Consideration of capabilities required to internationalise and trade off that may emerge while considering different modes of entry

This study explores the capabilities required for internationalisation and the trade-offs that may emerge while considering different modes of entry. It focuses on Sainsbury's entry into China and the US using the CAGE framework.

Individual Assessment
IB9S10 International
Business

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
Consideration of capabilities required to internationalise and trade off that may emerge while
considering different modes of entry......................................................................................1
Conclusion.......................................................................................................................................5
REFERENCES................................................................................................................................8

INTRODUCTION
International business can be defined as trade and conducting business activities of services,
technology, goods and capital across national borders (Hamilton and Webster, 2018). It is being
mainly done by companies who want to expand their business and have financial stability. This
present study is based on Sainsbury’s which is the largest chain of supermarkets and wants to
enter in new country for business expansion and for that it has selected China and US as it
mainly serves in the UK and for being in the competition it takes help of CAGE for comparing
countries.
This study is going to show importance of analysing and comparing countries by making use
of CAGE framework for selecting the best one for expansion of business. Different countries
have different ways of performance, cultural, administration, geographical and economic
distances which can affect performance of the company. So, by making use of CAGE framework
company make differences countries and also select the best mode of market entry among all like
direct exporting, licensing, franchising and others. Further, it will also show advantages and
disadvantages of each market entry mode and by making suitability of each mode with country
in which company wants to enter; the best decision is being taken which help them out in
successful business expansion and development.
MAIN BODY
Consideration of capabilities required to internationalise and trade off that may emerge while
considering different modes of entry
Internationalization refers a process of making something international and in the context of
business term it can be said that a procedure by which companies expand their business in
different countries by trading their products, services, technologies and knowledge across
national borders is known as internationalization (De Wit, 2017). This process starts with
planning in which company decide market entry mode via which it can enter in the selected
country. Country selection is also one of the main task for which company required detailed
analysis on some basis like economic, cultural, administration and economic distances and
differences on these basis can be done by CAGE framework. So, it can be said that analysing of
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countries play an important role as it allows companies in selecting the best and appropriate
country in which it can make it business expansion and development successful.
After selecting country, company require selecting mode of market entry via which it can
enter in the market like franchising, direct exporting, licensing and others. For better decision of
market entry also company requires detailed analysis and this selection of market entry also
depend upon the selected country because regulations, laws, tax rate all varies country to
country. So, by evaluating advantages and disadvantages of each market entry along with
suitability with Country Company can make better decision and make internationalization
successful.
There are different countries which are good for business expansion for retailers and Sainsbury’
has selected China and Poland as well-known competitors Tesco operates in both countries. So,
for being in the competition, attracting customers to the great extent and for competing with
Tesco and other retailers, Sainsbury’s require comparing these both countries for taking the best
decision of entering. CAGE distance framework is an effective tool which allows companies to
uncover important differences between various countries which company requires taking into
account while deciding on their best strategy of entering in the market (Chen and et.al., 2018).
This framework can allow Sainsbury’s in comparing their selected countries on the basis of
cultural, administration, geographical and economical distances. By evaluating and making
differences on these entire basis it can know working methods, economic condition and
preferences of people in retail industry.
Cultural: In the context of china in cultural perspectives it can be said that there is a linguistic
and ethnic homogeneity and Diaspora. Higher collectively is other main advantage and cultural
distance. It is also important for Sainsbury’s to identify some factors in regards to food and other
products which it is going to sell in this country so, in this regard it is found that food products
matter to cultural identity which means company require selling products as per suitability of
China culture.
In the regards to Poland it is found that culture of this country is a higher context because
it is connected with its history as how ancients fought for their own identity and occupation. As
compare to China and with the help of Hofstede’s cultural dimension it is found that power
distance of this country is middle, there is a individualism, masculinity preferred, high level of
uncertainty avoidance, short term orientation and restrictiveness (Cultural Differences between
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China and Poland, 2017). Overall it can be said that people of both countries have same
perceptions regarding importance of family and thinking about business expansion but roles of
man and woman are quite different. Polish is the main language but the second most used
language in this country is English so, it can be said that Workers of Sainsbury’s can interact
with people talking in English.
Administration: In the administration for business perspectives it can be said that as compare to
others there is a ease of doing business and it is enclave. It is also identified that China has
effective relationship with Germany as a partnership which means it is increasing competition
for German firms. So, it can be said that if Sainsbury’s think about entering in this country then it
can have critical impacts as German firms are putting pressure to innovate products due to
increased competition and can trade in German firms because of strong relationship.
