The conditions for employment and execution of cross-border economic activities have improved significantly during the past century, and have led to an unprecedented amount of globally exchanged goods and globally dispersed value chains. Liberalization of markets, decreasing transportation costs and huge steps forward in information and communication technologies allow globally interconnected production systems – encouraging companies into a continuing process of internationalization to achieve growth in new markets and gain cost advantages in new locations.
In a rapidly changing environment, time is of major strategic importance for success when companies go global. On the one hand, companies need to manage the specific point in time when they penetrate a foreign market (particularly important in, for example, the current economic downturn), and on the other, the duration of the entire process of entering the foreign market is of decisive importance. In order to keep costs low, utilize assets as quickly as possible and implement business strategies, the internationalization process faces an enormous pressure on time.
In practice, the internationalization process is more complex than this framework suggests and involves several business functions, and interdependencies are difficult to analyse. However, the simplification allows a structured and more detailed look at the different steps necessary for foreign market entry.
The following findings are based on a study of internationalization of logistics systems 2 that analyses how Chinese and German companies enter foreign markets:
Evaluation of a new market. This is triggered by the initial strategic idea of starting to work in a specific market or region. The internationalization process begins with comprehensive market analysis where top management evaluates the overall conditions in the target market. If the analysis shows that market entry is feasible and it is expected to meet the respective objectives, this first phase ends with the decision to enter the new market. Chinese and German respondents complete
this step in between five and six months on average, meaning that this evaluation of the new market is the longest of all phases.
Strategic planning. Still at the top management level, in this phase foreign market entry is defined as a project, with a time schedule, defined milestones, budgets and concrete objectives for different corporate functions. The result of this phase is a framework that will guide the functional divisions of the company in developing their plans of action to achieve the strategic objectives of foreign market entry. Compared with the evaluation of the new market, this phase is much shorter. Chinese respondents calculate less than three months, Germans slightly more than four months.
Logistics planning. With close cooperation between all relevant functions, inbound, outbound and in-house logistics operations are defined and implementation plans are developed. Relevant topics in logistics planning include the definition of service levels, intended lead times, inventory policy, network structure, capacity calculation, allocation of facilities (such as warehouses and cross-docks), IT integration, decisions about logistics outsourcing, and preparation of tenders. Chinese respondents stated that this phase accounts for nearly two months, German companies need slightly more than three months. This phase has the shortest duration for both Chinese and German companies, which shows the tremendous time pressure under which these complex logistics structures are being planned.
Implementation of the logistics system. This is where managers find out whether their plans and decisions made in the early phases meet the requirements of the real world. The work in this phase is at an operational level and the organization must have comprehensive problem-solving skills, as unexpected occurrences and developments can raise a lot of unexpected difficulties. Owing to its complexity and the necessity for the success of internationalization, implementing the final logistics system is comparatively time-consuming.
The internationalization process addresses aspects of cross-functional as well as cross-company integration as a top-down process, from the initial idea to enter a foreign market to the closing implementation. The huge numbers of locations, intermediaries and suppliers involved in logistics networks, as well as customers working with different methods, procedures and conditions, always make global logistics a complex task. One proven way of reducing complexity in this area is by standardizing processes. However, since different countries and regions have market-specific conditions and requirements, logisticians need to balance globally standardized procedures with local adjustments to deal with the heterogeneity and complexity of international networks.
For an individual company the range of processes to be standardized differs according to its industry and business models. All kinds of inbound, in-house and outbound processes could be subject to standardization. One might think of boxes and pallets used to transport and store goods, order cycles and replenishment strategies, the application of milk runs and Kanban systems, production scheduling, the design and layout of cross-docks and warehouses, the use of Auto ID technologies etc.
There are many reasons for the worldwide introduction of standardized processes – one factor that is of key significance in all sectors is the desire to cut costs and reduce complexity.
