We're talking about internationalization strategy.

And remember internationalization is simply the potential for a firm or

organization to enter a foreign market and compete there.

And also the inverse, the potential for

foreign competitors to enter our market and compete with us.

So generally speaking,

internationalization can occur one of several ways.

First of all, it might simply occur and unfold through international trade.

This is simply the exporting of one's goods or

services to some sort of foreign customer base in another country.

Alternatively, internationalization can occur through what we describe as foreign,

direct investment.

And this is a little more substantial setting up of operations, either through

acquisition or by starting up some operations in that foreign location.

So when we think about internationalization as occurring in

one of those two modes, generally.

We can start to think about the way different industries

can differ from one another.

And essentially we set up a two-by-two like this, and

we can think of at least four different generalized types of

industries when it comes to international strategy.

So first of all, let's start in that lower left hand corner with

what I've described as sheltered industries.

These are industries that are as the title implies

they're essentially sheltered from a lot of foreign competition.

It's because there's either a high degree of

national differentiation in the product or

service, or because of the nature of the product or service or the market segment.

It's just something that isn't able to be transported across borders.

It's something that's highly specialized to that domestic location.

And so here we see that in these kinds of industries,

we see that it's generally local operators that tend to dominate these industries.

So we can think of things like you know, railroads.

You can't really operate in places where you don't have track.

Right? Or we might think of hairdressing and

cosmetic application.

Or, milk and dairy products.

These are products that don't travel very well, over long distances.

These are the kinds of industries we might describe as sheltered industries.

So let's move up above sheltered industries

to high on international trade and low on foreign direct investment.

These are industries I would describe as international industries or

trading industries.

So, here's industries where you've got a product that potentially travels well.

It's easy to ship all around the world.

It might have not a high degree of national differentiation.

So customers in one country might be just as interested in our product as

customers in another country and it might also be something

that potentially benefits from a high degree of economies of scale.

So if we can create a specialized product or service we can manufacture and

create that thing in one place.

We can realize some scale economy.

So, here we would think of industries like aerospace,

military hardware, even agriculture.

I mean, think about that.

Not all climates around the globe are equally suited to growing corn, or

growing wheat, or growing some other type of crop, and so you know,

what we tend to see is that in those places in the world where it's

beneficial to grow corn because of the local climate, that's where we grow it.

And it turns out that it travels pretty well, we can ship it all around the world.

So those are what I would describe as international industries, or

trading industries.

So then, down in the lower right,

we would have what I would describe as multi domestic industries.

Here's industries where perhaps the product or

service does have some sort of high degree of national differentiation.

So a product that sells well in Russia might not sell

well exactly the same way in Venezuela or in Canada, right?

And so here these are industries where we tend to see a lot of

foreign direct investment and we don't see as much importing and exporting,

so again, think of industries here where there's a high degree of national

differentiation and the things potentially don't travel well.

So, you know, think of industries like packaged goods, think of frozen dinners,

for instance, in the grocery store.

So frozen dinners that sell well in Russia might not be the same

frozen dinners that sell well in South America, for example.

We could also think of service industries are highly

categorized in this space you know hotels and consulting.

You know these are things that you know need to have kind of a local presence and

so that's what we see.

We might see multi national corporations pursuing these industries but

we see them doing it through foreign direct investment and

starting up or acquiring operations in those locations.

Finally in the upper right we see what I would describe as global industries

and these are industries that are characterized by a high degree of foreign

direct investment and also a high degree of international trade.

So think of automobiles or semiconductors or oil exploration and

extraction and refining.

These are industries where there can be an aspect of it that involves international

trade but there's also some benefit to having localized operations there for

manufacturing or oil extraction or what have you.

So the point here is that industries can differ and

we tend to see them in different types of industries.

We see different modes of internationalization,

either through international trade or through foreign direct investment.

Now that's not to say that all industries are sort of strictly defined.

One of the things that we have to think about with internationalization is

the potential for what I would describe, as inter-industry competition.

And, that's when you have sort of,

spillover effects from previously, unrelated ideas, or businesses.

And, you know, we tend to see that as globalization has risen,

as internationalization strategies have become more common for firms.

They can operating in a new market and be exposed to something that allows them to

refine their own product or service, or even enter a new market segment.

So think about examples of firms that operate in aerospace and

defense moving into the electronics space.

So BAE Systems would be an example of a company that's done this.

They make guided missiles, and they also make office machinery, right?

And they started in the defense space, but turns out that some of those capabilities

and the lessons they learned from manufacturing guided missiles,

some of that translates over into the office electronics space, and so

now they compete there.

We can also think of the inverse, just to stick with that example.

Are there firms that move from household appliances to aerospace and defense?

Well that seems like that might be kind of a stretch, but

iRobot is an example of a company that has done exactly that.

They started by making vacuums, and now they're competing in the unmanned,

ground vehicle platforms for the military, so here's a couple of companies which

are originally in totally different market segments, don't compete directly with each

other, and now they're sort of in a pretty close industry competitive space.

And that's something that can also happen through internationalization as well.

Patterns of Internationalization

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