Innovation and International Business

Introduction

In recent years, businesses have increased their focus on international markets. Due to communication channels becoming easily accessible through the internet, and developing countries becoming a profitable investment where they previously weren’t, both big and small businesses have gained an increased interest in expanding their dealings to the international arena.

A variety of methods and types of expansion can be seen in almost every industry from mining equipment manufacturing to the entertainment industry. However, strategies that work in the local market rarely have the same effect internationally. This notion forces companies to innovate when transitioning to international work. The following paper will provide an assessment of innovation being an essential part of international businesses.

The Needs of the International Business

Despite the long history of international conglomerates, international business innovation has been mostly away from the eye of the public. In most cases, customers never had to think about the differences in regional approaches that a corporation employs to satisfy their market. The most visible international companies included various soft drink manufacturers and fast-food chains that were quick to spread throughout the world through clever franchising schemes with various results.

Often the main difficulties in entering the international market lay in the incompatibility of the current business model of the company to the countries it tries to spread to. These difficulties can include a variety of factors which for this paper could be divided into three distinct categories: cultural, political, and economical. Cultural factors can come from both the general populace of the country, as well as its government and social organizations. The new market can respond with indifference or even aggression if the product goes against the cultural norms of the country, or marketed in a way that is inappropriate in the given culture. In extreme cases, the government can step in and put restrictions on the company, or ban it outright. This possibility makes market research vital for international business (Yoder, Visich & Rustambekov, 2016).

Political factors can also be a strong barrier for companies seeking expansion. The history of the country can be responsible for a variety of policies and laws that limit international business. A thorough examination of all possible political conflicts that might arise is required from every company looking to break into a new market. Despite the limitations, many companies thrive even in relatively restrictive countries due to smart adjustments of their business models and fruitful partnerships with local businesses. Political regimes can also change over time, and with them the policies might change as well, requiring the company to pay close attention to the political climate of the countries it operates in (Yoder et al., 2016).

The last category of factors is economical. One of the more difficult barriers for international companies is adjusting their business to the socio-economic situation of the country. This is a relatively common problem that often goes undiscovered until after the product is put on the market. The issue usually lies in the faulty estimates of the purchasing ability of the general populace. Prices that are considered low in one country might be too high for another, even after an adjustment is made. There are numerous solutions to these issues however that will be outlined later in the paper. For now, it is important to note that the needs and funds of the consumers can vary drastically from country to country (Yoder et al., 2016).

To overcome these issues, companies employ new innovative tactics and approaches that can not only help the company to expand globally but also refine its local operation. Partnerships and cultural exchange can lead to previously undiscovered strategies becoming powerful new tools for all parties involved. Although these three categories include the majority of the preventing factors for international businesses, they are not all-encompassing. There exist several other factors that can be examined on a case-by-case basis due to their unique nature (Yoder et al., 2016).

Adaptation as Innovation

One of the easier types of innovation for international businesses comes from attempts to adapt to the countries the company is targeting. The level of novelty in this type of innovation might be adequate for the company, but for the industry as a whole, it might not be so new. Usually, it takes an existing idea as a base and changes its components to better fit the new market. This is a relatively broad description, but it applies to many strategies employed in the international market.

To adapt to cultural factors the company can be forced to innovate on such factors as corporate culture, leadership style, marketing approach, and at times the product catalog needs new ideas. These types of innovation are usually encountered in large corporations that have already established themselves in their local markets. Sometimes leaders fail to understand that previous successes do not guarantee future results and refuse to rethink their approaches to the new markets. Despite it being a clear barrier to innovation, this trend can be seen with relative frequency. For example, the furniture store chain IKEA initially did not find any success in the United States due to a completely different furniture culture between the countries.

American kitchens utilized a much larger scale than European kitchens that IKEA has previously focused on. If the issue was not addressed, the company could suffer complete alienation from the very lucrative American market. However, this realization forced the company to redesign its United States product catalog to be more in line with American cultural standards leading to an almost immediate improvement in sales (Kristoffersson & Jewson, 2014). The success of this innovation was not taken lightly, and for the majority of the future international expansions, the management at IKEA sought to create product catalogs representative of the country’s culture (McNamara & Descubes, 2016).

Adaptation to political factors often requires novel approaches to international cooperation. In some cases, the target country’s policies are too restrictive to operate as a lone foreign company, but by partnering with local businesses, a new approach might reveal itself. For instance, a relatively small British construction equipment manufacturer JCB branched out into the Indian market by partnering with a large Indian engineering conglomerate Escorts in 1979.

