Rapid internationalisation and performance: Is the sky the limit?

Dr Raquel Garcia-Garcia
Guest blogger: Dr Raquel García-García is lecturer in strategic management at The Open University Business School (OUBS). Dr Raquel García-García is leading the Business Network Breakfast Briefing on 12 September 2017. For more information, visit the OUBS website.

To speed or not to speed is the looming question in today’s time-competitive international markets

After studying the outcomes of foreign expansion for several years now, the speed at which companies internationalise their operations and the returns they obtain from doing so is one of the topics that interests me most. Time is key in the current business world, but can multinationals keep up the pace?

Multinationals have traditionally expanded abroad slowly and gradually, moving from neighbouring countries to more distant ones. IThis internationalisation model prevailed in the international economic landscape during much of the 20th century. However, in recent years some multinationals have managed to defy this traditional pattern by successfully expanding abroad at a dizzying speed.

Professors Mauro Guillén and Esteban García-Canal provide various examples of this latter type of company in their book Emerging Markets Rule. Specifically, they discuss the cases of BYD (China), América Móvil (Mexico), and Ocimum Biosolutions (India). Wang Chuanfu founded rechargeable battery manufacturer BYD in 1995. By 2008 the company was already the largest manufacturer of nickel-cadmium batteries, selling more than 500 million batteries a year around the world. Tapping into its technological expertise, the Chinese multinational also made a triumphant incursion into manufacturing electric vehicles. Another example of a company that has taken the international markets by storm is América Móvil. Established in 2000, telecommunications giant América Móvil turned owner Carlos Slim into one of the wealthiest people alive (according to Forbes magazine). The company has operations in 25 countries and is considered to be the leading provider of wireless services in Latin America. Around the same time Indian entrepreneur Anu Acharya set up Ocimum Biosolutions, which expanded relentlessly to become one of the indisputable leaders of the bio-IT industry. As of 2017 the multinational has ventured into the US, Europe, and the Asia Pacific region.

However, multinational companies coming from emerging markets such as China, Mexico or India are not the only ones that can reap the benefits of a rapid foreign expansion. In a recent study co-authored by myself and professors Esteban García-Canal and Mauro Guillén (Journal of World Business, 2017) we found that firms from the ‘old’ Europe can also keep up with new trends in internationalisation and profit from speeding their internationalisation process, thus providing some hope to the managers of established multinationals from developed economies whose global leadership has been challenged by newcomers to the international scene.

Relying on a sample of Spanish listed firms, our results show that the speed of internationalisation has a different effect on performance depending on the timespan considered. Whereas it fails to have a significant effect in the short term – that is, on accounting measures – it displays an inverted U-shaped pattern in the long term – namely, in the capital markets. This implies that managers should pay attention to both short- and long-term measures of performance to have more accurate estimations of the effect of a rapid internationalisation.

The U-shaped pattern found between speed of internationalisation and long-term performance highlights that some multinationals can actually benefit from a high speed of internationalisation. Nonetheless, it also warns managers that they need to be aware that there is limit to the positive relationship between the multinationals’ speed of internationalisation and their long-term performance. In other words, managers cannot speed up the foreign expansion of their firms ad infinitum without eventually experiencing a decline in their value in capital markets.

Additionally, the results of this study account for knowledge-based factors that can support or hinder a successful rapid foreign expansion, which managers should take into consideration when making decisions about the speed of internationalisation at their firms. Whereas technological knowledge might be helpful at first to boost the benefits of a rapid internationalisation, it may become detrimental beyond a certain speed. This is ultimately explained by the need of multinationals to adapt their technology to the characteristics of the host countries where they operate. Technology adaptation to foreign markets is hard and time-consuming. Attempting to do so in a short period of time is likely to lead to higher costs and failures.

The diversity of a multinational’s international experience also plays a pivotal role in the relationship between speed of internationalisation and long-term performance. In this regard, even though the prior exposure to diverse institutional contexts may limit the learning opportunities when speeding up the internationalisation, it also helps managers decide more rapidly the multinationals’ course of action, which eventually allows them to outweigh the setbacks of a rapid international expansion.

Time is precious, and even more so in the international business scene. Speeding up the internationalisation process can be a good idea for some companies. However, managers must be cautious before expanding abroad in a rapid fashion and assess whether they have the necessary tools to succeed in doing so beforehand.

This article was originally published by HR Magazine. Read the original article.

Competitive strategies for business growth

Thomas Lawton, Professor of Strategy and International Management

Thomas Lawton, Professor of Strategy and International Management

I joined the OU this past autumn and one of my first interactions with new colleagues and with OUBS alumni was at the Business Perspectives Innovation masterclass in London.  I could not have been more impressed by the professionalism of colleagues and the insights of guest speakers as well as the interest and enthusiasm of alumni, current students and other friends of the OU. Therefore, when asked to lead the next event on strategy, I realised that I would have a tough act to follow. For me, the rule of thumb when following on from a successful predecessor is to pay due respect but seek to suitably differentiate. This is what we have sought to do when designing our Competitive Strategies for Business Growth masterclass.

The intent behind this event in Manchester next month is to again reach out to our graduates, students and partners, engaging them in a dialogue around business and management ideas and improvement. It is aimed at individuals and organisations keen to learn more about strategy techniques and best practices. The intent is to help those with strategic responsibilities in the design and delivery of strategy. The event is also intended to challenge the economic doom and gloom that rests like a black cloud over the UK and beyond, and to discuss ways the world’s economies can kick-start growth.

I encourage you to sign on, turn up and get stuck in on the day. Through this blog forum, I also suggest you start to mull over and debate three questions in advance of 7 February. These are:

  • Do you need a strategy to build and sustain a successful business?
  • What will it take to be a successful strategic manager in 2013?
  • How does strategy process and practice need to change and evolve to meet the competitive challenges of the future?

I look forward to meeting you in Manchester.

 Thomas C. Lawton

Professor of Strategy and International Management

Visit our website to book your place to the masterclass.

Welcome to the world of innovation!

Professor James Fleck

James Fleck, Professor of Innovation Dynamics

“Innovation has certainly moved to centre stage recently. It seems that almost everyone now has a view, and at times anything goes. But there is a very solid foundation of excellent theoretical and empirical analysis that often gets lost in the current fashionable buzz around the topic.

This goes back to Schumpeter (who popularised the term entrepreneur and gave it its modern meaning) and Solow, who both demonstrated the crucial contribution that innovation makes to economic growth. More recent contributors include Abernathy and Utterback, who identified the product-process innovation lifecycle; von Hippel, who has explored the sources of innovation; Freeman, who examined the policy aspects of innovation and created the standard definitions now used to measure innovation around the world; Pavitt, who examined the role of intellectual property rights such as patents in innovation, and Christensen, who has articulated the notion of  ‘disruptive innovation.’

Studies range from the careful empirical to the deeply theoretical and have moved our understanding on apace. However, the challenge remains of communicating these insights. This blog series seeks to do just that – bring researchers and practitioners together to discuss, share and debate this fascinating topic, which is crucially important for building a better world.”