Globalization of Markets : - Some Trends and Implications for Norwegian Industry Arild Aspelund, PhD

Senter for entreprenørskap – Truls Erikson Outline Why do companies go international? –a natural point of departure for our journey Important trends in the global economy Implications for the population of international firms and organizations –International New Ventures General challenges for industry –Special challenges for INVs Implications for how we conceptualize international business

Senter for entreprenørskap – Truls Erikson Why do firms go international? Expand sales –Company sales depend on the customers’ interest in their products and services and the customers’ willingness and ability to pay for them, hence the world offers greater potential volumes than any given nation –Could be a necessity to gain critical market mass –Requires that products and services are movable across international borders for reasonable costs –However, this does not mean that international companies are necessarily large 70 % of US exporters are SMEs 99 % of the Norwegian…

Senter for entreprenørskap – Truls Erikson Why do firms go international? Acquire resources –Manufacturers seek out products, services and components produced in foreign countries –Also look for capital, technologies, information and opportunities for arbitrage –The major motivation for doing this is to cut costs But there might also be other benefits, especially in terms of market expansion –One of the major trends within international business today is offshoring of manufacturing capabilities A well-known strategy among MNEs, now also popular among SMEs In 2005 alone, 25 % of Norwegian manufacturers replaced some domestic suppliers with foreign (NHO, 2005) In the mechanic industry, the numbers is as high as 45 %

Senter for entreprenørskap – Truls Erikson Why do firms go international? Minimize risk –To minimize variations in sales and profits firms often use international markets to take advantage of business cycle differences among countries –By obtaining the same products and components from different countries firms might release themselves from business risks associated business cycles –Internationalization might also be a defensive strategy to fight competitors abroad rather than in your home market –Form a business cycle perspective it also makes sense to internationalize when your domestic market no longer offers any reasonable venues for further growth –Specific examples of the latter from Norwegian industry are… Statoil (now StatoilHydro) Telenor

Senter for entreprenørskap – Truls Erikson Drivers and recent economic trends Increased Demand for Specialized Goods –Increased Welfare –Shifts Competitive Advantages from Large to Smaller Manufacturing Units –Growing Numbers and Size of International Niche Markets Globalization of markets –Free trade areas and international trade agreements –Lower export barriers Globalization of Technology –Joint Research and Development Platforms and International Technology Transfers –New and Innovative Approaches Available for Small Firms –Process Technology Allowing Economy of Sophisticated Goods in Small Batches

Senter for entreprenørskap – Truls Erikson Drivers and recent economic trends Increased Supply of Necessary Resources for Internationalization –Managerial Talent –Risk Capital –International Business Partners Information Technology –Higher Availability and Lower Costs of Information –Coordination of Small Geographically Disperse Organizations International Transportation Systems

Senter for entreprenørskap – Truls Erikson What are the results…? First of all, increased opportunities for international business, as all traditional cost barriers are significantly lowered or even removed entirely, lead more firms to go international An era of globalization –Meaning international trade increase more than trade in general Great opportunities for explorative market activities as well as more efficient international value chain management Incumbents face increased international competition on domestic markets –Very hard to protect markets with traditionally only domestic actors

Senter for entreprenørskap – Truls Erikson What are the results…? “The Reemergence of the small firm” The emergence of “International New Ventures” – a new generation of Norwegian exporters –Smaller and younger –International orientation –Internationalize far more rapidly –Global reach –Competes on Technology rather than Market resources A total shift in the profile of Norwegian international firms

Senter for entreprenørskap – Truls Erikson - Typology of Small Norwegian International Firms (2005) Share of Foreign Sales Time to Internationalization 100% Born Global 40%* Early International 45%* Late International 12%* Late Global 2%*

Senter for entreprenørskap – Truls Erikson International New Ventures – The New Industry? International New Ventures – the intersection between three areas of priority in economic development –Entrepreneurship – the establishment of new firms –Innovation – the introduction of new ways –Internationalization – the proliferation of innovations in new markets A relatively new organization form that has become commonplace in most open economies, especially economies that are relatively small in size

Senter for entreprenørskap – Truls Erikson Special Challenges for INVs New challenges for new and small companies –double hurdles of firm formation International marketing under strict resource limitations Demands new types of competence; resource management in international partnerships and negotiation skills Establish international market channels that are… –Effective and efficient –Reliable –Sustainable –Affordable New theoretical perspectives of firm internationalization?

Senter for entreprenørskap – Truls Erikson Summary We have found three general motivations for firms to go international –Expand sales –Acquire resources –Minimize risk We have also discussed some important trends related to international demand, trade policy, technology and infrastructure that has lead us into an era of globalization We have discussed some of the implications of these trends for firms in general and we have highlighted a special phenomenon related to INVs that have received special attention