Factors Affecting Internationalization of Bicycle Company
The need for internationalization of companies began when firms saw the necessity to increase their export efforts due to the declining domestic consumptions (Andersen, 1993, p.209; Athukorala, 1995, p.2). However, their continued experience on the international markets exposed several challenges that impacted on their business. Such factors like globalization, complexities in managements, cultural variances, etc were some of the problems that emerged prominent (Gallagher, 1988).
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Globalization affects internationalization of any form of business. The bicycle companies specifically, have had it rough in their attempt to break into the international markets. Some of the reasons for these difficulties are highlighted below:
Competition from Emerging economies
Since 1980s, quite a large number of developing countries like China, India, Brazil and Korea broke into the business of manufacturing, posing unprecedented challenge to the established economies like Britain, US, Germany, and France (Hill, 1997; Kim & Hwang, 1992). This is considering the fact that bicycle manufacturing does not require a very high intensive manufacturing units or equipments to establish. These emerging nations have succeeded in harnessing their labour intensive abundance to provide them with a competitive advantage in labour intensive manufactures (Miller, 2006). Similar trend has occurred to other developing countries like Bangladesh, Hungary, Sri Lanka, Philippines and many others. All of theses nations have industries manufacturing bicycles. This shift could be attributed to the cuts in tariff on imported goods from developed nations. Again many of these developing and emerging world economies have liberalized their markets for the foreign investments, hence increasing their technological know-how to increase the competition. This kind of globalization has changed the business environment for the industrialized nations’ bicycle manufacturing companies, finding it difficult to venture into these lucrative markets (MacCarthy, 2009). This increased manufacturing effort from the developing and emerging markets thus contributed to the protectionist policies that barred entry of new companies.
The Capital Flows
The flow of capital is also likely to impact on the bicycle business. The globalization effect has meant that there is an increased trend of capital flow, which has subsequently increased the wages for workers (Bartlett & Ghoshal, 1991; Kim & Hwang, 1992). With the competition and price wars imminent, the profitability of bicycle business has remained at the edge, creating dilemma among bicycle manufacturers when it comes to a decision to venture into the international market.
The trend in which many bicycle manufacturing companies perform the manufacturing in various nations has also changed the business environment for many manufacturers. For example, many companies resort to outsourcing of their services to other firms in the country of business. This has been attributed to the increasingly cheap and faster means of transport and communication, such as internet usage (Cantwell, 1999).
Managing a multinational corporation
A company venturing into business as a multinational corporation has a greater challenge than can be anticipated. The concept of internationalization theory holds that economic transactions made within the multinational corporation can be done in a cheaper way that is possible in an open market, and this subsequently explain the growth and geographical reach of a firm (Bartlett & Ghoshal, 1991). Managing a multinational corporation means managing different cultures together, with the help of advanced technology.
Technological ability of a company will be a huge determinant of its ability to efficiently process the inner transactions of Multinational Corporation, thus changing its underlying structure and the general cost base (Edward, 2006, p.67; Franko, 1986, p.221). For example, to have head office of a multinational organization to monitor all its subsidiaries activities including capital flow; it will need assistance from a well structured information technology network to do that.
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Managing a multinational organization means having things done through people of varied cultural backgrounds with different cultural beliefs (Gallagher, 1988; John, Ietto-Gillies, Cox, et al., 1997). Understanding this group of people means understanding their background. It is therefore logical to conclude that for a bicycle manufacturing company, understanding the cycling culture as well as the management culture of a certain people of a nation is one step to success. Such issues as: power distance- the extent to which the powerful and less powerful integrate in the society is very important (Agthe, 2009). Other questions that the managers need to ask are: Is the society more individualistic or collective in nature? Is the use of bicycle approved across gender? Is the society more tolerant to uncertainties and how does it cope with it? (Agarwal & Ramaswami, 1992).
Internationalization of Falcon Cycles company
Brief Company Profile
Falcon Cycles’ humble beginning in 1880 from a mere repair of bicycles has been historic. After the establishment, the company changed its initial bicycle repair trade to adoption of the bicycle manufacturing business (Falcon, 2009). Its expansion was so mercurial that by beginning of 20th century, the company had well over 400 employees, while exporting its products to over 3 continents of Asia, Africa and Australia (Falcon, 2009). Tandem Group of companies acquired Falcon Cycles in 1995 and currently the company sells 300,000 bicycles annually (Falcon, 2009)
“Porter’s Diamond” framework (Porter, 1998) is basically consisting of five determinants: (i) Threat from new entrants, (ii) Competitive rivalry (iii) Threat of substitutes, (iv) Supplier power, and (v) buyer power. However, the scope of this paper will cover only the first three of the framework.
Threat from new entrants
United States: In the US, The threat of a new entry of new competitors into the US market is real; an issue the management and stakeholders of Falcon comapny must observe and give a critical consideration. This is largely because the US market has bee known to offer relatively better opportunies for foreign investors (Edward, 2006). If such a scenerio occurs, it is likely to decrease the profitability of bicycle business and even create price wars. Porter’s framework looks at this aspect in detail and Falcon Company can respond to this in a number of ways. Porter considered the threat of entry of new competitors as a force which influences the company in achieving its goal (Porter 1998). There exists perfect competition in the bicycle producing companies including the ones from within United States. The potential new entrants like the Gazelle from Netherlands may be instigated by the increased number of eco-conscious consumers, desire to lead healthy lifestyle by the US consumers and the skyrocketing gas price for car users (Kahney, 2008). This is also important because without the entry of firms in the market there will not exist competition which is very healthy in the business circles. To get into the market they also have to consider other factors such as economies of product differences, brand equity, capital requirements, absolute cost advantages, learning curve advantages, expected retaliation by incumbents and government policies (John, et al., 1997).
