Internationalization Strategies for

Services

Article 18 Author: Christian Gronroos Presented by: Onelia Benito

Objective and Purpose

Discuss key challenges for service firms planning to go abroad.

Present 5 different types of internationalization strategies for service.

Previous Research

Winstread and Patterson (1998) – interviewed managers at 20 service firms. This studies what factors motivates some service firms to export and not others. Also, what are the major impediments for service firms to enter foreign markets.

Erramilli and Rao (1993) – investigates how service firms choose between full-control and shared control entry modes.

This article sites 27 other articles and uses them to discuss the internationalization strategies for service.

Introduction

Typically, services have been thought of as locally produced solutions, and service firms have been considered local establishments.

Globalization has increased the opportunities for marketing services abroad.

Internationalization of service has had a relatively slow growth.

Internationalization Challenges

A traditional way for service firms to decide to go abroad is because they are following manufactures that they are supplying with services in their domestic markets.

Development of new technology has made some services less dependant on local operations.

It is more risky for service firms than for manufacturing of goods to market aboard.

The firm has to find an entry mode and strategy that helps it to cope with this situation as well as possible. The choice depends on the type of service and market.

Entry Modes

Client-Following Mode - Follow existing clients when they internationalize.

Market-Seeking Mode - Actively look for new markets in a foreign country.

Electronic Marketing Mode - Technology such as the internet, satellite, and digital television has created a totally new form of internationalization for consumers that have access to these technologies.

Diversity of Services

Hard Services – requires limited or no local presence and consumption can be separated from production (e.g. architectural design, education, life insurance, and music).

Soft Services – requires major local presence and production as well as consumption are simultaneous processes (e.g. food service, health care, laundry and lodging).

Diversity of Services

A growing number of manufacturing industries have vitalize the service elements of their offerings or add new services to goods-based offering in order to stay more competitive.

More and more firms are improving their understanding of service management skills.

Knowledge on how to manage manufacturing firms and how to manage service firms is merging.

Five Main Strategies

Direct ExportSystems ExportDirect EntryIndirect EntryElectronic Marketing

Export Strategies

Direct Export May basically take place on industrial markets When needed, they must move the resources and

systems required to produce the service to the client abroad

No step-by-step learning can take place as the service has to be produced immediately

Risk of mistakes can be substantial

System Export Are mainly marketed in industrial markets abroad It is a joint export effort by two or more firms whose

solutions complement each other System export is the traditional mode for service export

Entry Strategies

Direct Entry The service firm establishes a service-producing

organization of its own on the foreign market. For service, a local organization has to be able to

produce and deliver the service form the beginning. Time for learning become short.

Indirect Entry Used when the service firm wants to avoid

establishing a local operation that is totally or partly owned by itself. Nevertheless, the firm wants to establish a permanent operation in the foreign market (e.g. franchising).

Electronic Strategies

Electronic Marketing The service firm extends its accessibility through the

use of advanced electronic technology Internet provides firms with a way of communicating

its offerings, collects data about buying habits, and uses network partners to arrange delivery and payment

Not bound to any particular location Can be administered from anywhere Language barriers and electronic illiteracy may hinder

the electronic offer from being used Example: Amazon.com

Results

Will customers accept foreign services?

Ethnocentric tendencies among consumers may become a problem for the markets abroad.

People who are more open to other cultures are less ethnocentric towards services.

Younger persons and more educated persons turned out to be significantly less reluctant to accept foreign services.

Management Implications

Trade in service is more difficult to measure than trade in goods. Intangibility of many services make them hard to identify.

Given how important service industry is to western economies, the success of international trade strategies becomes vital to long-term economic growth, jobs and prosperity for these countries.

There are many barriers to trade in service that are not discussed in this article that need to considered (i.e. lack of complete and reliable data, measures used by the government to constrain trade in services, unfavorable tax treatment, and much more).