Internationalizing firms tend to start their expansion into culturally close countries before expanding further.
The establishment of a firm is always carried out with a stable growth in mind. This thought process is the impetus for any hardworking and focused team. Businesses are quite linear in terms of their operation, the cost incurred has to be met with profit or a break even result. The same way firms tend to start their expansion into culturally close countries first.
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Running a firm is no cake walk as there are risks at every corner and the payoff is never huge in the beginning. Millions of firms often ponder over what is the best step to take when they are thinking of establishing themselves in the market. Establishing yourself in the market is bifurcated into two- Local Markets and Global Markets. When you talk about expanding globally you can either gamble and jump into unknown waters or play it safe and expand in culturally close countries.
Switching across international markets is quite tough and comes with a lot of liabilities and the payoff is rarely beyond the costs incurred. One has to really be pragmatic and understand the market trend and what would be the best time to jump in the business.
Targeting culturally close countries is an old practice followed till date as it has worked. The reason for this action plan is that for example, the firm will realize its success or failure if it experiments in the culturally closer countries. This is because these specific countries act as a yardstick to how far the firm can flourish or how much work still needs to be done for it to take off.
It’s imperative that they concentrate their finances towards these selected countries, the results will be quicker, it will be easier to identify areas that need to be worked on and areas that have reaped good profit.
The firm should always look for a singular objective, a singular objective plan can fail and result in the decline of the employee’s morale. Equity, Goodwill and Profit are the barometers which define a successful venture.
The benefit of a trial and test method in these culturally close countries makes it easier for the firm to establish themselves. A successful establishment in these countries will propel the firm towards unknown land to expand in. The trade might look down upon this practice and it might come off as weak or the firm is doubting itself but usually it’s the other way around. Firms just want a good and safe start so that they can build further.
Firm’s expansion towards these countries familiarizes them with all the sectors that are a safer bet, they get to know what areas can they invest in, how to create a better flow for goods and services that are provided under their umbrella. A firm’s inflow of cash with goods exchanged and services plots a graph on how well the company can survive under pressure in foreign markets.
Though this action plan can often be criticized due to its “playing safe” nature, it has a lot of benefits and a good share of setbacks as well. Setbacks can range from not experimenting in new markets which can reduce the chances of having a monopoly period for the firm. Not experimenting reduces the risk taking ability which will again reduce the firm’s confidence.
When you venture into new markets, especially foreign markets you get to learn the new trade and get well versed with how the business works.
However the firm before expanding into culturally close countries must evaluate itself, expanding and establishing themselves in these countries can give a false confidence which can be harmful and the firm can create action plans according to the influence favorable results.
I personally believe this process of expanding in culturally close countries is a great action plan and often a default procedure for many firms.
A better way to understand this aspect is through the popular phenomenon “'McDonaldization”
McDonaldization is a term developed by sociologist George Ritzer in his book “The McDonaldization of Society” (1993). For Ritzer McDonaldization becomes manifested when a society adopts the characteristics of a fast-food restaurant.
McDonaldization is a reconceptualization of rationalization and scientific management. Where Max Weber used the model of the bureaucracy to represent the direction of this changing society, Ritzer sees the fast-food restaurant as a more representative contemporary paradigm.
The process of McDonaldization can be summarized as the way in which 'the principles of the fast-food restaurant are coming to dominate more and more sectors of American society as well as of the rest of the world.' The McDonaldization thesis in its cultural version is a comparatively recent idea about the worldwide homogenization of cultures due to globalization.
This example is a benchmark for the concept of internationalizing firms. You start a business in a familiar place, you adopt all the different qualities and strong areas to build in; start applying the observation into a new country. This can cause a snowball effect which can be the make or break for some firms. It can be a straight gamble; the firm can flourish with this static method of establishment or the firm can fail miserably leaving the market dead.
McDonaldization made things clearer for how the human psychology can be manipulated and modified to adapt to big corporates, they twisted the system around. Earlier the public used to be responsible for creating a demand but George Ritzer believes that the characteristics of fast-food restaurant have been subliminally inserted for the public to accept.
McDonald’s as a fast food company left itself open to adopting and absorbing all the various choices demanded by their customers. McDonald’s started with Beef and Pork, two Non-Vegetarian items outside India. It observed that India is not comfortable to accept the availability of Beef and Pork in a fast food joint next to them.
Indian citizens practice different religions in the country, McDonald’s new that these two items would not work as entities in the fast food market, so they came up with the second most consumed meat and vegetable, Chicken & Potato.
As a result the fast food outlet became a huge success and is still running swiftly in the country. If you want to build a successful business you have to listen to the public and observe how they respond to goods and services provided to them.
It’s easier for the firm to research the market and make changes or modifications to what they were offering. After launching into a safe market i.e. culturally similar country, the firm just has to observe and critically evaluate all the areas. This final step will reveal new areas to experiment in, where the firm has a stronger presence and which area needs more work. The obtained data after evaluation always makes it easier for everyone to be on the same picture.
After evaluating this method of expanding business we can conclude that, this process is highly imperative for firms as it helps them step into newer markets with bigger competitors and helps them survive. It breeds the ability to take risks in the future, many firms often pullback in future ventures or become more careful if they fail at their first venture.
Countries which have more in common with the business are more welcoming and easier to build relationships in, whereas new markets are tougher to crack and in the long term sufficient finance is required to keep the process going. Curating goods and services keeping the public in mind is an almost guaranteed advantage but how to make your service standout in this common path is the real challenge.
It’s an age-old practice done by numerous companies, firms and corporations. Having a certain comfort level gives the firms time to plot out the next step and firms also hire expats to get a better insight into the country which aligns to the firm’s area of work. This process has reaped great benefits and there’s nothing to lose when you try internationalize a firm in a culturally close country before expanding to foreign markets.
Sources
- George Ritzer., 1993. The McDonaldization of Society
- Steve Baumgardner & Marie Crothers., 1994. Positive Psychology
- Rajendra Sisodia., 2003. Firms of Endearment: How World-Class Companies Profit from Passion and Purpose
- Brad Feld and Jason Mendelson., 2011. Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist
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