An increasingly important aspect of business strategy is the way that organizations conduct their business across borders. So a firm might have manufacturing operations in one country, say. And they might have sales or other types of operations in another country. And so it's important to consider what types of things we ought to think about when we're considering some type of internationalization strategy. And this can be a really important question for firms to consider. So let's start with an example. IKEA is a Swedish company, and they are one of the world's largest furniture manufacturers and retailers. But they didn't start that way. There was a company that started very small, as a localized business in Sweden. Where the entrepreneur saw an opportunity to build his sort of mail order catalog business into a business that focused on, sort of, low cost and cleanly designed furniture in Scandinavia. But at this point, IKEA is a huge multinational company they have somewhere around 30 billion Euros in revenue that translates into 3.5 billion Euros in profits. They operate over 300 stores in 26 countries around the world. And so the question is what types of things do you need to think about when you're trying to get from that point of being that small start up to achieve the status of a company that does business in all types of countries all around the globe. And of course IKEA is not the only company that's seen a rise in it's internationalization. We've seen what's referred to as globalization has been on the rise for sometime. I mean here we can see in this visual just the rise of exporting as driven by manufacturers and we can see that it's just dramatically increased since 1980 across a variety of industries. So within that context it's no surprise that we see a rise in firms attempting some type of internationalization strategy to take advantage of that rise in globalization. So what do we mean by internationalization as we're thinking about it as a component of business strategy? Well it's quite simple, internationalization refers to the potential for a firm to enter a foreign market. It also means the inverse of that. The converse, the reverse. How easy is it for a foreign competitor to enter a particular firm's domestic market, right? This going global can be difficult. But it can be rewarding. So there's tremendous opportunities and there's also tremendous risks involved in taking that step in an organizational strategy. The question is how easy or how difficult is it to implement, to pursue internationalization strategy? Well Thomas Freedman, a New York Time's columnist and a Pulitzer prize winner, not long ago sort of declared that the world had just become flat because of the rise in global competition and intercon activity, and technology. It was easier than ever for firms of all sizes in all industries to compete on a global scale. And so that certainly seems to be true. We see that in the rise of globalization. On the other hand, there are some commentors who have more recently have sort of suggested that we might want to pursue a globalization strategy with some caution. That in fact, when you look closer, although the world appears flat, there can be lumps. There can be difficulties that arise with sort of the localized nature of a particular foreign market that one might be trying to enter. So one could imagine a large multi-national like McDonald's here is operating a restaurant in Osaka, Japan. How easy is it for McDonald's to attempt to enter a market like Japan? I think it's relatively easy. I think Tom Friedman would say the world has become flatter and it's made it easier for firms to expand across borders. But a different question how successful is that particular restaurant in Osaka, Japan. And that might depend on what's on the menu? And what sorts of localize criteria and sort of factors that need to be considered in order to operate that business successfully locally. So this sort of illustrate I think a couple of key ideas that is sort of intention when we're trying to consider internationalization as part of an organization strategy. On one hand, we might think of global integration and this is the opportunity for the standardization of the production of goods or the provision of services and we might do that for the entire globe but we might do it more efficiently as we sort of centralize our operations or standardize our products and manufacture them or provide them in a more efficient way. On the other hand we have this idea of local responsiveness and this is the extent to which products or services or businesses would require adaptation at that local level. How important are those local adaptations, right? And what we see when we think about these two ideas that are sort of in tension with one another is that we can see that different industries benefit from one or the other. I mean, certain industries place a premium on global integration, so when we think about things like jet engines or consumer electronics or automobiles. There's a lot of benefits from globally integrating across the world, right? On the other hand with local responsiveness that can come into play for different types of industries especially service industries where its harder to globalize or standardize something across the whole world. There's a premium placed on local responsiveness. So you might think of service industries like, say funeral parlors or retail banking. These are things that are hard to standardize across the globe and they require a high degree of local responsiveness. So one thing is, that's an important thing to consider as you're analyzing and trying to understand different industries. This is another factor to consider when you're trying to analyze the competitiveness of a particular industry. Remember our five forces? Here's another thing we might add to the mix to think about is the imperative for either local responsiveness or the efficiencies that might arise from global integration. As these things are intention, we can go back to our original example of IKEA, and as IKEA initially grew, their internationalization strategy was quite simple. They would identify a market where I think there was potential for high revenue growth. They'd locate and purchase land on the outskirts of the major city. They'd build the store and they would sell these highly standardized products. So as they initially grew throughout Scandinavia, for example, they found that the market for those Scandinavian designed furniture items was relatively predictable. Another key feature of IKEA is they have a very particular approach to their management style. It's known as the IKEA way. It's a very flat hierarchical structure. There isn't a lot of formality. There's sort of very pragmatic sort of confrontational decision making that can take place, and that's been very successful for them. But here's what's interesting. As IKEA has expanded further and further away from home, what they found is, that there are challenges to both the products they offer, and even the very business model they have in terms of managing their employees. So, it turns out, for examples, that the dimensions of a standard are different in different countries. So they can't just offer the size of bed that works in Sweden that might not work in Japan, or it might not work in North America, right? And they also experience some challenges to the way they manage and operate the business as they've expanded into different countries, say, elsewhere in Europe, in Western Europe, in Germany, or in France. They experience that the employees there tended to expect different types of norms around the way that they were managed by their bosses and that sort of thing. So IKEA's learned a lot through those expansion efforts and they've had to adapt, and that's what it means as we think about internationalization strategy.