In the context of technology which is the main key of business success it is identified that
in Poland access rate of people to internet is more than China and it is beneficial for Sainsbury
as it can focus on digitalization. Access to internet rate in Poland is around 73.3% and in China it
is around 53.2% (Quality of Life Comparison between China and Poland, 2019). Due to legacy
of a wide spread neglect, reglementation and shortage, retail industry is the fastest changing
sector of the Polish and if Sainsbury’s enter in this country then it will have to change its
strategies because of changing nature of this industry. It can increase its cost and time as well.
Geographical: In this context and area it can be said that China is closer to US West Coast.
Infrastructure of this country is also good and also superior in ports. In addition, it is also found
that it adopts East Asian production methods. Different time Zone can also be challenging for
Sainsbury’s but still can manage operations. China is 31 times bigger than Poland. Currency is
also more than Poland currency.
If we compare life expectancy then it can be said that life expectancy for men in Poland
is same as China and it is 74 years but for women it is higher than China. Women life expectancy
in Poland is 82 and in China it is 78 years so, it can be said that for workers and long term
effects, Poland is better than China. It is also found that China has a total of around 14,500 Km
of coastline and in Poland it is 440 Km (De Wit, 2017).
Economic: It is one of the main areas which need to be differentiated and play an important role
while deciding about selecting country of market expansion. Economic condition of the country
can allow Sainsbury in attracting customers and increasing sales. So, in this regard it is found
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that China has several larger markets as well as higher disposable income. Labour inputs and
productivity is also good. Companies do not find problems in capital availability as well as
supply chain. Foreign companies are main key as it is the main export bridge. In addition it is
also found that GDP rate of this country in the year of 2017 was 6.9%. Government of this
country support retailers and encourage them to expand business by improving infrastructure. So,
in this context it can be said that in economic condition and distance China is better than other
countries and for Sainsbury’s it will be easier in operating business in this country and attracting
customers because of capital availability, supply chain and higher income. For selling home
appliance, Sainsbury’s require to be responsive and agile.
In the context of Poland it is found that employment rate is low as compare to China but if
we talk about labour working legislation then it can be said that working hours is same in both
countries (Comparison Between China and Poland, 2020). It is also found that GDP per capita of
Poland is higher than China and it is around $29,500 and in China it is $16,700. The top tax rate
of Poland is approx 32.0 whereas in China it is 45.0%. Unemployment rate of Poland is also
more than China and it is around 4.8% and in China it is 3.9%.
It is also stated that China as compare to other countries have an advantage in terms of the
size and commercial orientation of Diaspora in the US. But if we compare countries recent on
the basis of climate changes and changing situations sue to Covid-19 companies are not
preferring in expanding business but by thinking about their business and economic condition,
still China has effective economic condition.
In the context of Poland it can be said that it is safe country and if Sainsbury’s think about
entering in this country then as per the political condition and stability it will be the best. But in
other perspectives and other basis China is better than Poland because there is scope for
businesses of expansion and attracting customers (Hu and et.al., 2019). Overall it can also be
said that China is an attractive intercultural business partner and its partners are also well-
organized.
Market entry mode
After selecting country it is important for Sainsbury’s to select the best mode of market
entry via which it can enter easily and can also expand its business in a successful manner. There
are mainly 4-5 modes of market entry which has some advantages and disadvantages and by
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detailed analysis and comparison Sainsbury can select the best one with suitability of it with
China’s all distances.
The decisions regarding how to enter within an international market also have important
influence on the outcomes. It can be achieved by Licensing, exporting, joint venture as well as
Direct investment.
Direct investment- It is consider as the direct ownership regarding facilities within target to
the firm. It also includes transfer of resources that involves technology, capital and personnel.
This investment is also made by the acquisition of a present company or also establishing a new
firm. Direct ownership gives a high degree of control within operations as well as capacity to
better know the costumers as well as competitive environment. Thus it also needs a high level
of resources as well as commitment which is at high degree. It will be dangerous for Sainsbury
as it requires more resources as well as commitments and also leads to difficultly manage local
resources.
Advantages
It has also greater knowledge regarding local market.
Can better imply specialised skills.
It also reduces minimizes knowledge spillover.
It can be also see as an insider.