India: The recent boom in Bicycle business in India has triggered a number of foreign companies to venture into Indian market (Miller, 2006). In the recent past, Cannondale bicycle company from US entered the Indian market, following the initial entry of Trek (MacCarthy, 2009). This means that more companies are likely to venture into the Indian massive market. To get access to Indian market, it is important for Falcon to note the nature of this market, as India is treated as amerging economy with the a strong demand for high- end product.
United States: The intensity of competitive rivalry is also an important force to be considered in the Company so that it achieves its profit levels. One peculiar thing about US business environment is that new companies would consider a strategy to enter the market through an already established entity by either acquisition or new establishment (Edward, 2006). This is because of the belief that it reduces the liablilities associated with father company, guided by the doctrine of limited liability (Edward, 2006, p.1). Again, Falcon for example needs to consider issues like the number of competitors in the market, the level of advertising particular competitors have done, the adversity of its competitors and the sustainable competitive advantage it has gained through improvisation (Edward, 2006). Through this the company will be able to meet the rivalry levels of its competitors.
India: As stated earlier, Indian bicycle business has been booming in the recent past. This has triggered internationally trecognized brands like Canondale and Trek to venture into this lucrative market. Other than the two, India has some other strong local brands like Hero Cycles (Miller, 2006, p.231). Miller (2006) observes that the number of competitors are even likely to increase more as India is seen as a cycling nation where bicycles are not seen as only ideal for leisure but as a basic necesity for various usage. Furthermore, india’s business culture of cooperations, mergers and acquisistions are well accepted growth strategies that are adopted by companies intending to achieve economies of scale, increase market share, diversify product range and explore new markets (Miller, 2006). Other considerations that stimulate mergers and acquisistions include backward/ forward integration of operations, access to tax advantages, managerail talents, additional financing, research and developemnt capabilities, and ability to compete favorably (Miller, 2006, p.125). this could explain cooperation between Cannondale and TI Cycles when they entered the Indian market. Falcon could apply a similar strategy with more considerations like the high-product nature of the Indian market and the management strategies in the new market.
Threat of substitutes
United Sates: The first force which influences the company’s goals according to Porter is the existence of substitute products (Potter, 1998). Porter implies that the availability of substitute products causes people to switch to the alternatives in response to factors like increase in price of the other product. American cycling culture has been enormous, especially for recreational activities. Recently however due to the citizens increased consciousness for global climatic change and the concerns over obesity and overweight related illnesses, cycling as a means of transport has emerged (Kahney, 2008). Such trends are likely to generate new products from other competitors. For instance, the recent surge in demand for electric bicycles from e-bike companies like Schwinn, which the country’s 3rd generation prefers is a threat to products of Falcon (Kahney, 2008).
Falcon Company needs to be careful in its attempt to enter US market because the rise of product diversification from other companies can be a very big threat because it provides substitute products that may be superior. The Company over the years has been doing research about the propensity of substitutes, the buying switching costs and the perceived levels of product differentiation thus making it outstand in the market (Falcon, 2009). It will be essential if the company adopt a more strategic approach to the US market, especially the young generation’s preference to increase the long term success opportunities.
India: Falcon has history of exporting bicycles to India (Falcon, 2009). However, its low market target market is drastically changing. The new Indian generation are high market consumers who would mostly overlook prices (Miller, 2006). This trend is posing a great challenge as it means the market demands high quality product, calling for new technology. Some established companies in the Indian markets already produce such products to target the specified market segment. Such a product is likely to pose a threat to the more or less conservative products of Falcon, hence the need to change with time if success is to be realized in this highly competitive market. Falcon therefore needs to increase its innovativeness and study this market trend more keenly in order to have a successfull market entry strategy.
Critically, the market condition in both India and United States are very international in nature, considering the open business environments offered by the respective governments. However, it must be noted that the two markets are completely varied in terms of business culture even though they may be sharing similar nature of demand. It must be observed that a nation’s competitive advantage is also influenced by the government actions and regulations towards business ventures such as taxation as well as by chance events (Porter, 1998). Political environment, socio-cultural changes or technological advancements also have an impact on national factor conditions (Porter, 1998). For Falcon Cycles, it is important that the US and Indian governments maintains a constantly supportive environment for the bicycle industry to provide them with incentives more innovativeness to adjust to the changing market trends.
It is logical to conclude that bicycle business environment for the two countries are still promising big. While the US has a familiar business culture that is western in nature, that is, the demand for bicycle is mostly for leisure, India on the other hand has a market that uses bicycle for a variety of purposes, including businesses and commuting to work. Even though, India is taking global direction especially with the current 3rd generation (Miller, 2006), it is not possible to assume the other segment of the market that still use bicycles as a basic necessity rather than leisure. The culture of cycling in India is historical and the increased traffic issue, environmental concerns and good topography is likely to spur bicycle business even further. Furthermore, India’s cultural orientation and religion are important culture that should be considered by any company aspiring to succeed. Generally, the two markets looks lucrative for Falcon considering globalization and increased awareness on environmental issues caused by motoring products, emphasized by the soaring gas prices.
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