This move was novel for the company, but it was necessary due to the high tariff barriers having a strong effect on direct exports. Starting at a minority share of 40 percent, the company gradually became one of the largest in India. 11 years later JCB bought out their shares from Escorts and due to a change in the country’s policy was able to thrive in the Indian market. It was a long-term project, but it not only proved to be successful but also raised the status of the company on the international market (Venkatesan, 2013).

As it was mentioned previously in the paper, economic adaptation is required when trying to introduce a product to a country with a different economic level. Differences in price expectations and realities can have a highly negative effect on the revenue for companies attempting to operate internationally (Chandrasekaran, Arts, Tellis & Frambach, 2013). This desire for regionally appropriate pricing can be seen in the work of electronic retailers. Many innovative strategies have been created to adapt to international trade on the Internet.

Products on Amazon, for example, have different prices in their regional branches based on the difference in taxes and availability (Zhang, Zhu & Wu, 2016). Digital video game retailer Steam provides regional prices adjusted for the purchasing power of the regions with strict restrictions preventing people from buying goods from other countries (Choi, Medlin & Hunsinger, 2016). Alibaba and AliExpress provide customers extremely low prices across the world at the expense of low manufacturing quality and lack of copyright control (Glowik, 2017). These are only some of the options that a company can use to appeal to an international demographic, with innovations in business practices and pricing appearing with considerable frequency.

Innovation as a Breakthrough

Despite adaptation being a successful tactic of branching out into the international market, the most desired result of innovation is the creation of a completely new and successful type of business strategy. At times, such innovation enables a company to not only go ahead of the competition but to get to a level that would be unreachable for its competitors. One such case is the success of the online streaming service Netflix. A digital service that was bundled with a DVD rental subscription over time became not only the main focus of the company but also its best tool for entering the international market (Adhikari et al., 2015).

During its early years, the company competed with movie rental stores such as Blockbuster and primarily operated in the United States. 19 years later the company’s digital service is available in 190 countries with almost 100 million subscribers worldwide. The streaming service provided by the company has a limited catalog of titles. However, the convenience of choosing a movie and immediately watching it became a strong factor in the elimination of standard movie rental schemes. The innovation in the pricing model also allows customers to not worry about movies or shows expiring over a short amount of time, as all of the content is available at once unless the agreements between Netflix and rights holders run out (Adhikari et al., 2015).

Another innovative and industry-changing move came from the company’s original content creation strategy. Before the success of Netflix’s original programming, shows created specifically for the internet were seen as cheap and were considered lower class than traditional television. However, the change in quality that Netflix brought to the format elevated it beyond all previous expectations. Netflix’s original programming started a trend in online streaming platforms to give higher budgets to internet shows such as the original series created by Amazon and Hulu. This strategy included international markets as the streaming rights for original shows did not have to be negotiated with rights holders in each of the countries where the service is available. Soon, regional branches of Netflix also engaged in original programming with multiple shows created in Japan, Spain, Brazil, and Korea (Adhikari et al., 2015).

The case of Netflix is a rare one, but the impact its innovations had on the international entertainment market should not be understated. Its original competitors could never reach this level of success due to their focus on physical media and traditional pricing schemes. The technological advancement brought affordable Internet into developing countries opening a market for internet video streaming that could not be filled by local companies with less developed infrastructure. By capitalizing on the new international markets, Netflix became a brand that is recognized worldwide, so much so that it is quickly becoming a clear competitor to traditional cable television services (Steemers, 2014).

The Value of Innovation for International Business

It is evident by the examples provided previously in the paper that innovation in various components of a business can be highly beneficial for companies seeking to expand internationally. The seven rules of innovation can be seen throughout the work of the provided companies, with different organizations accentuating different points of interest from JCBs cultivation of an innovation network in its Indian branch to Netflix building its business strategy around completely innovative approaches to movie rentals.

Their types of strategies have also differed and shifted with time. Previously mentioned JCB started its innovation with a “Play to Not Lose” strategy of expanding with a minority share but over the years transitioned into a “Play to Win” strategy with valued brands that are highly competitive in the Indian market. The versatile nature of innovation makes it not only valuable to the international business but also available to organizations of different types, sizes, and profiles.

Conclusion

Innovation is vital for any international business. Sometimes it is a method of adaptation, while in other cases innovation can create a new international market. In either case, companies that capitalize on the novel, and innovative approaches tend to gain an advantage over those that still operate using the same business strategies they utilized at the local level. Therefore it is possible to state that innovation is essential for international business.

References

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