Disadvantages
1. It has higher risks than another modes
2. It needed more commitment as well as resources,
3. It can be difficult to manage the local type of resources.
Joint venture
In a joint venture there are about five common objectives such as technology sharing, joint
product development, market entry, risk or reward sharing, market sharing and conforming to the
government regulations. There are various benefits that involves distribution channel as well as
political connections that also relied on relationship. Such alliances are favourable when partners
are capable of learn from each other while limiting their own skills related to proprietary. Here
the sizes of partner, market power as well as resources are comparatively small to the leaders of
the industry. It will be beneficial for Sainsbury as allows transfer of technology, knowledge of
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overseas market, intellectual properties as well as assets between the partnering companies. Also
firm has low risk here as because of the local business partner, firm have all necessary
knowledge regarding to environment of that particular place and nation which helps a lot in
Sainsbury to invest in a local business as well as growth of the firm.
Advantages
1. Here both partners can leverage their both respective expertise to expand as well as
grow in a specified market that can be chosen by them.
2. There is low political risk involved here because of the presence of local partner that
have knowledge regarding local market as well as its business environment.
3. It allows transfer of technology, knowledge of overseas market, intellectual
properties as well as assets between the partnering company.
Disadvantages
1. Joint ventures can faces the possibility regarding cultural clashes in the firms
because to the difference within firms culture with both partnering entity.
2. Within the event dissolution regarding joint ventures is subject to complicated as
well as lengthy process
Exporting- It is consider as marketing as well as direct sales of domestic goods within other
nation. It is also a well established as well as traditional method for reaching international
markets. Thus exporting is not require that the products can be produced within target nation, no
investment within foreign production facilities is needed. Exporting also needs coordination
among four players. Such as Importer, Exporter, government and transport provider, it will be
advantageous for firm because it can select foreign representatives as well as it can also test its
products before providing any bigger commitments to the global market.
Advantages of direct exporting
1. One of the benefits is to select foreign representatives within the overseas market.
2. Secondly anyone can also utilises direct exporting strategy by testing its products within
global market before making any bigger commitments within the overseas market.
3. Also this strategy aids to protect goodwill, patents, trademarks as well as other intangible
assests.
Disadvantages
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1. Such strategy can really turn out to be costly one for the online products as everything
can be setup through firm from scratch.
2. It is fastest expansion strategy for the online products. Within the case of offline products
there is a good amount of time that can focuses on market research, hiring representatives
as well as scoping within nation (Chen, C. and et.al., 2018)
Licensing and franchising: It is an effective market entry mode in which companies get
license of well-known brand for running business in their names. In this type, a well-known
brand or franchisor give rights to franchisee or third party to operate business at different
location under their name. It may be beneficial for Sainsbury’s because it does not require
investing in promotional.
Advantages
1. It is one of the fast entry modes.
2. Cost effective entry mode as companies do not require in promoting their goods for
attracting customers.
3. Lower risks are associated in it as compare to others.
Disadvantages
1. Franchisee has less control.
2. Requirement of fulfilling legal and regulations which may be time consuming.
Conclusion
From the above study it has been summarized that selection of market entry mode played an
important role as it allows companies in expanding their business and develop market. It has also
shown different market entry modes and the way of selecting the best one. Among all market
entry strategies and internationalization, company requires an effective detailed analysis by
which they can identify advantages, disadvantages, suitability of market entry mode with the
country in which it wants to enter and operate. It has also shown importance of analysing all
factors with suitability of country as selection of country for expansion also played an important
role because different countries have different regulations and by comparing different countries
with each market entry mode this decision can be made in an effective manner.
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It has shown effectiveness of CAGE framework which allows companies in comparing
countries for expansion of business by showing out all factors and basis for comparison such as:
economic, geographical, cultural and administration distance. On these basis, companies can
analyse and take better decision for selecting the best country for expansion along with
suitability of modes of market entry.
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REFERENCES
Books & Journals
Chen, C. and et.al., 2018. Multidimensional comparison of countries’ adaptation to societal
aging. Proceedings of the National Academy of Sciences, 115
De Wit, H., 2017. Global: Internationalization of higher education: Nine misconceptions.
In Understanding higher education internationalization (pp. 9-12). SensePublishers,
Rotterdam.
Hamilton, L. and Webster, P., 2018. The international business environment. Oxford University
Press.
Hu, F. and et.al., 2019. A robust cage-based framework for the highly selective purification of
natural gas. Chemical Communications, 55(69), pp.10257-10260.
ONLINE
Cultural Differences between China and Poland. 2017. Online Available through: <
http://jcrl.umk.pl/files/5615/2051/8100/001_Debczynska.pdf>
Comparison Between China and Poland. 2020. Online Available through: <
https://www.nationmaster.com/country-info/compare/China/Poland/Labor>
Quality of Life Comparison between China and Poland. 2019. Online Available through: <
https://www.mylifeelsewhere.com/compare/china/poland>
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