nachteile können Sie aus dem dargestellten Ansatz feststellen?

Welche Wirkung würde dieses Modell innerhalb Ihrer Organisation und im Markt erzielen?

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4. Marketing strategy per country

Länderplanung 2001 Land:

Zielsetzungen

StrategieSchwerpunkt:

1. 2. 3. Ziel-Kosten

Zeitplan

Ziel-Kosten

Zeitplan

Marketing

Großhandel

Andere (Installateure, Architekten, Endverbraucher)

Schulungen

Werks-besuche Handwerkeabende

MusterbeschafTung Zwischen­ summe Kommunikation Print

Preisliste Messe DirectCom

Anzeigen VKF PR

Incentive Zwischen­ summe Total

Anmerkungen:

Zielgruppe (Großhändler, Installatuere, Architekten, Endverbraucher)